Los Angeles Business Journal • March 17, 2014Special ReportBanking & Finance

EALTH management firms knowthat Rob Babek, a partner incharge of accounting firm

Marcum’s Century City office, keeps the books forsome of the richest families in Los Angeles.

Which is why at least twice a week, Babek gets coldcalls from brokers and investment advisers. They’re pre-tending they can help him drum up business, but reallythey’re looking for an in with his wealthy clientele.

“They always start off with the same line: ‘I couldrefer you a lot of business.’ But in reality, it’s the otherway around,” Babek said. “The competition is brutal.”

And it’s getting more so. In the past two years, out-of-town firms have been buying local wealth manage-ment shops or opening their first West Coast officeshere. New shops are cropping up, too, as money man-agers leave big firms and start their own practices.

With a growing economy and a booming stock mar-ket, the fortunes of wealthy families are on the rise. Andthat’s leading to more competition to manage theirmoney, especially for the richest of the rich, said PaulMiller, managing director in the new Westwood officeof Irvine wealth manager First Foundation Advisors.

“It’s a pyramid,” he said. “As you go up the pyra-mid, the number of clients gets smaller and the compe-tition gets fierce. Clients have a lot of options.”

The biggest recent deal was the October acquisitionof Century City’s Bel Air Investment Advisors byMontreal asset management firm Fiera Capital Corp.Another noteworthy local deal was the December2012 acquisition of Luminous Capital Holdings, alsoin Century City, by San Francisco lender FirstRepublic Bank. (See page 32).

Luminous and Bel Air each manages more than $5billion in assets, making them two of the biggestwealth managers in Los Angeles.

City National Bank, the biggest local commercialbank, has offered wealth management for years, but itrecently expanded its offerings, launching subsidiaryCity National Rochdale in September. It’s the combi-nation of City National Asset Management andRochdale Investment Management, a New York firmthe bank acquired in 2012.

The number of wealth management firms is grow-ing at a remarkable pace.

Last year, 65 new wealth management firms inCalifornia registered as investment advisers with theSecurities and Exchange Commission – up from 57 in2012 and 42 in 2011. And the pace continues to quick-

en: Already this year, 23 new firms registered.Westwood stock brokerage and investment bank B.

Riley & Co. late last year created B. Riley AssetManagement, a new affiliate that will offer investmentproducts and advisory services for wealthy clients.Steve Lockshin, who founded Convergent WealthAdvisors, now owned by City National, last monthstarted Century City wealth management firmAdvicePeriod. (See page 30.)

Driving the growth is an increasingly buoyant econo-my, competition among banks over wealthy clients aswell as a shift by both investors and advisers away frombig brokerages toward smaller, independent firms. Thosefactors are likely to continue producing startups andacquisitions, said Rebecca Rothstein, a managing direc-tor in the Beverly Hills office of Bank of America’sMerrill Lynch private wealth management practice.

“The competitive landscape in Los Angeles haschanged dramatically,” said Rothstein, who moved herteam from Morgan Stanley to Merrill a year and a halfago. “And I don’t believe we’ve seen the end of this.”

Throwing lassosFor City National and First Republic, wealth man-

agement is not a new business line, but it’s somethingthose and other banks have been more interested inover the past few years as low interest rates have made

it more difficult for them to make money through theircore business of lending.

To banks, wealth management is a source of steadyincome, said Tim Coffey, an analyst in the SanFrancisco office of Atlanta brokerage and investmentbank FIG Partners.

Coffey, who follows City National parent CityNational Corp. and First Republic, said both bankshope to make money from wealth management clientsin two ways: charging fees to manage their money, anddeveloping relationships that lead to jumbo mortgages,business loans and other traditional banking services.

“There’s a lot of pressure on banks to grow revenue,and in a low-interest-rate environment, it’s hard to dothat if all you rely on is loans,” Coffey said. “Wealthmanagement clients drive a lot of fee revenue andthey’re an opportunity for banks to sell other products.”

In buying Rochdale, City National increased itspresence in New York and added a few new investmentstrategies, said Richard Gershen, executive vice pres-ident of City National Wealth Management.

