Private Advisory Group, the Morristown, NJ-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 launching an advisory alignment and equity program with the help of Merchant to provide its 700 advisors with a direct economic stake in the RIA.
“To my mind, this is a very suggestive inflection point within the overall profession to move to the next level of alignment, where we have always been committed to our mentors, we have always put them at the center of everything we do. ,” PAG CEO RJ Moore said in an exclusive interview WealthManagement.com, “But when you move from a commitment to investing in each other, the psychology changes materially. And the reason that psychology changes materially is because of the reinforcement that happens when decisions are made — or So at the advisor level, at the client level or at the private advisory group level – now become a lot more interdependent and interrelated.”
PAG consultants are eligible to participate in the program regardless of their tenure, and the firm will offer it to advisors wishing to join. But consultants may decide to opt in.
The program will be launched in Waves, and will be administered through an LLC, PAG Growth Partners, which acts at the intersection between merchants, PAG and the advisors themselves.
Moore could not provide details on the economics being offered to consultants, except that they would be competitive relative to the recruitment packages advisors can see in the market. An advisor agrees to contribute a portion of his revenue stream, usually between 10-20%, in exchange for cash upfront, calculated as a multiplier of the advisor’s revenue. They will also receive a part of the consideration in equity.
As the advisor’s practice grows, they continue to contribute that percentage of their revenue over time, and at a later date, when a monetization event or strategic transaction occurs, they are required to contribute up to 50% of their revenue. is allowed to do. They will be compensated for the same at the multiples derived at the time of that transaction.
“Private Advisory Group is already a mature business; It already has valuations in the market that are quite compelling and certainly higher than most other large enterprises or OSJs,” said Moore. “So our advisors automatically participate from the foundation and stages of the private advisory group. have been and are benefiting.”
Moore said that in many RIA transactions in the market, owners are often disparate compared to advisors.
“The owners or founders are really capturing most of the benefits from a strategic transaction or some sort of monetization, and advisors are left saying, ‘Congratulations to you, but what about me?’ And that’s where the conversation of retention bonuses and all that stuff begins. It constantly kind of addresses where the alignment is,” he said.
Under the program, consultants still have complete control over their practices and still have the opportunity to generate income from their business.
Moore said the program allows consultants to engage with PAG on a different level around human resources, branding and the basic operations of the business based on that mutual interest.
Moore said, “You’re not sitting there like, ‘Okay, when are 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 consultants like, ‘Hey, are you bringing RJs here to essentially get the firm up for sale?’ And now you have the answer. It was a clear ‘no’ at the time, and it’s an even more emphatic ‘no’ now. It’s really about creating a joint community owned by advisors other than us, where we Can go to this country and provide independent advice where we have that kind of alignment.
PAG has also created a profit-and-interest program for its 48 employees. This program allows employees to hold an equity stake in the business based on performance metrics around profitability and valuations. The firm has more than doubled the size of its team in the last 12 months.