Aspiriant aspires to go national

The lofty aspiration of Aspiriant, the new San Francisco-based advisory powerhouse headed by wealth management superstar Tim Kochis, appears to be as daunting as it is admirable: to become the first independent wealth-management firm to establish a national brand.

“There’s a reason it hasn’t been done yet: It’s really, really hard to build a national brand,” said Scott Welch, senior managing director of investment research and strategy for Fortigent LLC, a Rockville, Md.-based wealth management platform provider.

“It’s a remarkably fragmented industry, and the concept of providing boutique service for wealthy clients on a national basis has proved remarkably elusive,” he explained. “Even firms that have been doing it for a long time and are considered industry leaders like Northern Trust [Corp.] and Bessemer Trust Co. [NA] are not household names outside of select core cities.”

But Mr. Welch and other industry analysts believe that Aspiriant may be well-positioned to break the mold. They point to the distinguished pedigree of the firm — formed by a January merger between San Francisco-based wealth manager Kochis Fitz Tracy Fitzhugh & Gott Inc. and Quintile Wealth Management LLC, a Los Angeles-based multifamily office — as well its strategy of offering equity stakes to a wide pool of advisers.

So-called consolidators, or roll-up firms, such as Focus Financial Partners LLC and National Financial Partners Corp., also are attempting to establish a national wealth management presence. Their strategies call for providing cash infusions to the acquired firm and/or the promise of a big payday when the national firm is sold or goes public.

OFFERING OWNERSHIP STAKES

But Aspiriant, which has more than $5 billion in assets under management, has a different strategy. It wants to grow by attracting — and keeping — top talent by offering ownership stakes in a concern that remains independent, according to Mr. Kochis, the firm’s chief executive, and Rob Francais, the chief operating officer, who will become chief executive sometime next year.

“We’re calling it a human capital proposition,” said Mr. Francais, a co-founder of Quintile. “We want to have a well-diversified ownership that can support a transition between generations and the longevity of the firm. We’ve already expanded from 14 shareholders to 32 inside the merger. I don’t see anybody doing it the way we are.”

According to Mr. Kochis, the key to “permanent independence” for the firm is “having a large pool of eager, multigeneration talent with the wherewithal to buy the equity of the older generations’ value.”

“There should never be a need for third-party capital, and third-party control or influence. [That way], the entrepreneurial experience for the staff doesn’t change, and the service experience for the client doesn’t change,” Mr. Kochis said.

Valuations of firms and lift-in teams will be based on the same metrics used in the Kochis Fitz-Quintile merger, he said.

“If the lift-in is worth $100 and Aspiriant is worth $1,000 for a combined value of $1,100, the lift-in would receive one-eleventh, or about 9%, of the equity of the resulting organization,” Mr. Kochis explained. “In view of the required accretive value of the transaction and the growth plans of the organization, owning 9% of a rapidly growing, proven firm producing very strong margins and substantial net cash flow may be a lot better than just current cash and/or the ‘hope’ for an eventual liquidity event.”

The Aspiriant model of sharing equity throughout the company is well-positioned “as an alternative to the roll-up guys,” said wealth management industry consultant Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy LLC.

“They may have solved a succession-planning problem by creating a career path with a larger ownership pool and more time for junior associates to make payments and buy their way in,” he said. “Each firm had a nice brand niche of their own, and they had to believe they were onto something to take their names off the wall.”

Aspiriant’s initial geographical growth probably will begin outside of California, Mr. Francais said. The New York, Chicago, Dallas and Atlanta markets are “of strategic interest,” he said, and the firm is also contemplating a move into Seattle and San Diego. If the company wants to build or rent an office, it will use current cash flow, Mr. Francais indicated.

In addition to merging with firms around the country, Mr. Francais said, Aspiriant also would like to lift in teams of advisers who are frustrated with their current employers.

One of the biggest challenges the firm faces, he said, is “identifying the right firms and candidates.”

“We’re not just looking for anybody,” Mr. Kochis said. “The financial results will have to be accretive, and soon. And the culture and values of the people will have to be compatible with a willingness to forgo some current value to retain independence. We believe that there are many folks like that out there; the others we aren’t interested in.”

Competitors, looking to create a national brand, caution that there is plenty of hard work ahead.

“You can’t underestimate the difficulty of integrating and maintaining the culture and quality of offices coast to coast,” said Steve Lockshin, chairman and chief executive of one of Aspiriant’s chief rival, Rockville, Md.-based Convergent Wealth Advisors LLC. “Maintaining consistency in the culture and offering is essential, but it’s difficult.”

Convergent, which has approximately $9 billion in assets under management, was formed last year when Beverly Hills, Calif.-based City National Bank bought Lydian Wealth Management Co. LLC of Rockville. Convergent currently has eight offices around the country, with another acquisition expected this month.

“It’s harder than people think,” said M. Rush “Rusty” Benton, chief executive of Nashville, Tenn.-based WealthTrust LLC, which has about $8.7 billion in assets under management and 12 offices between Phoenix and Philadelphia, with three deals in the works this summer, including two offices in the Northeast and one in the Southeast.

Operating a national financial services company, he said, requires “a different skill set not typically found at a wealth management firm.”

In addition to Convergent and WealthTrust, Fisher Investments Inc. also has launched a nationally oriented independent-wealth-management business, but Fisher is primarily a direct marketer. It has $43 billion in assets and interacts with clients by phone from its headquarters in Woodside, Calif.

John Temple, an investment banker who worked on the Kochis Fitz-Quintile merger, believes that the combined firm has “excellent prospects of growing strongly. They offer a wealth platform that others can combine their business with and become part of as owners.”

Revenue at both Kochis Fitz and Quintile has grown 25% annually for the past five years, according to Mr. Francais. Aspiriant’s objective, he said, is to increase net income 20% annually.

The integration of Kochis Fitz and Quintile should be completed within a year and a half, according Mr. Francais. The firm has 50 professionals and hopes to hire an additional 10 to 15 relationship managers, investment strategists, researchers and certified public accountants over the next three years, he added.

E-mail Charles Paikert at [email protected].