Advisers rushing to get deals done by end of the year

Nov 11, 2012 @ 12:01 am

By Bruce Kelly and Andrew Osterland

+ Zoom

With two major mergers already in the books this month, investment advisers in the midst of selling their practices are going all-out to complete those deals to avoid tax increases that could take effect Jan. 1.

“This year, if your deal isn't in the queue to close, it's not happening, because firms need a minimum of 45 days for clients to consent. “But if you are close, people are pushing it, sure,” said Elizabeth Nesvold, managing partner of Silver Lane Advisors LLC.

“They want to get it done by this tax year,” she said.

Without a deal be¬tween President Barack Obama and Republicans in Congress, Bush-era tax cuts will expire Dec. 31. The long-term capital gains tax rate will revert to 20%, from 15%.

In addition to transactions in the works, advisers who are considering selling their firms over the next two to three years are being advised to start that process immediately to avoid increases on income or capital gains taxes that could be introduced gradually even if an agreement in Washington is reached.

A tax increase is “certainly on peoples' minds,” Ms. Nesvold said.

“History has told clients not to do deals for tax reasons. But in this changing landscape, we're not sure about 2013, 2014 and 2015,” Ms. Nesvold said.

“If advisers are negotiating [a merger], they can benefit if it's finalized before Jan. 1,” said David DeVoe, managing partner at DeVoe & Co.


Indeed, two mergers of registered investment advisers made headlines this month.

In one major deal, Luminous Capital Holdings LLC, a fast-growing RIA firm based in Los Angeles, on Nov. 2 sold itself to San Francisco-based First Republic Bank for an undisclosed sum.

Launched by former Merrill Lynch & Co. Inc. advisers Mark Sear and David Hou in the middle of the financial crisis, Luminous is an RIA juggernaut. The firm's assets under management had grown to $5.5 billion as of Sept. 30, from about $1.7 billion in mid-2008.

Luminous is ranked as the 17th-largest RIA by the InvestmentNews RIA Data Center.

And last Wednesday, New York-based Evercore Wealth Management LLC said that it had agreed to acquire Mt. Eden Investment Advisors LLC, a San Francisco wealth manager with $645 million in client assets.

Silver Lane advised both Evercore and First Republic Bank on the their transactions.

And in a smaller transaction, Beacon Pointe Advisors is announcing today the addition of a third partner firm, Wealth Management Network of Newport Beach, Calif., which has $130 million in assets under management. At the end of September, Beacon Pointe Advisors managed $5.5 billion.

Terms of the deal weren't disclosed.

Beacon Pointe is looking to expand nationally and add 35 to 40 offices in the next 10 years.

Although the pace of RIA deals is likely to intensify before the end of the year, 2012 hasn't been a stupendous year for such transactions.

Schwab Advisor Services reported last month that 35 RIA transactions — representing firms controlling a total of $42.4 billion in assets under management — were struck over the first nine months of this year. For all of last year, the industry saw 57 deals that accounted for $43.9 billion in assets under management.

Still, the Luminous deal raised eyebrows, first because of the players.

“They were pioneers of the breakaway-broker movement,” said executive recruiter Danny Sarch, founder of Leitner Sarch Consultants Ltd., referring to Mr. Hou and Mr. Sear.


It is a big deal that they managed to sell their firm less than five years after leaving the wirehouse.

The deal was all cash, according to First Republic's statement, and the six Luminous partners all signed “long-term employment contracts as part of the transaction.”

The combined firms will manage $29 billion in assets. No other details of the deal were disclosed.

Meanwhile, Northern California has become a particularly attractive area for establishing or expanding a presence because of the increasing wealth of executives in the technology industry.

“Organizations on the West Coast are in position to grow and show gains,” Mr. DeVoe said.

The fact that two large deals involving California firms were announced over the past couple of weeks is partly “coincidental,” he said, adding that “the parts of the country that are experiencing growth will create more growth for RIAs. Good-size deals are brewing out there.”

Indeed, a West Coast transaction had been a priority for Evercore.

“The expansion of our West Coast presence is an exciting step in our continued growth as a national firm,” Evercore chief executive Jeff Maurer said in a statement.

The firm named three Mt. Eden executives as partners: Keith Williams, founder, chief executive and chief investment officer; Tim Barrett, a founding principal; and Michael O'Brien, a senior portfolio manager and principal.

Terms of the deal weren't disclosed.

Evercore was founded in 2008 and manages $3.8 billion in client assets.


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