When advisor Phil Fiore began his career at Prudential Securities in the 1990s, the most common way to build a book of business was to “call for dollars,” cold-calling complete strangers in the hopes of persuading them to submit their assets and invest in the latest favorite stock.
“How many times am I going to do this? How many times do they punch you in the face?” he said.
He had a better idea—if he could provide a client with a larger pool of assets, say, a retirement plan, he could have access to people within that pool. A $20 million retirement plan client, for example, might recruit 200 participants as warm leads for his private wealth business.
Fiore has pursued that thesis for three decades and now runs Procyon Partners, a registered investment adviser backed by Dynasty Financial Partners with $7 billion in total assets, about $4.5 billion of which are institutional.
To be sure, wirehouses have built their institutional consulting businesses over many years. In fact, Fiore built one of the largest institutional advisory groups at Merrill Lynch and then UBS before going independent. Morgan Stanley's Graystone Consulting has roots dating back to 1973 and is still going strong.
There have been some early adopters in the RIA space, such as Captrust, which oversees more than $800 billion in assets, and SageView Advisory Group, which advises over 1,900 defined contribution, defined benefit and deferred compensation plans .
However, many in the RIA business are only now beginning to discover Fiore's premise for themselves and make concerted efforts to serve the institutional market.
One of the nation's largest RIAs, Mariner Wealth Advisors, acquired two institutional consulting firms, AndCo Consulting and Fourth Street Performance Partners, in early February, adding $104 billion in assets and 100 employees. The two firms will combine to form the foundation for Institutional Mariner. Mariner's existing retirement plan services team, which manages approximately $5 billion in defined contribution assets, will also be incorporated into that new vertical.
Marty Bicknell, president and CEO of Mariner, said his firm's M&A strategy is primarily about acquiring talent, and institutional expertise was “a gaping hole in our offering.” However, this new development also gives Mariner advisers access to those institutions' participants to help them plan for retirement, he said.
“The institutional adviser will very often be asked, 'Is what you're doing available to me, or is it available to any of the participants who might be on the retirement side?'” Bicknell said. “And from AndCo's perspective, they always have to say 'no' because they didn't have an offer of wealth. And so this gives us the opportunity to say 'yes'.”
But these are still only the beginning stages of what is likely to be a growing trend of RIA firms looking to connect institutional businesses with retail wealth management firms, said Lew Minsky, president and CEO of the Institutional Investment Association of Defined Contribution.
“I think we're in the early days of this next-level trend, which is RIA aggregators just on the wealth management side saying, 'Well, having a relationship with the retirement side, that institutional market could be a valuable way for us to diversify our business and create a pipeline in the wealth management business as well,'' he said.
The next wave
While Captrust has a history in the retirement plan space, the RIA has recently acquired more traditional institutional consulting firms that serve plans, endowments and defined benefit foundations. In 2022, she chose Portfolio Evaluations Inc., a Warren, NJ-based firm with more than $107 billion in assets and several hundred clients. In February 2021, he added Cammack Retirement Groupwith $154 billion in assets under advisement, and in August 2021, it won Ellwood Associateswith $85 billion in AUA.
Creative Planning's 2021 acquisition of Lockton's retirement plan business, an independent insurance brokerage, which added $110 billion to RIA assets, is another example.
Minsky said one factor driving the latest wave in the institutional space is the recognition that the retirement plan and wealth management businesses complement each other.
“You can get a pretty significant pipeline of potential wealth management clients through institutional plan relationships and at a relatively low cost, and then potentially create through that pipeline, create a wealth management business with margin higher and ultimately create enterprise value,” he said.
That's a sentiment echoed by Fiore.
“Some of the current people that are coming in are just looking at the sheer demographics and saying, 'Hey, there's going to be a load of money that's going to retire in the next half decade to a decade,'” Fiore said. “The best way to get in there is to have done the work in the 401(k) first, and that will provide the ultimate in, I believe.”
Dick Darian, founding partner of Wise Rhino Group, which provides M&A advisory services to firms focused on the retirement and wealth advisory space, said wealth advisers used to go after individuals' 401(k) moves, but many of those comebacks are not happening at the rate they used to. Either people are leaving money in plans because it's cheaper than having an adviser manage them, or the Captrusts of the world are reaching out to participants first through c-suite relationships, he said.
