The independent advisory space continues to evolve, and Orion Advisor Services is evolving with it. Some in the industry have speculated for some time that firms like Orion would pivot from purely a portfolio management and accounting service to more of a platform in order to continue their growth, and now there is confirmation that this in fact is happening. Their purchase of FTJ FundChoice is indicative of their expanding scope.

Orion has long been on the short list of mid to large size independent RIA firms that are looking for a highly capable portfolio management and accounting firm, but as the needs of their clients become more complex, Orion must evolve to meet those needs. As previously reported by T3, Orion has recently beefed up its capabilities in areas such as compliance, Advisor Strategy & Tax Return Optimization (ASTRO), and alternative investments. However, the firm still had some gaps in its product line. According to Orion CEO Eric Clarke, his firm missed a few opportunities to add new clients due to the lack of a world class proposal generation tool and a well-diversified TAMP platform. Prospective clients could replicate the TAMP experience that competitors offered by engaging with firms that partner with Orion, but these prospects favored an all in one solution.  With the purchase of FTJ FundChoice, the firm believes it is now well positioned to compete with large TAMP providers such as Envestnet and AssetMark. “We believe that we can compete aggressively on price, as well as the strength and flexibility of our offering,” says Clarke.

FTJ FundChoice is a $10 billion TAMP that delivers investment and back office services by providing access to mutual fund managers and institutional portfolio strategists. It has been growing rapidly over the last several years. According the FTJ FundChoice President and CEO Dean Cook, when Seaport Capital purchased FTJ FundChoice in 2012, they had approximately $2.5 billion in assets under advisement. It had $7.2 billion in early 2017, and that has since ballooned to $10 billion. FTJ FundChoice assets grew at 35% CAGR over the past two year or 83% since January 2016.

STRATEGIC COMBINATION

The combination of these two firms looks to be a strategic one. Clarke and Cook have known each other since 2006, and FTJ FundChoice has been a client of Orion since 2010. Their firms have a long history of collaboration, and they share a common culture, according to both Clarke and Cook.

This combination opens new areas of growth for the combined firm. With the addition of FTJ FundChoice, Orion can now compete for enterprise business (OSJ’s, B/D’s, etc.) with the larger TAMPS. The firm now has an all in one solution that they can offer to meet the platforms of other TAMP providers. Although FTJ FundChoice’s lineup of managers is not as extensive as some competitors, they have followed a thoughtful, best-of-breed manager strategy that has been successful for them. Since 2015, they have also promoted an asset allocation level strategy that combines strategic, tactical and non-correlated asset components. According to Cook, the introduction of the process in 2015 substantially accelerated growth.

NEW OPPORTUNITIES

This is also an opportunity with breakaway brokers that currently have assets on a TAMP platform. In many cases, the clients of these brokers have low basis stock with an asset manager, so being able to move the assets to a different platform that has the same manager makes the move easier for them.

Yet another opportunity for new business lies among existing RIA firms that are courting breakaways to join their firm. They too often have clients on a TAMP platform, and being able to change platforms while retaining the same asset manager will be appealing.

Some of Orion’s existing RIA clients may be open to outsourcing investment management as well. The addition of FTJ FundChoice will make it much easier for advisors interested in exploring the potential benefits of incorporating SMA’s or UMA’s in their business.

Finally, few advisors are aware that FTJ FundChoice can act as their investment back office. They can run the Orion software for you, providing rebalancing, reporting, billing and other services currently undertaken by employees of the RIA firm. By outsourcing to FTJ FundChoice, RIA firms no longer have to deal with training employees, employees getting sick, or employee turnover. This can be a particularly acute problem at firms with smaller headcounts, where only one or two people are competent at handling the Orion software.

The combination of Orion and FTJ FundChoice makes a lot of sense strategically: they have been collaborating for years and have similar visions on future opportunities for the combined entity. The purchase of FTJ FundChoice is not without its risks, but the odds of a successful outcome are high.