EP Wealth Advisors has been growing rapidly over the past two years through multiple acquisitions and hopes to accelerate its expansion.
Before the Torrance, Calif.-based RIA started its acquisition mode, the firm had $3.3 billion in client assets at the end of 2017. Now with more than double that, with nearly $7 billion in client assets, EP Wealth plans to acquire more firms this year.
Patrick Goshtigian, the firm’s president, discusses with FA-IQ its M&A strategy, the opportunities available in the industry, and the impact of the tightening regulatory environment on the motivations of some firms to sell or partner with others.
FA-IQ: Are you targeting specific firms with clients in certain geographical areas or within certain demographics? What are some of your M&A strategies?
Goshtigian: We’re always looking, first and foremost, for the natural cultural fit with the firm we’re acquiring. And so that means they are a very client-centric, relationship-based firm that more than likely puts financial planning first.
If it’s a succession-type deal where the principal wants to retire in the near future, then we would want that firm to be in a geography that we already serve.
If it’s a firm that has continuing leadership and is looking more for growth opportunities, then we’re interested in expanding our geographies, which is what we’ve also been doing in these acquisitions. And that has naturally expanded throughout California and is now heading east into other states.
FA-IQ: Are you seeing a lot more succession-related acquisitions or are you seeing an appetite for growth-related acquisitions?
Goshtigian: My expectations were that we were going to see a large number of succession-type acquisitions. We have a pretty even mix in terms of what we’ve actually experienced.
Even if a firm has been successful at achieving great organic growth, a lot of times now — with the changing regulatory environment, with the expanded service offerings required to be competitive in the marketplace — they are looking for a larger enterprise-scale firm to partner with.
Contrary to my expectations, we’ve found a number of firms that are partnering with us for growth.
But there still are any number of succession-type acquisitions that make a whole lot of sense. The overall advisor community is aging, and succession is front of mind for most firms.
FA-IQ: You said the challenging regulatory environment is forcing some firms to look at aligning with a larger shop. How is that playing into your acquisition strategy?
Goshtigian: If they are a much smaller shop [with client assets] under $100 million, they are state regulated. The thought of becoming federally regulated with the SEC as they grow is naturally daunting for them. Even the larger firms already under SEC regulations face continuing scrutiny. A changing regulatory environment — whether you have rules from the Department of Labor, around Erisa or the Secure Act — will have greater financial planning implications.
I think just keeping up with that environment ends up taking a lot more time from these firms, which in most cases just takes time away from attending to their clients and doing what they love. We’re able to offer them an environment in which we have a dedicated CCO, we have compliance professionals who lift those burdens along with other administrative burdens.
FA-IQ: Do you have any specific M&A targets for 2020?
Goshtigian: We completed four acquisitions in 2018 and five in 2019. I think that number will grow to six to 10 in 2020. We’ll kick off the year in another few weeks; we’ll be announcing our first acquisition for 2020. But we also have a pretty robust pipeline of firms we’re in active discussions with.
This Q&A has been edited for brevity.
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