UBS Wealth Management Americas, a unit of UBS AG (UBS), named Frank Minerva chief operating officer of its ultra-high-net worth business as the firm continues to reshuffle leadership in its U.S. brokerage.
Minerva, a 21-year UBS veteran, previously oversaw the New York office of UBS’ Private Wealth Management. He replaces Douglas Black, who will pursue new opportunities within Wealth Management Americas, a company spokesman confirmed.
Minvera reports to Jason Chandler, who heads the private wealth business, which caters to investors with $10 million or more in invested assets.
Chandler was named head of the unit a month ago as UBS reorganized the U.S. retail brokerage into two divisions from three regions.
In other personnel moves, Chandler removed Jay Messing, head of private wealth sales, and Phillip Hsu, head of business development. Both are looking for new roles within the wealth management unit. It’s not clear who will succeed them. The UBS spokesman declined to comment on the two executives.
UBS has made several management changes since Robert McCann took over as head of Wealth Management Americas in October. McCann announced a Renewal Team in November to help him develop a plan to return the firm to profitability. The UBS unit had $11.6 billion in asset outflows in the fourth quarter and has been hurt by both financial adviser departures and a dispute with U.S. tax authorities.
Reuters reported the UBS personnel changes earlier Thursday.
(AP) - Bank of New York Mellon Corp. is in talks with PNC Financial Services Group Inc. to buy one of PNC’s business units for close to $2.5 billion, The Wall Street Journal reported, citing people familiar with the matter.
Pittsburgh-based PNC Financial has been looking to sell its unit, PNC Global Investment Servicing, for about three months, the Journal reported. The unit, based in Wilmington, Del., provides back-office processing for financial advisers, fund managers and brokers.
The sale could help the bank pay back $7.6 billion in bailout funds it received from the government during the financial crisis. PNC Chief Executive James Rohr has made repayment a goal for 2010.
A deal with Bank of New York Mellon could be announced as soon as next week, the Journal reported.
Spokesmen for PNC Financial and Bank of New York Mellon declined to comment, with both companies saying “we do not comment on rumors and speculation.”
Shares of PNC Financial rose 2.1% in after-hours trading Thursday after closing the regular session at $54.14, down 22 cents.
Shares of Bank of New York Mellon closed down 50 cents, or 1.7%, at $29.17
The drought in mergers and acquisitions of independent-wealth-management firms and investment advisers appears to be ending, but few investment bankers expect a quick return to the pre-recession days when cash-dominated payments at high valuation multiples were common.
In the first three quarters of the year, 32 mergers or acquisitions of registered investment advisers were announced, matching last year’s average pace of 11 deals per quarter but well behind that of 2007, when a total of 67 were completed, according to “Real Deals 2009,” a forthcoming study from Pershing Advisor Solutions LLC and FA Insight.
The study likely missed some smaller transactions, including acquisitions of breakaway broker teams and buybacks from consolidators, because it focused on firms with at least $100 million in revenue or $1 billion in assets under management, said Dan Inveen, a principal at FA Insight.
The Charles Schwab Corp. had tracked 50 M&A deals year-to-date through the end of September, down from 88 in all of 2008, according to a published report. Representatives of Schwab did not return several calls for comment.
“Buyers and sellers woke up around the end of July” as markets rebounded from their March lows, said James Tennies, president of InCap Group Inc. The investment-banking boutique’s first two deals of the year are at the term sheet stage. “Sellers who felt things were wildly underpriced may be accepting a new reality that their firms are worth 70% of what they were in 2007, while buyers are starting to believe that the March numbers weren’t a reality.”
But the biggest driver of recent deals has been fear, with activity dominated by revenue-challenged RIAs combining to cut expenses, according to several bankers. They called it a disturbing trend in which firms are combining without taking into account crucial factors such as compatible cultures and complementary advisory strengths.
“Never have I seen so many bad decisions,” said Elizabeth Nesvold, managing partner of investment bank Silver Lane Advisors. “People are feeling stretched by their infrastructure, but there are so many other nuances that have to be addressed to make mergers work.”
Ms. Nesvold said she has seen many shotgun marriages in the fund-of-funds and multistrategy hedge fund areas in order to build critical mass.
“I worry the same thing is starting to spill over to the wealth management space,” she said.
Paul Lally, president of investment-banking boutique Gladstone Associates, agrees.
“We are seeing a lot of Las Vegas weddings where they get together on Friday night, think they’re in love, get married on Sunday and will likely be heading to divorce by the following weekend,” he said. “They feel they can’t continue with the status quo, but the ability to match culture and synergy doesn’t happen overnight.”
The Pershing study offers evidence that smaller firms rather than large acquirers are fueling much of the activity. The percentage of deals involving so-called serial buyers that tend to buy larger RIA firms plummeted from 36% last year to about 25% this year, it found. And several of those deals involved RIAs who repurchased their firms from roll-up companies and other consolidators that are starved for capital, said John Temple, a managing director at investment bank Cambridge International Partners.
