From the February 2008 issue of Wealth Manager Web • Subscribe!

California Suite

The announcement last November that two of the largest independent wealth managers have joined forces may look like a modest deal from the vantage of Wall Street's canyons. But in this corner of finance, where "wirehouse" is a dirty word, the marriage of Kochis Fitz and Quintile Wealth Management carries a fair amount of heft and perhaps a sign of things to come in the niche.

Quintile, based in Los Angeles, ranked number five in Wealth Manager's 2007 Top Dog survey; Kochis Fitz in San Francisco weighed in at number 42. The combined firm, renamed Kochis Fitz/Quintile, reported more than $4 billion under management and nearly 380 clients at the time of our study, published in the July/August 2007 issue. It's a safe bet that when we update the survey later this year, the newly united company will be highly ranked.

The motivation for the merger echoes a familiar line in financial services combinations these days. Bigger is better because it offers economies of scale among other benefits, say the firms' CEOs and co-founders--Tim Kochis of Kochis Fitz and Rob Francais of Quintile--in a recent interview with Wealth Manager. Perhaps, then, it comes as no surprise to learn that the M&A dance for the new firm is only beginning. The goal is to build a national platform that is the "leading wealth manager firm in the country," says Francais, who acknowledges that there's still more work to be done on that front.

Meanwhile, perhaps the most notable aspect of the merger is that it sets a new and arguably higher standard for engineering a growth plan that doesn't involve selling out to a financial behemoth. As it happens, the Kochis Fitz/Quintile transaction also benefits the firm's clients, or so we're told in the following pair of interviews with Tim and Rob.


Why did you merge with Kochis Fitz?

First, let me say that neither firm needed to do anything. Each is successful as is. But Quintile has been looking for a merger partner for two and a half years. Our deal with Kochis Fitz is part of a strategic growth strategy to create a national firm. The merger is step one for building the leading wealth manager firm in the country in the years to come.

And so we merged because we saw strategic benefits, but it's probably going to take two years to merge our cultures and create one firm. This isn't a quick play to become a national platform. It's a 10-to-15-year play to expand to maybe six or seven cities. Perhaps in 15 years we'll be considered a national firm. It could happen sooner, but it's not a strategic initiative to grow this platform in a very short time. We want to do it right.

One of the challenges of being an independent firm is succession. Founders eventually retire or pass away. How will you transition ownership of the firm and maintain continuity? How do you build a financial and compensation model [for the staff] to foster indefinite continuity for clients? That's what we're establishing in this merger. Families of affluence care about multi-generational wealth management. They care about their advisors being part of their plans and working with their children and grandchildren for years to come.

Is there a precedent for merging two large, independent wealth management firms?

Not that we can see. We've seen it on a smaller scale. But these are two large cultures coming together. You might call it a merger of cultural capital as opposed to financial capital. We believe that you can't buy culture; you have to create it. Both of our firms are committed to coming together and creating a new culture. It's tough work, but it's where we see the value.

If the two firms were doing well separately, why roll the dice with building a larger company?

The wealth management business is about clients and talented advisors. Building a platform that properly aligns those interests creates success. In order to hire and retain talented advisors, you've got to have a supportive growth strategy along with an environment and culture that support the growth. If I don't make growth a strategic initiative, the career paths move too slowly and ultimately the firm loses talent.

But there are different ways to grow. Organically, or one client at a time is one way. There are also inorganic ways of growing, which is everything else, from joint ventures to a merger or acquisition. Each has advantages and disadvantages.

Quintile came to the conclusion about three years ago that a merger was a way to acquire critical mass. By merging with Kochis Fitz, we're doubling our size, doubling our culture. Culture, by the way, is everything in a merger. It took two-and-a-half years to find a partner that was a nice cultural fit for us.

What are some examples of culture in this context?

First, it's the professional roots. Most of Kochis Fitz's management spent foundational career years in what's now known as the Big Four accounting firms. The same is true at Quintile.

Another example comes from being an independent, objective firm that's not part of a larger financial services organization. That's a cornerstone of Quintile and our service offerings: Remaining independent indefinitely and not selling products and generally having a conflict-free environment. I've met with many firms where creating products was part of the strategic growth plans. That's a cultural difference. We would not have merged with any firm that has a strategic plan of developing and selling investment products to clients. That wouldn't be a good fit.

Will building a national brand enhance your ability to service clients?

