Deals & People July 8, 2021

M&A Update: CAPTRUST’s 50th, New SageView and Hub Deals

Even after years of accelerated consolidation of retirement plan advisory and wealth management firms, the pace of mergers and acquisitions is not letting up one bit.

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CAPTRUST Financial Advisors has announced its acquisition of Nachman Norwood & Parrott Wealth Management, marking the firm’s 50th acquisition since 2006. At the same time, Hub International has revealed its acquisition of the operating subsidiaries of TCG Group Holdings, while SageView has scooped up MJM401k.

In CAPTRUST’s case, the deal adds more than $2.1 billion in assets under management (AUM), while Hub’s acquisition brings on board $4.6 billion and SageView’s move adds $17 billion in client assets.

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The concurrent announcement of the deals highlights the continued record-setting pace of merger and acquisition (M&A) activity in the retirement plan advisory industry. As sources have repeatedly emphasized, substantial consolidation across the financial services space can be expected to continue for some time, resulting in highly scaled, centrally managed, well capitalized and broadly focused firms, many of which are rapidly buying the best performing firms in local geographies.

CAPTRUST Adds 50th Firm: Nachman Norwood & Parrott Wealth Management

Referred to as “NNP,” Nachman Norwood & Parrott Wealth Management provides financial planning and consulting services for high-net-worth individuals, qualified retirement plans, and endowments and foundations. The firm is mainly active in South Carolina.

NNP is led by partners Bob Nachman, Ben Norwood, Wes Boyce, Al Cannon, Maura Copsey, Gary Davis and Russ Miller. They bring with them an additional 10 team members. Consistent with previous firms that have joined CAPTRUST, NNP will transition to the CAPTRUST name and brand.

Speaking about the 50th acquisition milestone, Rush Benton, CAPTRUST senior director for strategic growth, says he is proud of the progress his firm has made toward achieving its longstanding and much-discussed goal of creating a premier national advisory firm operating under a unified brand and business approach. To this end, Benton observes, CAPTRUST has added 12 firms over the past two years, including five that have joined so far in 2021.

In terms of the integration process involved in unifying so many practices, Benton says the progress has been meaningful, in part because of the upfront effort to identify and pursue firms with compatible philosophies and business practices. He says joining CAPTRUST allows the incoming advisory teams to relinquish critical operational duties and instead focus their time and energy on taking care of clients and delivering sound financial advice.

“NNP has built a notable practice in South Carolina, a state where we have long had clients, and are excited to now have a physical presence,” Benton adds. “NNP’s three business lines, along with its dedication to the fiduciary model, made it a great fit for CAPTRUST.”

In a statement included in the announcement of the deal, Fielding Miller, CAPTRUST co-founder and CEO, says his firm has sought out acquisition targets that “not only add great talent to our firm, including dozens of former CEOs, but also new services, such as tax consulting and estate planning, to round out our offering.

“Our model of fully integrating firms, rather than just investing in them, means that we need to be that much more selective in ensuring a strong cultural fit and desire to emulate our mission of serving our clients, colleagues and communities,” Miller adds.

Hub International Expands in Texas

In another new example of M&A action, Hub International Limited announced it has acquired the operating subsidiaries of TCG Group Holdings, which does business as Trusted Capital Group (TCG).

Headquartered in Austin, Texas, TCG is an investment and consulting firm that provides financial wellness solutions including wealth management, retirement planning and institutional advisory services. The firm manages more than $4.6 billion in assets and serves more than 750,000 individuals across hundreds of plans in the education, local government and small to medium-sized business segments.

The deal brings the total client assets of Hub Retirement and Private Wealth investment adviser affiliates to approximately $105 billion.

“The acquisition of TCG continues our strategy to expand our retirement capabilities and add top talent in Texas,” says Martin Yung, president and CEO of Hub Texas. “TCG has a deep understanding of the retirement landscape and regulatory issues, which will significantly benefit our clients.”

Joining Hub from TCG are John Pesce, CEO; Jeff Montgomery, president; Scott Hauptmann, chief operating officer (COO); Chris Jamail, chief marketing officer; and the rest of TCG staff.

“Joining Hub will help us elevate our client offerings, in addition to our investment and retirement planning solutions, to continue to help our clients succeed,” Pesce says.

Through its acquisitions, Hub says it hopes to enable greater growth for the advisers it is bringing on board by supplying them with back-office efficiencies and extensive referral networks, in addition to other client-facing resources. Recently, this has included webinars and other tools to help employers cope with the challenges presented by the coronavirus pandemic, says Joe DeNoyior, president of Washington Financial Group, a former PLANSPONSOR Retirement Plan Adviser Small Team of the Year and part of Hub International since September 2019.

SageView Acquires MJM401k

In yet another recent significant deal, SageView Advisory Group has acquired MJM401k, an institutional retirement plan consulting firm based in Arizona and Southern California. The acquisition of MJM401k adds $17 billion in client assets to SageView, as well as eight employees and more than 100 retirement plans.