Some observers expect deal activity to continue growing in 2010 as founders of older RIAs refocus on exit strategies after the crisis of the past 18 months. Opportunistic buyers, meanwhile, are beginning to take advantage of lower valuations and increasingly favorable deal structures. Such deals are weighted to small upfront cash payments and “earn-outs” three to five years after closings that are geared to hitting profit and client retention targets.
“The demographics of founders looking to monetize their firms, the drive for operational scale and new entrants to the market will lead to a measurable and appreciable acceleration of M&A activity in 2010,” said Ronald Fiske, executive vice president of client solutions at Fidelity Investments’ institutional wealth services unit for RIAs.
Few are expecting a tidal wave of deals, however, because credit for acquirers remains tight, and buyers have become more discerning about the quality of wealth and asset ¬managers.
“Two years ago, if a target had underperformed the market by 5%, it wasn’t an issue, because their clients weren’t leaving,” said Thomas Miller, a managing director of Quist Valuation. “Buyers today want decent performance and strong client retention.”
Valuations remain depressed, he said, estimating that deal prices have contracted about 20% over the past 18 months. Mergers among advisers looking to combine through stock swaps often founder over disagreements about the respective worth of their stocks, Mr. Miller added.
But he and others also said buyers in the United States and abroad remain intrigued by the continuing migration of wealthy individuals to independent advisers. Quist Valuation this year worked with potential buyers in China and Japan that weighed acquiring some large West Coast RIAs, though the deals weren’t consummated, Mr. Miller said.
“It’s not all doom and gloom,” Ms. Nesvold said. “There are some strong buyers who understand the temporary imbalance in valuation. It may not go back to the rip-roaring ’90s and mid-2000s, but there is a hot pipeline.”
Beleaguered chief executive Ken Lewis to leave after tumultuous tenure. Bank under fire for its merger with Merrill Lynch last year.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 30, 2009: 6:53 PM ET
NEW YORK (CNNMoney.com) — Ken Lewis, the beleaguered CEO of Bank of America, announced Wednesday that he will retire at year’s end.
Lewis, who was stripped of his chairman title in April, will also step down from the board. No successor was named.
“Bank of America is well positioned to meet the continuing challenges of the economy and markets,” said Lewis, 62. “I am particularly heartened by the results that are emerging from the decisions and initiatives of the difficult past year-and-a-half. The Merrill Lynch and Countrywide integrations are on track and returning value already.”
The Charlotte, N.C.-based bank has had a tumultuous time during the mortgage meltdown.
In January 2008, it acquired Countrywide Financial, the poster child for the subprime lending crisis.
Then in September, amid the global financial frenzy, Bank of America (BAC, Fortune 500) stepped in to rescue Merrill Lynch in an acquisition that has since caused it many headaches. The Securities and Exchange Commission, after a judge threw out a $33 million settlement, is ramping up its pursuit of the bank for allegedly misleading investors about bonuses paid to Merrill employees.
Meanwhile, Congress is probing the merger, and New York Attorney General Andrew Cuomo is moving to bring charges against the bank and possibly its executives over the deal.
“Our investigation has uncovered troubling facts about Bank of America’s acquisition of Merrill Lynch, and Mr. Lewis was at the center of this controversy,” said Rep. Edolphus Towns, D-N.Y., chairman of the House Committee on Oversight and Government Reform. “We hope that Bank of America’s new leadership will quickly repay American taxpayers and help us finally resolve unanswered questioned about this merger.”
For his part, Cuomo said Lewis’ retirement “will have no impact” on its continuing investigation.
The bank, however, needed rescuing of its own over the past year. Bank of America, which received $25 billion in bailout funds last fall, wound up needing another $20 billion in government aid to help it complete the Merrill deal.
Its financial standing has been looking up lately. Bank of America in July announced better-than-expected second-quarter earnings of $3.2 billion, or 33 cents a share. Shares closed at $16.92 Wednesday, up from a low of $3.14 on March 6. The stock price jumped 33 cents in after-hours trading, soon after Lewis’ retirement was announced.
Hoping to alleviate some of the scrutiny the company is now facing, BofA America announced in September it had terminated the asset-guarantee program it struck with the U.S. government earlier this year to insulate the firm from the toxic assets it acquired from Merrill. The bank agreed to pay the government $425 million to end the deal.
Lewis, who has served as chief executive since 2001, joined a predecessor to Bank of America in 1969 as a credit analyst. He is the only two-time winner of American Banker’s “Banker of the Year” award, the most recent accolade coming in 2008. A year earlier, he was named one of the 100 most influential people in the world by Time magazine.
Who replaces Lewis remains to be seen. The bank just shook up its senior management in August, shifting Brian Moynihan to head of consumer banking, the company’s largest division, from its investment banking arm.
