Listen to this article
A decade ago, brothers Nathan and David Kubik decided to build a business offering financial advice though neither had worked as advisers.
It did not matter. The brothers had three decades of professional investment experience and, after conducting some research, they decided to exploit an emerging shift in the market away from conglomerates like Morgan Stanley and Wells Fargo towards smaller firms offering bespoke advice to wealthy clients.
By 2011, the pair had become qualified financial advisers and had identified a target. They pooled their own assets to buy a small wealth management company in Colorado with $170m in client assets — a modest sum by industry standards.
Seven years on and Carnick & Kubik has acquired a further three wealth managers, pushing the company’s client assets to $827m at the end of last year.
The company now has 15 employees and offices in Denver, Colorado Springs and Houston. “In the next five years I would be confident we would be a several-billion-dollar RIA, assuming there are no significant changes economically,” says Nathan Kubik, who has taken the role of chief executive, while his brother is president.
The company was not the first deal the brothers collaborated on. In the final months before the tech bubble burst in 2000, they organised a symposium to link investors with capital-hungry technology companies. The summit resulted in several deals, together worth just shy of $30m, Mr Kubik recalls.
“That was our first taste,” he explains. “He [David] was 21 and I was 23 — we were very young. It’s so different from what we do today — except for looking at the underlying investment opportunities.”
Those skills have proven critical for the pair as Carnick & Kubik has sought to expand in a field experiencing a wave of consolidation.
The 153 RIA mergers and acquisitions in 2017 marked a 6 per cent increase on 2016 and the fourth consecutive year of record M&A activity, according to DeVoe & Company, an investment bank serving the wealth management sector.
More than half of deals were between established RIAs. Others involved financial adviser teams within larger national brokerages, known as “wirehouses”. There were also takeovers of smaller brokerages, as well as some RIAs breaking away to set up shop under another banner or on their own.
A popular development in this area is for financial advisers — including a large block of baby-boomers — to cash out of their practices and wind down their careers. In 2016, the average age of US advisers was 50, and 38 per cent planned to retire within a decade, according to research by Cerulli Associates.
As more advisers look to sell their practices, companies like Carnick & Kubik have an opportunity to grow further by acquisition.
“The RIA space is growing so quickly and a lot of the best teams at the wirehouses are leaving to start their own [companies] or come on board with another firm. It’s a big movement,” Mr Kubik says.
Carnick & Kubik targets investors with $1m to $10m in investible assets, who often are seeking bespoke advice on investments and how to structure their broader estates.
Most recently, wealthy clients have looked to the company to advise on changes to the US tax code passed in December. The tweaks doubled the limit on tax-free property transfer at death to $11.2m — although many wealthy clients want to organise their portfolios in case the estate tax reverts back, Mr Kubik says.
As the RIA industry has grown, so too has a range of service providers offering a suite of investment, research and technology tools for advisers.
In 2016, Carnick & Kubik partnered with one such firm, Focus Financial, which Mr Kubik says has given his company access to technology to bolster its investment research capabilities and improved compliance services to meet an intensifying regulatory landscape.
“Ultimately we control the company. We’re the ones that make the day-to-day decisions, but they have so many resources we can leverage,” he adds.
Get alerts on Wealth management when a new story is published