Inside Atlantic Union’s decision to sell its profitable RIA unit

Trader Talk

At first glance, Atlantic Union Bankshares’ decision this month to sell its registered investment advisor subsidiary looks like something of a head-scratcher. 

It’s not like the unit, Dixon Hubard Feinour & Brown, was underperforming. 

Just the opposite, in fact. In a little more than four years as part of Atlantic Union, DHFB’s assets under management grew from about $600 million to $1.6 billion. Atlantic Union’s fee income from fiduciary and asset-management activities — which totaled $9.4 million in 2017 — jumped to $27.6 million in 2021. 

Those numbers notwithstanding, Atlantic Union opted for a sale after concluding DHFB’s prospects for future growth shined brighter outside the bank. Earlier this month the $19.6 billion-asset Atlantic Union, of Richmond, Virginia, said it had agreed to sell DHFB to Cary Street Partners, a 20-year-old RIA firm also based in Richmond. Terms were not disclosed.

David Zimmerman, President of Atlantic Union Bank Wealth Management

The divestiture of DHFB “frees up resources for us to focus on what we want to grow more rapidly,” says David Zimmerman, president of Atlantic Union’s wealth management arm.

For Cary Street, DHFB counts as its fifth RIA acquisition since 2017 — a fact Atlantic Union believes underscores its deal logic. With the merger-and-acquisition market for RIAs red hot, a regional bank with limited dollars to spend on wealth management faces an uphill struggle to keep pace with large rollup firms like Raleigh, North Carolina-based Capstar, with more than $100 billion of assets under management, or even smaller ones like Cary Street, which reached $7 billion in assets under management after its purchase of DHFB.

“We began to have this idea of what’s the best way to position our investment,” David Zimmerman, president of Atlantic Union Bank Wealth Management, said in an interview. “We looked at what we were doing with scale and said there’s really not a way that we’re ever going to be at a point where we can provide the most support that will maximize [DHFB’s] ability to grow.”

The sale to Cary Street gives Dixon Hubard Feinour & Brown a parent that is completely focused on the RIA business and committed to accelerating its growth, Zimmerman said. At the same time, it leaves the $19.8 billion-asset Atlantic Union with a slug of capital it can reinvest in wealth management business lines where it sees better chances for success, like private banking, trust and brokerage. 

 “It frees up resources for us to focus on what we want to grow more rapidly,” said Zimmerman. “Some of our time and energy and resources were diluted, not in a negative way, but there’s only so much to go around. … It’s a breath of fresh air for me thinking of the team with the extra time that we’re going to have, but also the resources.” 

Atlantic Union’s sale of DHFB comes as a number of institutions are proceeding in the opposite direction, and acquiring RIA firms. In May 2021, for instance, the $24.4 billion-asset United Community Banks in Greenville, South Carolina, paid an undisclosed sum to acquire FinTrust Capital Advisors, also headquartered in Greenville, to boost its wealth business. That same month, the $6.3 billion-asset Peapack-Gladstone Financial in Bedminster, New Jersey, made a similar move, announcing a deal for Princeton Portfolio Strategies in Princeton, New Jersey. In November 2020, the $25 billion-asset Fulton Financial in Lancaster, Pennsylvania, acquired BenefitWorks, an RIA in Lebanon, Pennsylvania, that also focused on retirement plan recordkeeping. 

According to Dan Sondhelm, CEO of Sondhelm Partners, an Alexandria, Virginia-based firm that offers brand, marketing and public relations advice to asset and wealth managers, it “totally makes sense for banks to figure out how to do this right,” to get into the RIA business or acquire a firm to make an existing business line bigger.

“Wealth is actually a very profitable business” that generates recurring fee income, Sondhelm added. 

But Sondhelm also acknowledged that banks face obstacles that can make it tougher for them to build a successful RIA operation than a nonbank firm. “Banks are not particularly well known for strong investment capabilities,” Sondhelm said. “They just don’t have the strongest brands, the strongest reputations in terms of managing money,”

“Over the years, we’ve actually seen a lot of banks get out of wealth, get out of asset management,” Sondhelm said. 

For Zimmerman, the deal with Carey Street doesn’t represent a retreat from wealth management so much as a realignment. Indeed, Atlantic Union acquired an unspecified minority interest in Carey Street as part of the transaction.

Zimmerman likened the strategy to divide-and-conquer. “Let these experts run [the RIA] business so we can run what we’re experts at,” Zimmerman said. “We didn’t abandon the business. We actually still like the business. We just wanted to do it in a way we thought could maximize the investment that was made, as well as look at these opportunities to partner with Cary Street going forward.”

Zimmerman called Atlantic Union’s minority investment in Cary Street “a unique way for us to be able to stay invested in what is now a bigger entity that will continue to grow and be supported, and it allows us to get more focused on the things we want to grow going forward.” 

Beyond those strategic benefits, Compass Point analyst Laurie Havener Hunsicker noted earlier this month in a research note that DHFB’s sale to Cary Street will eliminate between $15 million to $16 million of goodwill from Atlantic Union’s balance sheet, as well as $2.4 million in annual noninterest expense. 

Cary Street has been one of Atlantic Union’s banking clients for several years, a connection that facilitated discussions between the two companies once Atlantic Union made the decision to sell. 

CEO John Asbury “was with one of the partners from Cary Street and said, ‘Hey, let’s brainstorm. … How would we do this if we wanted to do something,’” Zimmerman said. “We started to have the conversations. We got to know more about what they’re capable of. They’re 100% focused on the RIA business and rolling up firms. That just reinforced our thinking. This is exactly why [DHFB] needs to be there.”

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