How Organic Growth Is Powering a Pioneering RIA

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In 1989, the Dow was below 3,000. The Berlin Wall fell. George H.W. Bush became president, and The Simpsons first aired on TV. That same year, a pioneering RIA opened for business in Atlanta. Fast forward 32 years, and Homeric Berg has $10 billion in assets under management. This is Greg Bartalus, editor-in-chief of Barron's Wealth and Asset Management Group. My guest today is Andy Berg, co-founder of Homeric Berg, which was named to Barron's 2021 list of America's top 100 RIA firms. Andy will describe how his firm has grown over 3 decades, discuss which business practices remain as relevant now as in 1989, and explain how advisors can achieve organic growth both today and tomorrow. And he'll also discuss the firm's private alts business and how it's helping investors diversify away from stocks and bonds. Andy, welcome.

Great. Thank you.

Let's go back 32 years. What was your eureka moment?

Well, it was really pretty darn simple. 32 years ago, there was almost no conflict-free advice being provided to high-net-worth folks. We decided that we were going to give that a shot. The world was full of commission-based advisors, whether they were independent or at banks and brokerage firms selling product. It was the day of 8% loads on mutual funds and big fees and commissions on stocks and bonds and insurance products. So, we, David Homrick and I, we were 35 and I was 29, needed a differentiator if we were going to be successful and have any chance of attracting folks with wealth. So, the whole premise was we're going to be fee-only, really the first in Atlanta, and sit on the same side of the table as our client, if nothing else. They knew that we were going to give them advice that we thought there was that was in their best interest because we weren't going to get paid any more or any less. So that was the crux of it. You know, we borrowed $100,000 from my father to start the business, and it was a bit of a flyer, but we had confidence in our model and we were able to attract a few clients and brick by brick start adding clients and a couple employees over the early years.

The decision to do that, especially at such a young age, especially now, seems pretty audacious. It really signaled a lot of confidence and foresight. What made you willing to actually go for it as opposed to just muse about it?

Well, it was again our fee-only belief that we could attract clients because our idea just made better sense than the advice that was being provided at the time. But yeah, we were really young and candidly, if heaven forbid, we would've failed, it wouldn't have been the worst thing in the world. David and I both didn't have any kids at the time, but it was really the confidence in our model. We certainly had confidence in ourselves. We were working 24/7 at the time for almost no money, but the belief that over time that type of advice would attract folks just made sense to us.

Yeah, I mean, time has borne that out. Was there demand immediately from the get-go organically? Was that palpable, or did you kind of have to change people's behavior given that this was such a new phenomenon, given the time you were operating in?

Completely had to change people's behavior. But, you know, explaining to somebody that when they invested in a mutual fund with $100,000, that on day 2, their account said $92,000 was a pretty easy concept to deliver. And saying that we could invest in XYZ mutual fund at Schwab, and day 2, you were still going to have $100,000 in your account. That resonated.

Absolutely. I can imagine. Well, let's step back and widen the lens for a moment. And for listeners, explain what kind of clients do you serve today?

We have a pretty broad client base. I would say our sweet spot are folks that have $2 to $15 million to invest. We have some Slightly smaller, $1 million is our minimum. And then we have larger clients, which are in our family office group that have different needs, both on the investment and the planning side. So, you know, we have about 2,000 clients and we're approaching $11 billion now under management. So, the average client is about $5 million in assets that we are managing.

Could you give a ballpark figure on how much of that has been achieved organically?

So we've done 5 acquisitions and the total of those at the time of the acquisition is about $1.2 billion. So the rest would be organic. And of course, the folks that we've had join us, Sammy Grant being the most recent, they've all grown since, but The, if you add up the assets of the 5 that we have done over the, over the 15 years, um, it totals just over a billion. So it's largely organic.

Okay. And, and I want to, I'm curious about, um, how, how and why you, you grew organically. And, and then as well as sharing your story, um, offering advice to people, to advisors listening about how they can, to help them grow their business organically, if you have anything to share on that count.

