Investment News ~ August 07, 2000
Small advisers proving hard to consume
Michael Fritz
Though several ambitious efforts to consolidate small-fry financial advisers have stalled, Centurion Capital Group Inc. appears to be off to a solid start.
The La Jolla, Calif., financial services holding company last week acquired the BJ Group Inc., an obscure but successful mutual fund allocation business run by two high-profile investment newsletter publishers, Sheldon Jacobs and Robert Brinker.
``Everyone is trying to fit acquisitions into one neat hole, and you can't do it that way. We are trying to be different,'' says Joseph Duran, president of Centurion Capital Management, a subsidiary that targets advisers managing more than $250 million who usually are willing to relinquish day-to-day business operations.
Centurion executives say the ultimate purchase price of BJ Group depends on its achievement of certain profit goals, but an investment banking source estimates that the business may have fetched $15 million to $20 million.
BJ Group's assets under management - $613 million through last December, according to regulatory filings - have been growing at 30% to 50% annually over the last six years, according to Centurion.
Mr. Brinker, publisher of the newsletter Marketimer, host of the weekly network radio show ``Moneytalk'' and chairman of BJ Group, declined to comment. Mr. Jacobs, president of the advisory business, did not return telephone calls.
Tough sledding
Outside of Centurion and National Financial Partners in New York, which is continuing plans to acquire 200 to 300 high-end, insurance-oriented advisory firms over the next four years, few financial adviser consolidation efforts appear to be on track.
Canadian financial services marketer Assante Corp. of Winnipeg, Manitoba, has yet to act on an acquisition plan unveiled last fall. It wants to add $6 billion in assets under management by acquiring 20 fee-based advisers over 18 months.
Centurion, which markets wrap accounts, money management and trust services to 700 advisers and stockbrokers, announced plans last November to accumulate up to $10 billion in assets by acquiring 10 to 12 advisory firms annually over the next three years. It manages $1.4 billion, not including BJ's assets.
The BJ Group's acquisition by Centurion's capital management unit is the third such deal this year. In the first quarter, Centurion's Financial Advisors Inc. unit bought Hinds Financial Group Inc., a Lakewood, Colo., planner managing $105 million, and Hesse Financial Advisors, a Roswell, Ga., firm managing $125 million.
Some industry observers say the independent nature of advisers makes them poor candidates for a large-scale consolidation play.
``By definition, they are difficult to buy,'' says W. Patrick Clarke, president and CEO of Clarke Lanzen Skalla Investment Firm Inc., an Omaha, Neb., marketer of separate accounts sold through independent advisers. ``I would also think they would be hard to manage after you owned them.''
Dividing the spoils
While Mr. Brinker and Mr. Jacobs no longer will run the company, they have signed multiyear contracts to continue providing asset allocation advice to BJ clients, says Mr. Duran.
The deal doesn't include Mr. Jacobs' No-Load Fund Investor newsletter or Mr. Brinker's Marketimer publication.
The private equity unit of Putnam Lovell Securities Inc., which bought a 24.5% stake in Centurion last October, is backing Centurion's consolidation effort (InvestmentNews, Nov. 15, 1999). The holding company also is financing acquisitions through a $25 million revolving line of credit with Unionbancal Corp. in San Francisco.
BJ Group's 2,247 accounts through December 1999 held an average of $273,000. The advisory requires at least $100,000 to open an account and allocates customer funds into no-load mutual funds available through Charles Schwab Corp.'s fund supermarket.
Annual fees range from 1.5% of assets for accounts less than $500,000 to 0.6% for accounts under $4 million, generating an estimated $6 million annually.
Mr. Brinker, 58, and Mr. Jacobs, 69, are the principal shareholders. Mr. Jacobs' two children - Roy, 35, a Phoenix real estate agent, and Julie, 31, a financial adviser in Denver, each held 10% to 25% stakes in the business, according to a recent regulatory filing.
All BJ Group's employees are remaining and have received ``enhanced'' salaries and retirement savings, and health plan coverage as part of the deal.
Centurion's Mr. Duran hopes to increase the 14-year-old firm's asset base by attracting additional business from its existing clients through new product offerings such as separate-account management and trust services, as well as stepped-up marketing assistance.
In addition, Centurion plans to largely end BJ Group's longstanding custody and trading relationship with Schwab. It will transfer the bulk of the accounts to Centurion's Phoenix trust company unit, which has custody of $1.7 billion and operates its own fund supermarket.
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Category current
Keywords centurion
AI
