National Financial Partners: Forging a National Network of Independent Financial Services

787 Seventh Avenue, 49th Floor, New York, New York 10019, USA
Telephone: (212) 301-4000
Fax: (212) 301-4001
Website: http://www.nfp.com

Public Company
Incorporated: 1998
Employees: 1,450
Total Assets: $671.6 million (2003)
Stock Exchanges: New York
Ticker Symbol: NFP
NAIC: 523930 Investment Advice

National Financial Partners Corp. (NFP) was established with an ambitious goal: to unite disparate independent financial services firms under a single, powerful umbrella. Drawing lessons from past consolidation attempts, NFP aimed to cultivate an environment where entrepreneurial spirit thrived within member firms. This strategy was designed to fuel organic growth and facilitate strategic acquisitions, positioning NFP to effectively serve high-net-worth individuals and small to mid-sized businesses with a comprehensive suite of financial products and services.

High Expectations: The Genesis of NFP (1998–99)

The foundation of National Financial Partners was laid with a substantial $125 million seed investment from Apollo Management LP, a prominent leveraged buyout firm based in New York. In exchange for this significant capital infusion, Apollo Management received 125 million shares of NFP. This funding served as the catalyst for NFP’s own ambitious acquisition strategy, setting its sights on consolidating independent entities specializing in financial advisory services for affluent individuals and businesses catering to the financial needs of mid-sized corporations.

NFP’s acquisition model involved offering a blend of cash and stock to secure 100 percent ownership of target financial planning firms and independent insurance brokerages. A key element of their value proposition was the promise of continued operational autonomy for acquired firms. Simultaneously, NFP pledged to enhance their capabilities by providing access to a broader spectrum of financial products and services, alongside crucial technological upgrades for their office infrastructure.

Robert L. Rosen, the founder and chairman of the nascent NFP, articulated his vision in an April 1999 interview with National Underwriter Life & Health, describing the firm as “a producer group with the added element that member firms have an equity share in NFP and will be able to obtain capital infusions from it, if needed.” This equity stake and access to capital were intended to be significant incentives for independent firms to join the NFP network.

Within its initial months, NFP demonstrated rapid expansion, deploying $87 million to acquire 28 companies boasting combined annual earnings exceeding $15 million. The company projected an aggressive growth trajectory, anticipating the completion of 20 additional acquisitions by the close of May 1999. NFP’s ambitious five-year plan envisioned a network encompassing 300 member firms, establishing a significant national presence in the financial services sector.

NFP’s revenue model was structured around taking a percentage of each member firm’s earnings, ranging from 40 to 50 percent. According to Best’s Review, NFP strategically targeted firms characterized by a loyal and established client base, strong community connections, robust client retention rates, and a proven capacity for asset accumulation. These criteria underscored NFP’s focus on acquiring high-quality, stable businesses that would contribute to sustainable growth.

Image alt text: Jessica Bibliowicz, President and COO of National Financial Partners, photographed in 2001.

In a strategic leadership move in April 1999, Rosen appointed Jessica Bibliowicz as the head of NFP. Theresa Miller of Best’s Review highlighted the significance of this appointment, noting that “Bibliowicz gives the firm star power.” Bibliowicz, daughter of Citigroup CEO Sandford Weill, had already garnered substantial attention in financial circles, carving out her own distinguished path on Wall Street.

Bibliowicz’s immersion in the world of finance began early, influenced by her father’s frequent discussions of his business endeavors at home. During her teenage years, she gained practical experience working in her father’s company during summer breaks. She followed in her father’s footsteps academically, graduating from Cornell University, his alma mater. Her professional trajectory continued to intersect with her father’s network post-graduation, starting with a role at American Express Co., where Weill served as president.

Following her marriage, Bibliowicz transitioned to Shearson’s asset management division – Shearson Loeb Rhoades, a firm previously acquired by Amex under Weill’s leadership. She further advanced her career at Prudential Securities Inc., under the guidance of a family acquaintance, eventually reaching the position of director of sales and marketing for mutual funds. However, limited opportunities for further advancement prompted her to seek new challenges.

Rejoining her father’s sphere of influence, Bibliowicz took on a leadership role at Smith Barney, overseeing the mutual fund business and subsequently expanding her responsibilities to include insurance and estate planning services. However, a divergence in strategic vision with Weill’s designated successor led to her departure.

