Sold to Goldman Sachs then spit out by the squid, three Joe Duran acolytes are taking $200 million into bargain RIA M&A minus a 'polarizing' 'pied piper' but plus chips on three shoulders

The band is back without the fourth Beatle, er, Joe Duran, but all you need is love, a $200 million round and a surprising number of RIAs who seem receptive to a new vision and chill Monterey vibe.

Fresh out of Goldman Sachs/United Capital and free of non-compete restraints, Mike Capelle, Jason Gordo and Gary Roth are off to the races with a rollup – Modern Wealth Management – and "no bad blood" with Duran. 

Crestview led the $200 million round and has let the rollup's founders know more is available, if all goes well. RIA M&A experts say that $200 million might be enough to acquire as much as $8 billion of AUM.

The rollup reported its first major acquisition today (Apr. 24). Barber Financial manages $1.5 billion from offices across Kansas, Missouri and Michigan.

As part of the acquisition, Barber Financial's existing radio show and podcast will continue for client acquisition.

Barber will also become the basis of future Modern Wealth technology with Orion portfolio management platform, Salesforce as CRM and MoneyGuidePro and RightCapital as financial planning applications.

“We were looking for a firm that had already built out their wealth tech with a number of quality solutions that could be the foundation for scaling and extending capabilities at a national level, and we found that with Barber Financial Group," said Mike Capelle, co-founder and Co-CEO of Modern Wealth Management. 

The Barber software stack can be extended to a larger aggregation of RIAs as the rollup grows, says Eric Clarke, CEO of Orion. 

“The team at Barber has invested in their technology, team, and processes which will provide Modern Wealth a solid foundation to build upon.”

Tough landscape

The three founders and ex-Duran underlings, emphasize that it's “not United Capital 2.0” but acknowledge it has some of Joe Duran's DNA. 

“Joe Duran is a Pied Piper. I don’t have any idea which, if any, of Joe’s traits this group of founders share. Yes, it will be harder without Joe…a lot harder,” says Philip Waxelbaum, principal of Masada Consulting, via email.

Duran, who founded United Capital in 2004, remains ensconced in a transition role as consultant to Goldman Sachs, which bought out United Capital in 2019. See: Joe Duran will co-develop Goldman Sachs unit aimed at outsourcing to non-Goldman RIAs after 'magic' never materialized for direct-to-consumer RIA

He called to wish them well a couple of weeks ago, they say. He wasn't asked to join the venture, but it was no snub. Duran was still employed by Goldman during the business formation of Modern Wealth.

"He's a friend; we stay in touch," Gordo says.

But Waxelbaum says the partners will have a hard hill to climb, given the competitive landscape now that wasn't in place in 2004 when United Capital was founded.

“Based on the partners, they must believe they can leverage technology in some new and innovative ways, not dissimilar from the Schwab and Fidelity models. But building a model to compete with behemoths like that seems a bit optimistic.”

“If they take it upscale, they must take on the Dynasties, Mariners, Focuses, and others of comparable pedigree and wealth. Also, a very tough lift for a start-up. There must be a believed secret sauce but it’s certainly not obvious. Tough neighborhood to play in,” he adds. 

Joe, no Joe

Duran's future involvement is not ruled out, though they say RIAs have flooded the firm with calls without relying on Duran's magnetic sales personality. 

“Joe Duran was the charismatic face of United Capital and was involved in a lot of recruiting. It doesn't mean it can't be done with someone else,” says Danny Sarch, principal of Leitner Sarch Consultants. 

No Joe may be no problem, according to Mike Wunderli, managing director of Echelon Partners, a boutique investment bank in Manhattan Beach, Calif. 

“Given Duran’s polarizing persona, not having him involved could hurt in some instances and help in others,” he says. 

The new firm promises a very 2023 lean business model with a centralized planning emphasis.

It will also have no affiliate model like United Capital's FinLife platform, which the Modern Wealth founders say was a “distraction.” See: Goldman Sachs turns big page on United Capital with big changes for Joe Duran and FinLife, giving its home-grown executive money, mandate and HR muscle to create national RIA

Buying assets

Tim Welsh, of Nexus Strategy, says most advisors considering joining the firm will be happy the founders have deal-making expertise. 

He estimates that the RIA could purchase $6-billion to $8-billion in assets, with $200 million. 

The co-founders declined to offer specific goals for the $200 million in funding. 

“We think $200 million can go a very long way,” Gordo says. “We feel very strongly we'll have a multi-billion dollar firm by year-end and we will have a lot of money left over.” 

But Waxelbaum says it'll be hard for $200 million to meet their goal entirely. 

“$200 million is a princely sum, but it won’t build a robust platform plus the buy of practices to live on that platform and bring a profit too.” 

