John Lefferts' Blog

Tuesday, June 12, 2012

Fly With The Eagles

“Fly with the eagles or scratch with the chickens”. It’s an old but often used line describing one in an exclusive position soaring to heights while the others remain among the rest of the rank and file scratching in the dirt. On the insurance side of the business, there have long been exclusive producer groups that formed as the industry was enduring profound change from career producers to independent firms (still happening). Over 30 years ago, M Financial was one of the first to launch as an elite group of producers/owners who came together to leverage their collective clout, quality of business and expertise for differentiated product and services offerings. It became an exclusive club that you had to be invited into while the rest of the industry was managed down to the lowest common denominator(i.e. scratching with the chickens). About a decade later, Partners Financial hatched under a similar strategy with the same level of exclusivity and superior support services for the independent elite firm. And as you may know, Partners morphed into a roll-up in the late 90’s as NFP. To this day, M and NFP are the only two scaled elite insurance based producer groups that have a history of success, although one could question how the NFP roll-up strategy may play out. As Pres./CEO of AXA Advisors a while ago, we hatched an “internal producer group” in the early ‘00’s called “Paramount Planning Group”. But in the end, they were always still part of the AXA mother ship and could not ever completely separate from being managed to the lowest common denominator. Even though it is the early adopters who make out the best as founders of these producer groups, I find it curious that no other has gained the level of success and acclaim as M and Partners have accomplished.

In today’s financial services business, we are enduring perhaps the most disruptive period of time any of us have ever seen. Long time powerhouse wires are being marginalized, regulations are shifting and the economics of the business are forcing the little guy to find a scaled partner while the proprietary models implode. There isn’t a single financial services practitioner I speak with who isn’t in the middle of evaluating their practice, firm affiliation and structure.  Similar to the era in the insurance industry when M and Partners were formed, the environment for a new model to emerge in the investment management/advisory business is as ripe as it is ever going to get. We’ve seen several roll-ups come and go over the last decade, Focus Financial being the most prominent today. But ask some of the NFP folks about how a roll-up works. They know how that story plays out having lived it. We’ve also seen the emergence of firms targeting the corner office wirehouse team such as HighTower. They have a great model but it seems built as a life raft for the wirehouse broker not quite ready to be in business for themselves. Recently you may have read about a firm in the concept stages called Advizent which seems to have identified the huge need and desire for RIA firms to join together for scale, share intellectual capital and offer differentiated services. But with a goal to reach 1,500 RIA membership firms, one wonders how exclusive this group really is. It looks more like a collective bargaining union membership to me.

As the industry continues to evolve, I’m certain we’ll see multiple new models pop up as the business de-fragments and collects towards this new norm we’re fumbling around to find. But I keep thinking about the success of M and Partners (pre-NFP roll-up) in the insurance business having endured the test of time and how that same culture of exclusivity, differentiated products and support, sharing best practices with elite firms and common ownership that truly ties the best with the best, can be implemented within the RIA business. An RIA Network that is invitation only where the advisors take an ownership stake in the entity offloading centralized services (compliance/legal/HR, etc.) while having access to capital for tuck-ins as the business consolidates. A true community of sharing best practices but at the same time remaining 100% fiercely independent.  Access to best of breed technology, products and services as vendors clamor to affiliate with these elite players at the most reasonable cost. And potentially increasing firm valuation multiples by 2X as you grow revenues faster than going it alone. Can the M Group/Partners type model launched over 30 years ago be one that can successfully apply to the quickly evolving RIA business? Rumor has it that a model that holistically cuts across advice, investment and insurance is in the works. Time will tell…

“Innovation is resisted by individuals who are unwilling to risk the status they have achieved and jealously guard their own job against any change”

“The trouble with our times is that the future is not what it used to be”

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