A merger is supposed to work like a good marriage. But like many marriages, many-maybe most-transactions are not successful. The good ones have to be based on the pair's common likes and dislikes. Then compromises and some hard work come into play.
That is what principals at Modera Inc. of Westwood, N.J., and Back Bay Financial Group Inc. of Boston understood when they merged their firms at the beginning of 2011, and it is apparently working superbly so far.
The process started long before the actual merger took place in January last year. The principals met over the years and developed a respect for each other. Then the courtship started and a lot of work went into the details of creating one entity out of two.
Now the new Modera Wealth Management LLC, which has offices in both Boston and Westwood, N.J., is a $1 billion firm with 510 clients, about $1.8 million invested per client and 30 staff members. Before the merger, the firms had a combined $940 million in assets under management. Part of the reason for merging was to create a larger organization and more substantial presence than the two had separately, so they could compete more easily with the big wirehouses and banks.
The process has not been without its glitches, but the five principals, all co-owners, say the merger has turned out better than any of them imagined.
Conflicts popped up in technology areas. For instance, the principals had to decide whose portfolio accounting system to go with. Modera had a long history with Advent and could have just upgraded. Back Bay switched systems about three years ago to Schwab Perfomance Technologies Portfolio Center and another change so soon did not sound attractive. So the new firm went with the Back Bay system.
"It was not an easy decision," says Tom Orecchio, who was a founder of the original Modera (which grew out of Greenbaum and Orecchio), and who is now a principal of the new organization. He notes many such decisions had to be made.
Because both firms were already successful in their own right, there was some question about why they would want to merge in the first place.
Orecchio and his counterpart in Boston, Robert D. Siefert, a Back Bay co-founder (and also a principal in the new firm), originally met in 1996 at a conference in New Hampshire and hit it off. They kept crossing paths at conferences and in study groups over the years and talked more. Both men realized their organizations had a lot in common. Both firms originated as fee-only, conservative, passive investors.
Siefert and Orecchio kept in touch over the years and eventually realized the other principals in their firms, all of whom hold CFP designations as well as other industry educational designations, should meet too. Shortly thereafter, the courtship began in earnest.
"There are several ways to look at the outcome," says Orecchio. "The cultural part was the hardest. We had to make sure we agreed on how to operate and that everyone felt comfortable with the work and with each other."
The merger had to work for both the staff and for the clients. During preliminary talks, the deal breakers were all put on the table first: Which name would they use? Should they keep both offices? How should the principals relate?
The name Modera was kept because it did not tie the firm to a particular geographic area. With the help of technology, they were able to keep both offices. The five principals in those two offices are equal, aligned horizontally so there is no hierarchy. All are CFPs and wealth managers for the firm.
Both firms had the same types of clients, and that has not changed substantially either. They are dealing with relatively high-net-worth individuals and families, most of whom are middle age or older executives, professionals, entrepreneurs and retirees. The firm also has among its clients a number of endowments and institutions.
The five key members each have a niche they have carved for themselves, although each can also handle any type of client. Orecchio tends to the analytical side and handles a lot of detail-oriented engineer-type clients, while Siefert works with clients who want to let go of their financial details and have someone else handle them. Siefert describes himself as more relationship-oriented and also does much of the firm's and the clients' philanthropic planning. He also specializes in portfolio construction and retirement accumulation and distribution strategies.
The entire staff was brought together at a retreat in Vermont where they got a chance to know and interact with each other personally and professionally. Some of them had not met before, unlike the principals, and even those who had did not know each other well. Back Bay staff members felt Modera was a little more formal in its dealings, although those at Modera say they did not feel that way.
"The Vermont retreat was the greatest thing in the world for the employees," John H. LeBlanc, a principal from the Boston office, says. "For two and a half days we got everyone to meet everyone else. The facilitator was incredible. We took what everyone thought about the other firm, including all the misconceptions, and put them aside so we could talk about how to build a new goal together."
"Our differences melted away when we got together," Orecchio adds.
The retreat included social events, as well as business discussions, and everyone came away knowing the other people better. LeBlanc, who started in the business in 1994 and has experience in real estate dealings and retirement planning, took on the role of chief operating officer, which was crucial in the transition phase.
Modera got in on the end of the latest peak year in mergers and acquisitions, when such deals were the rave. During 2011, there were 57 such marriages, according to Schwab Advisor Services' strategic business development unit, down from a peak of 70 in 2010, which is when Modera did a lot of its planning.
Before that, the peak years had been 2007 and 2008 with 56 and 54 deals, respectively. In 2010, $63 billion was involved in assets under management at merging firms, Schwab says.
"The landscape for M&A transactions last year  was reminiscent of 2009 when economic turmoil and market weakness led to lower valuations and greater uncertainty, resulting in a number of participants sitting on the sidelines," says Nick Georgis, vice president of Schwab Advisor Services.