“If you're already in the c-suite and you're providing institutional retirement consulting for a company — defined as helping companies design their plans, administer their plans, invest the money, communicate with employees — you you've already got your foot in the door,” Darian said. “You can go ahead and start figuring out how do I engage employees and participants in these companies in a way that I can start having rich conversations with them? “
That's essentially what RIAs like Captrust, Mariner and Creative Planning hope to do. But these firms are using more sophisticated approaches to “workplace engagement,” Darian said.
Fiore said he won't just walk into a boardroom and talk to the retirement plan's board of trustees. Instead, his team engages on-site with participants through group meetings or webinars.
“We're active in the demographics of the participants, and I think that's why we've been so successful at that,” he said.
In addition to engaging participants, Bicknell said the acquisitions of AndCo and Fourth Street Performance Partners provided an opportunity to bring new services to existing Mariner retirement plan clients. In fact, they already have 900 institutional clients.
Darian said existing Mariner retirement plan clients typically average $20 million and 500 participants, while AndCo is working with much larger plans.
“Marty might think, 'Well, look, that service can be migrated to the market so that we can offer a better product for smaller plans, because now we have a more sophisticated firm that offers services in a next segment,” Darian said.
The Evolution of Traditional Consulting
Beacon Pointe was another RIA early in the institutional game. In fact, the firm began as an institutional consulting business when it spun off a team from Canterbury Consulting in 2002. It had about $1 billion in AUA at the time, with a small private client base. The firm has about $6 billion in institutional business. Her retail business grew rapidly from the start.
The RIA went in the opposite order than the industry tends, building its wealth management business on the back of its institutional business. But Mike Breller, managing director, institutional consulting at Beacon Pointe, said the evolution of traditional consulting has pushed more RIAs into the business, and in particular, the rise of the OCIO (outsourced CIO) model.
This model has allowed advisors to move from non-discretionary management to discretionary management, a more scalable model with higher fees.
Under the traditional consultation model, the consultant would advise the institution's committee on recommendations for the portfolio, and when the consultant left, the committee would have to vote on those changes to approve them, Breller said. Then, managers would have to go to their custodian and execute those trades themselves. They only meet on a quarterly basis.
Under the OCIO model, the shackles are removed and the consultant has the discretion to make changes to the portfolio and execute those trades as ideas emerge.
“This OCIO business segment represents a really large and rapidly growing portion of any institutional opportunity that's out there,” Breller said. “Being able to scale this institutional business that's now settled into OCIO model portfolios based on higher fees than the traditional consulting model, that's more attractive to the larger RIAs and wealth management firms today than it was on the old model.”
Breller said he is now able to build a service offering that can be used by Beacon Pointe wealth advisors across the country. Because the firm has discretion, its portfolio management decisions are all centralized, so advisors, whether they have that institutional background or not, can add to that distribution channel.
“If it's $100 million and you're in New Jersey, you'll probably refer it to our group and we'll do it all. If it's $10 million and it's in New Jersey, that group now has all of our end-to-end potential to trade, close, manage the portfolio. All you have to do is service it,” he said.
Build, buy or rent?
While some firms, such as Procyon and Beacon Pointe, have chosen to build an institutional business themselves, it can be difficult to do so from scratch given the long sales cycle. The fastest way is to buy in space.
In fact, Wise Rhino has done about 150 deals over the past five years, and almost all of them have helped retirement advisory businesses sell to retirees and wealth collectors. That activity has been driven by buyers coming in with massive private equity money looking to expand or sellers looking for a succession plan, Darian said.
In 2010, his firm was doing five to 10 deals a year in the retirement plan space; it began to flourish in 2018, 2019 and 2020, and by 2021, they accounted for over 75 of the 252 total RIA transactions.
Once the deals close, Mariner Institutional will have 40 institutional consultants, and Bicknell wants to double that over the next three years through a combination of acquisitions and traditional recruiting.
Breller said Beacon Pointe is also exploring acquisitions of one or more institutional OCIO businesses to further expand its expertise in that area.
Another way to get into the space is to rent or outsource the work to someone who specializes in it. In fact, Procyon offers exactly what advisors might call the “Total Benefits Solution.” Procyon's consultants do the work behind the scenes, manage the plan and execute the portfolio, while the RIA manages the client relationship. The firm currently has five individual VNRs and two large institutions that it serves under that model.