In an overdue catch-all, catch-up the CEO of the $10-billion RIA tells of $4 billion of deals in the works and up to 15 de novo offices

September 2, 2014 — 3:05 AM UTC by Steve Garmhausen

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Brooke’s Note: Our coverage of United Capital over the years — and extensive coverage it has been — has focused on its component parts: the hires, program start-ups, money raises, office openings, stock cash-out programs, marketing programs, financial planning schemes, best-selling books by its leader Joe Duran — not to mention a montage of Joe-being-Joe in speeches, media appearances and interviews. All we know for certain is that the firm has $10 billion of managed assets and $100 million of revenues, or about a third of fellow roll-up Focus Financial Partners LLC, which claims $300 million. It’s been quite a while since we took few steps back and looked at the entire mosaic created by this serial entrepreneur. The task demanded the interviewing skills of a pro and you’ll see that Steve Garmhausen was up for the job.

United Capital Financial Advisers, the Newport Beach, Calif.-based roll-up firm, has been quiet on the acquisitions front this year. But that’s about to change. Chief executive Joe Duran says the decade-old firm has deals in the works that will bring aboard seven advisors and up to $4 billion of assets. Yet United Capital’s longtime focus — rolling up firms and breakaway advisors — is no longer its top priority. Rather than going hard after more advisors and new offices, the company is banking largely on organic growth, says Duran. And with plans to grow assets and revenues by two-and-a-half times over the next three to five years, Duran and company are counting on lots of it. Their target: $25 billion to $30 billion in assets, $250 million in revenues and 20% to 25% (and growing) operating margins.

But United Capital’s ambitions extend beyond physical growth; Duran and his investors want nothing less than to create the first national RIA with retail brand-name recognition. Duran is an eloquent spokesman for that vision as he argues that United Capital is not a roll-up firm but rather a national advisor with one brand, one culture and one set of practices and ADV. See: Why the term 'roll-up’ should stay in the RIA vocabulary.

That being the case, we pushed Duran on exactly how his model will be good for consumers — not just for the company’s investors. See: Ex-KKR capitalists reach the RIA gate by taking a $30-million stake in United Capital.

Duran also weighs in on the acquisition market, United Capital’s major push to attract ultrahigh-net-worth clients, and a major marketing plan that’s nearly ready to move off the drawing board. See: United Capital eyes 'Paragon’ brand for the $10-million-plus set after nabbing $1 billion RIA in Seattle.

(Note: We spoke with Joe a few days before news broke that United Capital had hired Ryan Marcus, lately of Royal Bank of Canada, as director of new-partner development for the Northeast United States.)

Retiring the yellow pad

RIABiz: I know that United Capital’s vision is larger than just making money for its investors. But in specific terms, how will United Capital be a force for good for the investing public?

Joe Duran: We want to improve the lives of the people we touch by bringing truth, understanding and discipline to their financial choices. That’s our mission statement. It’s really simple. And what we’re trying to do is drive technology to make financial decision making completely different than anything they’ve experienced in the past. Making it engaging and fun, basically trying to build the financial services firm that Apple would build, or that Google would build, or that Whole Foods might build.

RIABiz:: I’m in Austin, Texas. There are good wealth advisors here who charge a reasonable fee and have a lot of integrity, and can help me of navigate my financial life. How does having a national, unified firm improve on that?

JD: I’m going to make the assumption that the local advisor is of high integrity, really capable and big enough to have access to all of the same investment solutions [as United Capital]. Assuming those three things are true, there are still three major risks that you face by working with that advisor.

The first is that you’re unbelievably dependent on that one advisor. If the advisor were to get sick or can’t come to work, or goes on vacation and doesn’t return, your life’s upside down.

Second, that advisor is almost certainly in the yellow pad [school] of advising. By that I mean that his relationship with you is all documented in pen and paper, and you are being told what you’re going to do with your financial life. I don’t believe that the yellow pad is the future of financial planning; I think the iPad is. You are going to want to be far more in control than your parents were when it came to money. See: HighTower Advisors and United Capital seek to stamp out wirehouse feel by embracing Apple technology.

Most advisors still operate under the old, dictatorial model that they tell you what you need to do. But while [your advisor] might be great, if something happened to you, and your wife were to go in, all of the notes on the yellow pad would mean nothing whatsoever. To me, the yellow pad approach, while it works very, very well as long as the advisor is there, really excludes the participation of the client. See: How the founder, CEO of a $4-billion RIA survived a brutal bike accident and kept his firm rolling.