Different parts of the Modera merger were planned and handled differently. LeBlanc, who works out of Boston, says staff changes were the biggest worry for the employees, but no one was fired and only one person left.
"We wanted all the employees to buy into the new firm, so we tried to involve them in all decisions," he says. "We did not take any one firm's way of operating but blended the two."
The firms reviewed the technical programs being used and selected the best of the two or in some cases threw out both and found a third. "It was crucial that we got things like instant messaging right from the beginning and we did," LeBlanc adds. "Now people can work from almost anywhere."
For instance, one of the five principals works out of his home based in Atlanta. Modera does not have an office there yet, but may have one in the future.
Economies of scale have helped the larger operation. Instead of having two compliance departments, the firms now have one. Likewise, where one office had a lawyer on staff and the other had a CPA, the new company has both.
"We each had deeper benches in different areas, and now we share resources," Orecchio says. "We had an insurance person and they had greater benefits experience.
"Technically, the merger went better than we thought it would. Almost everything is happening on schedule and within a few months all services will be integrated," he adds.
The firm will soon have one customer contact system. The investment policy statements and client printouts are still a little different, but are now being made uniform.
The principals share expertise between members and offices. Some things have to be changed or modified, but the merger would not have worked if the two firms did not possess similar investment philosophies. Both believed in conservative investing with low-risk philosophies and passive investing. They were successful, independent, fee-only firms, but they each had limited geographic reach and could be seen as small-time compared to the huge entities in the industry.
Now Modera has a deep bench of talent in two different states. The firm has expertise in investing for foundations and not-for-profits. It understands alternative investments such as private offerings. And it understands the needs of specialty clients such as doctors and small business owners.
As its predecessors did, the new firm charges fees only, starting at 1% of assets under management and moving down on a sliding scale as assets increase.
Principal Mark Willoughby, the firm's Atlanta connection, has been in charge of much of the technology part of the merger. He also has extensive experience in investment analysis. But he says he is looking forward to getting back to working with more clients. He previously held senior positions at Deloitte & Touche, Morgan Stanley and Chase Manhattan before joining Greenbaum and Orecchio.
"One of the advantages of the merger is that it allows all the owners to decrease their other duties and get back to working with clients," Willoughby says. "It also opens up more leadership possibilities for the staff. The merger has been a lot of work, but once everything is implemented, the combined firm will be stronger than either of the two separate ones were."
Greg Plechner, a principal who works out of New Jersey, could not agree more. Plechner joined Modera after working in New York City for Prudential Securities, Wall Street Advisors and Smith Barney.
"As a smaller firm, we had to wear more hats," Plechner says. "As we have grown, we are able to be more defined careerwise and more specialized. The challenge is, from the employee's perspective, to communicate to them that we are building a firm that is better for them and better able to serve the clients.
"We've always placed a premium on service, but now with the merger we can build upon that foundation while creating more professional opportunities for our team," he adds.
Plechner, who is detailed-oriented, has built a good rapport with clients who are small business owners. They want answers quickly because they have a lot on their plate, but the answers need to be well thought out, and that is what Plechner brings to the table.
"One client recently wanted to know the pros and cons of setting up a private foundation compared to other types of charitable structures. Another wanted me to help map a succession plan for his business," Plechner says. "A business owner may need assistance setting up employee benefits, but they are all short on time and being pulled in a lot of different directions because they are running their businesses, so they need answers in a timely manner."
Although the staff has been spending much of their time servicing existing clients and working on the merger, Modera has in the last few months also picked up some not-for-profit clients in addition to endowments and foundations, Siefert says.
"We have been able to do this, I think, because of the legitimacy that we have gained as a $1 billion, multi-city firm. We are still independently owned, which is a distinction between us and the wirehouses and banks, but we cannot be dismissed as a boutique firm, either," he says.
Siefert admits that, for him personally and probably for others in the firm, letting go of some control was difficult at first. "Early on, that was a little painful." But he acknowledges it was probably inevitable and it has now worked out.
Siefert advises that other firms considering mergers must have enough in common with the target firm in the beginning, and after that their principals must not be afraid to explore the differences.
"Between Modera and Back Bay we had 80% of our philosophy and mission in common and maybe 20% differences," he says. It was up to the staff to work through the latter, not the owners, he says.
"You cannot learn as you go," he adds. "Too many mergers have failed because the principals only got to know each other after the fact. You have to put all your cards on the table in the beginning."
He says that both Modera and Back Bay were entrepreneurial. Both firms also left staff members some autonomy to make their own decisions, which made them a good cultural fit.
"I knew Bob and I would work well together," Orecchio says. "We needed to make sure the staffs could work together, and once we got together in Vermont, most of the differences were ironed out. We are all colleagues now, working with the same type of clients and the same investing philosophy."
In any merger, service to clients has to remain the foremost goal as the other details are being worked out.
"The new entity has to be better than the other two were separately. That creates a boost in benefits to both clients and staff," Orecchio says.