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Kestra Claims Ground in Indie Space

By Murray Coleman February 28, 2017

Since being spun off from insurance broker NFP last April, wealth management outsourcer Kestra Financial says 34 new advisory teams have joined its network and another 20 or so tuck-ins have been recruited, boosting annual advisor revenue by around $43 million.

Some are breaking away from big brokerages and wirehouses – a market targeted by the firm’s leaders since private equity investor Stone Point Capital bought a majority stake, taking the former NFP Advisor Services independent.

But most are existing indie RIAs leaving larger rival broker-dealers like LPL Financial as well as major diversified IBDs that aren’t pure-play wealth management networks, say industry analysts.

“They’ve built a very impressive track record in a relatively short amount of time,” says Mark Elzweig, an industry recruiter. “Kestra has already produced some solid recruiting wins – they’re definitely an up-and-coming player for both independent RIAs and wirehouse breakaways.”

The Austin, Texas-based firm – which among other services offers back-, mid- and front-office support to FAs – now reports close to $73 billion in total assets overseen by 1,600 affiliated advisors.

“After almost a year of focusing on getting off the ground as a standalone company, we feel like we’re really just starting to hit our stride,” says James Poer, Kestra’s chief executive.

As it’s done in the past, the indie services provider offers a platform for advisors to make transactions and allocate client portfolios. But it also provides a range of technology, marketing and administrative support for affiliated FAs to tap into as needed.

Like other service networks for indie FAs, Kestra can work with firms registered under their own RIA. “But our advisors predominately prefer to register under our corporate RIA,” Poer says.

Kestra is moving into other areas as well. Part of its recent push has been targeting wirehouse advisors who want to start their own firms, notes Rob Bartenstein, head of the firm’s private wealth services group.

“We try to give them the same full-service infrastructure they had at the brokerage along with more cutting-edge technology,” he adds.

Bartenstein counts 30-plus advisors in 11 different locations across the country who’ve signed up for such services, which can include anything from helping to build offices, select locations, choose software and administer daily operational chores.

James Poer

“It’s a turnkey approach where advisors can walk out of their wirehouse offices on Friday and walk into their newly independent practice on Monday,” Bartenstein says.

While Kestra isn’t willing to take equity stakes in member firms, it will help work out financing to support moves involved in making such a leap. Its transition services menu also handles compliance and regulatory issues as well as helping newbies navigate the industry’s broker protocol for changing firms or going independent and other legal standards.

Payouts are lower for such full-service treatment, Bartenstein says. Those can range from 70% to 80% for advisors on the private wealth side, he estimates. He figures a typical traditional indie RIA support splits at 90%-plus between Kestra and member firms.

Overall terms being offered by Kestra are “very competitive” with other major competitors in the marketplace, according to Kyle Richardson, cofounder of Watermark Wealth Strategies in Chandler, Ariz.

The indie firm, which manages about $700 million, jumped from broker-dealer SII Investments last spring to hire Kestra. After a two-year search, Richardson says his team was won over by the network’s lack of bureaucracy and level of subject-matter expertise.

Besides Kestra, he looked at similar advisory-related services being offered by LPL, Cetera, Raymond James and Commonwealth.

Richardson looked for a firm that let him “have ongoing relationships with everyone from top executives to support personnel,” he says. “The more we looked at our options, the more we were impressed with Kestra’s commitment to providing us with direct access to all of their key experts.”

But can a revitalized RIA-focused provider keep putting its service foot forward while continuing to win over breakaways as it grows?

“It seems like a logical path to move away from a big insurance producer like NFP, but Kestra must now show an ability to keep executing on its long-term growth plan,” says Jamie McLaughlin, a consultant in Darien, Conn.

RIA service networks are hardly new to the indie market and represent an “increasingly crowded field,” adds the former executive at Convergent Wealth Advisors, which is now part of Pathstone Federal Street.

“The breakaway movement has everyone seeing dollar signs,” McLaughlin says. “But servicing these advisors is an incredibly difficult and time-consuming job – it’s something that can easily eat up even the fastest-growing company’s profits in short order.”

Only time will tell how well Kestra is able to scale its business, he adds. “It appears they’re getting off to a strong start and catching the industry’s attention,” McLaughlin says. “But they certainly still have their work cut out for themselves in terms of proving they’ve got true staying power as a standalone player in a very competitive corner of wealth management.”