Convergent coup may be ominous for wirehouses

Convergent Wealth Advisors’ stunning lift-out of two advisory teams — which are estimated to oversee a combined $7 billion in assets — from Citigroup Inc.’s institutional-clients group may precipitate a spate of similar deals as large banks continue to face financial woes.

“I think this is the tip of the iceberg,” said wealth management industry consultant Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy LLC. “For the first time, we’re seeing a very significant departure from a major wirehouse firm going to a smaller firm.”

Jeff Spears, principal at San Francisco-based Sanctuary Wealth LLC, agrees.

“This is huge,” he said. “It shows that independent wealth management firms now understand how to recruit established advisers from Wall Street firms, and it opens up a whole new group of recruits.”

As part of the lift-out, George Dunn and Peter Dunne, who had been with New York-based Citigroup for more than 29 and 22 years, respectively, joined Convergent’s Washington office as managing directors.

David Mattia, an 18-year veteran of Citigroup, and Lori Van Dusen, who had been with the company for 21 years, joined Convergent as managing directors in its Rochester, N.Y., office.

$7B IN ASSETS

Combined assets under management for the teams are thought to be about $7 billion, representing a mix of institutional and high-net-worth clients. The teams have nine employees each.

Terms of the deal were not disclosed.

Beverly Hills based City National bank is the parent company of Convergent, which is based in Rockville, Md. City owns a majority of Convergent’s equity through its Chicago-based subsidiary, Convergent capital Management LLC.

“The numbers support an exodus from wirehouses to full-service independent wealth management firms,” said Convergent’s chief executive Steve Lockshin. “The trends in the industry will be for advisers to look for an environment where they can best serve their clients.”

Some independent wealth management firms say they are already talking to advisory teams from other large companies that are looking to move.

Among the suitors is Aspiriant, the new San Francisco-based advisory powerhouse headed by wealth management superstar Tim Kochis. Next year, Aspiriant will be more proactive on the recruiting front, said Rob Francais, the company’s chief operating officer.

“It’s a great trend for Aspiriant,” he said.

The lift-out is “an example of the opportunity for [registered investment advisory] businesses to benefit from the turmoil at the big wirehouses,” said M. Rush “Rusty” Benton, chief executive of Nashville, Tenn.-based WealthTrust LLC.

That turmoil, which has included a slew of negative headlines stemming from the credit crisis and problems related to subprime mortgages and auction rate securities, has loosened the grip that large companies have had on top advisers, according to industry experts.

“The things that held them back before like stability, infrastructure and brand recognition — none of those things are there anymore,” Mr. Welsh said. “The only anchor was deferred compensation in company stock, which in many cases is now half the value it once was.”

At smaller wealth-management boutiques, “advisers are less susceptible to the consequences that another business line can have on their own performance and ability to do business,” said Aylin Tugberk, an associate at Glocap Search, a New York-based executive search firm. “At bulge-bracket firms, advisers often shoulder the burden of underperforming divisions.”

What’s more, sophisticated technology now gives smaller firms the ability to compete on a nearly equal footing with their larger counterparts, industry executives say.

“Available technology now gives advisors freedom, flexibility and an open-architecture platform,” Mr. Welsh said. “There’s no reason they have to stay [at a large company.]”

Key to the lift-out was City National Bank’s ownership of Convergent, said Allan Starkie, a partner at New York-based executive search and market research firm Knightsbridge Advisors Inc.

“I don’t look at this deal as done by a small firm,” he said.

“I look at it as done by a medium-size regional bank. Russell Goldsmith, the CEO, is a brilliant guy,” Mr. Starkie said.

“In Convergent, he has one of the -pre-eminent open-architecture wealth managers for ultra-high-net-worth clients, and he can offer them credit and deposit services as well,” he said. “He has a very complete set of arrows in his quiver, which makes it an attractive place for the teams from a place like Citi.”

Mr. Starkie is skeptical that many smaller firms will reel in such big fish as the Citigroup teams.

E-mail Charles Paikert at [email protected].

Related Topics: Citigroup Inc.