Pinnacle Advisory Group, Brouwer & Janachowski, HK Financial Services bought Orion for scaling and nervously accept that it made its own scaling move

February 20, 2015 — 8:51 PM UTC by Lisa Shidler

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Brooke’s Note: When TA Associates bought Orion Advisor Services as part of its purchase of NorthStar, it was executing on a long-held desire to get serious irons in the RIA fire. In Orion, TA found a firm growing 40% a year by bringing on the biggest and best of RIAs under lucrative terms and with prospects for growth. Many see Orion as a gem due to its leading and evolving technology, sufficient scale but also family management that personally backs up its promises. That last difference was only accentuated as firms like Black Diamond and Tamarac sold to publicly traded firms. The TA deal changed things. Or at least it opens that possibility. You just never know what the agenda of money people is. For now, the firms that most recently made the monumental decision to go Orion need to be reassured in the face of potential buyer’s remorse. Here we look at that nerve-soothing but also the deeper due diligence executed by RIA principals in switching to Orion in the first place.

Since Orion Advisor Services LLC announced its purchase by a private-equity firm, its loyal — but taken aback — RIAs are curious to see how the Omaha, Neb.-based firm will navigate the challenge of growing faster while still keeping the personal touch and independence that attracted RIAs to the firm in the first place.

Orion became the last of the big-four RIA-portfolio accounting providers to swap independence for more liquidity and capital when it announced last week that TA Associates is purchasing a majority stake in Orion as part of its purchase of its parent company, NorthStar Financial Services Group LLC, which has about $275 billion in assets under management and administration. See: Boston firm buys Orion Advisor Services as part of NorthStar succession deal.

As the deal goes forward, the ultimate test will be to see if Orion can take on an equity partner to grow in scale while maintaining its down-home Omaha identity. After an initially stunned first reaction, Orion’s newest clients appear to be taking the news in stride.

New management jitters

“My initial reaction was 'Oh crap,’ but I got a lot more information and I talked to the folks at Orion and I felt much better,” says Vilas Naralakattu, technology manager at the more than $1.3 billion Columbia, Md.-based Pinnacle Advisor Group.

Todd Clarke and his son with Eric in Nebraska.
Todd Clarke and his son with
Eric in Nebraska.

Naralakattu spent three years making the decision to move from Schwab PortfolioCenter to Orion for portfolio accounting and is in the midst of converting to Orion right now.

“I think there’s always a concern about how things will be changing. But after I spoke with Orion, I felt pretty confident. I think this will really allow Orion to acquire more technology and get the best of breed technologies,” Naralakattu added.

Joining Orion, the Omaha, Neb.-based maker of portfolio management systems for RIAs, in this category are Envestnet-Tamarac, Morningstar, Schwab [originally Performance Technologies] and Advent-Black Diamond
h2. Faith and trust

RIAs seem to be understand that for Orion to continue its rampant growth and robust technology, the firm needed a financial partner. Orion oversees $185 billion in assets and is on a crusade to hit $200 billion in assets. The firm has grown more than 42% from its $130 billion in assets a year ago. Orion has 524 advisory firms as clients and 800,000 accounts.

Naralakattu spent more than three years looking into technology and is glad to know Orion founder Eric Clarke isn’t going anywhere.

“I always saw the progression that Eric Clarke had with Orion in the last few years and I’d be a little concerned if he was leaving,” he says. “I think he’s got the appropriate attention for what advisors want. Everything I’ve learned from advisors who used Orion and our brief time at Orion is Orion always is willing to work to do something and they never say they don’t do it.”

In addition to its new deal with Pinnacle, Orion also recently inked deals with $1.3 billion RIA Brouwer & Janachowski LLC based in Tiburon Calif. and $2 billion Dubuque, Iowa-based HK Financial Services.

Peg Pike: I have a lot of faith and trust in Eric Clarke ... I can't imagine he'd do something that would compromise his Orion clients.
Peg Pike: I have a lot
of faith and trust in Eric
Clarke … I can’t imagine he’d
do something that would compromise his
Orion clients.

As always

At Brouwer & Janachowski, chief operating officer Peg Pike is coming to terms with the deal. “We haven’t had much time to digest it,” she said recently. “But I have a lot of faith and trust in Eric Clarke … I can’t imagine he’d do something that would compromise his Orion clients.” See: The top 10 people to watch in the RIA business in 2012, Part 1.

Clarke maintains that he still intends to be very involved with RIAs.

“I enjoy nothing better than getting out and meeting with advisors,” Clarke says. See: How RIA industry execs took on the ultimate teamwork challenge: Conquering the highest summit in the lower 48.

He told RIABiz before the sale announcement that RIAs is Orion’s independence.

“If you look at our competitors, they’re publicly traded and many RIAs want to do business with a private firm. As far as privately held companies in our space, we’re the largest one.”

Nothing eye-popping

It’s Clarke’s hope that the private-equity deal with only enhance Orion’s reporting and technology capabilities.

