Ask a financial advisor what he wants for Christmas. Ten years ago, the answer would probably have been: recognition for his integrity and professionalism, and above all, a fee-only sign above the front door. But ask him this year and he's likely to say he wants to buy another financial planning firm or he wants a bigger firm to buy him.
Over the years in between, most planners developed their professionalism and grew their practices. Some, like Budros & Ruhlin in Columbus, Ohio, did it in a strategic, well-thought-out manner. And yet, the planners who formed what we call the first generation of professionals often said that they would never sell their firms or merge into a larger entity. These lone-wolf planners believed that bigness was what brought about the disintegration and downfall of so many who came before them, fostering the creation of bureaucratic firms where everyone passed the buck and no one addressed client problems. It seemed as though the larger firms had become tainted in some way.
Consider the two Judys: Judy Lau, an advisor in Wilmington, Del., and Judy Shine in Lone Tree, Colo., two women who have been at the top of the profession for 20 years and who room together at every planning conference or convention so they can catch up on the gossip. For years, the two Judys told me they valued their solo practices and wanted to maintain personal contact and personal planning with each client.
But obviously they don't tell me when they are working on some secret merger deal to ensure proper succession planning for their practices. For example, Judy Lau did not tell me that she had entered a partnership with John Olmstead and his firm Olmstead & Co., a multifamily office advisory firm, until that partnership was nearly over.
One of Judy Shine's partners came and went so fast that I missed him altogether. The most recent information that Shine did not tell me was that her firm was purchased by Western Alliance Bancorp, a financial services firm in Nevada.
It's almost as though there were something shameful to first-generation planners about joining up with the big guys as Sullivan, Bruyette, Speros & Blayney of McLean, Va., did five years ago when it was purchased by Harris Bank. But younger financial services firms-particularly those that operate as multifamily offices-are eager to find merger partners and to grow. Susan Colpitts, one of the founders of Signature Financial Management Inc., a multifamily office in Norfolk, Va., is always trolling for possible merger mates.
Colpitts found a potential suitor and agreed to merge with the firm last summer. We planned to talk about the details of the merger for this column but Signature had not yet closed on the deal at the magazine's deadline so Colpitts was unable to give details about the merger. But there is plenty to discuss in how the firm operates and what it looks for in a merger candidate.
Signature Financial was formed in 1994 by Colpitts, trust and estates lawyer Anne B. Shumadine and a third woman who left the firm in 2001. Colpitts, a CPA, was working at Shumadine & Rose P.C. when Shumadine hatched the idea of setting up a firm to provide all the special services needed for multifamily offices. Shumadine became founding principal and chairman of Signature. "She was a visionary and set the standard early on for the kind of advice we were going to give," Colpitts says. "She told me, 'I do not want a casual firm,'" so the first priority was to make the name Signature synonymous with top-quality advice and service. Colpitts says one client told her: "You're the one-stop shop for the working rich."
Growing was always a goal. Colpitts says they knew that adding clients and investable assets would create economies of scale that would help the bottom line and make the firm more successful financially. But what always stopped them from merging with another firm was that few firms had the same culture as Signature. "It's important to try a lot of firms on for fit," she says. For Signature, deal breakers include an incompatible investment philosophy, issues with quality of work and advice, and compliance. "We're pretty serious about compliance," Colpitts says.
So the biggest obstacle to growth was Signature's high-minded culture and the desire to keep it pure rather than diluting it by merging with a firm of lower quality. But it was just that-top-quality work-that attracted the potential merger partner, whose name at this point is still a mystery.
Randy Webb, who worked for 17 years at Bank of America, joined Signature in 2006. Webb had most recently been responsible for capital raising and mergers and acquisitions in BofA's East Coast middle-market business. Webb became president of Signature and continued the search for merger partners. He also continued to beef up the staff.
"Our name got in front of a firm looking for a succession plan," he says. The two firms met and spent a considerable amount of time understanding each other's culture. They discovered they had a consistent approach to investments, to dealing with clients and to a commitment "to deliver an integrated solution." Then Webb said the two firms spent several exploratory months "thinking out loud how it would work."
Investment philosophy was crucial. Signature's investment process is two steps. First, they look for great managers in hard-to-find asset classes, such as hedge funds or other nonliquid assets, from which an individual investor should probably shy away. Then its principals create portfolios by choosing from those managers whose asset selections coincide with Signature's investment themes, such as shifting demographics, global issues and long-term challenges in energy. They also incorporate some basic beliefs, including that inefficient and illiquid markets provide greater return opportunities for those who can afford to invest there. "We believe that the best investment opportunities are not found in the mainstream," Colpitts says.
"Our clients have very long time horizons," Webb says. "They don't sweat liquidity so we can use endowment-like investments and we spend a lot of time and energy looking for the best ones, both domestic and ex-U.S., equities and fixed income." The merger partner had a similar investment philosophy. "This was a small shop that had guided their clients to illiquid, ex-U.S., hedge funds and other hard-to-find investments," Colpitts says.
Signature is organized with teams put together around clients, Webb says, with each advisor required to be well versed in all aspects of planning and also to have one unique specialty that he knows in depth. "People come to us with some specific training or a skill set that stands on its own and can be developed," Webb says. The special knowledge is a factor in hiring. For example, Colpitts is an expert on the alternative minimum tax and she continues to "turn that spike even deeper," developing her tax skills and acquiring specialized knowledge, particularly about how the Internal Revenue Service and the courts are reacting to the implementation of various ideas about trust and family limited partnerships.
When looking at mergers and acquisitions, Signature looks for people to be complementary to the staff it already has and "to add a new skill or add depth," Webb says. "We plan to keep all the employees (of the acquired firm) and we feel fortunate that the people who are part of this firm are spectacular." The business areas of the two firms are "continuous but not overlapping," and the new employees will "connect the dots on talent and skills on the human capital side," he says. Webb is also interested in making good use of the time employees spend reading and researching and going to conferences. "We'd like to have a unified team across the offices of Signature and use technology to get rid of borders," Webb says. "So if we have an expert in Charlottesville on estate planning, we would not feel we need it here."
Another key to Signature's success is that "we really have a great Rolodex," Colpitts says. "We go to meet people like Natasha Pearl [a lifestyle consultant for the rich] and Thayer Willis [a specialist in family wealth education] and we engage their knowledge base." She adds that: "We're really proud of the people we've met over the years."
For example, one client called some years ago and said he'd heard a pitch about New Zealand timber and wanted Signature to do some research. One of the partners made a series of calls, one leading to the next. "We ended up collecting a lot of knowledge and got back to the client with some real cool information that he could use," Colpitts says. The firm also helps clients do the due diligence on new business and investment ideas and helps them through the investment banking process when they are selling a business, including how to choose the right banker, how to negotiate with them and so forth.
Signature has about $1.4 billion in assets under management and another billion "under advisement." All Colpitts would say about the current acquisition is that it would add several hundred million to the assets under management. Signature has 15 employees and will add three with the merger. And then Colpitts will be kissing frogs again, looking for the next prince.
Mary Rowland can be reached at mailto:[email protected]. She has been a business and personal finance journalist for 30 years, a half dozen of them as a weekly columnist for the Sunday New York Times. She wrote a column called "Practice Points" for Bloomberg Wealth Manager for six years. She speaks regularly about money and values. Her six books include two written for financial advisors: Best Practices and In Search of the Perfect Model.