Yeah, I think you're not going to be successful if you're not growing your business organically. I mean, you can— the M&A world is competitive. Now it's expensive. And RIAs that are smaller and growing need to keep their eye on the ball and not probably worry much about M&A until they've created scale and size. Organically, it's a must for an RIA. You've got to figure out how to grow organically. And we've done it largely by overwhelming our clients with service. And so therefore, most of our referrals are coming from our clients. And I think the other thing that advisors should be aware of is to ask clients for referrals, only the ones that you think it's appropriate. People say, Some people say that you should ask all of your clients for referrals. I don't fall in that camp. I think most of the clients are receptive to the suggestion, but some, and you can read them, it doesn't go over great. Right. So, but then that doesn't preclude those particular clients from referring you business. You just, you know, work your tail off and do a great job and you have a good chance of getting referrals from those clients too.

What are some of the telltale signs of clients that you deem to be highly receptive to potentially receiving a nudge towards a referral?

Well, I think, you know, first of all, one of the reasons this business is so fun is you create friendships with your clients. And of course, some of the clients become our friends to begin with. Sometimes people you socialize with. For me, a lot of the people— I play a lot of golf. A lot of people I play golf with, have become clients over the years. So, those are easy, right? You can always ask them because they're your friends. But when you get clients and you obviously are delving into their personal life because the financial planning and money is a very, very personal topic, then you are likely going to create a relationship with them and becoming friendly with their family, socializing with them, having a lunch or a dinner, conversations that become both professional and personal, and over that type of a scenario, you are going to create a relationship where they trust you, like you, and are often going to provide referrals to you.

You've mentioned— I read actually that last year was your strongest year organically for adding clients, but you also made an acquisition of SG Advisors, your fifth. So while acknowledging that M&A is not a focal point for you. When you do buy firms, what are you looking for in general?

First, back up. I think now it has become a focal point, but it's a focal point for just a couple in the firm, obviously me being one. We have 130 employees. We want everybody else to keep their eye on the ball on their job, which all centers around serving the client. But me, our president Thomas Carroll, and our growth strategist Bill Bolen are looking for acquisition possibilities. So again, going back to what I said before, we're 32 years old. We didn't do an acquisition until, I guess, 14 years ago. So we were 18 where we were just keeping our head down and growing organically. Now, we've reached the stage where if we can make an acquisition that makes sense to our firm, and I'll get to those kinds of criteria in a second, then we want to pull the trigger on that. But we've done 5 in 14 years, so we have not made it a make or break for growing our business. It's got to be a fit. And when I say it's a fit, first and foremost, it's got to be a cultural fit. Culture is huge here. And the last thing we're going to do is bring in a group that would be disruptive to that. So, that eliminates most of the field for us, but we've been able to find 5. And I sit here and I knock on wood, that have been cultural fits. We haven't had one that hasn't worked yet from that standpoint. So that's been very fortunate, but it's been deliberate for sure on our part to make sure that it's cultural fit. And that generally comes from a relationship with one or more of the principals in the firm prior to us even talking about merging. So, the cultural fit is one. We want this group or individual, if it's one principal, to bring something to the table that is additive to our services. So, they're doing something that is going to help the greater client base of Homeric Berg. And that's been true. And then it's got to be accretive to the firm either immediately or in the short term. So those three things, culture, something additive, and then the economics.

Okay. So just pretty much opportunistic acquisitions where it makes sense for whatever reason. Okay. Just more broadly, do you have any overriding thoughts about the state of M&A and the future of the industry, where it's going?

Well, you know, obviously M&A is very, very hot and will remain hot with valuations where they are. Whether they stay here, I think that's a bit of a coin flip. But there's no slowing right now with either the pace of M&A or reduction in valuations as I see it. And I talk to a lot of investment bankers and they say the same. So that becomes an interesting proposition for a firm like us because we're not going to overpay And likely that means that the acquiring firm is going to really have to see that we are the best fit for them long-term. And I think that's going to be the case for some. It probably eliminates us making an acquisition of a firm, say, over $1.5 billion or $2 billion. But the firms that are growing want a cultural fit and want to— SG Advisors, perfect example. Sammy Grant was growing weary of the administrative burden that he had to endure being a small firm and all of the things that now he doesn't have to worry about, whether it be, you know, back office administration, reporting, HR, compliance, investment selection, all of those things. You know, he hitched his train to us so he can concentrate on what he's good at and he's really good at. Which is client service and business development. So, that kind of thing I can see happening repeatedly. And I think if the folks that are interested in doing something like that are best served by not going to a very, very large organization, a bank, for example, maybe, and going to affirm that they can keep doing what they like to do.