Founded in 2005, MJM401k provides retirement plan consulting services to its clients in a variety of industry sectors. The firm is focused on Employee Retirement Income Security Act (ERISA) fiduciary governance, plan investments, vendor selection and management, fee benchmarking, and supporting participants through retirement income planning and education.

MJM401k founder Michael Malone becomes a managing director at SageView. He shared the following statement about the deal: “MJM401k was built on the belief that employers of all sizes need independent, transparent advice in managing their retirement plans. Just as importantly, they need that advice to be provided by people who are both productive and trustworthy. I am immensely proud that our talented and dedicated employees have been able to meet those goals consistently over the last 16 years. By joining SageView, a firm that we have always respected for its expertise and its dedication to serving its 401(k) clients, we will not only be able to continue that approach, but we will also enhance it through the various features and services that SageView offers.”

Reflecting on the pace and future of retirement industry M&A activity, Randy Long, SageView founder and managing principal, says there is a lot of runway left to go. His personal perspective is that retirement adviser-focused deals will likely continue at the current pace for at least two more years before potentially slowing down. On the wealth management side, however, he says he sees potentially another decade of accelerated dealmaking.

Compliance July 7, 2021

ERISA Lawsuit Filed Against AAA Carolinas

The plaintiffs in the case say that when the plan switched to cheaper share class TDFs, participant accounts should have been ‘repaired.’

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Carolina Motor Club, doing business as AAA Carolinas, and subsidiaries of the American Automobile Association (AAA) club based in Charlotte, North Carolina, are accused of violating provisions of the Employee Retirement Income Security Act (ERISA), costing plan participants and beneficiaries millions of dollars.

The complaint says plan fiduciaries did this by incurring excessive fees that were paid by plan participants, failing to diversify investments, engaging in prohibited transactions with parties in interest and failing to monitor co-fiduciaries. The scope of plaintiffs and/or class members in this case is limited to members of the AAA Carolinas Savings & Investment Plan and members of the Auto Club Group Tax Deferred Savings Plan who were previously members of the AAA Carolinas plan.

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In a statement to PLANADVISER, AAA Carolinas said, “We are in receipt of the complaint and are in the process of reviewing. We do not have further comment at this time.”

The complaint says the case is another example of a large plan with bargaining power filling its 401(k) plan with expensive funds when identical, cheaper funds were available. However, the plaintiffs say the case “presents a unique optic.” When AAA Carolinas merged into another company, the two companies’ plans merged. The complaint includes details implying that prudent audit practices at the acquiring company, Auto Club Group, were not followed once the plans were merged. The plaintiffs note that at the time of the merger, even though the acquiring company’s plan was about 15 times larger, it had lower administrative costs than AAA Carolina’s plan.

The case alleges that the defendants “flooded the plan” with expensive, often underperforming investment options for participants to choose from until there was “a small change in direction in or around 2018.” It also alleges that the defendants never put the recordkeeping contract for the plan up for a bid to bring in more competitive offers from other service providers. The complaint says the defendants allowed the plan’s advisers and recordkeeper to take large amounts of money from the plan and its participants through fees and compensation mechanisms that were “much higher than those warranted by the amount of work these service providers were completing.”

The plaintiffs contend that revenue sharing and 12b-1 fee arrangements were possible incentives for the defendants to put higher-cost funds into the plan because they allowed service providers to charge fees to participants while the plan sponsor avoided paying fees.

The lawsuit specifically calls out a 2015 move of about half of the plan’s assets from non-target date funds (TDFs) into the JPMorgan Smart Retirement target-date series. The plaintiffs note that the defendants selected the most expensive of the available share classes. They suggest that the defendants could have easily used the free FundAnalyzer tool provided by the Financial Industry Regulatory Authority (FINRA), which would have allowed them to enter different investments into the website and get information regarding their returns and expected costs.

The complaint goes on to say that on or about January 1, 2019, the “defendants appear to have realized around this time that adding these JPMorgan funds as the default option in 2015 and seeding them with existing trust assets was an imprudent mistake that cost millions of dollars.” The defendants swapped the JPMorgan funds for an American Funds target-date series and selected the R6 share class.

The plaintiffs contend that the defendants then did nothing to “repair” the alleged damage of the prior four years on participants’ accounts. “This is in direct contradiction to the language of the IRS’ correction program, which states in part that to maintain tax-exempt status, defendants must ‘apply [a] reasonable correction method that would place affected participants in the position they would’ve been in if there were no operation plan defects.’”

The complaint also includes an analysis of fees paid to covered service providers and arguments about why they are excessive. It says that because the defendants chose to compensate their providers using asset-based revenue sharing, the service providers systematically received unjustified increases in pay. As plan assets increased from 2014 to in 2019, the recordkeeper’s compensation, which was asset-based, nearly tripled. The plaintiffs note that in that time period, the number of participants for whom the recordkeeper had to maintain records fell by 14%.

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