Genworth Financial's definitive agreement to buy a California asset manager will help the company further its strategic initiative to penetrate the independent financial advisory channel, an executive says.
It was the third deal in the past two months in which an insurer announced plans to buy an investment management firm.
"This is just a very interesting trend right now," said Geoffrey Bobroff, president of the Bobroff Consulting firm in East Greenwich, R.I. "I think the insurance industry is very interested in buying into the investment world to expand their capabilities and expand their share."
Gurinder Ahluwalia, president of the Richmond, Va.-based Genworth's independent broker-dealer channel, said closing the deal for AssetMark Investment Services Inc., a specialist in fee-based managed accounts, would triple his company's assets under management, to $12 billion, and, more importantly, create a company boasting relationships with about 4,000 independent advisers.
He said serving this distribution channel has been one of his most important initiatives since the company completed its spinoff from GE Financial last August. He was named president of the independent broker-dealer channel in May.
"It is objectivity that clients are clamoring for," Mr. Ahluwalia said in an interview Thursday, "and independent advisers are really in that sweet spot right now. It is all about offering transparency and objectivity that independent advisers bring to the table."
The announced motivations of the other two recent insurer deals for investment firms were specific to the companies involved.
In May, New York's Guardian Life Insurance Co. of America announced it would buy a majority stake in RS Investments, a San Francisco fund company. If the deal closes this year as planned, Guardian's fund family would expand from 13 to 24 portfolios and more than triple in assets under management, from $5 billion to $17 billion.
Also in May, New York Life Investment Management announced the signing of a definitive agreement to buy Institutional Capital Corp., a Chicago company that manages $14 billion of assets for institutional clients. The deal closed Friday.
Genworth plans to keep investing in order to develop scale and additional assets, Mr. Ahluwalia said. "Having this scale will allow us to provide better services to our growing base of advisers," he said.
Analysts said the deal would help Genworth expand its product array. AssetMark's $8 billion of fee-based managed account assets are to be merged with Genworth's $4 billion of managed account assets once the deal closes in the fourth quarter.
Mr. Bobroff, the consultant, said Genworth was already offering products like variable annuities and long-term-care insurance that advisers could use.
"Genworth wants to broaden their reach in the independent world rather than trying to peddle their products through the major brokerage firms," Mr. Bobroff said. "Genworth is so new it can be difficult to establish yourself with the larger firms. It is just easier to get established by selling through independent advisers."
Under the agreement's terms Genworth is to pay $230 million at the closing for AssetMark, a Pleasant Hill, Calif., provider of open architecture asset management for independent financial advisers, with performance-based payments of up to $110 million more provided for over five years.
Ken Baker, the director of marketing at AssetMark, said the partnership with a large financial company would give AssetMark the ability to keep developing innovative managed account products.
"We want to be the leading provider of managed accounts in the industry," he said. "Prior to the deal we were in the top 10. We believe that with this partnership we will reach the top spot."
Mr. Ahluwalia said the deal's closing would give the post-merger company opportunities to cross-sell additional services to independent advisers. "We can give advisers additional capabilities that we both have," he said.
Genworth has acted aggressively since last year to develop its product and service menu for independent advisers. In April 2005, it introduced ClearCourse, a variable annuity product offering guaranteed income for life. Last October it bought CJM Planning Corp., a Pompton Lakes, N.J., retirement planning firm. This deal added 500 registered representatives to Genworth's investment services unit.
On the retirement services side, Mr. Ahluwalia said, Genworth wants to keep growing by adding consultants in the field to support advisers with annuities or other retirement income products.
Mr. Ahluwalia said both Genworth and AssetMark, on their own, have had healthy organic growth and this should continue. "Our objective is to continue on that pace on a combined basis," he said. "Our organic growth goals are healthy, and we are confident we can accomplish that." He declined to specify his goals, however.
