Typifying a growing trend in the independent advisory industry, two big California wealth management firms–Kochis Fitz of San Francisco and Quintile Wealth Management of Los Angeles–announced that they will merge their two firms into a new entity, effective January 1, 2008.
Kochis Fitz/Quintile’s 68 employees will manage or advise on more than $5 billion in client assets, will have as clients 385 individuals and families, and will be headquartered in San Francisco.
Kochis Fitz co-founder and CEO Tim Kochis will serve as CEO of the merged firm until sometime in 2009 when
Rob Francais (pronounced “Francis”), a Quintile co-founder and its current CEO, will succeed Kochis.
With the naming of 18 new principals from both Kochis Fitz and Quintile as equity participants in the combined firm, Kochis Fitz/Quintile will have 32 employee-owners. That will allow the firm to finance future growth, according to Kochis, without relying on third-party capital.
Both firms had been approached by banks and brokers and rollup firms, Kochis says, and both wanted to expand into different cities. Each had considered merging or acquiring other firms, too, but the cultural fit wasn’t right. However, beginning with a lunch in Los Angeles that Kochis had with Quintile co-founder Bob Wagman in January of this year that morphed the same day into a longer discussion with Francais, “it became clear in a very short period of time,” Francais recalls, “that this was a very strong strategic growth opportunity for both firms.”
IA Editor Jamie Green interviewed the men in mid-November.
Rob, you say that one of the drivers of the merger was that it would help you retain your talent. Why?
Francais: Talented people want to grow their careers. Both firms were successful at attracting the right talent, but retaining them for a long period of time–like until they could retire–and establishing a model by which they could see themselves growing their career, growing their own wealth–well, it’s a model from beginning to end.
Kochis: Our people are financially very sophisticated. So it doesn’t take them very long to start thinking, ‘What does it mean for me?’ Not only how do I have a very rewarding professional experience, but how do I create a reasonable opportunity for financial success? So having a firm that has the very credible opportunity to remain independent and continue to grow is a better alternative than taking your chances with some bank’s stock options.
Almost half of the employees in the new firm will be part owners, correct?
Kochis: Right; it’s a pretty dramatic growth opportunity. With that large pool, people that range in age from their late 20s to their early 60s will have a very robust internal transfer opportunity. It will be possible for the ownership of the firm to continue to circulate, so that the people who are in their 20s today can look forward to their 20- or 30- or 40-year careers and there will be opportunities in the future for people . . . to take their place–eager and willing to buy their ownership interests.
Who are these owners–all advisors?
Kochis: Some are advisors, others are senior persons in administrative and staff functions.
So it’s good for the owner and good for the employees. What about clients?
Francais: We start there. When you think of what your clients are concerned about, it’s multigenerational wealth management. None of our clients wants us to sell to the financial services industry, but they also acknowledge and recognize the wealth opportunity that’s there for the principals. So the foundation is [determining] what makes the most sense from the client’s perspective. The tricky thing is how to tie people and clients together in a productive fashion in this industry. We think we’ve done it through this merger, in terms of critical mass and scale, and through the beginning stages of the transition to equity.
Clients want us to remain independent, to remain objective, to not sell financial products, and to retain the very talented people who service their accounts. To the extent that we have created an environment of governance, structure, ownership, transition, and compensation that makes sense for the clients and for our people–that’s where we think we’re going to get longevity.
It sounds like this merger isn’t the end of your growth plan.
Francais: It is the first step to expand nationally, though we have to get this one done first before we contemplate the other. But we’re doing it with an eye toward a national platform.
Tim, post-merger, how do you ensure that the uniqueness of the firm, the independence, the culture that you’ve built and that your customers have come to depend on doesn’t get lost?
Kochis: You’re right to put your finger on that risk, Jamie. Both Rob and I have been students of the business of merging, and we know the kinds of mistakes that have been made. We’re committed to not making the number one mistake: taking your eye off the ball. It’s all about the client. We are devoting ourselves and committing our firm so that doesn’t happen.
Size does not become a goal in and of itself. Size is not about aggrandizing ourselves, but about achieving benefits for our clients [with] a broader, more robust platform, with scale and pricing efficiencies.
We know many firms around the country that have the same strong client service aspect, desire for independence, and continued objectivity that want to do the same thing. We’re providing a model. Whether they become part of our firm, or whether they take our example and use it locally in a way that makes sense for them, either way we will have provided a benefit to the profession.
Because you’re independent advisors who are forging your own solution to the issue of succession and scalability.
Kochis and Francais: That’s exactly right.
Editor-In-Chief James J. Green can be reached at firstname.lastname@example.org.