Third is the level of access and resources that advisor has. That advisor might be very, very good at providing planning help for you, but you might need insurance help. You might need a problem solved with estate planning. The level of breadth and magnitude of complexity in our industry has exploded, and it’s very hard for any one advisor to have the answers for all of the multiple areas that you might need help with.

For a lot of folks, the local advisor will be fine until they see that there’s a completely different way of working. Just like the local coffee shop used to be fine until Starbucks came along. People went, “You know what? I like being able to have my coffee wherever I want and know what I’m going to get.” See: The 10 biggest threats to the RIA business heading into 2014.

Million-dollar path to partnership

RIABiz: You plan to more than double United Capital’s size in three to five years. What’s the strategy?

JD: We’ve doubled [our revenues] in the last two years, and we expect to double them again in the next two years. We expect to do that by not adding a lot more offices or a lot more people; a lot of our growth now is driven by organic. We are expecting to reach around $13 billion in assets by year’s end and be running over 130 million in revenues. If things we are working on click into place we might reach $15 billion and $150 million in revenues.
See: United Capital drops a six-figure check on 10 partner firms in share buyback program financed by SageView.

We have three pegs of organic growth. We will fill in offices in cities where we need them, and I suspect that we will probably add another 15 to 20 offices over the next three to five years. That will account for probably a quarter to a third of our growth. See: Best advice for 2012: Risk being a bit boring and focus on the organic growth of your practice.

A third of our growth is going to come from adding advisors into our existing distribution. So where we have offices, bringing in advisors who are below a million dollars in revenue, who join us to work with United Capital and we give them a path to partnership that once they get to a million dollars, they can become partners and shareholders in the firm. See: Ex-KKR capitalists reach the RIA gate by taking a $30-million stake in United Capital.

That is an area that we’ve been at now for about a year, and we’ve been quite successful adding new advisors. We have a dedicated team of four folks who run around the country bringing in advisors that are a good fit for us culturally but do not join us as employees until they’ve gotten to a million dollars in revenue.

401(k) entree

RIABiz: How many advisors have the team brought into the company?

JD: I think we’re around a dozen or 15 in the last year. It’s approaching a billion dollars in assets. We think that can be $1 billion to $2 billion a year for us in new assets.

Then we have organic. We have multiple prongs of organic [growth], but 401(k) participants are a big area of growth. Direct mail is a big area, and we’re expanding our social media—we’re building out a team for that as well. We think our organic should be another $1 billion to $2 billion dollars a year in new assets. See: How RIAs can rule the 401(k) realm by becoming advocates for plan sponsors — and start by eliminating eight marketplace conflicts.

So that’s how we intend to get there. I think we could end the year very close to somewhere between $130 million and $150 million in revenue. We don’t have very far to go to get to $250 million. It might happen sooner than the three to five years.

'Our kind of people’

RIABiz: What is the pace of your acquisitions these days?

JD: We’re about to announce four acquisitions now, and then we’ve got several more before year-end. Frankly, acquisitions are no longer the focus of the business, so we’re incredibly selective.

We certainly have opportunities to buy a lot more than we do, but we tend to be very particular about, 'Are these our kind of people? Are the client demographics right? Are they forward-leaning advisors? Are they culturally aligned with us? Are they geographically interesting to us?’

RIABiz: So how many acquisitions do you expect to end up with for the year?

JD: Seven. We’re working on a couple of quite large ones, so I think the total level of assets will be somewhere between $2 billion and $4 billion.

RIABiz: How does that compare with last year?

JD: It’s more than last year. Last year we purchased around a billion, billion and a half [of assets], maybe.

Hot, not boiling

RIABiz: Are we in a seller’s market?

JD: Oh, absolutely, yes. The banks are back in quite aggressively. They tend to be quite cash-rich upfront, and especially in the local markets, they’re very much wanting to get back in the business, which they were gone from for maybe five years.

Secondly, there’s a lot of private-equity-funded opportunities, more of them than I’ve seen in a while. I know what happens next, when you get too many people chasing too few transactions. I think what you’ll see next year is some really overly aggressive transactions being done, and that invariably leads to bad outcomes for everyone. That’s not our game. This feels like 2006, but not quite 2007 yet. See: The 19 ways private equity has juiced up the RIA business and how it’s working out.

RIABiz: Would you say you’re satisfied with the pace of growth over the last few years?

JD: How could I not be? What we’ve done is incredibly rare. We have an amazing team and I try to remind them that very, very few people go from a standing stop to $100 million in revenues as a wealth management firm in under 10 years. You know, I don’t think you could find another institution that could make that statement.

Ongoing liquidity

RIABiz: Joe, in the past you’ve talked about growing to a certain threshold and going public. Is that still the plan?