United Capital's advisor clients tend to manage $500,000 to $10 million and the average is about $1 million. They suspect their clients here will be similar - around $1-million to $10-million. 

Solid track record

“The folks at Crestview are not naive, and they are committing serious capital. It has been reported that the foundation of the plan is for four “anchor offices,” each with a $2 billion AUM scale,” says Waxelbaum.

"That implies a roughly $80M revenue business. It would be an epic bargain to buy that RIA cash flow, inclusive of an operating platform, all for $200M. There must be a big, not yet disclosed, piece in this puzzle.

Dan Kilpatrick, partner and head of Financial Services at Crestview, ascribes United Capital's success – and massive liquidity event – to Modern Wealth's founders.

“This leadership team has executed over 90 acquisitions of RIAs, building United Capital to $25 billion of AUM with over 220 financial advisors and 22,000 clients in over 70 offices when it was sold to Goldman Sachs," Kilpatrick said in a statement. 

Goldman ties

Roth and Capelle are both co-founders of Unoted Capital dating back to 2005.  

Gordo, who came in 2014 when his RIA was purchased by UC, explains that he, Capelle and Roth all stepped away from Goldman last year at different times and then began to chat afterward and decided they wanted to build an RIA. 

“What we centered on if we want to go back to this industry, what do we want to build. The message is we wanted to build the firm we want to do business with.”

The Modern Wealth trio intend to de-link from their past as Goldman Sachs employees – but not totally.

“The goal of the business is not to compete with Goldman. But they're in wealth management, and we are, too. In the past, we had multiple offices in the same city that never once had to compete with one another," Capelle says.

“Our advisors who came over from UC are now able to tap into the global capabilities of Goldman Sachs, our large open architecture platform," said Mary Athridge, managing director of Goldman's media relations, in response to a query. 

"The strength of our brand [is] to serve their clients, and we strongly believe that’s a compelling proposition in this large and growing HNW market." 

Leveraging up 

Wunderli says Crestview is smart to dive into the wealth management arena.

“Crestview clearly didn’t want to be left out of the private equity wealth management party, especially when all the cool kids were going," he says. 

"But, instead of taking the time required to ramp up their industry knowledge and figure out how to compete with their contemporaries (who had a head start) for a landmark deal, they decided to tap three industry experts to do it for them. 

"All things considered, it could be a very smart move.” 

Depending on the circumstances, Wunderli says that by offering up stock, the company has more leverage and could purchase more with its $200 million. 

 “With private equity, there's rarely a hard-set amount. $200 million is a headline amount that shows potential acquisition targets they are for real,” Wunderli says. 

 “Interestingly enough," he notes, "$200 million isn’t really enough to buy even one large platform RIA ($15 billion AUM+) without the use of considerable leverage and/or stock. 

So, the plan could very well be to acquire one or two smaller RIAs ($2 billion to $5 billion) that match well with their big-picture vision, and build out from there. 

And as long as things are going well, I’m sure Crestview will be happy to continue financing acquisitions well beyond the $200 million level. If not, there will be plenty of others eager to step in.”

Meeting needs

Modern Wealth is still sorting out custodians. The firm posted in its ADV that they intend to use Fidelity and Schwab, although they are not doing so now; they are using TD Ameritrade, which will soon be folded into Schwab. 

“We got ahead of ourselves," Gordo says. “We're very much interested in an open custodian platform.” 

When United Capital was formed in 2004, Capelle says the firm helped get advisors to an RIA-based platform, and now that won't be as big of a push, since much of the industry has moved to fee-based planning.

“There was a lot of focus on moving from commission to fees, and that was still kind of cutting edge. We're trying to take it where things are today and develop a full set of services to meet clients where they have multiple financial needs," Capelle says. 

One key difference here is there is no technology play, Capelle says. “We aren't going to build up an advisor platform that we commercialize and make available to advisors.” 

Standing apart

When United Capital sold to Goldman, executives said they wanted clients to have access to the giant firm's expertise.

But the founders at Modern Wealth say their firm will hire CPAs, attorneys and debt specialists on staff to provide a wide range of planning services for clients and advisors. 

Advisors will sell their businesses and will gain either cash or equity, or a combination of both, and will become employees and use Modern Wealth Management's brand. 

United Capital had some independent contractors, and advisors paid to access resources and the platform, but that's not the case here. 

“Roth, Capelle and Gordo are three proven stalwarts of the industry who have repeatedly proven the ability to create and grow RIAs," says Wunderli. 

Between them, they have a strong and extensive network of advisors, RIAs, COIs and vendors to potentially work with.

"Credit to Crestview for recognizing that these guys are in a better position to get them in the game than they are alone.”