Merrill sale, Lehman bankruptcy make managers antsy
Last week's stunning series of events on Wall Street has left the door wide open for widespread defections of wealth managers — and their clients' assets — from large financial institutions to regional independents and smaller banks with healthy balance sheets, according to industry insiders.
Last week’s stunning series of events on Wall Street has left the door wide open for widespread defections of wealth managers — and their clients’ assets — from large financial institutions to regional independents and smaller banks with healthy balance sheets, according to industry insiders.
“There’s been so much dislocation and uncertainty from [the sale of Merrill Lynch & Co. Inc. and the bankruptcy of Lehman Brothers Holdings Inc. in New York] that it can only unsettle clients more,” said investment banker Steven Levitt, managing director and co-founder of Park Sutton Advisors LLC in New York.
“This can be a real positive for independent wealth advisers,” he said. “Who wants to custody with these large brokerage houses now?”
Indeed, said Patrick Burns, a Beverly Hills, Calif.-based attorney who specializes in representing brokers and wealth advisers: “I am hearing from a lot of reps that they and their clients have lost confidence in the wirehouse model.”
Bank of America Corp.’s purchase of Merrill Lynch will enhance the bank’s position as a “retail wealth manager” and “puts us in a better position,” said Tim Kochis, chief executive of San Francisco-based Aspiriant, an independent wealth management firm. “It makes the competition more monolithic and is an easier story for us to tell to prospects.”
Aspiriant has about $5 billion under management.
Although Aspiriant, which has national growth ambitions, did not originally plan to take on more advisory teams this year, last week’s events are likely to “accelerate [our] receptivity” to inquiries from high-producing teams who want to leave big firms, Mr. Kochis said.
The market turmoil will “reinforce the trend of good, experienced, high-powered advisers to go out and do a startup or join privately owned companies,” predicted Bob Pitti, a partner at Argos Wealth Advisors LLC in San Francisco, who left Charlotte, N.C.-based Bank of America’s U.S. Trust Bank of America Private Wealth Management unit this year. Argos has about $345 million under management.
As advisers begin to look around for opportunities, “it will be like a game of musical chairs with half the chairs pulled out,” Mr. Kochis said. “It will be messy.”
Bank of America’s wealth management competitors say they expect to benefit from the banking behemoth’s takeover of Merrill Lynch and the collapse of Lehman Brothers.
David Lamere, Boston-based chief executive of BNY Mellon Wealth Management, a unit of The Bank of New York Mellon Corp., said: “Assets moved from other institutions” will contribute to “a very robust third quarter” for his unit.
“Confidence and trust in the people clients deal with is hugely important,” he said. “Firms that tend to be more transparent with clients will be well-served.”
Mr. Levitt cited the lift-out this month from New York-based Citigroup Inc. to Rockville, Md.-based Convergent Wealth Advisors of two advisory groups estimated to oversee a combined $7 billion in assets as a model for future deals (InvestmentNews, Sept. 8). Convergent has about $6.2 billion under management.
SUFFICIENT CAPITAL
Convergent had sufficient capital to attract the Citigroup teams, Mr. Levitt said, noting that the wealth management firm is majority-owned by City National Bank of Beverly Hills, Calif.
High-powered firms, he said, “want a payout and real opportunity, not just independence and stability.”
Boutique firms “with reasonable scale,” such as Convergent, will “truly be at an advantage” in the coming scramble for top talent and client assets, said Jamie McLaughlin, its New York-based managing director.
Last week’s market turmoil “puts [a] bold underline under the flight to quality” among advisers, wealth managers and clients, said Doug Regan, president of Chicago-based Northern Trust Corp.’s wealth management group.
“Institutions with a sound financial footing and a reputation for a conservative approach and quality stand to aggregate assets from this mess,” he said.
And wealth managers might be increasingly pressured to find a new home by their clients, said Rob Francais, Aspiriant’s Los Angeles-based chief operating officer.
“Clients are saying, ‘I like you; I want to stay with you, but I don’t want to feel unsafe,’” he said.
E-mail Charles Paikert at [email protected].
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