Baird and Hefren-Tillotson agree to further reduce brokerage ranks

While a major wealth manager and a medium-sized company that he agreed to acquire don’t share many details about the deal, it’s just the latest example of a brokerage opting to bow to a larger partner.

Baird has reached an agreement to buy Pittsburgh-based Hefren-Tillotson for an undisclosed amount, with more than 90 financial advisers currently managing $18 billion across six branches expected to join the acquiring company by October after a scheduled closing. in June, businesses noted earlier this week. After deal adding to Milwaukee-based Baird’s biggest contract ever since the acquisition of Hilliard Lyons in 2019, the companies did not make any executives available to discuss the transaction.

Although these notable transactions have increased in volume and size at an all time high for at least eight consecutive years in wealth management, such acquisitions often trigger a recruitment struggle to retain the incoming firm’s advisers, a custody transition, and the closure of the sellers’ brokerage firm. In fact, the number of brokerages fell 17% to 3,435 between 2013 and 2020 amid industry consolidation, according to the Investment Adviser Association and National Regulatory Services.

Baird’s agreement to acquire Hefren-Tillotson is not surprising, especially given Hilliard Lyons’ earlier transaction, said John Eubanks, director of investment bank Park Sutton Advisors, which represents RIAs and other practices in mergers and acquisitions transactions.

“Those like Baird must continue to grow, and the best way to do that is to acquire broker-dealers where they can consolidate their operations, reduce costs, and gain scale and efficiency so that those broker-dealers remain profitable,” he said. . “Brokers that are big enough and have the scale to stay profitable can acquire smaller brokers. This reduces operating costs and hence there is margin expansion. They gain profitability by doing this, and they also add to the RIA business when they acquire a company that has both, like Hefren-Tillotson.

Like Baird, Hefren-Tillotson is a W-2 employee consulting firm and its RIA and brokerage will merge with Baird’s after the deal closes, according to Baird, which will also be the custodian of all client assets. The parties did not specify whether Baird will pay retention bonuses to advisers who will remain during the transition and how many Hefren-Tillotson employees the acquiring company intends to retain after the transaction.

Representatives for Hefren-Tillotson, which currently uses BNY Mellon’s Pershing as a custodian, did not respond to requests for comment.

Representatives for Pershing declined to comment. Although he is one of the largest custodians in the industry and has added a record $161 billion in net new assets in custody or administration in 2021, Pershing recently lost a lot of business to LPL Financial due to three mega recruitment moves in the banking and credit union channels and a merger and acquisition deal that has seen Waddell & Reed’s wealth manager changes hands.

Similar to LPL, Baird is a self-clearing company that primarily uses the company’s own custodian, although it has a clearing agreement with Charles Schwab for certain families of mutual funds, according to to the firm’s SEC Form ADV brochure. This means that Hefren-Tillotson’s advisors and clients will change custodians, in addition to transferring their brokerage to Baird’s entity. Brokerages that turn into large companies through acquisitions are winding down or reorienting themselves to limited-use entities. Consolidation can lead to job losses, as in the case of more than 200 company employees from Waddell & Reed who received severance offers after the LPL deal.

As a 74-year-old company, Hefren-Tillotson has 271 employees, including 175 who are registered representatives, 151 who are investment advisor representatives and 101 who perform investment advisory functions, including research, according to to its last ADV form at the end of August. Baird representatives did not immediately explain why the number of representatives and IARs listed here is different from the more than 90 referenced in the companies’ announcement.

The struggle to keep advisers in-house during the transition still raises the question of whether the acquiring company will pay a bonus to the brokers who remain after the transaction.

Baird will make the case to incoming brokers that its resources will enable them to attract and retain customers, and that retention bonuses do not need to add up to “total fair market value” like traditional recruiting offers for convince them to take the easier route to joining Baird, recruiter Mark Elzweig said in an interview.

“Some of the very small businesses struggle to provide their advisors with cutting-edge technology and keep up with all the latest developments or upgrades to advisor platforms,” ​​Elzweig said. “It will be enough for many of their advisers to give Baird a look. They’ll probably have to offer them something because, if they have reasonable production, all of those advisors will have plenty of options.

According to Elzweig, the parties are promoting Baird to potential incoming teams with a message revolving around new resources for greater scale and customer service.

“When we looked at Baird and said, ‘Look how our values ​​align and our mission statements are almost identical. “,” Hefren-Tillotson CEO Kim Tillotson Fleming said in a video about the deal Baird posted on YouTube. But we also see the advantage we have in seeing the capabilities that Baird can bring, that a large company can bring that also belongs to its employees but has even more resources so that our employees can serve customers well and really feel have the right abilities in their hands. One of the things that’s important to us is that, from the customer’s perspective, things don’t really change.

Either way, the wealth management M&A market is likely to hit record highs again in 2022, as long as the Fed’s interest rate decisions don’t upset stock values ​​too much this year. , according to Park Sutton’s Eubanks. The firm advised 25 deals last year, down from 16 in 2020. It compares RIA’s M&A volume to that of independent insurance brokers, which have been consolidating longer and still turning around. Share prices are unlikely to impact succession planning, with growing outside capital and RIAs currently fueling the heavy deal flow, Eubanks said.

“As long as interest rates stay low and capital is cheap, and the market doesn’t really continue to go down, everything that underpins these wealth management companies – all of these changes – will drive consolidation” , Eubanks said. “I think we’re still seven to ten years old, really.”

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