Deals & People July 28, 2022

The ‘Why’ Behind CAPTRUST’s First 2022 Acquisition

Rush Benton says the firm’s acquisition pipeline remains full of both large targets that would add significant scale and smaller firms that can be ‘tucked into’ CAPTRUST’s existing regional offices.
Reported by

This week, CAPTRUST Financial Advisors announced its acquisition of Frontier Wealth Management, a sizable advisory shop headquartered in Kansas City, Missouri.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Beyond its Kansas City office, Frontier brings an extensive Midwest footprint, with additional locations in St. Louis; Denver; Wichita, Kansas; and Omaha, Nebraska. As Frontier’s Founding Partner and CEO Nick Blasi tells PLANADVISER, Frontier offers a range of financial planning, investment, insurance and other wealth management solutions. In addition to serving individuals and families, the practice delivers advisory services to corporate retirement plans.

This deal marks the first mergers and acquisitions transaction that CAPTRUST has closed in 2022, and its 57th since 2006. Consistent with previous firms, Frontier will transition to the CAPTRUST brand.

Blasi says his firm’s leadership and staff are eager to get to work with their new CAPTRUST colleagues, and he cites CAPTRUST’s distributed equity ownership model as a major point of appeal. Frontier’s current book of business exceeds $4 billion in client assets across five locations, with 46 professionals in the firm.

Rush Benton, CAPTRUST’s senior director of strategic growth, says the addition of Frontier marks one of CAPTRUST’s more sophisticated acquisitions to date, as Frontier has itself engaged in meaningful M&A activity since its founding in 2007.

“Nick and his team have built an impressive business with many operational similarities to ours, which, along with strong cultural alignment, creates an excellent fit for CAPTRUST,” Benton says. “Frontier understands and shares our method of one unified practice, and we are excited to see how they grow and thrive as we join forces.”

The Acquired Perspective

As Blasi recalls, Frontier’s early days were focused on growing a private family office business with an “all-inclusive” wealth management service model. After that side of the business had been developed, Frontier started its institutional-focused services by picking up some endowment clients.

Eventually, through a series of acquisitions, Frontier brought on board its tax-focused team in Denver and a small trust-focused team in St. Louis. The firm’s most notable transaction, Blasi says, was the acquisition of its current Omaha office, which focuses on institutional advisory services.

Blasi says Frontier has had a cordial competitive relationship with CAPTRUST for many years, but the possibility of an acquisition started to become a serious topic in the last year or two. While Blasi sees himself as having a long runway in the industry, the firm began to focus on the importance of longer-term strategic planning and business continuity. It also began to consider whether the firm would be better off joining a larger entity that could take on the incredibly difficult aspects of back-office operations, from cybersecurity to marketing to investment services.

“The reason why we went with CAPTRUST, apart from the cultural fit, is the fact that they have such extended and scalable capabilities,” Blasi says.

He also observes that the firm’s staff feels enthusiastic and optimistic about what comes next.

“For me as a leader of the business, it feels great to be able to bring our people into an environment where they now have expanded career opportunities,” he adds. “We have a lot of young, talented people working for us, and they now have the opportunity to grow with such a great company. Importantly, they also have the opportunity to participate in and benefit from the growth of CAPTRUST.”

CAPTRUST, Frontier and their peer firms face several challenges, Blasi says, but he notes that the advisory industry is poised for tremendous success if it can meet them. Beyond the traditional challenges of securing high organic growth rates and keeping existing clients happy, there are new competitive pressures emerging as consolidation remakes the industry and new players seek to win influence in the space. There is also the “decumulation challenge” to consider, and a shifting regulatory framework for rollovers and prohibited transactions.

“One challenge that is not spoken about quite as much as it should be is the battle for talent,” Blasi adds. “There is no question that recruiting great talent is as difficult as it has ever been for this industry, and I don’t think that is going to change. This is another reason why scale matters and why things like the stock ownership program here at CAPTRUST matter. The smaller companies will struggle with this.”

The Acquirer Perspective

Benton says CAPTRUST is gratified to have revealed its first deal of 2022, after a red-hot 2021 for both the firm and industry M&A activity in general. He is adamant that the pace of M&A is not slowing down, despite some conjecture that increased market volatility and recession fears are raining on the parade.

