Unlocking Real Value Blog

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

Wells Fargo has finished a major step of its private banking business integration with the former Wachovia Wealth Management by appointing the last of about 30 regional heads on the East Coast who will oversee a range of services for high-net-worth investors with $5 million to $50 million. The restructuring caps one of the biggest outstanding tasks following Wells Fargo’s acquisition of Wachovia last year, bringing together private banking arms that were similar in size but had different organizational models.

A notable aspect of this integration for asset managers is that bank-based financial advisors in the newly reformatted organization will have access not only to the standard brokerage product platforms but also to the broader lineup of strategies available to Wells private bankers.

The newly integrated units had been geographic mirror images, with Wells mostly on the West Coast and Wachovia largely covering states east of the Mississippi River. The combined group now has 34 regional heads in the West region, and 29 in the East. Those managers report up to 12 regional managing directors overseeing larger zones. The 12 are split evenly between six in the Eastern half of the country, reporting to Stan Gregor, and six in the Western half reporting to Chuck Daggs.

Gregor and Daggs in turn report to Jay Welker, executive v.p. of the wealth management group. Also reporting to Welker are several senior executives overseeing sales, technology, and wealth advisory and private banking services and products.

Gregor says the end result of the integration incorporates elements of both business models, though on the Eastern U.S. side, it resulted in more appointments recently to regional manager positions. “We truly have looked at the way both companies were running the businesses and picked out the best of both, with the clients’ needs at dead center,” Gregor says.

The legacy Wells side, whose previous model resembled the current one, only saw a few new private banking regional managers named, but new appointments have been taking place throughout the year in the former Wachovia territory. The six eastern regional directors were named in the spring, and many of the 29 eastern regional managers have been named in recent months, with about 15 announced over the last week.

The regional managers oversee all wealth management functions for their markets, including private banking, credit, investment management, trust and estate planning, financial planning, insurance and bank-based brokerage services. They won’t oversee the financial advisors who are part of the stand-alone branches of Wells Fargo Advisors, which was formerly the Wachovia Securities brokerage.

The new private bank set-up is different from the legacy Wachovia structure in several ways, particularly in including the bank-based brokerage business line under the wealth management reporting chain. “That regional manager is held accountable for results, growth, and development of all the businesses within their geography,” Gregor says.

While the 3,000 bank-based brokerage advisors will remain licensed through the main WellsFargo Advisors brokerage, they will have a much different operating environment by reporting into the wealth management unit. They have broader access to the entire private banking division’s specialty consultants for matters such as trust and estate planning and banking tools, Gregor says. And most significantly, these bank-based advisors now have access to the entire private bank investment platform, an open architecture lineup that includes institutional-style managers and alternative investments.

“This creates a really compelling platform for our [bank-based] financial advisors,” Gregor says.

The wealth management division expects “enormous synergies” from tying in all of the different business lines under one leadership structure, Gregor says. He says the structure also “eliminates the silos that existed” and creates a team-based environment with specialists housed in the same offices as client-facing relationship managers.

“Our relationship managers are engaging with the same people day in and day out,” he adds.“They’re not just ‘renting’ a specialist that visits the market.”

The restructuring has also allowed a certain amount of consolidation through office closings, though Gregor declines to provide details.

The integration effort and adoption of the regional manager model for wealth management is attractive in theory, says Andrew Klausner, principal of AK Advisory Partners in Boston. He says the home office leaders of business units such as insurance and investment management don’t often coordinate, so it makes sense to centralize and combine those efforts at the regional, client-facing level.

Klausner says one of the keys to making such a set-up work is to ensure propercommunication between the specialists at a local level. But perhaps the most important facet is ensuring that compensation incentives reward individual relationship managers, advisors, and specialists for referring business to each other and sharing clients. “If the insurance guy has no incentive to build the entire business, it won’t work,” he says. “If you do it correctly from a compensation point of view, it can be a very good model.”

Gregor declines to describe the compensation set-up in the private bank unit.

In addition to previously reported appointments from recent weeksthe bank announced another 11 regional managers this week, most of whom shifted from similar roles at Wells or Wachovia:

• Jennifer Lee is senior regional manager for New York, coming from a post as managing director and regional manager for the Northeast region at Neuberger Berman.
• Joseph Giglia has been appointed regional manager for suburban New York in charge of the Westchester County and Long Island markets. He reports to Lee.
• John Garone is regional manager for Northern New Jersey and is based in Summit, N.J.
• Brian LaGrua is regional manager for Southern New Jersey, and in based in Red Bank, N.J.
• James Creamer Jr. is regional manager for the Mid-South Region covering Alabama, Mississippi, and Tennessee. He works from Birmingham, Ala.
• David Edmiston is regional manager for Greater Atlanta.
• Dagan Sharpe is regional manager for Greater Georgia, which cover the markets outside of Atlanta, and works from Augusta, Ga.
• Ken Solis is regional manager for the Tampa Bay region, working from Tampa, Fla. He also covers Hillsborough and Pinellas counties.
• Jason Williams is regional manager for the Miami and Ft. Lauderdale regions, and is based in Miami.
• Bradford Deflin is regional manager for the Gold Coast North Region in Florida, and is based in Palm Beach. He also covers Palm Beach Gardens, Stuart and Vero Beach.
• William Bourbeau is senior regional manager for Palm Beach County, and also is based in Palm Beach, Fla.

