The recent executive shake-up at GenSpring Family Offices LLC highlights the tension that can exist when a boutique wealth management firm is owned by a big bank holding company.
Two of GenSpring's top executives — chief executive Maria Elena Lagomasino and chief investment officer Jean L.P. Brunel — left the firm Oct. 5 after SunTrust Banks Inc., GenSpring's parent since 2001, named Thomas Carroll to replace Ms. Lagomasino, according to a statement from SunTrust.
A source close to the matter, who asked not to be identified, said that Mr. Brunel and Ms. Lagomasino had hoped to concentrate on building a global multifamily office but those plans seemed to run counter to SunTrust's.
The bank appeared more interested in penetrating markets that the firm hadn't pursued aggressively, namely sports and entertainment, the source said.
Mr. Carroll most recently was the leader of SunTrust's sports and entertainment group.
Other GenSpring executives to exit the firm within the last year include president Christina Burroughs and Phoenix office chairman Mark Feldman, who jumped to registered investment adviser Miller/Russell & Associates LLC in late 2011 and early 2012, respectively.
SunTrust spokesman Hugh Suhr declined to comment beyond the press release that the bank issued about Ms. Lagomasino's departure.
TOLERATING INDEPENDENCE
Mr. Brunel declined to comment except to say that he is returning to the consulting firm that he started, Brunel Associates LLC. Ms. Lagomasino didn't respond to an e-mail.
Experts in the wealth management industry said that the disagreement involving the departing Gen-Spring executives brings into focus inherent conflicts between boutique firms and their acquirers.
“The point of being a boutique firm is to be nimble and client-focused, and it's so hard for a large institution to tolerate the independence that's required in this space,” said Robert S. Matthews, chief executive of Fieldpoint Private, a boutique wealth management firm.
In the case of GenSpring, which, according to its website, has $18 billion in assets under management and 12,900 investment advisory clients, the departing executives had hoped to address the needs of investors who weren't U.S. citizens or residents. Clients living outside the country or marrying those in foreign nations have specific tax-planning and estate-planning concerns.
GenSpring manages assets for clients on a geopolitical scale. In fact, the firm's Form ADV showed that up to 10% of its clients are sovereign nations.
Tougher regulations and disclosures stemming from the Dodd-Frank Act, however, have made taking on non-U.S. clients costly for banks.
"COMPLIANCE BURDEN'
“In many cases, [overseas in-vestors] are happy to have accounts here in the U.S., but the compliance burden for the banks is three times worse than it was five years ago,” said Tim White, a recruiter at Kaye Bassman International Corp.
Industry experts said that though banks and other large acquirers appreciate boutiques' ability to target an audience of ultrahigh-net-worth investors, they often lose that appreciation once the deal is signed. Acquiring a wealth management practice may be an attractive profit venture for the purchasing bank, but some buyers have found that the smaller firms don't fit into the bank's strategies.
“Where large banks have bought these niche businesses, their first attempt is to homogenize them and fit them into the mother ship,” Mr. Matthews said. “They end up distorting and diluting the reasons they bought the firm to begin with.”
David Selig, president of Advice Dynamics Partners LLC, a mergers-and-acquisition consulting company for advisory firms, agrees.
“It's that cultural mismatch,” he said.
“The bank views the RIA as a revenue stream, and it will say that it will be hands-off. But those sentiments change after the ink on the agreement is dry.”
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