‘It’s Still Early’: Bob Oros Says RIA Acquisitions Will Continue for Years

“This isn’t a late inning.” The long-running trend of RIA acquisitions is “going to continue for years to come. It’s still early,” argues Bob Oros, chairman and CEO of the aggregator Hightower, in an interview with ThinkAdvisor.

On the whole, if an RIA wants to “preserve” its practice and value proposition in the long term, they “need to expand what they offer,” Oros adds.

Whether that means doing so on their own or partnering with a firm such as Hightower is a decision they’ll need to make, he says.

Oros came to Hightower in 2019 and morphed it from what was primarily a lift-out acquiring wirehouse teams into an aggregator focused solely on RIA acquisitions.

The Chicago-based company has been notching notable growth and now has 119 advisories in 34 states and the District of Columbia.

As of Sept. 30, 2021, assets under administration total $132.2 billion; AUM comes to $104 billion.

In recognition of its achievements, Hightower has won two ThinkAdvisor 2021 LUMINARIES awards, one for dealmaking and growth, the other for thought leadership.

In the interview, Oros exhibits unbridled enthusiasm for the firm’s strategy of helping some of its advisories acquire other, smaller RIAs. 

“I don’t sit here with a dream of having 300 [primary businesses]. I’d like to create more scale from within,” he says. 

Merging into an existing practice is “proving to be a really effective strategy for us,” Oros maintains.

The most recent such sub-acquisition is the merger of its Lexington Wealth Management, in Lexington, Massachusetts, with Freed Investment Group of Boston. The deal is set to close by year’s end.

This is the second merger for Lexington this year, following the addition of Marcus Financial Advisors in Beverly, Massachusetts.

In the interview, Oros discusses his ideal acquisition candidate and why he describes Hightower as an “integrated aggregator.” One reason: its upcoming launch of a national trust company.

ThinkAdvisor recently interviewed Oros by phone. As for finding the right match, he says: “If you’re a seller, be really, really clear on the things that are important to you and your two to three non-negotiables, because that will help guide you to the right potential buyers.

“If you’re a buyer, you need to have discipline around what you’re really looking for and how to find out if that exists in the firms you’re speaking with.”

Here are highlights of our conversation:

THINKADVISOR: What are new trends in the RIA acquisition market?

BOB OROS: This isn’t a late inning. The trend of people doing deals is going to continue for years to come. It’s still early.

You’ll continue to see RIAs look to expand what they offer. If you want to preserve pricing and your [value] proposition in the long run, you’ll have to be prepared to do more.    

Folks need to decide whether they’re going to do that on their own or partner with someone.

Do you foresee more consolidation in the RIA acquisition space?

Yes. But it’s not my belief that we’ll end up with 20 large firms or 50, or even 100. I think there’s a place for the really small, “boutiquey,” intimate firm that delivers a different type of experience. 

But I do think you’ll see firms like Hightower and folks similar to us continue to get larger and larger.

There are many more sellers than buyers at present. How long can that continue?

Really good, well-run businesses with strong growth can command a premium price. But that’s a small percentage of the industry.

The values are now, sort of, plateauing. The really great businesses are getting a fair price. We see a high volume of opportunity.

How do you define Hightower as a firm?

We’re an integrated aggregator. We’re not a roll-up, just buying a bunch of [practices] and bringing all the economics together and calling that a business.

When we do a deal, we take over a number of back-office responsibilities to give [the advisor] access to scale and capabilities, ranging from our investment solutions group to our [upcoming national] trust company to our estate planning department. 

How does the private equity firm Thomas H. Lee fit in? Through a 2018 investment, it owned a majority of Hightower.

Last December, we recapitalized. THL is still a key investor and our partner. But we also brought in a syndicate of another 11 institutional investors.

Our advisors still own a significant amount of equity in Hightower: A third of the company is owned by folks on the inside — advisors and Hightower leadership.

The firm originally focused on lift-outs. When did you change your business model?

In 2016, Hightower executed its first RIA acquisition. Prior to that, our model was doing lift-outs of teams primarily from the full-service wirehouse firms.

I joined Hightower in 2019. Most of my career had been spent working with RIAs. So it was a natural for Hightower to lean in to that even more heavily. We chose to do one thing really well: RIA acquisitions. We no longer do lift-outs.

My understanding is that you acquire 50% to 70% of an advisor’s firm. Is that correct?

That’s a little too simplistic a view. Every one of our deals is bespoke. There’s no typical deal. But we do want to keep that right balance of our partner having economic interest.

 If all your risk has been taken off the table and we own 100% of the economics, that doesn’t create the same motivation as if you have skin in the game.