“Are things slowing down? I would tell you that, from our perspective, things are not slowing down at all,” Benton says. “Sure, it is already late July, and we are just now announcing our first deal of the year, but frankly, that’s just a question of timing. We were busy at the start of the year closing some of the major deals we announced in late 2021, and this was a complicated transaction, with Frontier being a bigger and more sophisticated firm.”

Benton says CAPTRUST could end up inking roughly as many deals this year as last, which portends a busy fall for M&A news.  

“Look, we also don’t have a specific pre-set budget for the number of deals we are trying to do in a given year or given time period,” Benton says. “The main event remains taking care of our clients and growing organically. It’s a bonus that the M&A pipeline is very full. We are already looking at other large firms that will add substantial scale, and we are also looking at smaller firms with great talent, which we could tuck into our existing regional offices.”

Benton says Blasi has already introduced CAPTRUST to one such firm in the Kansas City region, and that a deal is being worked out to bring this group in.

“Part of the national M&A strategy is the realization that talent is scarce. You need to pick up talent wherever you can find it, and you need to be flexible,” Benton says. “Today, we have a more dispersed corporate workforce than we have ever had before. We have a centralized trading desk, yes, but the professionals running the desk are actually spread across two or three locations in the U.S.”

Benton says the accelerated pace of M&A activity and the increasingly dispersed nature of the firm’s talent puts an emphasis on protecting and emphasizing a collaborative firm culture.

“In an environment like this, you just have to be so purposeful about understanding and managing the culture,” he says.

Client Service July 26, 2022

Could ‘Buy Now, Pay Later’ Trend Weaken Savers’ Financial Wellness?

Some ‘buy now, pay later’ services promise no interest or fees and no impact on a consumer’s credit score—but that is only if the user lives up to all the terms and conditions.
Reported by

Art by Bill Mayer


Advertisements for “buy now, pay later” services seem to be everywhere.

When consumers buy something online—even if it is relatively inexpensive—they will likely be offered such a service, also known as a “point-of-sale installment payment plan.” Many services require a 25% upfront payment at the time of purchase, with the balance due in three remaining payments.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

One provider in this vein is Affirm, which makes this pitch on its website: “Make 4 interest-free payments every 2 weeks. Great for everyday purchases. No interest or fees; no impact on your credit score; set up easy, automatic payments.”

Apple recently grabbed headlines when it announced that it would soon be launching a buy now, pay later program within its Apple Pay feature. But Apple and Affirm are far from the only companies starting up new BNPL financing services. Other firms doing so include Afterpay, Zip (formerly known as Quadpay) and PayPal, with its ‘Pay in 4’ service.

Advisory professionals say these services could be useful for some consumers, but they also carry risks, including  overspending and incurring overdue payment costs. Accordingly, these services’ growing popularity raises the question: Should plan advisers be concerned that overspending debt might adversely affect plan participants’ savings rates and overall financial wellness?

American Consumers Already Carry Substantial Debt

American consumers hold a large and growing amount of personal debt. According to Experian’s Consumer Debt Review 2021, total consumer debt balances increased 5.4% from 2020 to 2021, reaching $15.31 trillion. This is a $772 billion increase and more than double the 2.7% increase from 2019 through 2020. (All stats are as of each year’s third quarter.)

Mortgages and auto loans constituted the two largest components of the typical consumer’s budget, and the study found those categories also increased the most over the previous 12 months. Specifically, total mortgage balances grew by 7.6% to a total of $10.29 trillion during 2021, and the total auto loan and lease balance grew by 8.9% to $1.47 trillion. Student loan debt grew by a far more modest 1.9%, reaching $1.6 trillion.

Despite the overall debt level increase, however, Experian reported that delinquencies remained low. The report cites three likely causes for this: a 4.2% increase in wages between September 2020 and September 2021; pandemic-related federal assistance programs, including multiple stimulus checks and the ability of many borrowers to pause debt repayments; and savings from refinancing mortgages at lower rates or on more favorable terms.

Who Is Using BNPL?

In this environment, BNPL is attracting more users, but the evidence remains mixed regarding which populations are most commonly leveraging the service.

In March 2022, LendingTree surveyed BNPL usage and found that 43% of Americans had used BNPL, up from 31% in the 2021 survey. Usage declined with age, ranging from a high of 58% with Generation Z to 22% among Baby Boomers. Notably, lower household income does not appear to make BNPL usage more likely, at least in the LendingTree sample. For example, 39% of consumers making less than $35,000 have used such a service, while 50% of those making $50,000 to $74,999 have done so. In the income brackets above this, usage dipped back down; 41% of those making $100,000 or more reported using BNPL services.