He said City National Asset Management, the oldbank unit that merged with Rochdale, was known forbond investments, while Rochdale’s specialties includ-ed investment in emerging markets and so-called alter-

As wealth rebounds, so has wealthmanagement. Banks, breakawayfirms and out-of-towners are allclamoring to manage the moneyof L.A.’s elite now that cash iscoming off the sidelines.

More Money Men

By JAMES RUFUS KOREN Staff Reporter

W

Also: Investor-Friendly Initatives, PAGE 30 | Selling High, PAGE 32 | Quarterly Banking Charts, PAGE 34

Please see page 26

BUYING IN: Richard Gershen at his City National office in Beverly Hills.The bank bought a New York wealth manager to boost its presence in the market.

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26 LOS ANGELES BUSINESS JOURNAL MARCH 17, 2014

natives, such as hedge funds.“It was all very complementary,” Gershen said.

“We now have a much broader set of strategies.”Russell Goldsmith, City National Corp.’s

chief executive, said the acquisition was aboutfinding out what clients need, then offering it.

“We have a broad and longstanding rela-tionship with clients,” Goldsmith said. “We’reserving them across the board. We can sitwith the client and say, ‘What do you need?’”

Other banks are taking a similar approach.Rothstein at Merrill Lynch said she leftMorgan Stanley in part because of the oppor-tunity to get business from Merrill parentBank of America’s client base.

But the strategy is as much about gettingnew clients as it is about keeping existingones, said First Foundation’s Miller. His firm

is affiliated with Irvine’s First FoundationBank and about 30 percent of his wealthmanagement clients have come to himthrough that connection.

By providing wealth management, he said,the bank helps keep clients from taking therest of their business elsewhere. If a clientgets a commercial loan from one bank butmanages their personal wealth at another,both banks fear they could lose the client.

“Everyone tries to throw lassos aroundclients,” Miller said. “The more lassos, the lesslikely they are to leave. It makes it hard for a clientto say, ‘I’m going to go to a different bank.’”

But don’t expect many other banks to getinto the wealth management business, saidFIG’s Coffey.

For banks that don’t already offer wealthmanagement, he said that starting up a businessunit can be costly. And wealth management isdifferent enough from ordinary banking to make

it a potential headache for bank executives.“I wouldn’t expect to see this among the

smaller banks,” Coffey said. “If you knowhow the business is run and you know how itfits into your corporate structure, it’s relative-ly easy to do. But if you don’t have that expe-rience, it can be expensive.”

Independent playersIn addition, banks are getting more local com-

petition from smaller investment advisory firms –those not connected to banks or brokerages.

Some are new, started by money managerswho have left bigger firms. There’sLockshin’s AdvicePeriod; Kinney Group, aPasadena wealth management firm startedlate last year by former UBS adviser PaulKinney; and Adherence CapitalManagement, a Century City firm co-found-ed by Steve Johnson, former chief invest-ment officer at Apple Inc. investment arm

Braeburn Capital.Dan Seivert, chief executive of Echelon

Partners, a Manhattan Beach investmentbank and consulting firm that works withinvestment managers, said advisers from bigfirms are leaving to start their small advisoryfirms as contracts and incentive agreementssigned during the recession expire.

Seivert said that’s happening because advisersnearing retirement age might want to start theirown shops, bring their clients along with them andlater sell their book of business to another firm.What’s more, some advisers don’t want to workwith big firms connected to banks that made badinvestments and then had to be bailed out.

“There’s been a big desire to get out fromunder these firms because many of them wereaffiliated with the big banks,” Seivert said.“They became synonymous with the prob-lems associated with the downturn.”

Along with startup wealth managers, LosAngeles has seen an influx of out-of-townfirms setting up their first local offices.

There’s True Capital Management, aSan Francisco money management firm forpro athletes that opened an office here a yearago; Silvercrest Asset Management Group,a publicly traded New York firm that openeda Century City office in June; and TCIWealth Advisors Inc., a Tucson, Ariz., firmthat opened a Santa Monica office last month.