You mentioned the importance of culture, and I came across a highly entertaining video on YouTube of your firm celebrating its 30th anniversary, and I believe the title was Happy Andyversary. And it was, anyway, it's a very amusing roughly 4-minute video with song, fanfare, really nice production values. But I think what shines through is there did seem to be a palpable sense of goodwill and whatnot. Tell me a little about that video, if you will, just as a quick diversion.

Well, every time I watch it, it makes me cry. No, it really does. It was you know, something really special. Obviously, the theme of it was to the song New York, New York. And my partners and I decided that we wanted to make our 30th anniversary very special. And so we flew everybody to New York and had our annual retreat at a hotel in New York. But of course, the crux of the trip was the celebration of our 30th anniversary and lots of fun and sightseeing in New York.

Yeah, it's definitely kind of like a chocolate sundae with cherries and whipped cream being poured on and on. It's definitely a delightful thing to check out.

Yeah, yeah. And we had fun with it. We had, we had a, you know, an opportunity, and I had an opportunity during the retreat to talk about all of the other people or most of the other people that were key in growing the firm. So, you know, that was fun. It wasn't just, you know, an Andy celebration. It was really a celebration of our entire firm and the success that we've had in celebrating that. And, you know, then talking about the opportunity that exists for everybody here.

Okay. And let me just, bit of a harsh pivot, but I did want to touch on investing briefly. Tell me about your alts business. Where are you seeing opportunity?

Yeah. I mean, well, first of all, the alts business has been very important to us. And I guess we were, or I know we were early in that game. We've been investing in alts since early on. I believe we started in '97 investing in some real estate, and then we formed our own fund of funds in hedge fund, private equity, natural resources. And it's been very key to provide additional arrows in our quiver that are uncorrelated to the stock market. So, arguably everything's expensive now. That's hard to say that anything is a big, you know, green light and we can't, you know, get enough of it. But we do like alternatives. We do like private debt. It's a way for clients to have a fixed income alternative that has yields that are higher than 1%-ish. We do like that. We like certain areas of real estate. We like industrial and warehouses. There's still, we think, private equity funds that are very, very attractive to us. Taking advantage of dislocation in the markets. So we're big believers in it. Obviously, the stock market has provided tremendous returns over the last dozen years or so. We don't think that this pace can continue in the stock market. We see more like mid-single-digit type returns for the next 5 to 7 years. And so therefore, Not only do we believe alternatives is a great differentiator and diversification tool, but we think it'll provide higher returns than public markets.

Alternatives, they cover a lot of ground. Can you at least discuss briefly where you have greater conviction within the universe of alts?

Yeah, and those would be what I mentioned. We have greater conviction in private debt. Income-producing real estate, generally on the industrial side, would be a preference. And then, you know, small to mid-sized private equity.

Well, we're nearing the end of our time, but before we wrap up, I wanted to end by asking you for an actionable idea that listeners can act on, and that's for advisors who are looking to grow organically. What's your best time-tested advice that you can give?

I really think, and we've talked about it earlier on in the conversation, but I really, really think the best way to grow organically is to create the best culture you can within your firm. I think if people like what they're doing, believe in the model that the firm has, then they are going to do a great job serving their clients. And that is just going to lead to organic growth. It's simple, but creating a culture where, you know, folks are engaged and happy is— it just makes everything better in your firm.

Okay. Well, I think time has proven that for your firm.

Well, thanks.

Sure. Well, thank you so much for joining us.

You bet.

My guest has been Andy Berg, co-founder of Homeric Berg. If you like this podcast, please share it. And to hear more, go to barons.com/podcasts.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.