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For Biggest RIAs, Saying No Has a High Price

What’s the price of independence? For Palm Beach Gardens, Fla.-based Banyan Partners, it was $60 million. Most of the firms on our fourth annual list of RIA Leaders get calls from would-be suitors a couple of times a month, even weekly. They want a piece of equity, a slice of cash flow or everything. At Banyan, which debuted on the list last year at No. 25 — and at No. 3 on the list of the fastest-growing firms, after a surge of acquisitions — the call came from Boston Private Bank & Trust. And last summer’s ensuing deal, which amounted to $60 million plus additional sums over a two-year earn-out period, took Banyan off this year’s rankings.

The sale is indicative of the value investors see in this space where the most aggressive firms continue to grow rapidly. In 2009, there were 300 RIAs managing $1 billion or more in assets, according to Cerulli Advisor Metrics. Three years later, there were 500.

Not all of those are completely independent, of course. And for our rankings, which begin on page 40, we seek to capture the strictest picture of independence.

We have strict requirements, excluding firms with broker-dealer and insurance company affiliations, and large outside owners. We also this year sought to remove firms that sell their own commission-generating investments. The list includes only firms that provide true holistic financial planning — not just investment advice — to more than 50% of their individual clients.
Back in July, Banyan founder Peter Raimondi defended his decision to sell, arguing that his clients will benefit from in-house private banking and trust services. “There are very few firms that would have excited me enough to give up 30 years of independence,” Raimondi told Financial Planning at the time.

Yet even he now admits that he can’t promise clients that the firm will remain unaffected by its corporate ownership.

“I guess, technically, it’s always out there as a possibility that something could happen if present management isn’t there and new management comes in,” Raimondi says. “If someone took over for me, I couldn’t say they wouldn’t make different decisions.”


Advisors who have declined to sell argue that, like snaring a butterfly under glass, the act of capture puts an end to the freedom that attracted the collector’s eye in the first place. “Larger firms, whether large banks or financial institutions, are trying to annuitize an asset stream to some degree, but also trying to add distribution lines,” explains Jim Rudd, CEO of No. 14 Ferguson Wellman Capital Management in Portland, Ore.

His firm is practiced at saying no, he says. “We’re a money management firm. That’s all we do. We don’t want to be selling mortgages and annuities to our clients.”

Advisory firm executive Deb Wetherby slips into a slightly mocking singsong to describe a recent call she took. “It was somebody who said, ‘Oh, we are interested in buying a piece of your cash flow and we would be hands off and we would create synergies with other firms and we’d refer clients to you,’ ” says the founder of No. 17 firm Wetherby Asset Management in San Francisco.

“My message was,” Wetherby continues in her own voice, “we are not a good prospect for them, because we treasure our independence and feel like that is part of what helps us control our own destiny and keep clients the focus — rather than have the focus shift to someone else’s agenda.”


Some of the firms on this year’s list have only recently gained — or, in some cases, regained — their own independence.

W.E. Family Offices debuts at No. 25, following founder Mel Lagomasino’s falling out with SunTrust Bank over her leadership of its wealth management division, GenSpring Family Offices, which topped our inaugural list in 2011.

Sand Hill Global Advisors, based in Palo Alto, Calif., sought a buyback almost a decade after its acquisition by new Banyan parent Boston Private. After closing that deal in 2009, the firm has returned to its roots as an employee-owned firm, as it was when it was founded in 1982; it lands at No. 89 on this year’s list.

The partners of No. 24 Bartlett, meanwhile, bought their firm back from Legg Mason in 2012, after 18 largely positive years, says Laura Humphrey, one of the partners who drove the deal.

It was never a “ruse” that the Cincinnati-based firm had been serving its clients’ best interests even while part of Legg Mason, Humphrey insists. Unlike some firms that rely on their broker-dealers to handle back-office operations, Bartlett ran as an independent operation, managed its own P&L and was never compelled to sell any Legg Mason product, she says.

But the relationship with Legg Mason changed over time until the diverging interests of parent and child pointed too far apart, she says. The investment manager morphed into a mutual fund manufacturer and distribution company, she said, “and that is not the private client business.”

Now Bartlett is enjoying a sense of reinvigoration, having taken back the independence it had possessed since it was founded in 1898, she says. It can now devote the cash flow it sent to Legg Mason to investing in the firm to better serve clients.

“The structure is an outward expression of our independence,” she says.

“The structure is an outward expression of our independence,” says Laura Humphrey, who with her partners bought Bartlett back from Legg Mason in 2012.


Any independence is increasingly difficult to maintain from inside large parent companies, because of the increasing strength of their compliance departments, says Charles Osborne, co-founder of No. 28 Atlanta-based Iron Capital.

“Go back to Sept. 15 of 2008, when Lehman Brothers was going under,” Osborne says. “We got to work that Monday morning and our first thought was, ‘We need to communicate with our clients,’ and that’s what we did.”

Some of the employees who are with Iron Capital now were at large financial institutions on that day, he says. “They were specifically told by their managers in their compliance departments, ‘Whatever you do, do not talk to clients,’ ” Osborne says. “They were worried, ‘Are we next?’ not ‘What is happening to my clients’ assets?’ ” he says.

Osborne says at his firm, independence means turning down not just offers from would-be buyers, but also such perks as free trips to seminars run by fund operators.

“We just insist that, if we do something like that, we have to pay our own way,” he says. “If you are accepting any kind of compensation from an outside party, that is going to affect the advice you give. To be truly independent, to my way of thinking, isn’t as easy as it sounds.”

“If you are accepting any kind of compensation from an outside party, that is going to affect the advice you give,” says Iron Capital’s Chuck Osborne.


The pressure to remain independent has become more complicated as the generation that pioneered comprehensive planning edges toward retirement, and looks for a way to bring in new equity stakeholders.
Wetherby says her firm’s ownership structure and succession plan is a cornerstone of her firm’s independence. She spent just one month as 100% owner of the firm she founded in 1990 before she gave away equity to her first partner. Now the firm has 15 equity partners, none with more than 23%.
Firms that wait to transfer ownership, she thinks, put themselves at greater risk of succumbing to a large outside offer.

Other firms on the list have yet to lock down a plan. Boston-based No. 20 Federal Street Advisors, for example, already has identified its next slate of younger leaders — but hasn’t decided how to transfer actual ownership stakes, says firm President Jennifer Murtie.

And Osborne, who’s 44 and nowhere near retiring, says Iron Capital would be run by two of his team members if he were to be hit tomorrow by the proverbial bus. For now, though, he still retains 100% ownership of his firm.

Don’t wait too long, Wetherby counsels. Firms that are too big, she says, struggle to get younger partners enough capital for transfers.

“Either your younger people have to take on huge amounts of debt or you have to bring on an outsider,” Wetherby says. “The irony is: I now own a smaller piece of a much bigger pie. So I’ve created more value I think by making those transitions than I would have had if I had kept the equity.”

Investment bankers tell her that her own firm is losing 40% of its share value by transferring ownership internally, she says.

But whatever monetary value she might have lost in building an internal succession process, Wetherby thinks, is more than made up elsewhere in intangibles that create value far beyond what appears on a balance sheet.

Osborne concurs. “That is why firms like ours are growing so fast,” he says. “This may sound strange from someone who manages money for a living, but there’s a lot more to life than money.” FP

Ann Marsh is a senior editor and the West Coast bureau chief of Financial Planning. Follow her on Twitter at @Ann_Marsh.

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