David Murdock, a Silvercrest managingdirector who runs the local office, said hisfirm and other out-of-towners see opportunityin Los Angeles in part because it’s a marketwhere independent advisers, ones not con-

nected to brokerages, don’t have a big pres-ence yet. He and other advisers say big bro-kerages have been more dominant here thanin San Francisco, New York and other centersof wealth, and that independent advisers aremore common in those markets.

“Our competitors here are not firms likemine,” said Murdock (no relation to Dole FoodCo.’s chief executive). “There’s a much small-er number of independent investment advisershere than traditional brokerage firms.”

Many of the firms opening offices here haveL.A.-area clients already, but they’re hoping tobuild a bigger base with a local presence. TrisaSummers, president of TCI Wealth Advisors,last month hired Marc Campbell to run herfirm’s Santa Monica office. She said she hopesL.A. clients will feel more comfortable refer-ring acquaintances to her firm now that she hasa local office. Like the banks, she hopes to takeadvantage of existing relationships to help growthe business.

“Our biggest growth opportunity is clientreferral,” Summers said. “Where you have clientswithout a physical presence, that’s a challenge.”

Niche focusWealthy clients are becoming more aware

of these smaller firms, said Gary Reuben,chairman of the L.A. chapter of Tiger 21, a

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‘I wouldn’t expect to seethis among the smallerbanks. If you know howthe business is run andyou know how it fits intoyour corporate structure,it’s relatively easy to do.But if you don’t havethat experience, it canbe expensive.’TIM COFFEY, FIG Partners

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networking group for investors who have atleast $10 million in investable assets and payannual dues of $30,000.

Reuben said Tiger 21 members haveexpressed interest in moving their money toindependent advisory firms. Small firms areseen as more nimble and can invest clients’money in smaller, more niche investmenttypes. That’s something his members want.

For instance, he said, members have latelybeen interested in investment in first-trustdeeds – short-term loans made to real estateinvestors or developers. Many funds makingsuch loans are too small to entice large firmsthat manage billions in client assets.

“They might be $100 million funds orless, and big firms aren’t interested in that,”he said. “But a small adviser is interested andthose are the kinds of investments that high-net-worth investors like.”

Across the board, there’s one more factormaking the wealth management market sofrothy: After a recession and a few years ofslow growth, money managers say the econo-my is creating wealth again. Todd Morgan,senior managing director at Bel Air InvestmentAdvisors, mentioned Facebook Inc.’s hugepurchase last month of messaging companyWhatsApp Inc. as evidence of a new boom.

“It’s exploding – someone just paid $19billion for a company,” Morgan said. “Realestate portfolios are growing; business ownersare making more money.”

As a result, wealthy investors who havebeen sitting on cash are thinking about put-ting their money to work again, meaningthere’s more business for wealth advisers.

But some advisers fear there’s a bandwag-on mentality at play – that firms are startingup and expanding because wealth manage-ment looks easier today than it did a fewyears ago. The S&P 500 is up about 20 per-cent from a year ago, and it’s more than dou-bled since 2009. First Foundation’s Millersaid the founders of new firms might haveforgotten how bleak the market looked just afew years ago.

“You get several years of wind at your backand it makes this look easy,” he said.“Everybody’s doing well, so everyone looksand says, ‘Where do I want to grow next?’ Butpeople forget the complexity of our business.”

Others, though, say Los Angeles could usemore money managers and that the number offirms here is still dwarfed by the number inNew York.

Bob Graziano, a longtime Los AngelesDodgers executive who now leads theCentury City office of wealth managerJPMorgan Private Bank, said his office hasdoubled its staff from 40 to 80 over the pastfew years and still sees growth ahead.

“There’s a strong recognition thatSouthern California has a tremendous amountof wealth and there isn’t a dominant player inthe market yet,” he said. “When people arelooking at opening satellite offices or creatingnew organizations, they see L.A. as a placewith tremendous opportunity.”

Continued from page 26

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INCOMING:Marc Campbellat TCI, left, andDavid Murdockat Silvercrest,both work forfirms that haverecently openedtheir firstLos Angelesoffices.

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