JD: Yeah. Our threshold is to try to have a billion-dollar market cap, and we think that can happen in the next three to five years. I think that with what we’re doing, we will be a very compelling public story. See: Focus Financial VC backer says IPO still on the table after private auction yields no sale.

But the good news is, because of the funding we took down last year, we now provide ongoing liquidity to our existing shareholders. There was quite a lot of pressure to go public, and we certainly still feel a need to create liquidity. But last year, we introduced a monetization strategy, so our partners who have been here for six years are able to actually monetize every year. See: Joe Duran tries out novel financial planning strategy on himself and his wife.

We’re going to again offer liquidity this year, and I’m sure some will take it, and they should, but again, we’re growing so quickly, I’m not sure that we’ll get a lot of people that interested in selling their stock. But they might; that’s what we offer the program for.

Fee calibration

RIABiz: You’ve said that expensive, old-school advisors are doomed. See: Joe Duran lays out his latest case for why wirehouses — and classic RIAs — risk losing out to a coming oligopoly of new-model holistic firms. Can you make a compelling case that you’re offering competitive fees? What is the average, all-in wealth management fee for United Capital clients?

JD: A typical client pays, inclusive of the underlying investments, somewhere around 1.3%. That includes financial guidance and planning, investment management and oversight and custody and trading managed accounts.

RIABiz: What benchmark do you measure that against?

JD: We actually look at three different markets. We look at the direct-to-consumer market, a benchmark that includes Schwab, Fidelity, Vanguard, and other firms that go direct to consumer, and what they charge. Then we have our full-service benchmark, which is all the firms like Merrill Lynch, UBS, Wells Fargo, and what they charge. Then we have our independent-channel benchmark, which is the typical independent RIA. It typically runs 100 basis points.

The direct-to-consumer is around 50 basis points, so quite low, but they typically aren’t doing very serious planning work. It’s just for the investment side of the house. The full-service wirehouse runs around one point, but the underlying products are quite expensive so there will be anywhere from 70 basis points to 1% of additional, internal costs. The independent channel will charge about 1%, but their internal costs tend to run 50 to 70 basis points.

So we know that we’re on the low end. Plus what we’re doing on planning is way beyond what most firms are doing. See: An X-ray of one affluent, educated and sophisticated investor’s portfolio shows how it was chewed up by fees.

RIABiz: Speaking of planning, I understand you are you in the camp of charging for financial plans. What is your model?

JD: Basically, 25% of our fee is allocated to planning. You have a choice. You can either get investments only for 1%; this is at the maximum fee level. You can get planning for 50 basis points, or you can get the combination for one and a quarter.

Of course, most people choose to get the combination, because it’s the cheapest alternative, but we’ve found it to be very helpful for people to think of these as separate services. You know, managing money for us is relatively simple and very scalable. Planning is very intense and time-consuming. We find that that’s where the real value lies. See: How RIAs like Aspiriant and United Capital are working to put financial planning back at the center of financial planning firms.

UC basic training

RIABiz: I want to ask you about your push to unify the culture, practices and brand within United Capital. How is your new training center in Dallas going?

JD: We call it UC University We have a whole team of 80 people that are running that academy, and we’ve now run four boot camps. See: United Capital’s Joe Duran throttles back on deals as he opens an RIA version of Hamburger University.

We started with five-day academies; that was too long, so we’ve gone to three days. There’s a whole coursework and video coaching, and insight in these three-day sessions that we have every eight weeks or so. The feedback we’ve gotten from everyone who’s participated is super positive. And it’s now part of our DNA. So whenever we bring in new people, they go to the next training session in Dallas.

RIABiz: How big are these classes?

JD: Typically 15 to 25 people.

From The Economist to Oprah

RIABiz: Let’s talk about your branding effort. We’re curious about how that is going and whether people know the name United Capital. It seems like a big ask when most Americans have barely heard of Morgan Stanley.

JD: That’s actually something we’re working on right now. We’ve spent quite a lot of money already with a Chicago agency, testing out different messaging to the consumers, to our target market. They just did a whole survey about positioning, and I think what you’ll see in the next few months is quite an elevated level of marketing to our brand.

Do I think we’ve even made a dent yet? Not, obviously not. I think we have made a pretty good dent in the B2B space. We’re clearly an unknown entity in the retail space, but having a best-selling book has helped. See: “Joe Duran hits The New York Times best-seller list with “The Money Code and is feeding his big RIA with the leads.

We are slowly getting there, and again, we’re going to build out an entire social media group and keep growing it. So I feel pretty good about it. I think we certainly are just in the early stages of that.

