Archive for January, 2009

New Outfit Marries Wealth Advisory, Law Firm

Tuesday, January 6th, 2009

Published by FUNDfire – An Information Service of Money-Media, a Financial Times Company
By Tom Stabile

A new wealth firm with offices in Florida and Ohio launched last month catering to high net- worth clients with investment and family office services, as well as an affiliated law practice. The three partners – former private bankers and directors with National City Bank and its Sterling multi-family office division – opened shop on Dec. 18 aiming to serve clients with more than $5 million.

Willow Street Advisors, based in Naples, Fla., is adding a twist to the relatively uncommon affiliation of wealth advisory and law practices. Such set-ups usually start with established law firms, but the new firm’s core focus is wealth management. The law practice might only break even, says Christopher Bray, managing director and co-founder in Florida for Willow.

“We see growth in the independent channel, especially from clients leaving the traditional firms,” Bray says. “Even though asset values have gone down so much, people realize they want and need professional advice.”

The timing for an independent start-up is probably good, given the financial markets havoc, says Andrew Klausner, principal of AK Advisory Partners, a strategic consultant in Boston.

“If they have the financial backing and a good initial client start-up and prospect list, it’s not a bad time to be starting,” Klausner says. “Unhappy clients are going to continue to move [away from traditional firms] and look for alternatives.”

Bray says Willow is awaiting the transfer of $120 million in assets from its initial 15 to 20 clients, and expects to have about $200 million in assets by the end of the first quarter. It has a few $30 million clients, and has taken on a few investors with portfolios as low as $2 million from prior relationships, but Bray says Willow aims to stick to a $5 million minimum after the first year. The three partners have put forth all start-up capital, Bray says.

The firm will offer both proprietary portfolio management and investing throughseparately managed accounts (SMAs), alternative funds, and other investments. It signed on this week with Fortigent, a turnkey asset management platform provider that focuses on product sets and portfolio construction for high-net-worth clients.

The mixed approach stems from the roots of the founding partners, who came out of both National City’s private banking arm, which runs proprietary products, and Sterling, which uses open architecture.

Bray and co-founder Richard Stevens, who is Willow’s CIO, had both worked forNational City’s private bank in Florida before they left in 2007. Bray previously had worked with the Sterling division in Pepper Pike, Ohio, and when he moved to Florida, a colleague named David Kearns took his slot. Kearns is now Willow’s third co-founder, and works out of Akron, Ohio.

Stevens, who in the past had managed money for the Bacardi family through the Bank of Bermuda, serves as portfolio manager for Willow clients who want in-house asset management. Bray says initially only a few clients are tapping into the Fortigent platform, with about 25% of the firm’s asset base, but he adds that he expects the share to grow to 40% in a few years.

Investment management will be Willow’s basic offering but it will add in family office services – such as tax, estate, and generational succession planning – for larger accounts.“The family office world is the main space we want to play in,” Bray says.

The firm has seven staffers on the wealth management side, but only Bray and Kearns will staff the boutique law firm they are calling Kearns Bray. That’s because it ispositioned as an extra service for Willow clients, though Bray says it could also generate some referrals to Willow. The two partners, both of whom are attorneys, will only spend about 20% of their time on the law practice, Bray says.

Many professional practices have opened wealth management arms, but most are accounting firms. Many of the top 100 regional accounting firms have wealth practices, with a handful topping the $1 billion mark in assets. The practice is less common with law firms, though Boston has various examples, such as Nixon Peabody Financial Advisors, an offshoot of the Nixon Peabody law firm, and Silver Bridge, which was renamed last year but remains affiliated with WilmerHale, a large law firm.

Willow and Kearns Bray will be separate entities so that Stevens can have a full stake in the wealth management arm, Bray says. He would not be able to hold a stake in the law firm because he is not an attorney, Bray says.

The idea of starting up a law firm simultaneously is unique, says AK Advisory’s Klausner. He says a key to making the model work is ensuring that the partners offer referrals to other practitioners from either practice in case some clients have concerns about conflicts of interest.

“The partnering approach is certainly right for this marketplace,” he adds. “Clients are looking for trusted advisors.”

Cleveland-based National City, battered by the recent financial markets tumble, was recently acquired by PNC Financial Services Group of Pittsburgh in a deal that closed at year’s end.

What Wealth Managers Are Burned By Crisis?

Tuesday, January 6th, 2009

Published inFUNDfire – An Information Service of Money-Media, a Financial Times Company
Written by Andy Klausner, CIMA, CIS, the founder of AK Advisory Partners LLC., a strategic consultancy serving the wealth management industry.

Few if any wealth managers escaped 2008 without significant damage to their portfolios, their client lists, or both. Just by the very nature of the market’s decline, any business that relies on, or is impacted, by assets under management will be down at least 30% – 40% and in many cases more as 2009 begins.

For wealth managers, those hardest hit include those that did not have their clients properly diversified. Firms with less than stellar client service were also impacted. The quality of client servicing is very important to high-net-worth investors, and the fourth quarter of 2008 was a time for wealth managers to prove themselves in this area. The more proactive wealth managers were in contacting clients and providing calm and rational advice, the more likely that those clients will stay put with their assets. Even if clients felt compelled to sell out of the market, if their advisor partnered with them in that decision and remained attentive, there’s a good chance that these investors will come back to that advisor.

Also vulnerable are wealth managers that were not proactively prospecting over the past few years and have simply benefited from their revenue growing as their current client’s AUM grew. These advisors are likely to come back slowly as they have to reinvent their businesses once again and refocus on marketing and asset gathering.

Wealth managers that excelled in both of these areas – asset allocation and client servicing – havethe greatest chance of coming back the quickest. However, even those that did everything correctly are still facing a tough 2009 as lower assets under management totals translate into reduced fees, squeezing income. Still, keep in mind that there will be many unhappy clients and many making switches. Wealth managers that take advantage of these likely movements and have well thought out marketing plans should be able to attract new clients more quickly.

In terms of the wealth management model that stands out, the RIA and independent B-D channels definitely emerged as the early winners from the financial sector turmoil. Negative press about the wirehouses, coupled with dramatic falls in their share prices – which released advisors from the golden handcuffs that had previously tied them to these firms – made it more attractive for larger advisors to go independent. While this trend is likely to continue, the pendulum may swing back a little in the other direction as the reality of large losses in fee-based revenue will probably make some of those advisors who were considering going independent rethink their choice. For these advisors, being able to concentrate full time on rebuilding their businesses and revenue, without having to assume some of the administrative duties associated with going independent, may be the best interim solution. Furthermore, the negative press associated with large broker-dealers has somewhat dissipated.