Focus Financial Partners is a US-headquartered investor in independent wealth management firms. A business well-known across the states.
But it is the company’s expansion in the UK that has caught the eye of the financial advice market.
In January 2021, Focus subsidiary Connectus Wealth Advisers bought Cheshire-based Watterson Financial Planning. It was Connectus’ first foray into the UK.
Connectus is a “global consortium” of advisers that deliver wealth management advice through “access to expanded services, shared resources and best practices”.
It is not the first firm to eye up the UK financial advice market, as more US businesses look across the Atlantic to expand.
International Adviser spoke to Rajini Kodialam, co-founder and chief operating officer of Focus Financial Partners, about the company’s growth plans in the UK.
Why the UK?
“We always had the dream that the firm would be an international concept because we felt the ethos and the reason we started Focus resonated just as much in certain other markets,” Kodialam said. “US is always going to be home, it’s always going to be the lion’s share of focus.”
She added that Focus has several criteria when looking at prospective international markets, including scale and demographic or regulatory trends.
Kodialam said: “There needs to be an understanding of advice outside the banks, wirehouses and product providers. You need enough clients and advisers for us to jump in, and there are certain markets around the world where that is absolutely still not true.
“We also looked at demographics or regulatory trends like the retail distribution review, which actually played a big part in how our evolution in the UK grew, or the age of the adviser and the need for certain scale-based benefits like the increasing cybersecurity threats.
“It isn’t just about older advisers looking for succession, it is also younger advisers saying I came into this industry to be with my clients, but I seem to be sitting in the back office.
“Advisers sitting in these conflicted environments want to get out.”
Previous UK activity
While Watterson was Connectus’ first venture in the UK, that was not the case for Focus.
In 2008, Altrincham- and London-based Greystone became the first UK partner of Focus Financial Partners.
But that was 13 years ago, so it has been a long wait for another British addition.
Kodialam said: “We started by an acquisition into a firm called Greystone. The principals of the firm continued to manage the firm and soon after, we did a tuck-in M&A deal for them with a company called Harris out in Leicester.
“So, it wasn’t Brexit that brought us to the UK. But after Greystone, RDR and the financial crash came.
“In some ways, we wanted to wait and watch and be prudent. We think now is a good time. We feel comfortable.
“But at the same time, it is also a combination of things including comfort with the market, but also a model that we believe speaks more to the needs of the UK market, which is Connectus.”
Strategy
Now that Connectus is set up, Focus has plans for growth via acquisitions.
Kodialam added: “We certainly have a voracious appetite. We are very comfortable with the UK.”
The firm carries out direct deals, bolt-on mergers when large or small firms for various reasons become part of an existing partner, and after talking to advisers, the firm has found the “need for a third model”.
“We’re not the kind of people who build and assume they’ll come,” Kodialam said. “We’ve adapted to the market. Firms have been increasingly saying to us that the concerns of the advisers and clients are monetising and culture change.
“Connectus is a hybrid between a direct deal and a merger. The best way I can describe it is front of the house flexibility and autonomy, continue to work into your own brand, as part of Connectus. We don’t change the culture and your client experience.
“But they get all of the benefits of the middle office and the back office. Connectus is adviser efficiency, client experience, and a more comprehensive value proposition where the advisers maintain control of the front of the house.
“We’re not a private equity, we really like to roll up our sleeves and work with them.”
Number of deals
Kodialam did not want to put a number on how many deals the firm wants to do in the UK, as she said “there’s no ceiling on growth”.
“We’ve never set ourselves a goal to say Focus has to do certain number of deals,” she added. “We are extremely well capitalised.
“We have a voracious appetite to do deals, but the right deals. We approach every geography with the same intent, which is direct deals, mergers or bolt-ons for existing partner firms and Connectus. We never enter a market without an interest in growing.
“We are looking for good firms, good people with the right intentions of running firms that are profitable with a history of success.”
Firms will be under the Connectus Wealth Advisers umbrella after they are acquired. They will adopt the branding colours of Connectus but keep their names.
Kodialam said: “They will maintain their identity. They will have separate websites. We will be rolling out a platform or an advice system, which we hope is going to improve client experience and efficiency.
“I have no clue how Connectus will expand geographically. We’ll have to see how we do that.”
Regulation
Kodialam was asked how Connectus will deal with the compliance landscape in the UK with rising professional indemnity (PI) insurance premiums and regulatory levies.
“Does being part of Focus help with regulation? Yes, 100%,” she added. “Insurance is a scale-based game and we can certainly do better by that. We also have a pretty clear compliance regime. Compliance issues and regulatory issues, more often than not, come when the policies change.
“It is about maintaining prudent records, and claim disclosures, that in itself is a process that we have dealt with.
“A lot of smaller firms are already sitting on third party networks like Quilter or Sense. That is a prevalent practice in the UK and that is really why they’re sitting there, because the compliance and the insurance is being taken care of by them.
“It is not just compliance and regulation. One of the latest things, which is really getting scary and covid made it scarier, is cybersecurity. We spend a lot of time making sure that IT infrastructure is right, that you’re on cloud-based computing and cybersecurity is done right.
“There’s a lot of things that goes on in the back office. Being part of a small firm is very important. We love that the touch, the feel the human element, in the end, that’s what this business is all about.
“We want to build something that’s truly in the best interest of advisers and their clients. We are diligently working the UK market.”