What is consistent in every deal is that the clients all come over to the Hightower platform. The advisors are part of Hightower, and we’re partners with the business going forward. 

Who “owns” the clients?

All clients of the RIA become clients of Hightower. Think of it as co-owning the economics, because we want the business owners to still feel like owners. 

We want them to have managerial control over their business. But we give them scale through our taking over a lot of the back-office functions, like HR, billing, P&L reporting, compliance, technology.

What chiefly motivates an advisor to sell their practice?

It’s something different for every advisor. The advisors we tend to do deals with are looking, first and foremost, at the sustainability of their business. They want it to be around for years and years to come.

For even a large RIA with as much as $3 billion in assets under management, there’s no real scale advantage at that level. Hightower has north of $100 billion in AUM. So we have scale advantage.

We can do things at increasingly lower marginal cost and do it with better capability.

Then there are the rare pure succession plays: “I’ve got to set myself up so I can retire.” We work with those types of businesses. But if somebody is just looking to exit in a year, we’re probably not the best fit.

What’s your ideal acquisition?

We’re focused first and foremost on the quality of the leadership team because we still want that team to run their business, to be entrepreneurial, to drive growth — and not look to cash out and go home. 

We’re [seeking] an orientation toward growth. 

Is the size of the RIA a determinant?

No. I can get really excited about a $200 million business just as quickly as I can about a $2 billion business.

It’s about what sort of business operator has the advisor been. Do they have a strategy? Have they proved able to execute? Do they have the right talent?

What we’re not going to try to do is take businesses that are broken and convince ourselves that we can fix them.

What’s your approach to acquiring small practices?

We either do that as a direct deal or a sub-acquisition into an existing business. We’ve been doing more and more [of the latter]. That way, we can create additional scale from within.

We have another couple of [such] deals that we’ll be announcing where we’re helping businesses that are already here [at Hightower] do their own acquisitions.

Why are you facilitating these sub-acquisitions more frequently?

Today we have 119 underlying businesses. I don’t sit here with a dream of having 300. I’d like to create more scale from within. 

If somebody comes to us saying, “I’m so excited about my business, but I really want to retire in the next three years,” that will be a better fit for us to merge it into one of our existing [practices], because the leadership teams are there for the long term.

This is a complementary way of driving inorganic growth. And it’s proving to be a really effective strategy for us.

Hightower has been experiencing substantial growth. To what else do you attribute it?

We’re not single-dimensional. M&A is an important part of our strategy, but it’s not our No. 1 strategy, which is: How do we help our advisors grow faster organically? 

Also, we have a number of value-added services that drive growth; for example, our investment solutions group, which has almost 10-Xed their assets under management in three years. It’s a very fast-growing part of our company.

And in addition to that?

We’re getting ready to open the doors of our national trust company. That will attract assets and also generate fee-based revenue.

So it’s a circle that’s created from a combination of strong organic growth, proven M&A plus our value-added services.

You just won ThinkAdvisor LUMINARIES 2021 awards for Dealmaking and Growth, and Thought Leadership. Where would you like to see the industry put more focus when it comes to those areas?

I feel there’s plenty of focus on dealmaking. But there’s also danger in that. This isn’t just about doing deals. It’s about doing deals that result in better outcomes for clients and the advisors that serve them.

What’s the biggest challenge in transacting a deal?

We make sure we don’t fall in love with a deal for the sake of the deal. It shouldn’t just be about economics: The clients should win, the advisor and their business should win, the employees of the firm should win — and Hightower needs to win.

As soon as you start talking about valuation and the spreadsheet, you forget about the things that really make a transaction successful: Are the right buyers and sellers coming together? 

What should be top of mind?

If you’re a seller, be really, really clear on the things that are important to you and your two to three non-negotiables, because that will help guide you to the right potential buyers.

If you’re a buyer, you need to have discipline around what you’re really looking for and how to find out if it exists with the firms you’re speaking with.

What’s your long-term goal for Hightower?

We expect to be a brand that’s here five, 10, 20 years from now. We’re building it for the long term. 

From the standpoint of how we’re capitalized, we’ve tried to build the firm so that we have any capitalization option available to us.

We like being a private company, but that doesn’t mean that some day being a public company might be the best option.

Is going public not a goal, then, that’s foremost in your mind right now?

Right. But it’s an option. When it comes time to think that recapitalizing the firm makes sense, we want to have every path available to us, because then we get to choose the optimum one.

I can’t begin to predict what things will look like three, five or 10 years from now. But we’re definitely building the firm so that any capitalization option is available to us.