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$1.3B Cetera branch launches outsourcing and succession venture

Cetera Financial Group is investing in one of its major tax-focused branches by helping it launch a joint venture for succession planning and outsourced wealth services for accounting firms.

Farpointe Wealth Partners — a Dallas-area region of Cetera Financial Specialists spanning 13 offices with $1.3 billion in client assets — started the venture with Holland, Michigan-based DeLong & Brower Financial Services, the firms said on Nov. 30. As part of the deal, DeLong & Brower joined the branch, and Farpointe will make a minority investment into the practice. They’ll both retain Cetera as their registered investment advisor and Cetera Financial Specialists, where DeLong & Brower is the second-largest practice, as their brokerage.

Independent wealth management firms like Cetera are ramping up the ways that they work with their largest branches, which are often referred to in the industry as offices of supervisory jurisdiction. Unlike the locations of a bank, independent branches use a different brand from the national headquarters and provide compliance, operational and technology services to financial advisors’ practices in exchange for a portion of their revenue. Cetera and its five brokerages, including the tax-focused Financial Specialists unit, refer to their branches as “regions.” It and rivals such as LPL Financial and Advisor Group have been pushing in recent years to tap into the branches’ growth rather than squabbling over their complicated ties to the corporate office.

The venture between Farpointe and DeLong & Brower “allows us to expand and create more rapid growth within our own organization” while working at the intersection of tax and wealth management, Cetera Financial Specialists President Ron Krueger said in an interview. “It’s exciting times for us because we have all those big-company resources that Cetera Financial Group has, but we still have our small community that’s very focused on this space.”

Often joint ventures serve as a means of “exploring the opportunity in a less formal way” to find out whether “the partnership is going to work” before a future acquisition, according to John Eubanks, a managing director with investment bank and consultant Park Sutton Advisors. With the caveat that he wasn’t personally familiar with Farpointe and DeLong & Brower’s plans for the venture, Eubanks said it could enable Cetera and the branch “to offer the back office and investment advisory services” on an outsourced basis to certified public accountant firms.

“They can offer investment advice to their clients, and the RIA can serve as the back office and the investment manager, and it’s already up and running,” he said, calling it an attractive option for CPAs “until accounting firms get to a size that it makes sense to launch their own firm.”

Farpointe’s team views such outsourcing as “right in our wheelhouse” and “where we’re headed with this” joint venture, said co-founder Brian Stern. The company plans to use more of Genstar Capital-backed Cetera’s financing to buy CPA practices outright, eventually. For now, the venture with DeLong & Brower will recruit among tax, insurance and wealth management professionals and give any retiring advisors from Farpointe’s branch a backstop option for succession and other continuity planning. The combination of tax and wealth services offers clout among prospective clients who might otherwise need to go to different offices for them.

“It’s the ultimate niche because it’s a 100% addressable market,” Stern said. “It’s just super powerful to be able to combine the two.”

The joint venture will also enable DeLong & Brower to “expand our tax and wealth planning approach to a national footprint,” Managing Partner Joe Johnson said in a statement. “This type of venture is innovative in the industry and highlights Cetera’s commitment to actively facilitating advisor growth through meaningful strategic alliances.”

As a region, Farpointe has 26 licensed advisors who are part of the roughly 1,100 with Cetera Financial Specialists and 8,000 across Cetera’s five brokerages. The junction of tax and wealth management where the Financial Specialists unit has been operating for about four decades has been turning steadily more crowded over the past few years. Financial Specialists competes with similar firms such as Avantax, whose parent company just agreed to sell its software arm in order to focus on wealth management; Choreo, which launched as an RIA aggregator earlier this year after spinning off from a giant accounting firm; and Integrated Partners, an LPL branch that has referral agreements with more than 100 CPA firms.

National brokerages and RIAs are displaying more flexibility around ideas such as outsourcing and joint ventures. In years past, conflicts over revenue flows and rules often led branches to depart for their own platforms.

“Ron and Cetera have been extremely supportive of us in growing our business,” Stern said. “Unlike broker-dealers who are now competing with advisors, they’re actually a big growth engine for our business.”

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