Prior to accepting the leadership position at NFP, Bibliowicz served as president and chief operating officer for John A. Levin & Co., a New York-based investment advisory firm. Seeking a more ambitious undertaking, the opportunity to build and lead a new company from the ground up proved compelling, leading her to join National Financial Partners.

Navigating Challenges: Growth and Market Fluctuations (2000–01)

Jessica Bibliowicz firmly believed that smaller, independent financial firms stood to gain significant advantages by affiliating with National Financial Partners. The escalating demands of technology investments were placing considerable strain on their budgets, and larger competitors enjoyed inherent advantages in brand recognition and market presence. Becoming part of NFP was envisioned as a way to alleviate these pressures and enhance their competitive standing.

By early 2001, NFP’s network had expanded to encompass 85 firms, achieving a market valuation of approximately $219 million. However, Bibliowicz recognized that the pace of acquisitions needed acceleration to meet ambitious growth targets. To stimulate further expansion, NFP introduced a finder’s fee incentive program, rewarding referrals that led to successful acquisitions of firms interested in selling. During the initial six months of her leadership, Bibliowicz successfully brought 23 firms into the NFP fold, but sustaining this rapid rate of growth presented a considerable challenge.

Some firms declined acquisition offers, citing concerns about relinquishing independence, dissatisfaction with the proposed financial terms, and potential reputational risks associated with being linked to other member companies that might face ethical or legal issues, according to American Banker. External market conditions also presented headwinds for Bibliowicz’s expansion efforts. Anticipated transformative changes in the financial services industry, following the Gramm-Leach-Bliley Act of 1999, had not materialized as predicted. Furthermore, a downturn in the stock market dampened enthusiasm for initial public offerings (IPOs), and the sluggish economy curtailed wealth creation, impacting the growth prospects of financial services firms.

While Bibliowicz harbored ambitions for an IPO for National Financial Partners, she also acknowledged alternative strategic paths. Larger financial institutions seeking to expand their reach among high-net-worth clientele might view NFP itself as an attractive acquisition target, a possibility Bibliowicz did not dismiss.

Jacqueline S. Gold of American Banker noted the complexities of this scenario: “Yet, selling National Financial Partners to a bank, insurer, brokerage, or any other company would not only be less lucrative than an IPO, it may also make her someone else’s employee—perhaps even her father’s—again. And even that scenario may be optimistic.” The article highlighted the delicate balance Bibliowicz had to navigate between pursuing independent growth and the potential for acquisition by a larger entity.

NFP’s plans for a public offering progressed, but a proposed role for Citigroup Inc. as underwriter was disrupted by a 2002 investigation initiated by New York Attorney General Eliot Spitzer. The investigation focused on potential undue influence exerted by Sandford Weill over a research analyst’s opinions. This situation, compounded by the father-daughter relationship between Weill and Bibliowicz, threatened to cast a shadow over NFP’s anticipated debut on Wall Street, creating unwelcome scrutiny for the burgeoning company.

While NFP emphasized the advantages of network membership for smaller firms, disparities in benefits emerged for different types of member companies. Fee-based advisors, for instance, reportedly found themselves at a disadvantage compared to commission-based advisors, stemming from NFP’s strategic focus on serving as a “conduit for products,” as reported by Investment News. The composition of NFP’s member firms at the time included financial planners and advisors (25 percent), estate planners and insurers (40 percent), and corporate benefits and executive benefits planners (35 percent), indicating a diverse but potentially not fully harmonized network.

Public Debut and Continued Expansion (2003–04)

By mid-2003, National Financial Partners had significantly expanded its network, acquiring approximately 138 firms for a total investment of around $375 million. Business Week observed that numerous previous attempts to consolidate independent financial advisors had faltered, highlighting the inherent challenges in this business model. Dennis Gallant, a consultant at Cerulli Associates, Inc., aptly described the difficulty, stating, “The problem… is that advisers tend to be fiercely independent entrepreneurs who like to work for themselves. ‘It’s like herding cats,’ he says.” Bibliowicz implemented a system of financial incentives and disincentives to encourage member firms to maintain a consistent growth trajectory, fostering a degree of cohesion within the decentralized network.

On September 18, 2003, NFP marked a significant milestone, concluding its first day of trading on the public market with a closing share price of $26.25.

