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Registered investment advisory firm discretionary assets seen to grow under M&As

For many big firms, the key to increasing discretionary assets has been mergers and acquisitions.

For many big firms, the key to increasing discretionary assets has been mergers and acquisitions. Indeed, many of the firms on InvestmentNews’ list of the 50 fee-only registered investment advisers whose discretionary assets have grown the most since the end of 2007 got there primarily through M&A activity. For instance, Aspiriant LLC, the firm with the largest asset growth, was created Jan. 1, 2008, through the merger of San Francisco-based wealth manager Kochis Fitz Tracy Fitzhugh & Gott Inc. and Quintile Wealth Management LLC, a Los Angeles-based multifamily office.
The San Francisco-based firm, which had discretionary assets of $3.1 billion on March 31, is now looking to expand further.
The difficult part is finding firms with cultures that fit well with its own, said chief executive Tim Kochis.
“Compatibility of cultures is the most important in mergers. We can’t remake people’s values and people’s clients,” he added.

SHARED VALUES KEY

Alan Zafran, founding partner of Luminous Capital LLC, which had $1.58 billion in discretionary assets and ranked No. 4 on InvestmentNews’ growth list, agrees.
“We’re giving thought to expanding,” he said. “We’d only do it if we can find individuals who shared our own investment policy and values.”
The Los Angeles-based firm was formed a year ago by several advisers who left New York based Merrill Lynch & Co. Inc.
Another startup firm, Brouwer & Janachowski LLC in Tiburon, Calif., which ranked No. 10 on the growth list with $745 million in discretionary assets, is also preparing for a round of deal making in the RIA arena.
“The whole RIA community is aging and a number of people may be close to retirement and not have a succession strategy,” said the firm’s president, Stephen Janachowski. “Some of the people have been beaten up and drowned down in this environment and may be looking for an alternate succession strategy which is something we can provide.”
Brouwer & Janachowski LLC was born out of the 2008 merger of Brouwer & Janachowski Inc. and Seton Smoke Capital Management of Greenbrae, Calif.
In all, there were 82 RIA mergers in 2008, totaling $134 billion, up from 80 mergers totaling $101 billion the year before, said David DeVoe, managing director of adviser services for San Francisco-based Schwab Institutional.
With the average adviser over the age of 50, and the economic slump putting the squeeze on many smaller investment advisory firms, the rate of deal making is only likely to accelerate in the years ahead, he added.
“What I’m encouraging advisers to do is don’t try and time the market,” Mr. DeVoe said. “If this is the right time to strategically sell your organization, it’s not the best idea to wait a few years for the market to come back.”
Several small firms have approached Glenn Kautt, president of The Monitor Group LLC of Palm Beach Gardens, Fla., for a potential merger. The newly formed firm, a subsidiary of The Monitor Group Inc. of McLean, Va., had $336 million in discretionary assets as of March 31. “It’s predominately smaller advisers who have been hit pretty hard and don’t have great margins,” Mr. Kautt said. “They find themselves pretty squeezed and they’re looking for a home.”
Mr. Kautt is also chairman and president of the parent company.
Some M&A activity is being driven by a desire for a succession plan, Mr. Kautt added.
In fact, Wexford, Pa.-based Gibson Capital LLC, which ranked 14th on the InvestmentNews list, started a firm with a new name as part of its succession plan.
At the end of 2008, the firm’s name was changed from Gibson Capital Management to enable some employees to participate in the succession later this year, said chief executive Brenda Gibson.
“We’re the same company and the same people,” she said. “But we wanted to create an organizational structure that would allow us to give some of our employees ownership status. We don’t want to sell to a bank. We have a corporate culture that’s quite lovely and we want to keep it intact.”