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by Phil Fiore
Diana Britton | Jul 22, 2024
While many in the financial advice business have for years focused on retail clients, some firms are finding that institutional clients, such as pensions and foundations, can pay off in a major way.
When advisor Phil Fiore started his career at Prudential Securities in the 1990s, the most common way to build a book of business was to “dial for dollars,” cold-calling complete strangers hoping to convince them to hand over their assets and invest in the latest preferred stock.
“How many times am I going to do that? How many times you get punched in the face?” he said.
He had a better idea—if he could land a client with a larger pool of assets, say, a retirement plan, he could access the people within that pool. A $20 million retirement plan client, for instance, could provide 200 participants as warm leads for his private wealth business.
Fiore has followed that thesis for three decades and now leads Procyon, a Dynasty Financial Partners-backed registered investment advisor with $7 billion in total assets, about $4.5 billion of which are institutional.
To be sure, the wirehouses
have been building their institutional consulting businesses for many years. In fact, Fiore built one of the biggest institutional consulting 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 on 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 premis for themselves and making concerted efforts to serve the institutional market.
One of the biggest RIAs in the country, 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 Mariner Institutional. Mariner’s existing retirement plan services team, which manages about $5 billion in defined contribution assets, will also be rolled up into that new vertical.
Marty Bicknell, president and CEO of Mariner, said his firm’s M&A strategy is primarily about talent acquisition, and the institutional expertise was “a gaping hole in our offering.” However, this new development also gives Mariner advisors access to the participants of those institutions to help them plan for retirement, he said.
“The institutional consultant very frequently will get asked, ‘Is what you’re doing available to me, or is it available to any of the participants that might be on the retirement side?’” Bicknell said. “And from AndCo’s perspective, they always had to answer ‘no,’ because they did not have a wealth offering. And so this gives us the ability for them to respond ‘yes.’”
But these are still only the initial stages of what will likely 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 Defined Contribution Institutional Investment Association.
“I think we’re at the early days of this next level trend, which is RIA aggregators purely in the wealth management side saying, ‘Well, having a connection to the retirement side, that institutional market can be a valuable way for us to diversify our business and create a pipeline into 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 defined benefit plans, endowments and foundations. In 2022, it picked up Portfolio Evaluations Inc., a Warren, N.J.–based firm with more than $107 billion in assets and several hundred clients. In February 2021, it added Cammack Retirement Group, with $154 billion in assets under advisement, and in August 2021, it acquired Ellwood Associates, with $85 billion in AUA.
Creative Planning’s acquisition in 2021 of the retirement plan business of Lockton, an independent insurance brokerage, which added $110 billion to the RIA’s assets, is another example.
Minsky said one factor driving the latest wave into 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 the institutional plan relationships and at a relatively low cost, and then potentially create through that pipeline, create higher margin wealth management business and ultimately create enterprise value,” he said.
This is a sentiment echoed by Fiore.
“Some of the current people that are coming in are just looking at the outright demographics and saying, ‘Hey, there’s going to be a load of money retiring in the next half a decade to a decade,’” Fiore said. “The best way to get in there is to have been doing the work on the 401(k) to begin with, and that will provide the ultimate entrée, I believe.”
Dick Darian, founding partner of Wise Rhino Group, which provides M&A advisory services for firms focused on the retirement and wealth advisory space, said wealth advisors used to go after individuals’ 401(k) rollovers, but a lot of those rollovers aren’t happening at the pace they used to. Either folks are leaving money in plans because it’s cheaper than having an advisor manage it, or the Captrusts of the world are getting to the participants first through the c-suite relationships, he said.
“If you are already in the c-suite, and you’re providing institutional retirement consulting to a company—defined as you’re helping companies design their plans, administer their plans, invest the money, communicate with employees—you’ve already got one foot in the door,” Darian said. “You might as well kind of keep going and begin to figure out how do I engage the employees and participants in these companies in a way that I can begin to have wealth conversations with them?”
That’s essentially what RIAs like Captrust, Mariner and Creative Planning are hoping to do. But these firms are using more sophisticated approaches to “worksite engagement,” Darian said.
Fiore said he’s not just going into a boardroom and talking shop with the board of trustees of the retirement plan. Instead, his team engages onsite with participants via 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 the new services to Mariner’s existing retirement plan clients. In fact, they already have 900 institutional clients.
Darian said Mariner’s existing retirement plans clients typically have $20 million and 500 participants on average, whereas AndCo is working with much larger plans.
“Marty could be thinking, ‘Well, look, that service could be migrated down market so we can provide a better product for smaller plans because now we have a more sophisticated firm that’s providing services in a different segment,’” Darian said.
Evolution of Traditional Consulting
Beacon Pointe was another RIA early to the institutional game. In fact, the firm started as an institutional consulting business when it lifted out a team from Canterbury Consulting in 2002. It had about $1 billion in AUA at the time, with a small base of private clients. The firm has about $6 billion in institutional business. Its retail business grew rapidly from the beginning.
The RIA went in reverse order than the industry has trended, building its wealth management business off the back of its institutional business. But Mike Breller, managing director, institutional consulting at Beacon Pointe, said the evolution of traditional consulting has driven more RIAs into the business, and in particular, the rise of the OCIO (outsourced CIO) model.
That model has allowed advisors to move from non-discretionary to discretionary management, a more scalable and higher-fee model.
Under the traditional consulting model, the consultant would advise the institution’s committee on recommendations for the portfolio, and when the consultant leaves, the committee would have to vote on those changes to approve them, Breller said. Then, the executives would have to go to their custodian and execute on those trades themselves. They only meet on a quarterly basis.
Under the OCIO model, the handcuffs are off, and the consultant has the discretion to make changes to the portfolio and execute those trades as ideas come up.
“This OCIO business segment represents a really large and fast-growing portion of every institutional opportunity that’s out there,” Breller said. “Being able to scale this institutional business that’s now set on OCIO model portfolios based on higher fees than the traditional consulting model, that’s more attractive for larger RIAs and wealth management firms today than it was in the old model.”
Breller said he’s now able to build a service offering that can be used by Beacon Pointe’s 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 that distribution channel.
“If it’s $100 million and you’re in New Jersey, you’re probably going to 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 back-end potential to market, close, manage the portfolio. All you have to do is service it,” he said.
Build, Buy or Lease?
While some firms, like 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 quickest way is to buy into the space.
In fact, Wise Rhino has made about 150 deals over the last five years, and almost all of them have helped retirement advisory businesses sell to retirement and wealth aggregators. That activity has been driven by buyers coming in with massive private equity money looking to expand or by 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 started to boom in 2018, 2019, and 2020, and by 2021, those accounted for over 75 of 252 total RIA transactions.
Once the deals close, Mariner Institutional will have 40 institutional consultants, and Bicknell wants to double 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 expand its expertise in that area further.
Another way to enter the space is to lease or outsource the work to someone who specializes in it. In fact, Procyon offers just that, where advisors can white-label its “Total Benefits Solution.” Procyon’s consultants do the work behind the scenes, administering the plan and executing the portfolio, while the RIA manages the relationship with the client. The firm currently has five individual RIAs and two large institutions it serves with that model.
