By Steve Garmhausen

Michael Nathanson can reel off several reasons for Focus Financial Partners' increased emphasis on organic growth: attracting talent, making compensation more attractive, and boosting the business' value. But he adds that it can also help the serial acquirer, which did its first deal in 2006, with M&A. "By growing better organically, we think we'll have better inorganic growth opportunities," Nathanson says. "Merger partners want to know that they're coming together with a firm that grows in a balanced and strong way."

Speaking with Barron's Advisor, the CEO of the $127 billion-asset company discusses the impetus for merging many of its 90 firms into hubs organized around its most prominent names. He explains how Focus can -- and can't -- support firms that have chosen to remain outside that hub structure. And he reveals why he left his position as the longtime leader of The Colony Group, which is now the core of a Focus hub, to lead the entire organization.

Focus Financial Partners was bought and taken private in 2023 by private-equity firm Clayton, Dubilier & Rice. Following that deal, Focus has consolidated many of its 90 wealth management teams into hubs. What was the logic behind this change? Focus was founded in 2004. We did our first transactions in 2006. And we're very proud of our track record of having become, by many measures, the largest player in the fiduciary advice space. Over the years we came to realize, and certainly our sponsors realized when they decided to invest in and take Focus private, that we could do more for all our stakeholders if we were able to take what was a holding company for 90 wonderful firms to a structure in which a coalition of willing firms were able to embrace both independence and interdependence. To come together to do more for clients and for team members and for themselves.

Through the hub structure, as we've called it in the past, we merged willing firms into some of our leading companies, with the intent of creating scale and doing more together than any firm could do on its own. These economically wholly owned hubs are now called our Focus Partners firms: Focus Partners Wealth is the firm that formerly was known as the Colony Group, which merged with Buckingham and GW & Wade and other firms. We also have Kovitz, a Focus Partners firm; Gelfand, Rennert & Feldman, Focus Partners Business Management; Cardinal Point, Focus Partners Canada; and SCS Financial, Focus Partners Family Office and OCIO. [After Barron's Advisor conducted this interview, Focus said it planned to merge Kovitz into Focus Partners Wealth at the end of 2025.] The other firms that have either not yet joined one of our Focus Partners firm or have decided the time is not right for them, are our network firms. We're still deeply committed to bringing them the best capabilities that we can from the Focus Partners segment. We have built a team that's dedicated to these network firms, to helping them with practice management, with organic and inorganic growth, including through mergers, and working more intentionally with these firms so they can achieve their mission and their goals.

As we moved forward with this new model, it was important that we began with a common vision. Our common vision is to be the leading fiduciary advice company in the world, a company whose clients experience a company built just for them, and whose advisors will be equipped with every capability and resource that only the largest institutions in the world can offer. We coalesced around the mission of bringing to Focus the collective energy and capabilities of the world's leading financial professionals to build a better future for our clients, our communities, and the world we live in.

We revisited what our shared values were across all of Focus, and we came up with service and teamwork, excellence, integrity, execution. These are important values, but you also see them in many companies. So we asked, what are our distinctive values? And we agreed that we're resourceful as thinkers. We're responsive at heart to the needs of our clients, team members and communities, and we are imaginative in spirit in the solutions that we deliver.

Then we came up with three strategic imperatives to action. No. 1 is to expand capabilities for clients and advisors; No. 2, to accelerate organic and inorganic growth; and three, to improve our efficiencies. We have built a whole team dedicated to taking the best capabilities of our companies and making them available throughout Focus. Through Focus Investment Partners, we are building a world-class alternative platform. We're integrating the firms that we're bringing together and making sure that we're optimizing our businesses and getting the full benefits of scale.

What was the incentive for practices to join one of these hubs? Leaders of organizations that want to join Focus Partners have to embrace our core principle of distributed leadership. The way I might say it is that we can all move from leader to leadership. Take me. I was the leader of the Colony Group, and now I'm surrounded by a much broader team. I work regularly with our sponsors, our board of directors, and fellow leaders across Focus. And I went from being a singular leader to being an important part of leadership generally. And I believe I've become a better leader as a result. I believe I can have more impact by embracing this concept of distributed leadership. So it is for all these other leaders when we speak with them about joining Focus Partners, we speak openly and candidly about what that leader wants to focus on. Do they want to focus on leadership or working on the business? Do they want to focus on being an advisor or an investor working in the business? We try to position people so they can work within what we call their zones of genius. What's in it for them is being part of something better, more enduring, more capable.

People should join Focus Partners because they believe it's best for their clients. But it's also best for their team members, which in turn is best for clients. Because our structure offers a solution for the next generation. This is a problem that fully independent firms will continue to have: How to transfer value from one generation to the next in a way that doesn't that doesn't put an undue burden on the next generation. How do they equitize the next generation, and give it opportunities for bigger and more important roles? We offer leadership and development programs. It's important to note that when Focus was taken private, only about 1% of the equity was owned by Focus principals. Today that number is around 15%. And we endeavor to use equity not only for principals, but also for the next generation.

And I'm guessing if I am a team leader within Focus Partners, I also have a Focus equity stake. Is that part of the inducement? Yes, we use equity as part of our transactions. We do it to varying degrees, depending on the merger and the people involved. We want Focus equity to be owned by the people who are going to be part of the execution of our long-term plan.

Is succession support available for your network firms? We certainly work with our network firms on succession planning. Now, these firms are legally wholly owned, but not economically wholly owned. We have some control rights, but we do not have control over the day-to-day operations of those firms, including around succession planning. That being said, we require all those firms to have a written succession plan, and we revisit that plan with them. But ultimately these firms are transacting in equity in their own management companies. They face the reality that they have built a firm with growing value and need to find a way for the next generation to participate in that value while ensuring that the current equity owners are treated fairly themselves.

What does the strategic pivot of the past couple of years mean going forward for M&A strategy? Will you place more emphasis on organic growth? Will you be gunning for acquisitions? We're going to focus on both. M&A is in our DNA at Focus. We have done well over 300 transactions, which I believe is more than any firm in our industry. And we will continue to be a leader in M&A. If there is any shift in that strategy, it's simply to be even more focused on firms that offer us greater capabilities, new geographies and great talent.

Will you prioritize Focus Partners firms rather than network partners as acquisition targets? We are more proactively looking for merger partners who are Focus Partners firms, but we don't believe that it's mutually exclusive. We can also continue to look for opportunities for our network firms where it makes sense. In the past we had a greater emphasis on inorganic growth because we were good at it and were using it as a way to achieve the size and clout we ultimately achieved. We always wanted to have organic growth as well, but we weren't as focused on it as we have been for the past couple of years. This has been a thought exercise for us: We had to think about the case for organic growth and why we would want to shift our focus to it as much or more than inorganic growth. We decided that only through great organic growth can we ensure that we continue to attract the top advisory and client service talent, that we continue to lead the way in terms of better and more expansive capabilities solutions for clients. Only through strong organic growth do we think we can build the best platforms and client-support partnerships. And we just think organic growth offers greater stability. We think that by growing well organically, we can have greater impact, and that's really what we all want to do. We think we can offer enhanced career and development opportunities, more attractive compensation and benefits, and better support for our team members. We think strong organic growth, in addition to strong inorganic growth, will make us more valuable, which in turn creates greater access to more and better capital. We believe that top leadership wants to be with a

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