To boost AUM and profits, broker-dealers are going in a new direction: West.
Firms like Raymond James, Baird and Wells Fargo are pursuing expansions in Seattle, Silicon Valley and Southern California, where many broker dealers historically have had little or no presence. The firms are being pulled by the allure of new wealth creation in the region, promising rich rewards for those willing to put forth the additional effort. "Wealth management firms are going to gravitate where the money is," notes Bill Butterfield, research analyst at Aite Group.
Take Raymond James & Associates: The firm is pushing ahead with plans to capture more market share on the West Coast, where it had no presence a decade ago. In the past few months, the firm has opened new offices in California, recruited a dozen advisors and a branch manager from wirehouse rivals. It also recently posted a new job position for a regional director for California.
Raymond James is firmly committed to the region, says President Tash Elwyn who boasts that he's got the frequent flyer miles to prove it, having made five trips to California and two to the Pacific Northwest in the first eight months of the year. On each trip he's met with new and potential recruits from the region, which had the highest median net worth for the wealthiest households, according to U.S. Census data.
CALIFORNIA DREAMING
At about $750,000 median net worth, households in the West edged past those in the Northeast, which had a median net worth of $720,000, and far surpassed those in the last-place South, which had a median net worth of $538,000.
Among the states, California stands out with the greatest number of households with $1 million or more in investable assets, according to data from research firm Phoenix Marketing International. There were about 777,000 millionaire households in 2013, an increase of 27,000 since 2011.
Moreover, the Pacific coast states also boasted a higher median value for owner-occupied homes than the U.S. average of $181,400 in 2012, according to Census data. California values, at $383,000, were more than double that of the national average. Oregon, at $246,100, and Washington, at $272,900, were also higher. Part of this is explained by the region's economic legacy, represented by Hollywood and corporate giants like Boeing, but also by the mushrooming startups communities and tech giants like Netflix and Twitter.
"What's being created there is generating net new millionaires, particularly over the course of the last 3 or 4 years," notes Neil Pardasani, a Los Angeles-based managing director at Boston Consulting Group, a research firm.
OREGON TRAIL
In the biggest move of the year so far, Milwaukee-based Baird acquired McAdam Wright Regan, a Seattle-based broker-dealer with about 85 advisors and $10 billion in assets. Through the deal, which closed in July, Baird rapidly expanded its footprint with the addition of 7 new offices in Washington and Oregon. Executives say the acquisition, a rare move for Baird, was appealing because of the region's strong wealth creation.
According to data from the Bureau of Economic Analysis, economies of Washington and Oregon both grew 2.7% in 2013, besting the national rate of 1.8%. California's grew 2.0%. The Northwest in particular is also home to corporate heavyweights like Starbucks, Microsoft, Boeing and Amazon.
"There are areas like that that are of particular interest to us and will continue to be," Michael Schroeder, managing director and president of private wealth management at Baird, told On Wall Street when the deal closed.
Jarrett Kovics, Western regional director for Baird, adds: "Geographically it's an easy fit because other than Portland, Ore., we had no overlap. It was a very easy puzzle because we just weren't represented."
Kovics, who was appointed a regional director in January, has seen the number of advisors he supervises nearly double this year to 200. He adds that many of MWR's advisors and managers have visited the Baird office.
"We made a big step this year and we want to make sure this transition period for these new advisors has a red carpet feel. It takes up a lot of time. But it's not at the expense of the people here and our traditional growth," Kovics says.
Another regional firm pursuing a West Coast acquisition strategy, D.A. Davidson, last year, acquired Crowell Weedon, a Los Angeles-based broker-dealer. Davidson, based in Great Falls, Mont., already had offices in Seattle, having opened its first office in the Pacific Northwest in 1997. The 2013 deal resulted in 14 more offices, and the firm's first presence in California.
"California represents a natural extension of what was our existing footprint," explained Jim Kerr, president of D.A. Davidson Companies, in an email. Kerr added that the acquisition was also appealing because of the cultural similarity between the two firms.
"Everybody is trying to get bigger in the marketplace. And those who aren't present here want to enhance their presence," says Bill Willis, president and CEO of Willis Consulting, a Los Angeles-based recruiter.
So far Raymond James & Associates has passed on an acquisition strategy on the West Coast, preferring instead to pursue growth through recruitment. In one three month period, the Tampa bay-based firm recruited about 10 California-based advisors managing more than $1 billion in assets. Seven of the eight most recent moves were from wirehouses.
Raymond James has also opened offices in locations such as Santa Barbara and Beverly Hills. The key to this expansion strategy is tapping the right branch managers, explains Elwyn. "As critical as it is for advisors to affiliate with the right financial institution, it is just as, if not more important to be supported by the right branch manager," he says. At the end of August, Raymond James named a former Merrill Lynch executive, Andy Waldbaum, as head of its new office in Beverly Hills.
LOCAL LEADERS
Recruiters say the appeal of the local branch manager is a key ingredient in the recruiting process, particularly because they are the main point of contact for advisors with a firm's leadership. In Raymond James' case, they also act as ambassadors in a region where the firm does not have a long-standing presence.
"It's challenging for them in that they are not that well known out here, and it's a competitive situation," says recruiter Willis.
Executives at Wells Fargo Advisors looking to boost the firms market share in California, acknowledge that local leadership has been a key factor in their own efforts. The wirehouse has recruited about 20 California-based advisors managing over $2 billion in assets.
Paul Vannuki, Wells Fargo managing director and Los Angeles complex manager, says the firm's lending services are one of the attractions for recruiting advisors. "A lot of the wealth is tied up in real estate," notes Vannuki.
David Altshuler, Wells Fargo Advisors managing director and market manager for Orange County, California, said since merging with Wachovia in 2008, the region has added $200 million in revenue and grown from 6 offices to 14, due to consistency in the local leadership and large pockets of wealth. It's been explosive growth, he says.
Even with local leadership, recruitment and expansion do add costs. But wealth management executives say that expanding in the region and a hotly-contested market is worth it. "Certainly, it's a significant investment of time and energy. The capital is not inconsequential. But it's a labor of love," says Raymond James' Elwyn, who has more trips to the West Coast planned in the fall.
Read more:
