Insurance brokerage steers future toward consulting business

Global insurance brokerage firm Hub International Ltd. is pushing its way more aggressively into the retirement and wealth management consulting business.

Over the course of six days in September, the company announced the acquisitions of six retirement plan and private wealth advisory firms that collectively oversaw more than $11 billion in assets. The biggest firm — New York-based StoneStreet Pearl River LLC — served 102 plan sponsor clients with $4.6 billion in assets as well as 49 individual wealth clients with $22 million.

In addition, in a quiet behind-the-scenes deal that was not publicly announced, Hub also in September bought Global Retirement Partners LLC, the $40 billion registered investment adviser through which the six firms cleared their transactions.

"It was crucial for the adviser practices to stay with one RIA," said David Reich, the San Diego-based national president of Hub retirement and private wealth, referring to the six acquired firms. "They didn't want to be jumping around and end up with a shop that might not respect what they have."

In addition to StoneStreet Pearl River, Hub bought Inter-Mountain Retirement Partners Inc. in Colorado, WhartonHill Advisors in Fort Washington, Penn., Washington Financial Group in McLean, Va., and EPIC Retirement Services Consulting LLC and Perennial Pension and Wealth Inc., both in New York.

Terms of the deals were not disclosed.

Hub has been picking up advisory practices for the past two years as part of a strategy to diversify its businesses in insurance brokerage, personal insurance and employee benefits.

Since Mr. Reich's arrival from LPL Financial in 2017, the company has acquired some 15 firms, including Sheridan Road Financial LLC and its $14 billion in assets, which Hub purchased in January. In total, the company now has $38 billion in plan assets under advisement, up from $1 billion in 2017, according to Mr. Reich.

"They clearly want to be a leader in the retirement and wealth space, and this is just the continuation of that strategy by going out and looking for the best firms to acquire to put into their empire," Dick Darian, the Charleston, S.C.-based CEO of retirement M&A consulting firm Wise Rhino Group, said of the company's September buying spree.

Mr. Reich said he is looking to capitalize on what he sees as synergies between Hub's traditional insurance-related and employee benefits businesses and retirement and wealth practices run by advisers.

Insurance and employee benefit brokers as well as advisers deal with employers and speak to the same decision-makers, a situation that leads to tremendous cross-selling opportunities, as Mr. Reich sees it.

"We have over 400,000 commercial relationships in the United States, and so it creates a great value proposition for those advisers to come here and grow through our existing relationships," Mr. Reich said.

Mr. Reich's strategy is to reel in what he describes as a "great practices" in geographic areas where Hub has commercial business. He is looking at small and large firms alike, selecting firms based on the level of business Hub conducts in their locations. In markets such as New York, for example, where Hub has a significant presence, he tends to look for larger adviser practices with, say, $1 billion in assets, but in smaller towns where Hub does less business, a firm with $250 million in assets "can be a perfect fit," he said.

Hub joins a group of some 20 firms or "aggregators" that are gobbling up advisory practices as they succumb to fee and other competitive pressures. Due to a stricter regulatory environment and greater technology and client demands, firms "up and down the food chain" are consolidating, said Mr. Darian and other M&A experts.

"Every firm is looking for operational scale," said Dennis Gallant, a senior analyst at research and consulting firm Aite Group, Boston.

The oft-cited "consolidator feeding frenzy" is leading more owners of wealth advisory firms to consider selling their practices than in the past. Half of RIA owners and principals today are open to selling an external stake in their companies, up from 33% who were willing to do so just two years ago, according to survey of 168 RIAs conducted in April and May by consulting firm and investment bank DeVoe & Co.

Carolyn Armitage, a managing director at investment bank and consulting firm ECHELON Partners LLC in Manhattan Beach, Calif., reported seeing the same trend. "We do see sellers being more receptive or perhaps motivated to consider selling their business or a portion of their business in order to capitalize on the business cycle timing of the marketplace," she said.

High valuations are drawing many firms to the table, with 39% saying valuations affected their decision to consider a sale. Among RIAs with more than $1.5 billion in assets under management, the interest in selling due in part to high valuations is even greater, with 62% citing it as a factor, according to DeVoe & Co.

Advisers, too, are getting older, leading many to sell. "In some cases, aging principals are looking for the opportunity to exit the business," Mr. Gallant said.

By and large, though, competitive pressures are driving the consolidation of advisory firms. Many firms are selling to aggregators like Hub because they realize that they can no longer survive by merely providing plan design and compliance advice to C-suite executives as they did in the past, according to Mr. Darian.

"More and more what these companies are also interested in is for the adviser to work with the employees of the company to get them to the right retirement date," Mr. Darian said. "It's a whole different sport."

The ability to engage retirement plan participants as clients now expect requires technology, money and resources that only buyers with deep pockets like Hub can provide, he said.

The top 20 buyers — among them CAPTRUST Financial Advisors, the largest aggregator with more than $340 billion in client assets — are looking to differentiate themselves by promoting their technology, participant education and other strengths.

Hub, for example, is playing up its cross-selling potential, one of the key factors that attracted its six recently acquired firms, according to Mr. Darian.

Hub's commercial relationships "create a one-plus-one-equals-three synergistic opportunity for advisers to grow their practices," Mr. Reich said.

Mr. Reich expects to squeeze in one more acquisition before the year ends but declined to provide details of the pending deal. He also declined to discuss potential acquisitions in the pipeline for next year.

"Hub is not alone," said Aite Group's Mr. Gallant, adding that he expects a strong fourth quarter in M&A activity among other buyers of RIAs and wealth advisory firms.

"This is just the tip," he said.