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How We Came Full Circle on Ownership

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In the RIA world, succession planning is a well-trodden road by now, with bigger organizations acquiring smaller ones, strategic rollup firms, and RIAs assuming debt or seeking capital from private equity firms that look to direct day-to-day business. We know these alternatives well because we’ve explored them all. Recently, we decided on a different route, and here’s why we think it works.

First, some background. Bingham, Osborn & Scarborough is a wealth manager based in San Francisco. As of Feb. 28, we managed about $4.6 billion in assets. Between 2004 and 2008, we sold a majority interest in the firm to Boston Private Financial Holdings. This made sense at the time and helped our original founders exit in a sound way while facilitating a succession plan for future leaders of the firm.

We had a positive and honorable relationship with Boston Private, but ultimately wanted to instill a more entrepreneurial mindset in the firm by controlling our own destiny and by participating more fully in the financial rewards.

Fast forward to last year, when we decided to go private with a minority investment from Kudu Investment Management. Our principals and founders now own nearly 70% of the firm, with Kudu offering permanent capital for a smaller stake.

Getting to this place was not easy. It required careful negotiations with our former backer as well as thoughtful discussions with our partners regarding the firm’s long-term future and the structure that would enable us to meet our most meaningful client, business, and personal goals.

We performed a thorough search of capital providers nationwide, ultimately narrowing the field to Kudu, which offered us the ability to gain true independence while not requiring the types of personal guarantees often required by debt.

We are independent again. As business owners, we are very pleased with this outcome. All strategy, hiring and expense decisions are ours to make, and the bottom line is ours to own. Kudu, a permanent passive capital partner, takes a small revenue share percentage. Our revenues are consistent and growing, and we can focus on operating our business and growing our client base. We have more equity available to broaden our ownership base and future leadership pipeline.

Today, we support about 900 clients, many with a net worth of $10 million or more, usually with $5 million in investable assets. Typical client profiles include people over 50 years old who want a complete-picture approach to wealth management and younger people who have been successful in the tech industry and need such services as stock option planning and financial planning advice. We also work with some family endowments and foundations.

Morale is high and we’re already seeing the fruits of this transition. Our clients have given us great feedback so far — they love that we had confidence in our business to repurchase it. And, it’s a big benefit to them that the people who manage their wealth are so invested in their own futures.

Ownership structure is an important consideration for RIA firms. Which solution you choose can depend on where you are as a firm, what you hope to achieve and what types of risks you want to take. Regaining independence is a less-traveled path in today’s RIA world; however, we’re convinced that significant internal ownership and independence signal our tremendous confidence in the firm’s future and align our interests with those of our clients.

Kevin Dorwin and Carol Benz are managing principals of Bingham, Osborn & Scarborough LLC.