The financial services sector was a prominent contributor to the IPO landscape that year, representing nearly half of all IPOs and being among the first industries to capitalize on the recovering economy, according to the New York Times.

Goldman Sachs, Merrill Lynch, and J.P. Morgan facilitated NFP’s public offering, with Citigroup no longer involved in the underwriting process. However, a “preferred relationship” with Citigroup’s Travelers Life division remained in place. NFP maintained product agreements with several of the nation’s largest financial institutions, including her father’s Citigroup.

Bibliowicz’s personal stake in the company she had guided from $10.5 million in losses to its first profitable year in 2002 amounted to 1.4 percent. The IPO generated $239 million through the sale of 10.4 million shares at $23 per share, valuing the company at $850 million in market capitalization. With an estimated 4,000 independent estate advisors, benefits consultants, and financial planners operating in the United States, NFP was positioned to tap into substantial future growth potential. The company projected annual profit per share growth of 20 percent, driven by both acquisitions and internal expansion. However, Barron’s noted that with member companies’ valuations appearing lower than the trading price of NFP stock, the company’s market valuation might be considered inflated.

Bibliowicz resisted the label of “roll-up” company for NFP. Roll-ups were often perceived negatively as entities whose growth was overly reliant on continuous acquisitions. Bibliowicz emphasized NFP’s organizational structure and its commitment to fostering ongoing internal growth within member firms. During the first half of 2003, internal revenue growth reached 13 percent, following rates of 25 percent in 2000, 14 percent in 2001, and 6 percent in 2002, demonstrating a focus beyond mere acquisition-driven expansion.

Sustained internal growth depended on member firms maintaining the same level of business development vigor they exhibited as independent entities. Bibliowicz, as reported by American Banker, considered client relationships to be the most valuable asset in the financial services industry. Consequently, principals of acquired companies were contractually obligated to remain with their firms for a minimum of five years post-acquisition. The target acquisition profile focused on owners who were in the middle stages of their careers, seeking a long-term exit strategy rather than immediate retirement.

Company Perspectives:

Headquartered in New York, NFP operates a national distribution network with over 1,300 producers in 40 states and Puerto Rico consisting of more than 135 owned firms and more than 180 affiliated third party distributors specializing in life insurance and wealth transfer, corporate and executive benefits, and fee-based financial planning.

Reflecting this decentralized approach, NFP consciously avoided marketing itself as a unified brand, preferring to allow member companies to preserve their individual brand identities while leveraging the collective resources and product offerings within the network. Robert Julavits in American Banker observed that boutique firms had historically dominated the high-net-worth market segment, suggesting NFP’s strategy was aligned with market dynamics.

Revenue growth in 2003 surged by 33 percent compared to 2002, reaching $479.6 million. Mark Tibergien, a principal with Moss Adams LLP in Seattle, commented to Investment News, “NFP did a couple things right. It got funded early, acted quickly and executed its plan.” These factors contributed to NFP’s rapid ascent in the financial services landscape.

By March 2004, NFP had deployed $418.5 million in a combination of cash and stock to acquire smaller firms for its expanding network. Future acquisition strategies were expected to prioritize insurance agents and corporate- and executive-benefits firms, while potentially scaling back acquisitions of financial planners and investment advisors, according to Investment News, indicating a strategic refinement in their target acquisition profile.

In 2004, the investigative attention of New York Attorney General Eliot Spitzer extended to NFP. Spitzer was already conducting a broad examination of agreements between insurers and commercial brokers within the nation’s three largest brokerages: March & McLennan Inc., Aon Corp, and Willis Group Holdings. NFP’s property and casualty operations licensed in New York, which constituted less than 5 percent of its 2003 revenue, became subject to this regulatory scrutiny, adding a new layer of external oversight for National Financial Partners.

Key Dates:

1998: Apollo Management LP provides financing to initiate the consolidation of small financial services firms under the National Financial Partners umbrella.
1999: Well-connected executive Jessica Bibliowicz is recruited to lead the company.
2000: Bibliowicz intensifies efforts to expand the network of member firms.
2002: The company achieves its first year of profitability.
2003: NFP successfully completes its initial public offering.

Principal Competitors

Aon Corporation; Marsh & McLennan Companies, Inc.; Willis Group Holdings Limited.