Old money, new money

In 2017, adviser Frank Ghali left Goldman Sachs after 17 years to start his own registered investment advisory firm, Jordan Park, in San Francisco. A year later, on the other side of the country in New York City, Eric Bodner and Ben Sax walked out of Merrill Lynch’s elite private banking and investment group after nine years to open their own RIA, Kore Private Wealth.

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And why not? Although launching an RIA is an extremely complicated endeavor and soaks up time, money and effort, it turns out that Wall Street and Silicon Valley — comprising, respectively, old money and new money — are both solid gold for registered investment advisers.

Of the four regions of the country, it is the bookends — the Northeast and West — that have the most RIA assets. The Northeast has the most, with $425 billion, followed by the West with $405 billion. The South ranks third with $327 billion and the Midwest fourth with $304 billion.

“That’s where RIAs are investing, either through mergers and acquisitions, hiring talent or doing straight up business development in those regions,” said George Tamer, managing director of strategic relationships of TD Ameritrade Institutional.

According to a report by Fidelity Investments, bookend states New York and California have the most advisers per state (when ranked by a firm’s headquarters), with 2,449 adviser locations in New York and 1,585 in California.

Where the money is

When you look at wealth concentration, it’s easy to see why RIAs flock to the coasts. Ranked by median household income, six of the top 25 counties in the U.S. are in the San Francisco-San Jose region, with another five in the New York metropolitan area, according to Census Bureau data.

Encircling San Francisco, Santa Clara, Marin and San Mateo counties, are the second-, third- and fourth-highest ranking counties in the U.S. when measured by median household income.

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“The tech market in California has been a huge wealth creator,” said David Canter, head of the RIA segment at Fidelity Clearing & Custody Solutions. “You see technology companies where one or more RIAs have been working with the founders and the employees just below the C-suite, and all of sudden the restricted stock or other shares can move into their brokerage accounts. The wealth creation in the Bay Area is quite striking.”

New York City sits at a similar nexus of wealth, surrounded by five of the wealthiest counties in the United States: Nassau and Putnam counties in New York State and Morris, Hunterdon and Somerset counties in New Jersey.

“The East Coast is among the largest economies in the world, still generating wealth in real estate, manufacturing, finance, and yes, technology and research,” said Richard Hough, CEO of Silvercrest Asset Management Group in New York City. He noted that New York state, alone, has a gross domestic product equal to that of Russia or Australia.

Mr. Tamer said 70% of TD Ameritrade Institutional clients in the Northeast and West said they are seeing client growth. “That’s consistent with concentration of wealth in those areas,” he said.

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But it is not just wealth in those areas that is driving the success of firms in the Northeast and West. George Tiedemann, CEO of an eponymous firm based in New York with $13.9 billion in assets, said firms like his also attract assets from outside of their immediate regions.

“Across the country, in smaller towns and cities, the families of substantial wealth are extremely well known, in terms of how much wealth they control and what it means to the town,” Mr. Tiedemann said. “They want to work with an internal team as their family office but also have another outside firm with more privacy. Those families are open to working with a big city firm. And when it comes to San Francisco and New York, it doesn’t hurt that every money manager looking to raise money globally goes through those towns.”

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While small in area, the Northeast has considerable firepower in major cities. New York is home to eight of the top 15 firms in that region and Boston has five when measured by assets under management.

Hot spot

At the other end of the country, RIA assets in the West are concentrated almost exclusively in California, which has 11 of the top 15 firms. San Francisco, alone, is home to six of those 15.

Competition is stiff in the RIA bookends.

“In New York and San Francisco, you’re swimming in good pools — and also swimming in competitive pools,” said Mr. Tiedemann.

“It’s always been a challenging environment for RIAs in the main money centers — New York, Boston, Los Angeles, Chicago,” added Richard Hough, CEO of Silvercrest Asset Management Group, the largest RIA in the Northeast with $19 billion in AUM. “There are a large number of wealthy people but there’s also a large number of competitors, and absolutely every firm is a challenger.”

“The barrier to entry is low but expenses are high and fighting for talent is higher than that,” Mr. Hough said.

High costs of real estate and local taxes pose a problem for some firms, Mr. Canter said.

“Say you have a firm based in New York City and have 25 people and looking for office space of 10,000 square feet,” he said. “That’s going to cost $500,000 to $600,000 per year. In Omaha, for the same type of real estate and people, the cost is 24 cents on the dollar to what it would be in New York.”

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“I’ve talked to numerous firms in San Francisco and New York and they’re growing and finding employees,” Mr. Canter said. “But the additional cost of real estate in the business districts of those cities is prohibitive.”