The Federal Reserve’s May 2022 report, “Economic Well-Being of U.S. Households in 2021,” found a stronger link between income and BNPL use. According to the report, people with lower incomes and less education used BNPL more.

“Around 13% of those with income below $50,000 used BNPL in the prior year, compared with 7% of those with an income of $100,000 or more,” the Federal Reserve report says. “Similarly, 14% of people with less than a high school degree used BNPL, compared with 8% of those with at least a bachelor’s degree.”

According to LendingTree, BNPL charges were most common for clothing, shoes and technology, while home décor items and accessories were also frequently purchased via BNPL services. 

BNPL’s Risks

The LendingTree study highlights several potential strains that BNPL services can put on consumers’ finances, regardless of their income level. Nearly 70% of all BNPL users admitted to spending more than they likely would have if they had had to pay in full at the time of purchase.

“Put simply, BNPL is encouraging many people to buy things that they can’t actually afford,” says Dani Pascarella, founder and CEO of financial wellness app provider OneEleven in New York City. “Most of the time, these are spontaneous, discretionary purchases that otherwise would not have happened. “

As the LendingTree report notes, though, that’s the point of these loans: They can extend a tight budget and are “more easily available to folks with thin credit or bad credit and are cheaper than other options such as a retail credit card or a personal loan.”

That approach to using BNPL works without problems, provided the borrower makes timely payments, but that is not always the case. The LendingTree survey found that 42% of BNPL users had made a late payment on a loan, which included 25% who were charged a fee or interest due to the late payment and 17% who said they weren’t charged. Late fees and interest rates on missed payments vary among lenders, but they can be high. A recent NerdWallet review detailed rates and fees among the largest lenders.

The Consumer Finance Protection Board cites another risk. If a consumer has multiple purchases on multiple schedules with multiple companies, it may be hard to keep track of when payments are scheduled. And when there is not enough money in a consumer’s bank account, this can result in charges by both the consumer’s bank and the BNPL provider. Because of the ease of getting these loans, consumers can end up spending more than anticipated, according to the CFPB.

BPNL’s impact, if any, on a borrower’s credit score varies depending on the credit bureau. In an April 2022 working paper, Marshall Lux and Bryan Epps at the Harvard Kennedy School reported that TransUnion and Experian plan to include BNPL data on credit reports. TransUnion is working with both FICO and VantageScore to determine how best to include BNPL data in future credit score models.

In their analysis, Lux and Epps noted that including BNPL data could help generate better credit scores for consumers without credit history and help build credit for consumers with existing weak credit. But including these loans could damage a borrower’s credit score, particularly if issuances of BNPL credit are considered “single installment loan accounts” that are quickly opened and closed.

A Crowding Out Effect

Sources agree that a major potential downside to BNPL is the negative impact of higher consumer debt on financial health. It’s a crowding out argument: More money spent on debt service means less available in the budget for everyday expenses, savings and other goals.

“Debt is the number one barrier to retirement savings and other important long-term financial milestones, such as home ownership or the pursuit of higher education,” says Pascarella, whose firm works on both direct-to-consumer and employer-based financial wellness. “Monthly debt payments can add up quickly and put a lot of strain on a household’s budget. When you’re struggling to pay off your debts and afford necessities each month, that immediate cash need takes up all your financial mindshare and saving for the distant future becomes an afterthought.”

The growing availability of BNPL options could cause consumer debt to spike, agrees Jill Gonzalez, a WalletHub analyst in Washington, D.C. Also, because these programs generally don’t run credit checks and don’t report debt, there is a high risk of default, she adds.

“Lenders are unable to check for this type of debt, which can cause them to underestimate potential borrowers’ debt-to-income ratios,” Gonzalez warns. “Another risk that results from these programs involves consumers racking up even more credit card debt to pay off their buy now, pay later installments.”

If programs such as BNPL lead consumers to overextend themselves, broader financial wellness could suffer, adds Nathan Voris, director of investments, insights and consultant services for Schwab Retirement Plan Services in Richfield, Ohio.

“We’re not seeing that yet, but in theory, as people add debt or pay with these kinds of programs, there is a potential for issues to arise,” Voris says.

«