Focus Financial gets a long-sought $400 million DFA RIA in Dallas -- with Adam Birenbaum's firm as the final added ingredient

Brooke’s Note: There’s some debate whether its better to bet on a roll-up per se or an RIA that has a roll-up strategy of inorganic growth by serial acquisition. Jim Whiddon may not know the white-paper version of all that. But now, after five years, of being courted by Rudy Adolf’s gang and closed by Adam Birenbaum’s (and, in essence, joining both) he could write a book on the subject. I hope he does.

Focus Financial spent five years courting a $400 million Dallas firm before it finally took a step back and introduced Buckingham Asset Management LLC as the final suitor in a deal that was announced and finalized today.

Both Buckingham CEO Adam Birenbaum, whose firm is owned by Focus Financial Partners LLC , and Jim Whiddon, founder of Dallas-based JWA Financial Group, credit Michael Paley, a managing director at Focus, with seeing that its prospect and its subsidiary were the proper soul mates.

Buckingham is one of Dimensional Fund Advisors LP’s largest clients, and JWA is also a firm built around DFA’s funds and philosophies that hinge on a large dollop of math and science. Both firms use an “evidence-based” investment philosophy that, they say, demonstrates that investing forensics shows passive management beats active management over the long haul. See: Dimensional Fund Advisors still has low RIA acceptance rate and stunning growth.

Still, Dimensional Fund Advisors adds shreds of active intervention where it can find evidence that it can add value. See: Dimensional’s co-CEO tells clients at Monterey event that DFA is changing its Classic-Coke intellectual fund recipe.

Buckingham Asset Management maintains offices in St. Louis, San Francisco, Dallas and Silicon Valley and administers about $4.9 billion in client assets. In addition, Buckingham’s sister firm is the BAM Alliance, a turnkey asset management program. Its clients include more than 130 independent firms with more than $13.4 billion in assets — virtually all of them in portfolios built from DFA’s funds. It’s CEO has had a streak of notable and creative success that earned him top spot last year on the RIABiz most-influential list. See: Top 5 most influential RIA figures of 2012 going into 2013.

JWA Financial has an office of eight and serves more than 250 clients. In addition to serving as a Buckingham wealth advisor, Whiddon’s presence is contemplated as one that will attract potential clients by careful placement of the content that he generates.

Guerilla marketing

The strategy of focusing in on advisors with wide audiences for their written and spoken thoughts is one that Birenbaum has used to good effect with New York Times contributor Carl Richards, CBS News contributor Larry Swedroe and Huffington Post contributor Dan Solin at BAM Alliance. See: A $17-billion RIA doubles down on a social media strategy that netted it 50 Facebook employees.

“They’re a great firm in the evidence-based passive universe,” Birenbaum says. “It’s so interesting how this is all coming together. Jim has written two books and used to be a leader of a radio show. He’s another person on our firm who has used media to spread and build his business.”

Whiddon built his reputation by hosting a Dallas-based economic and investment radio talk show on CNN 1190. He has also the author of two books, “Wealth Without Worry: The Methods of Wall Street Exposed” (Brown Books, 2005) and “The Investing Revolutionaries: How the World’s Greatest Investors Take on Wall Street and Win in Any Market” (co-author Nikki Knotts, McGraw-Hill, 2009).

The use of investing dignitaries is a guerrilla tactic for taking on the traditional armies of marketers and advertisers paid by Wall Street.

“We can’t compete against Morgan Stanley from an advertising budget,” Birenbaum says. “You compete by having people who are passionate about spreading the word and have experience using different types of media.”

Jim Whiddon: For whatever reason, I
said: 'come on by and we’ll
have coffee.’

Pleasantly persistent

Whiddon, 52, says he was impressed with Focus’ persistence over the past five years, especially since he ignored a slew of sales calls from dozens of other firms. But the calls from Focus rang true.

“Michael Paley with Focus, he’s such a pleasantly persistent chap. They’re just so professional in the way they operate,” Whiddon says. “He kept calling me, and eventually I set down with him. For whatever reason, I said: 'come on by and we’ll have coffee.’”

Once Whiddon finally agreed to meet with Focus, Paley suggested that Whiddon and Buckingham consider a partnership.

“He matched us up with Buckingham because of our investment philosophies and one thing led to another, and here we are,” Whiddon says. “We think this brings some stability to clients for the next generation.”

Birenbaum also credits Paley with bringing the firms together about six months ago.

“Michael Paley at Focus is the one who made the introduction,” Birenbaum says. “While we have known JWA and been watching them from afar for a great number of years, Jim and I really sat down for the first time earlier this year to discuss making this happen. Six months later, we could not be more excited to have brought our two great firms together.”

Slow deal time

Industry leaders say that these long courtships could continue as the pace of M&A activity remains ho-hum.

“It has been slow, says Matt Brinker, senior vice president of partner development and acquisitions with United Capital Financial Advisers LLC. “The markets have been up and revenues have been up. Advisors are feeling pretty good, and clients aren’t calling and haranguing them and they’re feeling pretty good about things.” See: The RIA M&A market stumbled in 2012, but giants were not deterred, Schwab end-of-year data shows.

Brinker says his firm is patient with its deals too. United Capital has nearly $17 billion in assets managed and overseen, with about 323 employees and 44 locations nationally.

On Monday, United Capital announced that it purchased Atlanta-based PPA Advisors Inc., the company’s first deal of the year. PPA Advisors brings $224 million under management and an additional $122 million under advisement and a team of nine professionals. The deal split an existing RIA, and just four advisors are joining the firm. Ross Ramsey, 42; R. Corley Watson III, 37; Randy Berry, 63, and Charles “Rocky” Costa III, 57, are joining. All are CFPs.

“PPA is an embodiment of exceptional advisors who have done great work for clients and are focused on growth and being a regionally dominant firm,” Brinker says. “This is the first deal we’ve closed this year, and we’re on track to do $12 million to $14 million of acquired revenue with some other things that may be closing very soon.”

Matt Brinker: we’re on track to
do $12 million to $14 million
of acquired revenue with some other
things that may be closing very
soon.

Brinker maintains that his company’s quest for deals is tempered by a better-safe-than-sorry approach to choosing partners — with an eye toward building the top national brand in the “wealth management” category.

“We want to make sure we’re deliberate with who we partner with and knowing we can help these firms grow,” Brinker says. “We’re not sprinting to transactions.”

Building

Birenbaum, too, has national ambitions — though they revolve around a broad universe of people up and down the advice chain who coalesce around an approach.

“We believe we are demonstrating that we are emerging into a national firm — a destination for investors, advisors and firms alike,” he says. “We believe we are creating the “center of the passive universe” — a place where folks who believe from an investment philosophy perspective and practice like us (delivering on the promise of true wealth management) are coming.”

The long run

Whiddon is hopeful his firm can grow even more rapidly at Buckingham. On average, his firm grows about 10% to 15% a year.

“[Buckingham’s] name and reputation proceeds them. Once our clients get to know who they are, they’ll be more willing to refer us to others than they have in the past,” he says. See: Buckingham Asset Management creates a structure with Focus Financial that enables it to roll-up the 120 RIAs that entrust it with $13 billion of DFA TAMP assets.

Whiddon started the firm in 1986 with a broker-dealer and became an RIA in 1998. The firm keeps most of its assets under custody with Schwab Advisor Services and Fidelity.

Whiddon says he has no intentions of retiring any time soon. “I’m excited to start the second half of my career,” he says. “I’m anticipating it’ll be a marriage that will last. I’ve got lots of ideas.”