Focus Financial Partners Stock Forecast: It has become increasingly clear that the path to building wealth is through smart investment, but many of today’s financial services clients are dissatisfied with traditional providers. All to often, they find themselves paying high fees to large organizations who are primarily concerned with increasing their own profits – not their clients’.
There are alternatives for those who decide that that major financial service companies aren’t the right choice. Some investors attempt to strike out on their own with self-service trading and self-managed accounts. Others connect with smaller financial services firms that value personal connections with their clients.
Registered Investment Advisors vs Broker Dealers
Independent financial services firms fall into one of two broad categories. Broker-dealers and Registered Investment Advisors (RIAs).
The biggest difference between them is their approach to the client relationship. Broker-dealers aren’t necessarily required to put their clients’ interests first. They can choose investments based on what is most profitable for themselves versus what’s most profitable for you.
RIAs, on the other hand, have a fiduciary duty to act in your best interests every step of the way. That’s a critical point when it comes to reaching your financial goals.
The issue that smaller RIAs run into is a natural consequence of focusing on clients’ interests over their own. They often fail to generate the sort of profits that broker-dealers enjoy, which can make it tough to complete in a crowded financial services marketplace.
The most effective leaders of RIA firms don’t try to gloss over this challenge. Instead, they leverage their fiduciary role into growth, expansion, and ultimately, their own financial success. This is made possible through strategic partnerships with a particular sort of outside investor – a company that specializes in supporting RIAs with investment of capital as well as expert management advice.
Focus Financial Partners is one such organization. In recent years, it has demonstrated its ability to support the success of smaller RIA firms, creating opportunities for growth, expansion, and profit. For investors, the question is whether this company can build on its track record to generate returns for shareholders. In other words, is Focus Financial Partners stock a buy?
Focus Financial Partners Partners with RIAs
Focus Financial Partners was launched in 2004 with a very specific purpose: to support entrepreneurs who are committed to excellence in RIA financial services.
The founders realized that smart, effective advisors were struggling to grow their businesses while simultaneously delivering on their passion for putting clients’ interests ahead of their own.
Since 2004, Focus Financial Partners has taken on over 60 partner firms in four countries. The team has grown from the original three founders to more than 70 experienced professionals. This group offers expert solutions for succession planning, mergers and acquisitions, technology integration, and improved operational efficiency.
As a company, Focus Financial Partners has been instrumental in more than 100 mergers and strategic hires on behalf of partner firms. Those firms have enthusiastically praised Focus Financial Partners’ guidance and support as being the catalyst for transforming their businesses from good to great.
Is Focus Financial Partners Stock a Buy?
Focus Financial Partners initiated public trading of shares through its IPO in July 2018, and stock prices rapidly gained value in subsequent months. However, since the third quarter of 2018, values have fluctuated dramatically.
The group generated upwards of $900 million in revenue for fiscal year 2018, and analysts are anticipating an increase when 2019 earnings are announced in February 2020.
This expectation is based on details from the third quarter financial reports, which showed substantial gains in revenue for the quarter and year-to-date. In the third quarter, revenues increased by 34.3 percent, and adjusted income per share went up by 34.8 percent year-over-year. This was significantly higher than projected increases of just 20 percent for both metrics.
Third quarter revenues totaled $316.6 million, $25.7 million of which was generated through the acquisition of six new partner firms.
These revenues are primarily driven by wealth management fees, which make up 95 percent of Focus Financial’s income.
Adjusted EBITDA came in at $69.4 million for the third quarter, which represents a year-over-year increase of 30.7 percent. Third quarter adjusted net income totaled $45.6 million – an improvement of 33.7 percent over third quarter 2018.
The rate of organic revenue growth for the third quarter was 22.4 percent, and for the first three quarters of 2019, that figure came in at 13.8 percent.
From January 1st to November 7th, the company closed 34 transactions, demonstrating continued success in identifying appropriate partner firms and making smart investments to ensure their ability to grow and expand.
All in all, Focus Financial Partners has delivered on its promise to partner firms and shareholders, leading many new investors to consider buying in. However, despite its current success, Focus Financial Partners is anything but a risk-free investment. There are critical issues to assess before making the decision to add this stock to your portfolio.
What are the Risks of Buying Focus Financial Partners?
The fact that 95 percent of Focus Financial Partners’ revenue comes from wealth management fees is one of the factors that differentiates this firm from others in the industry. However, that same differentiating factor also carries risk.
Approximately 73 percent of the company’s revenue is directly correlated to financial markets, which includes both fixed income and equity products.
The remaining 27 percent tends to be protected from standard market cycles, because it is generated from firms that offer family office services.
With so much riding on market conditions, it is easy to see how a market downturn could dramatically impact stock value.
Focus Financial Partners Stock Forecast Summary
The bottom line is that Focus Financial Partners has a unique business model that has proven to be quite successful. There is a large market for the services offered by this group, and it appears many small RIA firms are interested in the opportunities available through partnership with Focus Financial.
Analysts generally believe that Focus Financial Partners stock is poised for additional growth in coming months, though it remains to be seen whether that growth will be closer to the consensus of 24 percent versus the high estimate of 77 percent.
Overall, Focus Financial Partners stock is a solid choice for investors who are interested in adding financial services shares to their portfolios.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.