Matt Hamilton gears up to grow $900 million a year til 2027 when most CEOs look forward to retiring, but only banks, not PE investors, are invited to fuel deals

Lisa's Note: My family and I moved to the Columbus, Ohio, area from the Chicago burbs last fall. I had doubts about its economic vitality. Not for long. First evidence was how challenging it was for us to purchase a home in the area. Great homes would sell in a day, and every realtor we spoke to suggested we rent for a year before buying. With a few weeks before school, we shamelessly let our 14-year-old write a letter to the pediatrician selling their house, giving us an advantage and, ultimately, the house. So, it's not surprising to me that Matt Hamilton, who started his firm 22 years ago, would see growth in his RIA in proportion to the area's rising affluence. Of course, Columbus is home to Ohio State University, but there are many other areas that don't gain the same national fanfare. Take, for example, the much smaller liberal arts college Denison University. It's just 20 minutes away in Granville. I live seven minutes from the University where Hamilton's daughter attends. When I chatted with him, he had just been on campus and the actress Jennifer Garner, an alum, was in town giving a speech. The Columbus Blue Jackets, this year, advanced far into the NHL playoffs. In short, the Columbus metropolitan area has spice to go with the Midwestern sweetness and lower cost-of-living that draws national firms here. Hamilton, at $2.5 billion of AUM and low Columbus overhead, has already succeeded as an RIA. Now he's setting a goal for RIA greatness, no doubt bolstered by the sense of high destiny rising daily in our low-profile city.

Matt Hamilton is mapping out plans for a major expansion of his $2.5 billion RIA when most CEOs in his position are charting a course into retirement. But the road to his goal of $10 billion in AUM by 2027 will take cash-- and lots of it--so, here's the catch: Venture capitalists need not apply.

The 64-year-old CEO of Hamilton Capital in Columbus, Ohio, grew the hard way--organically--over 22 years. He cultivated clients mostly in Columbus without marketing to reach $2.5 billion in AUM, roughly an 18% average annual growth rate. 

Now he's aiming to add $7.5 billion in AUM over the next eight years, a 300% increase that will require inflows on the order of $900 million a year on average. To do that, organic growth just won't cut it, so he's looking to roll up small RIAs, he says. 

"Our organic growth hasn't dried up, but inorganic is just another opportunity in the marketplace. It's an opportunity in the marketplace that wasn't there several years ago," says Hamilton, who founded the firm. 

“Growing at this pace becomes increasingly difficult with our size, and our outlook for financial market returns." 

High hurdle

Succession planning is the key to his strategy, but not his own. Hamilton plans to take advantage of other small RIAs looking to retire.  But financing deals without private equity capital--the traditional source of roll-up funding-- will be the trick. 

 At this point, he's looking for a loan to help finance an acquisition without offering an ownership stake. 

"I would not consider this so much a challenge as it is finding the partner who offers the most attractive combination of lending capacity and financing terms. We are currently evaluating several alternatives," he says. 

That's likely true says David Selig, CEO of Advice Dynamics Partners, LLC. When asked how difficult it could be for Hamilton to get a loan, he said: "Extremely easy compared to just a few years ago. There are now a handful of RIA-savvy lenders who provide capital for M&A."

It should be a breeze for Hamilton to get loans, agrees Steve Levitt, managing director and founder of Park Sutton Advisors LLC.

“There’s more and more banks looking to lend to RIAs for working capital and acquisitions. That includes groups like Live Oak and Oak Street Funding. We’ve been increasingly talking to more local banks who are interested.”

Historically, banks shied away from RIAs because lenders like to make asset-based loans and most RIAs own little more than office furniture, printers and computers.

Clearly Hamilton is feeling his borrowing power. He already hired three executives including a chief operating offer, opened a second location in Palm Beach Fla., is looking for more custodians and is starting to outsource its own investment process to other RIAs in a TAMP-like-fashion. And, for the first time in his firm's 22-year-history, he's also interviewing financing partners.

Not 'risky'

Hamilton says these steps are necessary to fuel inorganic growth.

“We do not view our desire for continued growth as particularly risky or something we have to do to survive.  Rather, we look at it as taking advantage of the opportunities we have in front of us and a vehicle to help us better serve our clients,” Hamilton says.

When the firm was founded in 1987, it managed just $70 million in assets. His firm has $2.5 billion and 1,500 clients. Hamilton has about 70 staffers and half are advisors.

Certainly, the growth of Columbus, the state's capital and one of the top 15 fastest-growing cities in the country according to the Census Bureau, has helped Hamilton's RIA. Columbus is now the 14th largest city in the U.S. with 892,000 residents, according to statistics released from the Census Bureau last week. 

