Why an employee-owned RIA took a majority stake investment

Berger Financial Group, a Plymouth, Minnesota-based registered investment advisory firm that has been employee-owned since 2018, has received a majority stake investment from global investment manager Investcorp. The deal will support the firm’s plans to expand its geographic footprint while maintaining significant employee ownership.

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Founded in 1981, Berger currently operates in five states — Minnesota, Illinois, Vermont, Arizona and Maine — through 10 locations. The firm, which has $2.95 billion in assets under management, offers portfolio management, retirement planning, tax planning and more, aims to expand to 10 states and 25 locations. 

A key part of that growth strategy is serving clients in the mass affluent market, including families who haven’t worked with a planner before, who are first-generation wealth instead of second- or third-generation.

“We believe the mass affluent space is underserved,” Berger CEO Nick Asmus told Financial Planning. “In our industry, you see a lot of times the bigger a firm gets, the bigger their minimum gets.”

Berger, however, doesn’t have an asset minimum. Its clients have $750,000 on average, Asmus said.

“It’s an underserved market,” he said. “There’s not many firms that are doing that at scale.”

READ MORE: The AUM of RIAs is soaring. But what about new clients?

Berger had an employee stock ownership plan and, after the investment, will remain about 35% employee-owned, Asmus said. On average, employees decided to roll about half of their equity. The RIA had been looking for an investor for two years and didn’t want to sell 100% or even 90% of the business, he added.

The firm became fully employee-owned in 2018, according to its website. Because Berger offers benefits such as employee ownership and work-from-home flexibility, Asmus said it was important to find an investor that would offer support and ideas without making changes.

“We have a motto of, ‘Work hard. Family first,'” Asmus said. 

Private equity-involved deals remain the dominant force in RIA M&A. At the same time, some RIAs have expressed concerns about changes made by private equity buyers and sought alternative approaches, such as becoming affiliated with larger platforms.

Berger’s growth plans include hiring advisors, entry-level staff, C-suite executives and M&A business development employees. The firm expects to grow from about 100 employees today to as many as 250. 

READ MORE: The RIA race to $1B — and whether it’s worth running

An investment firm interested in RIAs

Investcorp’s investment is its first in an RIA, following investments in other professional services businesses such as accounting and consulting firms.

In the U.S., the firm focuses on mid-market services companies and has been evaluating the wealth management sector for some time. It remains interested in potentially investing in more RIAs.

Courtesy Investcorp

“We love the space,” Vitali Bourchtein, managing director in Investcorp’s North America private equity team, told Financial Planning. “One day, there could be more, but for the near future, we’re really focused on helping Berger achieve its full potential.”

Investcorp expects to “acquire more groups into Berger,” likely using a broker intermediary, he said. Investcorp was introduced to Berger through Berger’s investment banking advisor.

Bourchtein cited Berger’s high customer satisfaction, customer retention, operating model and approach to serving clients as reasons for the investment.

“We think there’s a big untapped opportunity that they will benefit from, and we can help them scale the business to provide the much needed services to more and more individuals and a home for more and more advisors that want to serve their clients within the Berger model,” he said.