The Wells wealth management division also houses the newly renamed Wells Fargo Family Wealth Group that focuses on clients with more than $50 million. That unit combines the former Calibre multi-family office of Wachovia and a similar, smaller unit from Wells.

Published in Ignites – An Information Service of Money-Media, a Financial Times Company
By Greg Shulas

Fund industry professionals overwhelmingly believe their firms are well positioned to deliver product and services that satisfy investors’ post-financial crisis needs. That’s according to a majority of Ignites poll respondents.

Roughly 73%, or 177 voters, said their firms are well situated for the retail investing environment that’s been shaped by the economic downturn. That made it the topsentiment expressed in the Ignites survey on how well prepared fund professionals believe their firms are for a more challenging business environment.

Of the majority, 41%, or 99 voters, said their firms are well positioned for the post-crisis landscape, while 32%, or 78 voters, said their companies are very well positioned.

Meanwhile, a mere 11%, or 25 voters, said their investment companies are at acompetitive disadvantage, making that the poll’s least popular option.

Approximately 16%, or 39 voters, gave their firm mixed reviews, saying that the investment company’s preparedness is no better or worse than their peers.

The survey’s findings differ from a recent KPMG study of global investment executives in which 65% said their company’s top management lacked vision and posed a major obstacle to change during the financial recovery.

Further, 90% of U.S. respondents polled had no confidence in their firms’ upper management. The KPMG study’s respondents included investment managers and institutional investors, such as insurance companies, pension funds and sovereign wealth funds. The retail investors it surveyed included wealth managers and family offices, the latter being an advisor group which mainly serves sophisticated high-net-worth investors.

In contrast, the Ignites poll reveals a mutual fund industry that’s largely united in its postcrisis strategy.

Ignites has reported how fund companies have responded to market turmoil by developing new products and strategies that complement the needs of a more skeptical and conservative investor base.

Investment companies have explored developing retirement income funds that seek to provide steady income and relative stability through a form of guarantee, as well as funds that are less correlated to the equity and fixed-income markets.

Investment companies also have been tailoring their wholesaler and customer support services to address investors’ and end-clients’ concerns about investment losses and future financial planning

Andy Klausner, founder of AK Advisory Partners, a strategic consultancy serving the wealth management industry, says mutual fund companies are wise to distinguish themselves as providers of best-of-breed client servicing ideas to advisors.

“These ideas should not only include talking points on the performance of their particular funds, but more importantly general servicing ideas that will help them with their entire book of business, as this will help build advisor loyalty to them,” Klausner says.

Precisely 241 Ignites subscribers participated in the survey as of 3 p.m. Tuesday.

The poll is an unscientific sampling of Ignites’s audience. Readers voted only once on a voluntary basis. Ignites’s audience consists of money managers, service providers and financial advisors.

Published in FUNDfire – An Information Service of Money-Media, a Financial Times Company
By Gregory Shulas

Wealth advisors who leave for a new wealth management firm can expect to bring over the bulk of their existing clients’ assets during the transition. That’s according to a majority of FundFire poll respondents.

Roughly 62%, or 351 voters, said that half or more of an advisor’s assets move with them upon switching firms. That made it the top sentiment expressed in the FundFire poll on the percentage of assets that follow advisors who switch firms.

The majority sum included 42%, or 236 respondents, who said 50% to 75% of the advisor’s book make the jump to the new firm, as well as 20%, or 115 voters, who said 75% or more of assets come over during such transitions.

In contrast, 38% of the respondents, or 214 voters, indicated that less than 50% of assets follow an experienced advisor leaving for a new firm.

Of the minority tally, nearly one-third, or 167 voters, said 25% to 49.9% of existing assets leave the old firm with the departing advisor, while just 8%, or 47 voters, said less than 25% of client assets make the switch.

The FundFire poll’s findings contrast with a recent Wall Street Journal report that suggested only 25% of client assets are following departing advisors, compared to 50% in the past. This, the Journal said, coincides with a trend where clients are reportedly sticking with wirehouses when advisors depart, instead of moving with them.

High-net-worth investors are increasingly having second thoughts about making such transitions with their advisors, says Andy Klausner, founder of AK Advisory Partners, a strategic consultancy serving the wealth management industry. The hesitance can be attributed to how the credit crisis has decimated investor confidence levels, he says.

“Before, clients would go with advisor without thinking about it. Now they are giving a lot of thought to this,” he says. “Clients are becoming smarter. The trust factor is not what it was.” However, Klausner notes that most advisors will not leave a firm if they know at least 50% of clients won’t go with them.

As of 3 p.m. Tuesday, 565 FundFire subscribers participated in the survey.

