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Kestra Holdings had a big year. Earlier this year, Warburg Pincus exited its majority investment in the firm, signaling a return of private equity firm Stone Point Capital, which first took a minority interest in the business in 2016 when it spun out of NFP.
More recently, Kestra raised $160 million in debt capital, to drive growth acquisitions and continued investments in the company.
CEO James Poer, who’s led the firm since the early days, says the recap represents a new chapter for the financial services organization, an opportunity to strategically review the business and decide on a future direction.
Poer recently chatted with WealthManagement.com about the evolution of Kestra, what the recent recapitalization means for the future of the firm, what services and distribution channels he’s eyeing, and his thoughts on NFP, his previous parent, selling most of its wealth business recently.
The following has been edited for length and clarity.
WealthManagement.com: When I first started covering Kestra some 15 years ago, it was an independent broker/dealer, and you were leading that entity. The firm has evolved over the last several years into a more diversified financial services firm with many different businesses. What does the business look like today, and what’s your strategy for differentiating in the wealth market?
James Poer: Our original plan, even going back to ’09, ’10, was to build really more of a wealth management business than a traditional IBD. We started very intentionally building out the platform, gathering the talent necessary to attract a certain profile of advisor. My entire background and how I got promoted into that job was as an RIA expert and wealth management guide, not an IBD person. And so we really started building a business that was really an RIA that had a broker/dealer, if you needed it, all the way back to ’09 and ’10 as we were part of NFP. And we did that with NFP’s support.
Fast-forward to 2016 when we spun out of NFP, the vast majority of our revenue and earnings were driven by investment advisory, fee-based RIA business. That business now has three distribution channels, but it has stayed very true to one very important core concept around the TAM (total addressable market). And that is top quartile wealth management, multi-producer or ensemble profile firms that are 70, 80, 90% plus fee-based in the way they serve their clients. That’s who we’ve always focused on serving.
Kestra has continued to grow substantially by pursuing that elite profile. We do not try to be everything to everybody. We want to focus on supporting that complete wealth advisor. Private Wealth Services, which is our wirehouse exiter model, has very much the same TAM. They’re just coming from a different starting point, and there’s a slightly different value proposition there. And then the third distribution channel is Bluespring, which is the acquisition engine of large established wealth management businesses, which helps create monetization succession.
The concept is to provide that complete wealth management platform and serve that entire entrepreneurial arc of that financial advisor’s entrepreneurial experience.
There are a lot of great competitors in the marketplace that are working to be everything to everybody. We are not that. We are a great home to sophisticated, high-end wealth management businesses that want to outsource a measure of their support so that they can focus on clients.
WM: What portion of Kestra’s business is fee-based versus commissions?
JP: Over 80% of our revenue is fee-based.
WM: Kestra had a big year with the Stone Point recapitalization. What was the impetus for that recap? Stone Point was one of Kestra’s previous investors before that. Is that unusual for a private equity firm to come back in like that?
JP: It’s not highly common, but it’s not that it never happens. I’ve been a big advocate of private equity ownership in our capital structure because it empowers us to be very long-term thinkers. Now, with that said, you’re going to recap and bring new investors in from time to time every five years or something like that, if you perform well. And we have had the good fortune to be very disciplined, which drives great performance.
Stone Point was our original investor when we spun out of NFP in 2016. They remained the primary shareholder until 2019, then they were a minority shareholder for two years after that. And then they came back in the first of this year, and the entire lifespan of us being an independent company post-NFP, there’s only been about maybe 2 1/2 years where Stone Point wasn’t an equity shareholder in our company. So when we were starting to, about a year ago, right now, have conversations about recapitalizing and finding a new majority shareholder, we had a lot of great conversations with a lot of great firms. And the familiarity and shared success we’d already had with Stone Point made that a pretty natural sort of partnership. They know our space extremely well. They bring a lot of value. They’re empowering, and our executive team in Stone Point has great alignment in creating success.
WM: What does that recap mean for Kestra, and how is that capital being used?
JP: I always view investors as chapters in our book. We’re the book; private equity investors are important chapters in that book. What it means is, when you start a new chapter, it’s another opportunity to strategically review your business and decide over the next several years where and how are the best ways for us to invest in this business to serve our clients.