RIABiz: Are we going to start seeing ads for United Capital in Money Magazine or The Wall Street Journal in a few months?

JD: Ads, no. What you will see is a lot of credibility messaging. We’re huge believers that you can’t buy your way to visibility in this market, but you can communicate your way to visibility. One of the things we’re doing is really thinking about providing content that is interesting to the end- consumer; that raises our visibility. For example, we have a weekly social media newsletter with [New York-based marketing firm] Vestorly that incorporates the most interesting articles that our clients might enjoy, from The Economist, to Real Simple, to Oprah Magazine.

And they share that. We’ve done a test with 15,000 people, and we’re finding that the opening rates are around 50% to 60%, and the share rates are 25%. So we think that’s a really interesting way to elevate your brand, and it’s certainly more cost-effective and more powerful for a little shop like us than trying to take big [ads] out in the newspapers. See: Advisor Spotlight: Moss Adams looks to branding for its next $2 billion of growth in RIA assets.

'Bespoke’ investments

RIABiz: We know you dislike terms like “roll-up” and “aggregator.” Why?

JD: All of our offices are United Capital. We’re one company with one ADV, that’s not true of any of these other firms. We all deliver the same planning, we all deliver the same investment solutions. We’re a national firm who happens to enter new markets by acquiring its presence. But those firms become United Capital, join our ADV, get retrained, get re-certified. And you know, nobody says Google is an aggregator or Apple is an aggregator, but they do acquire a lot of technology. So when we acquire folks, they become W-2 employees of United Capital. They’re fully integrated partners of our firm.

RIABiz: Last year, United Capital bought Paragon Advisors LLC in Seattle, which serves ultra-high-net worth clients. Have you followed through with the idea of using their expertise and brand as the hub for going after that market? See: United Capital eyes 'Paragon’ brand for the $10-million-plus set after nabbing $1 billion RIA in Seattle.

JD: Yes, we are using them for their expertise, and they are offering high-net-worth services, tools and access, and that’s going really well. Everything we said would happen ended up happening, but the idea of using their names [for] the high-net-worth group ended up being not something that the team decided to do. It’s [become] the Signature Group, the high-net worth group within United Capital. They’ve created their own branding that’s a little bit more high-net-worth in appeal. They provide completely personalized portfolio management where they build portfolios around your concentrated stock position. Let’s say you’re an executive at Exxon Mobil. It’s very high-touch, super-personalized portfolios specifically for those clients, with tax management, where you tell them exactly how much you want to realize in gains. I’d call it something like bespoke investments.

(A spokesman for United Capital explains that the office has increased its assets—which were about $1 billion when Paragon was acquired—by 25% since the acquisition. The business offers its “Signature Services” to high-net-worth clients across the country, not just Paragon’s clients in Seattle.)

RIABiz: United Capital was founded 2005. Are you still fired up?

JD: I think so, yeah. We’re about to have our 10-year anniversary at the end of this year, and I think that in 10 years, to have well surpassed $10 billion, to have surpassed $100 million in revenues, to have over 50 offices and over 400 employees, from something that didn’t even exist 10 years ago, that’s pretty amazing.

Mentioned in this article:

United Capital Financial Advisers
RIA Welcoming Breakaways
Top Executive: Joe Duran

Share your thoughts and opinions with the author or other readers.


Stephen Winks said:

September 2, 2014 — 2:43 PM UTC

In principle Joe Duran is correct, only RIAs have a shot of mega firm status going forward. Broker/dealers by definition do not acknowledge brokers render advice nor the ongoing fiduciary duties required of advisors to act in the consumers best interest. Essentially, b/ds are not responsible for every recommendation every broker has made, like advisors must.
Thus, if a financial services professional wants to gain control over their value proposition, cost structure, margins and professional standing, it can only be achieved as an RIA which acknowledges fiduciary standing to the fullest extent possible as required by statute. Very few firms meet this test, but those that do promise to be very large at the expense of those firms that do not. The issue should be, why isn’t every advisory services firm required to fulfill their fiduciary duty on behalf of its clients and its advisors who serve them? This is required by statute of every advisor. Why are retail investors in the most need of assistance singled out for lesser consumer protections than all other investors?

The free market is the solution. There has never been an instance since Adam Smith introduced the “invisible hand” in 1776 that in a free market that the consumers best interest has not been served. Let the consumer decide whether they prefer the consumer’s best interest to be served vs the broker/dealers best interest being served. The question then turns on whether Joe Duran affords an authentic free market fiduciary solution vs the counter argument.


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