Just last month, private equity firms Stone Point and KKR bought a majority stake in RIA roll-up aggregator Focus Financial for a deal reportedly worth nearly $2B. And in the weeks since, Focus has been on an acquisition tear, buying a $18.5B of AUM from a series of ultra-HNW multi-family-office-style independent RIAs (in a world where by one estimate, Focus only had about $40B of AUM between advisory and some non-discretionary transactional accounts). However, the acquisitions don’t appear to merely be an effort to more rapidly grow revenue through acquisitions under new ownership; instead, it’s rumored that Stone Point may be encouraging Focus Financial to shift its business model and begin to encourage its advisors to cross-sell insurance, as life insurance in particular still has big-dollar potential amongst ultra-HNW clientele who still face substantial estate tax exposure.
The intended shift both helps to explain the recent acquisitions – which all focus on ultra-HNW clientele with estate tax concerns – and the willingness of Stone Point to make the Focus acquisition at such a high price point, recognizing the potential for expanding into a new revenue line (and akin to how PE firm Madison Dearborn monetized National Financial Partners since 2013, which also expanded into P&C insurance cross-sales to recognize a 10X valuation in just a few years). The caveat, however, is that the entire strategy is predicted on the advisors at independent RIAs engaging in insurance sales, in a world where many advisors join or found RIAs specifically to get away from the advisory industry’s product-sales roots, and may bristle at being asked to push any kind of insurance products, whether life insurance or property and casualty insurance. Nonetheless, the prospective shift is a good reminder that even as advisory firms evolve away from selling products to selling advice, the allure remains – for advisory firms, and the investors who may acquire them – to reintroduce the cross-selling of products given the trust that clients place in their advisors.