We’ve done so through expanding our service platforms, expanding our technology investments and focus, deepening talent pools in key areas. We’re making huge investments both in Kestra Financial and Bluespring and in our infrastructure right now to help fuel that growth.
WM: What is the next phase of growth for Kestra?
JP: We’ve been very intentional and successful recruiters into our service businesses at Kestra and Private Wealth Services, and a very successful acquirer in Bluespring. 2025 will represent by substantial numbers a record year on both of those.
WM: Are there new channels or new distribution models you’re eyeing?
JP: We balance being opportunistic and super disciplined. There are always ideas and concepts that we’re intrigued by, but we would only pursue those if we found the right fit. One would be to have a W-2 channel, but we’re not going to do the wrong deals to have a W-2 channel because what we’re doing works so well.
Advisors at Bluespring technically become W-2 employees because we acquire their business, but it’s not W-2 in the sense of being at a wirehouse or a career agency.
WM: More recently, Kestra raised $160 million in debt capital. What’s the thinking behind that capital raise, and how will those funds be used?
JP: That is a pretty typical capital raise for us in our very conservative and prudent sort of capital structure. And that capital will be used to drive growth acquisitions and continued investments in the business.
WM: Kestra also includes several horizontal businesses, such as Arden Trust, its trust company, and others. Are there specific service areas that you are eyeing for the future?
JP: We refer to that as sort of our horizontal value, and that’s a key part of providing that sort of complete wealth manager service. So we have a trust company, we have an insurance services platform that offers advanced planning and estate planning and wealth transfer strategies. We have financial planning capabilities that support advisors. And then we have an outsourced CIO, which is Kestra Investment Management.
It’d be great to add tax services and banking capabilities. Both of those are much more difficult to add. We keep our eyes open again, opportunistically and creatively.
WM: When you say banking, what do you mean?
JP: We have some banking components that we get through different relationships, but everything from personal checking and savings all the way through different sorts of lending would be pretty intriguing.
WM: The RIA M&A space is a very hot area of the market right now. Is there anything new with the Bluespring business? What might the future look like for that business?
JP: Of all the incredibly exciting things that we do here, that’s the one that has an extra rocket booster on it. We will have a record-setting M&A year. The next four months for us in terms of closing deals are going to be very exciting. We hired a president of that business last year, Pradeep Jayaraman, and it just shows how important talent, people and leadership are. He brought well over a decade of experience to the organization. He has built an incredible team around him and continues to do that. We’re adding a lot of talent there in the next two months—folks that have already accepted jobs but just haven’t started yet.
WM: What does the recruiting landscape look like? Are there any specific models that are getting more traction than others?
JP: We recruit into two doors, if you will: Our traditional independent, which is Kestra Financial, and then our wirehouse exiter, which is Private Wealth Services. Both have had record years. Both are very consistent, and they’re consistently growing year over year. We don’t strive in the marketplace ever to be the low-cost provider of services. We have a completely different business model, and that resonates a lot with people who have built upstream businesses.
WM: Are you seeing any traction from Commonwealth advisors?
JP: I’m confident Commonwealth and LPL will have great success in their transaction. That is not the focus of our growth engine. What we focus on is not advisors from a certain firm or advisors involved in a transaction. We focus on a certain profile of investment advisors, successful wealth management businesses.
WM: Another big piece of news was NFP’s sale of the majority of its wealth business to Madison Dearborn Partners. I know you’re very familiar with NFP, as they used to own Kestra. Do you have any thoughts on the news?
JP: I worked at that organization for, I think, 12 years. I have a personal and professional sort of passion about those people and that business. I think it’s a great opportunity for them. That transaction doesn’t really impact our relationship with them, and I wish them absolutely great success.
WM: What’s Kestra’s current relationship with NFP?
JP: The primary area of our business with them is serving the wealth management needs of some of their insurance-based advisors. We were born out of their need for that.
WM: Can you speak to how Kestra is implementing AI if at all?
JP: There are some things we’re doing on the advisor side, which will empower financial advisors. We are in the early stages of research and education across the organization. It is certainly something we will lean into at the right time, but I think intentional discovery is more important than trying to race something out. There are some really interesting pieces out from different consultants and experts that show that while there are impressions of high adoption in business of AI, the actual value derived from AI is very low across financial services and a lot of other industries right now. That’s not to say it will not show up, because I’m confident it will. We are just an intentional organization where that’s concerned.
