Private Advisor Group, the Morristown, N.J.–based registered investment advisor and office of supervisory jurisdiction affiliated with LPL Financial, announced its first outside investor, Merchant Investment Management, last December. And today the firm is rolling out an Advisor Alignment and Equity Program, with Merchant’s help, to provide its 700 advisors with direct economic stake in the RIA.
“In my mind, this is a very indicative inflection point within the overall profession around going to the next level of alignment, where we’ve always been very committed to our advisors, we’ve always held them at the center of everything that we do,” said RJ Moore, CEO of PAG, in an exclusive interview with WealthManagement.com. “But when you move from a commitment to an investment in one another, that psychology changes materially. And the reason that psychology changes materially is because the reinforcement that occurs when decisions are taken—at either the advisor level, client level or the Private Advisor Group level—now become much more interdependent and intertwined.”
PAG advisors are eligible to participate in the program, regardless of their tenure, and the firm will be offering it to advisors looking to join. But advisors can decide to opt in.
The program will be rolled out in waves, and it will be administered through an LLC, PAG Growth Partners, which serves at the intersection between Merchant, PAG and the advisors themselves.
Moore couldn’t provide details on the economics being offered to advisors, except that they will be competitive relative to recruiting packages advisors may see out in the marketplace. An advisor agrees to contribute a portion of their revenue stream, typically between 10% and 20%, in exchange for upfront cash, calculated as a multiple of the advisor’s revenue. They’ll also receive a portion of the consideration in equity.
As the advisor’s practice grows, they continue to contribute that percentage of their revenue through time, and at a subsequent date, when there’s a monetization event or strategic transaction, they’re allowed to contribute up to 50% of their revenue. They would be compensated for that at the multiple derived at the time of that transaction.
“Private Advisor Group is already a mature business; it already has a valuation in the marketplace that is fairly compelling and certainly higher than most other large enterprises or OSJs,” Moore said. “So our advisors are automatically participating in and benefiting from the foundation and footings of Private Advisor Group.”
In many of the RIA transactions in the marketplace, there’s often a disparity between what the owners get versus advisors, Moore said.
“The owners or the founders are the ones really capturing the majority of the benefits from a strategic transaction or from some type of monetization, and the advisors are left saying, ‘Congratulations to you, but what about me?’ And that’s where the conversation of retention bonuses and all that stuff arises. This proactively addresses that in a way where there’s alignment,” he said.
Under the program, advisors still retain complete control of their practices and still have the opportunity to derive earnings off of their business.
Moore said the program also allows advisors to engage with PAG on a different level around human resources, branding and basic running of the business, by virtue of that mutual interest.
“You’re not sitting there wondering, ‘Well, when is John Hyland and Pat Sullivan going to sell and leave the business and what does that mean for me?’” Moore said. “When I joined, we had some of those conversations with advisors, about ‘Hey, are you bringing RJ in here to essentially prep the firm for sale?’ And you now have the answer. It was an unequivocal ‘no’ at the time, and it’s an even more emphatic ‘no’ now. It’s actually about creating a combined community owned by advisors in addition to us, where we can go across this country and provide independent advice where we have that kind of alignment.”
PAG has also created a profits-interest program for its 48 employees. That program allows employees to have an equity stake in the business, based on performance metrics around profitability and valuation. The firm has more than doubled the size of its team over the past 12 months.
