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Mutual Fund Store sells controlling interest to Warburg Pincus

Giant of private equity world will play a passive role and Adam Bold will continue to run the show

Friday, July 29, 2011 – 9:30 PM by Brooke Southall
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Adam Bold says to expect more stores and more marketing

Warburg Pincus has acquired a majority of the shares of The Mutual Fund Store and cashed out the venture capitalists. See: How Warburg Pincus plans to grow The Mutual fund Store several-fold

The New York-based giant of the private equity business now owns the controlling interest in the third-largest RIA – a franchiser and owner of financial advisory practices that manages $6.6 billion of assets and serves 33,000 households. See: Radio-star RIAs drive giant growth at national chains one $400,000 investor at a time.

Summit Partners, which bought a minority interest of Overland Park, Kan.-based Mutual Fund Store in February of 2006, sold all of its shares.

The Mutual Fund Store’s founder, Adam Bold, still holds a “significant stake” and remains CEO and CIO of the company. Bold declined to disclose the terms of the deal. The Mutual Fund Store was founded 15 years ago.

“The transaction further validates the RIA model for serving investors’ needs. Private equity, sometimes known as smart money, has made another investment,” says David DeVoe, managing director, strategic business development group, Schwab Advisor Services.

Morgan Stanley

Using Morgan Stanley as his investment banker, Bold has been considering various private equity deals in recent months after reaching a point financially and in terms of expertise where he felt he needed help. Previously InvestmentNews reported that JPMorgan Chase & Co. was shopping the firm for between $300 million and $350 million.

See: Adam Bold: The Mutual Fund Store is not for sale.

“We have 33,000 households,” says Bold. “That’s still a small number…Nobody serves investors like us. We have a 95% persistence rate year over year. The key is letting more people know about us.”

Michael Martin, Managing Director and Co-Head of Warburg Pincus’ Financial Services Group, said in a prepared statement: “Through a commitment to an underserved market and an alignment of interests with its customers, The Mutual Fund Store has built a loyal following across the U.S. We believe there is a tremendous opportunity to build on The Mutual Fund Store’s success in providing sound investment advice to the mass affluent market. We are excited about partnering with Adam and the rest of The Mutual Fund Store team to accelerate the company’s growth plans.”

Bold says there will be a freshly aggressive new push to open new stores as part of that planned acceleration. This effort will happen both in untapped cities and in cities where franchises already exist. One obstacle in those cities is how big the exclusive territories sold to the existing franchisees are. Some of these franchisees could be paid for the rights or simply convinced that it is in their best interest to have greater store density. There are currently 70 stores.

Forest and trees

“What’s been cool is that they’ve analyzed our business from a different aspect and sometimes you can’t see the forest for the trees,” says Bold. “It’s not just financial resources we need. There are lots of ways that we can grow….We do marketing through Google and that costs X dollars per lead and through radio and that costs Y dollars per lead.”

Now Bold is trying to wisely spend money on other modes of marketing and believes Warburg Pincus executives will help make those decisions more effectively. Warburg Pincus formerly funded Primerica.

Bold added that he believes that he could have received a higher price for his firm but that the relatively hands-off approach of Warburg Pincus appealed to him. Chris Elliot will remain CFO of the company and Chris Braudis will remain its president.

Mutual Fund Store franchisees were informed this morning and responded positively to the news, Bold says.

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