Stephen Janachowski: What I heard from other advisors is they were able to get data and use it across the platform much more readily.
Stephen Janachowski: What I heard from
other advisors is they were able
to get data and use it
across the platform much more readily.

One reasons Naralakattu left Schwab’s PortfolioCenter was because he felt the reports were just adequate.

“I’ve been with the firm for over five years and we’ve struggled with reporting,” he says. “We wanted to get the clients excited about what they were looking at and give them spectacular reports that we felt were lacking through Portfolio Center. It gave them the basics but nothing eye-popping.” See: Schwab bluntly reviews PortfolioCenter to coax thin-skinned software vendors to its Zagat-like forum.

Billing was another huge obstacle for Pinnacle. It would take as long as six weeks to do the quarterly bills.

“With PortfolioCenter, we could automate bills that were straight-forward but anything that required special multiple households, Portfolio Center couldn’t handle and we were using spread sheets to do that,” says Naralakattu.

Charles Schwab spokeswoman Anita Fox responds that PortfolioCenter remains a market leader and the firm is looking to create more enhanced reports and types of technology, she added.

“We recognize that some advisors are looking for more dynamic reporting options and the new Schwab Portfolio Connect platform is being developed with this desire in mind,” she wrote in an e-mail. “We understand advisors all have unique needs and expectations in a portfolio management system and are committed to helping Schwab advisors find the solution that best meets their requirements.”

Open advantage

Eric Clarke: If you look at our competitors, they're publicly traded and many RIAs want to do business with a private firm. As far as privately held companies in our space, we're the largest one.
Eric Clarke: If you look at
our competitors, they’re publicly traded and
many RIAs want to do business
with a private firm. As far
as privately held companies in our
space, we’re the largest one.

Brouwer & Janachowski LLC had used Raleigh, N.C.-based Junxure for CRM, Seattle-based Tamarac for performance accounting and PortfolioCenter for reporting. The firm is transitioning to Orion for portfolio accounting and reporting and will now use Salesforce for CRM.

The RIA had been considering making a technology change, but when Stephen Janachowski, chief executive and chief investment officer of the firm, realized he wanted to hire a chief operating officer, he decided to hold off on making a decision. See: How one $1.3-billion RIA in Tiburon found its woman by taking the 'grueling’ route.

“Moving to Orion is a huge departure and I was leaning toward Orion for a couple of reasons because I knew they could really serve the firm well as it grew,” Pike said. “The thing is, Orion has been very open architecture, super-flexible and very customizable, and we’ve been growing organically and inorganically.”

Brouwer & Janachowski have acquired two other firms and Janachowski said his firm is hoping to acquire another RIA year. He wants to make sure the technology can adjust as the firm expands.

Asking around

So far, the conversion has gone well, Pike adds.

“I’ve done a lot of conversions over the years and every conversion brings surprises but this one, the Orion team has been very solid. Impressively, we had an issue with reporting history because Tamarac was on a very different and Orion did some fancy footwork and build tools so we could convert all of this historic data without a hitch. It was huge.” See: Orion wins a $2-billion RIA account from Advent after two very long drives across the prairie.

Before making the critical choice, Pike and Janachowki both talked to a number of RIAs who have used Orion.

“Even though I hadn’t used Orion myself, I had experiences with other advisors using Orion and they were delighted with it,” says Janachowski. “What I heard from other advisors is they were able to get data and use it across the platform much more readily. It gives us the ability to really work in real time with clients and historical data.

Full integration

The one resounding theme from advisors who use Orion is they want a technology firm that can handle their desire to grow and in some cases oversee multiple locations.

Ann McCorkindale, executive vice president and chief investment officer, at HK Financial Services, a separate RIA entity of Dubuque, Iowa-accounting firm Honkamp Krueger PC, says her firm needed new technology as it was ready to grow even bigger.

Ann McCorkindale: We wanted our advisors to have better access to clients' information and reports. We needed to integrate the custodians so the advisors could see live information.
Ann McCorkindale: We wanted our advisors
to have better access to clients’
information and reports. We needed to
integrate the custodians so the advisors
could see live information.

HK Financial Services, an RIA that holds the majority of its $2 billion in assets with Schwab, had used Advent for portfolio accounting and Advent for reporting.

The firm has about 20 advisors in eight different locations and needed unique technology because some of the advisors provide assistance to CPA affiliates.

“We wanted our advisors to have better access to clients information and reports. We needed to integrate the custodians so the advisors could see live information. We wanted to integrate planning,” she added.

Transparency for clients

Since 2008, the firm has concentrated on focusing on planning and explaining market corrections in its reports to clients, McCorkindale says. The firm, she says, firm should be able to offer reports and charts that would explain these corrections better to clients when they occur.

“We’re a huge advocate of showing clients their goals and when we have a market correction we want to let them know they’re still on track of achieving those goals.”

“Flexibility was also very important to us. With our CPA partner, we’re very unique in our reporting and tracking needs.”



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