No question about it. Scale allows you a broader collection of talent and helps expand the service offerings. At Quintile, clients have an average $50 million in liquid assets. Philanthropy is a big part of the clients' plans. The question is whether a boutique firm, such as Quintile, can hire a world-class philanthropy consultant to help the clients' families undertake special projects. As a smaller entity, maybe the firm's scale doesn't support hiring such an individual, who's fully dedicated to their career as a specialist in philanthropy. But if you're a national network with a national platform, you can certainly afford that kind of a resource because you have more scale to spread the talent around.

The point is that scale helps collect talent, specialized talent. Scale also helps aggregate investment assets, which helps drive prices down for the investment products we use on behalf of clients. We then pass those savings along to clients.


How did the merger come together?

I've known one of Quintile's principals, Bob Wagman, for years. We worked at Bank of America over 20 years ago. We kept track of each other's careers and occasionally met. In January 2007, Bob and I had lunch and the topic of putting the two firms together came up, almost as an off-hand comment.

What's the argument for the merger?

There are several rationales. One is to expand the service offerings to clients. We do some things that Quintile doesn't do; Quintile does some things that we don't do. Kochis Fitz has more corporate executive-oriented clients, and so we tend to focus on things like senior corporate-compensation issues such as stock options and restricted stock. At Quintile, there's a stronger focus on family office activities, such as long-range intergenerational strategic planning for client families of substantial wealth.

The new firm will, by our reckoning, be the largest independent, comprehensive wealth management firm in the state and in the country. The heft will give us greater access to investment products, talent and client prospects that we might not otherwise have. The merger will also permit us to obtain somewhat better pricing on various kinds of support, and that will benefit clients. I don't think there's a lot of benefit on price, but there's probably some. Both firms are already big enough to command price accommodations, but being twice as big will help achieve a bit more.

What does your merger say about the business of wealth management?

It demonstrates that there's an alternative to acquisition by a bank or brokerage firm, or to becoming part of a rollup of one kind or another. By merging and expanding our internal equity pool, by having a larger number of principals with a broad range of ages, we have a sustainable path to economic independence for the indefinite future--maybe forever. If we pull this off, and I'm confident that we will, I think we'll become a very attractive model for what others might try to do on their own. Or, maybe they'll want to join up with us, which frankly, we welcome.

Post merger, how many equity owners are there?

We now have a group of 32 equity owners, who range in age from the late 20s to early 60s. At Kochis Fitz, there were 10 equity partners before, and now there are 17. For Quintile, there were four equity partners and now there are 15. Overall, the equity partners have different appetites for entrepreneurial risk and different appetites for liquidity. The equity pieces are now small enough--bite-size if you will--to allow for internal transactions, and so we won't have to use outside capital to make this work.

So, if a partner wants to cash out, they could sell to someone within the firm?

That's exactly right. By contrast, a lot of my contemporaries see that the only way they can achieve liquidity on the economic value of the firms they've built is by selling to a third party. But in that case, they lose independence and control, which changes the service offerings for the client. It's no longer an independent operation but instead is part of something bigger, and so decisions are made by someone else, somewhere else. That's a very different kind of environment than what the clients signed up for if they came to an independent firm. They didn't sign up for being part of a large multi-office, publicly traded firm that might have conflicts of interest. The new entity might have proprietary product lines, or maybe they have other lines of business they're trying to cross-sell.

The alternative is selling internally. But if a firm hasn't cultivated a large number of owners, the equity pieces may be so big that no one can afford to buy them [without going outside the company].

Have buyout offers come your way before the Quintile merger?

Many. We've been pursued by a lot of people--banks, brokerages, people organizing one form of rollup or another. We listened because we want to know what's going on out there, but none of the offers appealed to us. We could have probably achieved a short-term financial advantage with an outright sale or by permitting a third-party investment. But we think that would have been a short-term tradeoff for a long-term disadvantage of losing our independence.

Why is independence so valuable?

It's the best answer for the client. Objectivity and the fiduciary responsibility to the client come first. When you're independent, the responsiveness to the client isn't dependent on the business strategy of a distant and otherwise occupied business. I'll give you an example: Assume my firm is owned by a big bank. Right now, the banks are a little distracted--they've got problems in other businesses. That would mean I'd have trouble getting attention for resources that I might need. My boss would be someplace else, and my people might be yearning for promotions to New York City. That's not what the clients want.

James Picerno ( is senior writer at Wealth Manager.

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