Participants were self-selected and were only able to vote once. While wealth advisors were the poll’s main target, other FundFire readers had the ability to vote. The publication’s overall audience consists of asset managers, institutional investors, consultants, financial advisors and service providers.

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

Two outfits rooted on opposite sides of the country are basing future growth on acquiring uppercrust independent advisor firms, and both plan to close more deals this year.

Denver-based First Western Financial recently bought an independent registered investment advisor (RIA) firm in California, and has three more acquisitions set to close in the next three months. And Samoset Capital Group of Darien, Conn., has been ramping up to obtain majoritystakes in RIAs or to lift-out wirehouse teams, in both cases focusing on advisors with $500 million to $3 billion in assets.

Both are targeting advisors who roughly serve the $2 million to $25 million investor. Each outfit also offers an open architecture platform for most or all investment vehicles. And one firm already has private banking and trust services; the other plans to add those capabilities in-house.

First Western and Samoset are each aiming at a “sweet spot” of advisors that cater to investors who are “too big” to get tailored attention at a broad-based wealth manager but “too small” to fit into elite environments, such as multi-family offices, says Andrew Klausner, principal of AK Advisory Partners, a strategic consultant in Boston.

“The RIA marketplace has been and will continue to be a driver of growth in wealth management,” Klausner says. But he adds that while it’s a good time to have a growth model based on buying RIAs, these firms need to ensure they are presenting a unique value proposition, both to the advisors they want to acquire and to the investor end-clients.

First Western’s most recent acquisition is its seventh of an RIA, says Scott Wylie, the boutique bank’s chairman and CEO. Wylie is a former chairman and CEO of Northern Trust Bank of Colorado, and he co-founded First Western with Warren Olsen, who is vice chairman and CIO and a past president of Morgan Stanley’s mutual fund business.

First Western closed on its acquisition of GKM Advisers of Los Angeles, an RIA with $353 million in assets under management, on April 30. It now has three offices in California, one in Arizona, and five in Colorado. And it intends to continue growing in the Southwest and Western regions by acquiring more RIAs, Wylie says.

“It’s definitely an integral part of our strategy to expand into new markets,” he adds. “We’re a pretty unique strategic buyer, and that was true two years ago, it’s true today, and it will be true two years from now.”

The First Western model entails acquiring the RIA and then adding private banking and trust specialists, along with its technology infrastructure, which includes proprietary systems and a trust operations platform. Each location operates as a local boutique with its own board andofficers, but it takes on the parent name.

The firm has $2.5 billion in assets under management, focusing on the $2 million to $20 million client, Wylie says. He adds that the firm has capital in place to continue making acquisitions, with a focus on the Western U.S., in part because of a belief that the market is distinct from the East Coast version.

Wylie says while private banks on the Eastern side of the country work with a lot of intergenerational clients and families with “19th Century” wealth, the focus in the West has more of a first-generation flavor, with entrepreneurs and other “wealth creators.” And he says that begets a different culture, because clients in the East tend to want to have their wealth “taken care of,” while Western clients are more likely to want private bankers who treat them as partners.

First Western’s investment approach, overseen by in-house staff, combines proprietary strategies – largely separately managed accounts (SMAs) for domestic equities and fixed income – with similar third-party manager options, as well as outside managers for alternative investments and specialty asset classes.

Back East, Samoset’s inaugural acquisition closed last year, but it was an anomaly, says Peter Milhaupt, head of sales and new business development. The outright purchase of Baldwin & Clarke Advisory Services, an RIA with $120 million in assets under management, doesn’t fit the core model Samoset intends to employ, which will focus on obtaining stakes of 51% to 75% of advisor firms.

“We’re leaving a meaningful equity position with the partners,” Milhaupt says. “It’s built around the premise that we’re truly partnering with RIA firms.”

That original deal, self-financed by Samoset’s 15 partners, helped to jump-start its platform, which combines asset management with financial planning, estate planning and insurance services. Samoset also intends to acquire a private banking and trust division, Milhaupt says.

Two pending acquisitions are now in “active discussions” and others are in earlier stages, both with existing RIAs and with wirehouse advisor teams eyeing a move, Milhaupt says. Samoset will offer them elements such as an open architecture investment lineup, built with an internal due diligence team; succession planning financing; a client planning and reporting system that can take in liquid and illiquid assets; and a suite of advisor practice systems to handle matters such as portfolio accounting and trade order management.

Samoset will also handle central matters such as compliance and human resources, as well as marketing and best practice research. The firm plugs into five custodial partners.

While the model is akin to “holding companies” that had been active buying up RIA firms in recent years, Samoset appears to be aiming more exclusively to high-end firms than its peers. It also will offer access to its platforms on a private-label basis to similarly focused RIA firms.

Milhaupt says the goal is to create a national brand, though the early focus will be on the East Coast. The plan entails opening 10 to 12 “beachhead” offices that will serve as hubs for other offices, including acquired RIA firms, within their regions. “The last thing we want is to have hundreds of offices dispersed around the country that need to be managed individually,” he says.