A number of Fortune 500 firms such as American Electric Power, Nationwide Insurance, and L Brands, which owns the popular Victoria Secrets, Bath and Body Works and Pink, are based in Columbus. This spring, Realtor.com named Columbus the hottest real estate market. 

Because he's in a rapidly growing city, Hamilton's firm has grown organically thanks to new client referrals, high client retention rates and solid investment returns. 

"The economic health of the area has resulted in a population of indivduals that will seek our services," Hamilton says.

Hamilton wants custodians other than Schwab to assure that the RIAs he acquires can be plugged right into ongoing business relationships.

“We’ll do mergers and acquisitions and not all of the people we buy will be with Schwab. We think we need to establish relationships to make that transition easier."

Shopping for RIA custodians

Hamilton declined to discuss specific custodians but confirmed his RIA is shopping around at all of the traditional custodians, which includes Fidelity, TD Ameritrade and Pershing. Hamilton is a member of the Schwab Advisor Network, the custodian's referral program, but says the program only brings in a small number of referrals. 

Hamilton Capital, based in the affluent Upper Arlington suburb of Columbus, just hired Rick Kahle, as vice president and chief operating officer, and June Meeker, director of human resources and Mike DeCarlo, director of finance and administration. DeCarlo’s post is newly created to the firm.

The COO post is actually one of the most important positions in helping an RIA grow, writes Michael Kitces, of Nerd’s Eye View, in a recent blog post. Calm, thoughtful demeanor led Commonwealth Financial Network to make a 10-year LPL exec its new president and COO; IPO anyone?

“Contrary to popular lore, the first “professional manager” is not a CEO, but a COO. The chief operating officer often comes from the outside, to bring in processes and systems that can transform the firm. The presence of the COO often acts as a catalyst in encouraging other executive positions to emerge.”

Many parallels can be drawn to the strategy, timing and COO hire made by Steve Janachowsi later in his career when some big RIAs might be expected to embrace elegant decay. See: When Steve Janachowski's RIA hit the $1-billion wall, he started hiring women execs and talking M&A; Now he's at $1.7 billion but still seeking to validate his strategy

Kahle is focused on growth and has 30 years of experience in accounting, finance and operational management. Meeker has nearly 20 years of experience in human resources and will oversee hiring practices. DeCarlo has nearly 20 years of experience in finance, technology working at mid-to-large-size publicly traded and non-profit companies, as well as state government. 

Graystone

Six months ago, Hamilton also recruited a former Graystone director in December. Phil Shaffer, who had co-founded Graystone Consulting, left Morgan Stanley in June 2017. He set up his own RIA Halite Partners and began unwinding it in December to join Hamilton as managing director of institutional business. Brothers reunite as a $3.8 billion ex-Graystone team forms its own RIA

Hamilton has a number of foundations and non-for-profits as clients and Shaffer was brought in to drum up the institutional business. Graystone’s expertise was its institutional business.

Hamilton is also looking to increase its retirement plan business. The firm provides retirement plans to more than 100 employers. As part of the new growth strategy, the retirement business is an area that Hamiltion is hoping to grow. The ADV shows that Hamilton's pension and profit sharing plans total about $217 million in assets. It’s likely his firm would consider purchasing another RIA or an individual registered rep but firm and people need a Hamilton orientation.

“First and foremost, they need to be a philosophical and cultural fit,” he says.

One key issue that Hamilton needs to remember is this is very much a sellers’ market and it is steeply competitive, Levitt says.

“This year is probably the top of the market. We believe that pricing will likely start ticking down in the next 12-24 months. They need to be very careful in terms of how they value and structure their deals. There is plenty of competition and if they’re serious they have to brace themselves.”

But Hamilton has been making moves for a handful of years that will help his firm bring on another RIA. Three years ago Hamilton moved its technology from Advent to Orion mostly because the company wanted an improvement, but now with Orion on board, it'll be easier to bring over new RIAs.

“We felt a need to upgrade our portfolio management software, so we reviewed the offerings of a number of vendors and felt Orion best met our needs," Hamilton says.

New Orion software

Orion founder Eric Clarke says the RIA is well-positioned to meet its $10 billion goal. Orion wins its 95th LPL advisor to show it's also advancing on Envestnet in the broker-dealer market and greening up its pastures

“We are focused on helping their team operationalize their vision by leveraging our tech to support their growth and help scale their continued success. Mike DeCarlo and his entire team are engaged and implementing both operational efficiencies and an incredible client experience."

Another part of the firm’s growth strategy is to outsource its investment management process to other RIAs – akin to a TAMP. 

The annual fee for individuals start at 1% a year based on a number of factors. The average client has $1 to $10 million in assets.