FLPutnam Investment Management is entering the corporate trust business. $8.6 billion Massachusetts-based RIA is acquiring Darwin Trust Company, a New Hampshire managed trust business as it works to expand and add service capabilities that complement and support the firm's overall growth.
Reflecting a larger industry trend, FLPutnam has been building its menu of services since CEO Tom Manning took over in late 2015. At the time, FLPutnam managed approximately $1.4 billion and primarily focused on asset management for institutions, foundations and foundations.
The century-old firm has since added financial planning services for wealthy individuals and families, acquired an investment consulting company focused on alternatives and invested in digital 401(k) planning capabilities. Advice on insurance, wealth and tax planning is also offered, but the sale of the product and the signing of documents must still be handled by a third party. And while there aren't any prospects on the immediate horizon, Manning said the addition of a corporate pension plan division is an area of interest.
“If we were to do that, it would be through an acquisition of either individuals who have those relationships and have built that kind of capability or through an acquisition of a firm that already has an established capability in that area,” he said. WealthManagement.com. “It's one of those things that we're always mindful of and keeping our eyes out for that opportunity.”
Recent research BY WMIQ and investment banking firms MarshBerry found that the addition of ancillary services beyond asset management and financial planning is becoming increasingly common among VNRs, as clients leaving the institutional space are presented with a variety of increasingly sophisticated service models.
More than half of the 404 advisors surveyed over two weeks in December and January to learn how they are strategizing for growth beyond mergers and acquisitions said they already offer insurance planning and risk management (77%), estate planning ( 71%), tax planning (56%), corporate retirement (54%), philanthropic planning (54%) and succession services and business planning (53%). Less than half offer trust services (46%), digital advice (28%), concierge and lifestyle services (27%), investment banking (27%) and tax preparation (21%).
Just over a fifth of advisors said they are interested in adding digital advisory capabilities, while continuity services were cited slightly less. Philanthropy and concierge services were identified as areas of interest with 16% each, followed by tax planning with 14% of respondents.
The research found that trust services are more likely to be outsourced, with 37% of advisers providing the services saying they rely on a third party to do so. Almost a third produce estate planning and investment banking, while a quarter outsource tax planning.
Firms like FLPutnam with long-term aspirations may be better off bringing certain ancillary services such as trusts in-house, according to MarshBerry's Rob Madore. Firms seeking growth before an eventual sale or merger may benefit more from outsourcing to avoid eventual redundancies and added expenses.
“Independent firms that want to stay independent need to be really clear within their business about what they source and what they outsource and how it ultimately relates to their long-term plan,” he said. “If they're building something to potentially join a larger firm through acquisition or merger, outsourcing might make more sense. If they're building to be the 'thing' and continue to grow independently and try to hit that 15% year-on-year, then you start looking at bringing these things in-house.”
Many firms—of all sizes—are building home owner services from the ground up. Others are buying or investing in established providers that they consider capable and compliant. Most, like FLPutnam, are doing a combination of all of the above.
Manning said his firm is interested in bringing most, if not all, ancillary services in-house. This potentially includes a digital advice offering for younger, tech-minded customers. Buying is generally preferred, but there is no pressure to close a deal. Rather, the focus is on trust and confidence in the talent or business being acquired.
“Our goal as a firm is to be a complete wealth advisor and be able to provide those services to our clients,” he said. “But we have to be really careful about how and when and where we add them. We don't want to just bang on the door and try to do it.
“We haven't hired an investment banker to go out and try to find that kind of opportunity for us,” he said. “If that's going to happen, it's generally going to come through the network that we already have, and it's going to be to bring in individuals that we know and trust and think can run that business on our behalf to make it a other added value. service to customers who may wish to participate in it.”
Recruiting is handled the same way, Manning noted. Instead of searching on a need basis, he said FLPutnam is able to be more opportunistic and cited a wish list of industry talent the firm is expecting to open at the first opportunity.
Earlier this year, FLPutnam appointed its first chief of the people, former global head of wealth management talent acquisition for BNY Mellon | Pershing, Molly O'Conner.
“It was the right person at the right time to bring in a very important position,” Manning said. “We've brought in a lot of people. We're definitely in that process with the Darwin Trust, we've been in discussions with a few others and we expect to bring in more people this year and for years to come.
“So Molly will be the first point of contact for anyone joining the firm, whether it's finding the right person to have a conversation about X or trying to understand how we do Y. She will work to ensure they get everything they need to do their jobs effectively.”
With more than $6.5 billion now under management and another $2.1 billion in assets under advisement, FLPutnam has been named the WealthManagement.com's RIA Edge 100 list for the second year in a row. Culled from SEC data, the list identifies top industry growth RIAs that proactively maintain or improve client service levels through added talent and, increasingly related, more capabilities.
“We've seen really big growth over the last year,” Manning said. “We will continue to look opportunistically at building the company and adding people and parts that add value to the services we already provide to our customers, whether that's the depth or breadth or ancillary services that we know our customers are interested. And we're just going to keep marching down the same road and be very thoughtful but open to opportunities as they present themselves.”
According to WMIQ/MarshBerry research, there's no consensus among most RIAs as to why they're adding services — and Madore said many times they're getting them for free at the expense of revenue and, ultimately, firm value.
“Whether it's an offensive, revenue-producing item or more of a value-added service on the defensive side, it requires an investment,” he said. “That investment may be time alone, or it may be time and capital, but firms must consider how that investment will affect their ability to compete in the longer term.
“It makes sense for a firm like FLPutnam to bring the trust in-house because they obviously want to remain their company,” he added. “But there are many nuances. In general, I would say that the customers a firm wants to serve on an ongoing basis should dictate what services they provide. They should look at their book of business and see if there is a need. If it's a very strong need, they should probably look at building it. If it's something that isn't in their playbook or doesn't provide that much additional value, it might be a better idea to partner with.
“And, if you're only doing it because you're reading about it in an article like this, you probably shouldn't be doing it at all.”