CAPTRUST takes on a partner to accelerate growth

CAPTRUST Financial Advisors LLC, a voracious acquirer of registered investment adviser firms, is looking to step up its growth even more.

Plump with an infusion of capital from its new private equity partner, GTCR LLC, the company now has the resources to scoop up much larger firms and continue to execute its strategy of "being unapologetically a growth company," said Ben Goldstein, CAPTRUST's Raleigh, N.C.-based president.

"The opportunities that we were seeing and that we liked were getting larger," he said, referring to the firms CAPTRUST would like to buy.

CAPTRUST by all measures is already huge. With $390 billion in assets under advisement, it surpasses rival firms that do both retirement plan and wealth management business. The mammoth RIA serves some 2,000 retirement plan sponsors with an average of $116 million in assets and has more than 700 employees and 43 offices around the country.

Still, it wants to get bigger. With sights on larger acquisitions to fuel additional growth, CAPTRUST in June broke with its tradition of independence and brought in GTCR, its first-ever private equity partner. GTCR bought a 25% stake in the company, committing to a minimum seven-year investment horizon. The investment valued CAPTRUST at $1.25 billion.

"We thought it was time in the maturation of our company to seek a great long-term equity partner," Mr. Goldstein said, adding that the company did not want to assume "an uncomfortable amount of bank debt" to take advantage of what he saw as a "massive opportunity" for consolidation among RIA firms over the next decade.

CAPTRUST has long self-funded its acquisitions, using company profits to buy them, according to Dick Darian, the Charleston, S.C.-based CEO of retirement M&A consulting firm Wise Rhino Group.

"To continue to grow, I think they felt they had to do more and bigger acquisitions," Mr. Darian said. "They wanted to make sure that they were able to identify the firms that they wanted, and they wanted to put themselves in a position where they didn't have to wait to acquire them."

While CAPTRUST is the first among large-scale hybrid retirement plan and wealth management RIA firms to bring in private equity, it's not what makes it different, according to industry observers.

Apart from CAPTRUST's size, what differentiates the hybrid RIA firm is its dominance in the retirement plan business. Of the firm's $390 billion in assets under advisement, about $365.5 billion, or 94%, comes from retirement plans. The rest comes from wealth management ($15.1 billion) and endowments and foundations ($9.8 billion).

"CAPTRUST in terms of scale is unique in the space," Mr. Darian said, referring to the firm's institutional retirement business. "They're retirement first and still dominate there."

More importantly from a competitive standpoint is the firm's ability to use its hefty retirement plan platform to gain access to the more lucrative wealth management business, Mr. Darian said.

The premium that GTCR paid for its stake in CAPTRUST was "100% about that," Mr. Darian said, referring to CAPTRUST's participant advice model.

GTCR did not respond to a request for an interview.

Interest in participant advice services among plan sponsors has grown as they have shifted their attention to participant outcomes and getting employees to retire on time, from participation and deferral rates, Mr. Darian said. "One of the final frontiers is now in-plan advice," he said.

At CAPTRUST, roughly 40% of its plan sponsor clients use its participant advice service with several dozen new clients joining each quarter, said Rick Shoff, managing director of CAPTRUST's adviser group in Raleigh, N.C.

The fee is typically paid by the plan sponsor from plan assets and is based on the number of participants with balances, he said, adding that "most plan sponsors are surprised at how reasonable the fee is compared to other benefits."

Indeed, the potential for growing its wealth management business was one of the factors that attracted Lakeside Wealth Management, a $1.6 billion Chesterton, Ind.-based firm, to fold its firm into CAPTRUST in June.

The so-called bridge into pri- vate wealth allows advisers to give participants "cradle-to-grave" advice, said Mark Chamberlain, Lakeside's founder and former CEO and now principal and financial adviser at CAPTRUST in Chesterton, Ind.

"To manage all these retirement plans when there's a private wealth opportunity staring you in the face," he said, "is really a wasted opportunity without the bridge."

Mr. Chamberlain said CAPTRUST has a team in Raleigh that provides "mini financial plans" to participants whose employers added participant advice services to their retirement plans.

While many firms want to build the bridge, CAPTRUST "has got it built and it's humming like a machine," Mr. Chamberlain said, adding that the firm has a "five-year head start" on its nearest competitors.

Bill Chetney, the Carlsbad, Calif.-based founder and CEO of GRP Advisor Alliance, a retirement industry distribution company, agreed that CAPTRUST has a strong lead among rivals in terms of engaging participants.

"They have the most infrastructure and traction in creating wealth management from a traditionally retirement-centric entity," Mr. Chetney said. "They have infrastructure around financial wellness and CFPs (certified financial planners) online who will talk to people about their general financial well-being."

Indeed, the "pivot from having a conversation with clients about their 401(k) plan to what the firm could be doing to help all their employees be financially well," is not hard, Mr. Shoff said.

Mr. Shoff emphasized, however, that CAPTRUST is not in the rollover business. "We're not meeting with the employees just waiting for them to leave to capture a rollover," he said, explaining that wealth management clients in most cases must have a minimum of $1 million in total investible assets.

Even though CAPTRUST is heavily skewed toward retirement plan consulting, it has long pursued both institutional and private wealth business, favoring a mix that's changed over time as opportunities presented themselves, Mr. Goldstein said. Looking forward, he sees "a tilt" toward wealth management firms as "logical," given that "the population of those firms are so much larger."