For Dallas Financial Advisors, Big Money and Big Challenge

By all rights, Dallas should be a dream market for independent advisors. Its fast-growing population and booming economy -- fueled by wealth generated from the energy business, real estate, private equity, entrepreneurs and Fortune 500 companies -- has made the Texas city one of the country’s most desirable wealth management markets.

But unlike the San Francisco Bay Area, another similarly flourishing wealth market, Dallas has not been as hospitable to independent wealth management firms. While Bay Area tech entrepreneurs have generally embraced local independent advisors to help them invest and manage their fortunes, Dallas energy and real estate millionaires have been less accommodating.

“There’s a lot of wealth created in the energy business here, but they’re not always the best clients,” said Jeff Rupp, managing director of View Capital Advisors, a Dallas RIA with $1.1 billion in assets with a large Latin American clientele. “They tend to re-invest in the energy space, where returns can be substantially above the financial markets.”

What’s more, the energy and real estate businesses tend to be big consumers of debt -- something that further draws clients to mega-banks such as JP Morgan Chase, Goldman Sachs and UBS, says Dallas-native Jeff Spears, the co-founder and chief executive of Sanctuary Wealth Services, the San Francisco-based outsourcing provider for independent wealth managers.

'HARDER FOR INDEPENDENTS'

“It’s harder for the independents because the big banks have the lending capability and global reach,” says Spears, “Plus, the oil and gas and real estate guys don’t really buy into the concept of diversification. They made their money in what they already know how to do in boom and bust cycles and that’s how they’re going to continue making their money.”

Nonetheless, there’s plenty of wealth to go around in Dallas, and a number of independents have established themselves in the market, including Tolleson Wealth Management, View Capital, Robertson Griege & Thoele, True North, Lee Financial, The Botsford Group and Presidio.

NEW CEO FOR BIG DALLAS FIRM

Now one of the biggest independents is going through a shakeup in its executive ranks. Richard Joyner, a nine-year veteran of Tolleson Wealth Management, is taking over as the firm's CEO, and Eric Bennett, Tolleson chairman and CEO for the past 15 years, is leaving his full-time role at the firm next week.

Bennett has taken a leadership position at a local nonprofit, The Center for Brain Health; he also remains on the firm's investment committee and remains a "special advisor" to the firm.

Tolleson Wealth Management, the holding company that owns Tolleson Private Wealth Management and Tolleson Private Bank, was founded by credit card magnate John Tolleson in 1997 as a private family office; since an expansion in 2000, it has become one of the leading independent firms in the Dallas market, with $3.5 billion in assets.

TWO CLIENTS PER ADVISOR?

Tolleson’s assets under management have increased to $3.5 billion this year from $1.9 billion in 2009, a growth rate Joyner says the firm is satisfied with. Tolleson is profitable, he said, although he acknowledged that “service creep” -- the continual addition of client services that eat into profit margins -- is a challenge.

Tolleson has an eyebrow-raising ratio of advisors to clients: 56 client-facing professionals serving 110 clients. But Joyner makes no apologies: providing high-touch non-financial services, such as governance, meetings and multi-generational educational forums are more important than ever for wealth firms and multi-family offices, he maintains.

In fact, Tolleson has hired Jim Grubman, a consultant to ultrahigh-net-worth advisors, to train the firms’ advisors in non-financial skills. Such proficiencies, Joyner asserts, will be “transformational” and “a game changer” for advisory firms competing for the business of wealthy families.

FOCUS ON EFFICIENCY

Joyner says Tolleson is also focused on scaling the business and improving “efficiency and productivity.” He points to the recent hire of a new chief operating officer for Tolleson Private Wealth Management -- Murrey Wanstrath, former CFO at Terra Nova Financial Group -- as well as a new part-time chief technical officer.

Joyner is well-known nationally for his work with the Investment Management Consultants Association (IMCA), where he served as president and currently chairs the organizations’ Wealth Management Committee, overseeing the Chartered Private Wealth Advisor designation. He is also considered a top advisor, with expertise in investments, financial planning, accounting and taxes. But he is relatively untested as an operations manager, having taken over as president of the Private Wealth Management division only last July.

FAMILY ADVANTAGE

In the competitive Dallas market, Joyner says Tolleson appeals to clients as a family business, with the Tolleson family invested alongside its clients. “People seem to like it when you eat your own cooking,” he says. “They know who John is and how successful he was and they appreciate that his wealth management firm is run like a business.”

In fact, as part of the recent executive changes, Tolleson’s son Carter was named president of Tolleson Wealth Management. He is also president and CEO of Tolleson Private Bank, which has become a major profit center for the company.

LOCAL ROOTS

Indeed, strong local roots have been one of the biggest advantages for Dallas independents in their battle for wallet share in the market.

“There’s a lot of wealth creation in Dallas and it’s a good growth market, but it’s hard to do business as a wealth manager if you don’t have the right people on the ground,” says Steve Levitt, managing director and co-founder of New York-based investment banking firm Park Sutton Advisors. “There’s a lot of competition, and you can’t just come in from the outside and set up shop.”

Executives familiar with the market cite the example of Presidio, the San Francisco-based independent with national ambitions. “They made a really smart decision by hiring Colin Carter, a well-known local advisor, to head the [Dallas] office,” says Spears, a former Presidio executive. “Presidio has done really well, but those who have come in and tried to start an office without local people haven’t.”

When looking for clients, independents need to look beyond the usual suspects, says Erin Botsford, chief executive of The Botsford Group, which targets business owners, professionals and executives from the many Fortune 500 companies which are headquartered in the Dallas area.

“Dallas is a great deal more diversified than many metro areas,” she says. “There are countless opportunities beyond the energy and real estate sectors, which everyone believes make up the lion share of wealth in the market. Those areas are large components. However, if you stayed there, you would miss so many paths to pursue.”