However, he is not yet ready to assume the top post, said analyst Nancy Bush, founder of NAB Research.
“They’ll have to bring in someone from the outside,” Bush said. Moynihan’s “just not seasoned enough.”
Lenox Advisors, a New York-based asset manager has launched a program that aims to teach fiscal responsibility to the children of wealthy families in an attempt to keep money in the family longer. The goal is to instill values at an early age, to prevent children from squandering their fortunes once they reach their majority, according to managing director Bob Hartnett, who says prudent budgeting can and should be taught to kids as young as five years old. “Professional athletes and movie stars have extremely high levels of bankruptcies, because they’re never taught how to manage money,” Hartnett explains, adding that fiscal educational programs by the NBA and NFL are ineffective because adults are usually too set in their ways to learn new tricks.
The firm doesn’t directly interact with the children, but counsels parents and furnishes them with primers on how to install guidelines. One strategy involves teaching kids to segment their allowances into three piles: one for spending now, one for later, and if the family is philanthropically minded, one for charitable intent. The firm also encourages parents to rigidly maintain allowances, so children get used to a routine. Withholding allowance as a punishment or sporadically handing out extra cash is not recommended.
Parents should also procure library cards for their children as a way to prepare them for future responsible credit card use.
“It’s pretty much a cliché that the second generation wastes their fortune, because they don’t know what it took to make that fortune. So it’s important that high-net-worth children think properly about money,” said Michael Mihalik, author of the book Debt is Slavery and 9 Other Things I Wish My Dad Had Taught Me About Money. Of course, if kids successfully hang onto their loot, this could provide the firm with future business. Harnett cautions, however, that keeping the current assets healthy is key. “This could set us with future business, but if we don’t provide a good level of money management and asset protection in the interim, we’re fired.”
As wealthy families transfer power to the next generation of leadership, many are letting go of in-house staff in a move to cut costs, and are instead turning to outside professionals for ancillary services like accounting, taxes, philanthropy, mission statements, and governance, according to a recent study commissioned by Rothstein Kass and conducted by Russ Alan Prince and Hannah Shaw Grove. Family offices are also migrating from the single family office model to the multi-family office structure, in order to consolidate knowledge and expenditures.
The survey found that 81.9% of the 100 single family offices interviewed over four years handled philanthropic advisory services in-house prior to the transition of power, versus 35.1% after. Educational services shifted from 71.3% to 12.8% after, and in-house concierge services nosedived from 86.2% to 21.3%. Security concerns ran counter to the others, with 36.2% of families handling them in-house before the transition, and 48.9% handling them in-house afterwards. This is likely due to the fact that many SFOs polled had family members in the public eye, like athletes and entertainers.
According to Rothstein Kass Family Office Group principal Rick Flynn, the broad changes shown in the survey largely stem from the fact that many SFOs were hastily created amid the market boon of the last ten years, and simply weren’t equipped to survive the long haul. “This is much more evolutionary than revolutionary,” Flynn says. “These changes were certainly accelerated by the recent market downturn, but I don’t want to give the impression that last year’s carnage was the direct cause.” Flynn adds that many of the older, more established families, particularly from Europe, are more likely to maintain in-house staff. The same holds true for families with more than $1 billion in assets.
The Family Wealth Alliance is readying Alliance University, the first-ever accreditation program for family office relationship managers, and has picked its initial curriculum, faculty and tuition. Tom Livergood, ceo, told PAM the three-day training program is set to be held in Chicago at the University of Chicago’s Gleacher Center Oct. 26-28, and an additional program will run Nov. 10-12.
For the fall program, Livergood said the University will have a pool of 12-15 faculty members, one being Thomas Handler, chairman of Handler Thayer in Chicago. Additional faculty members will be announced before the start date. The program will include courses on investment management, reporting, tax management, estate planning, financial planning, and philanthropy. “Our three-day program is a microcosm of what to expect in the two-year one,” said Livergood. The course costs $2,850 for participants and those who complete the course will be given a certificate of completion.
FWA is set to roll out the two-year accreditation program in the beginning of 2010. The firm originally decided to create Alliance University after speaking with both multi-family offices and single-family offices about their struggles to create their own talent pool of advisors (PAM Daily, 5/19).
As family offices struggle to make it through the recession, with many trying to cut costs and reduce staff, some are setting up advisory committees instead of hiring specialists to address issues such as family governance, investments and philanthropy. These committees are comprised mostly of family members and outside professionals, such as advisors from private banks, attorneys, accountants or independent investment management consultants who help the family make decisions on what to do with their wealth for free. By creating such committees, families can keep the costs down, and advisors can benefit from references families make to their networks.
Angelo Robles, founder of Family Office Association, noted that SFOs in particular have been weighing their options carefully about whether to keep services in-house or to outsource them, but are more focused on creating these specialty committees to be sounding boards for their families. The concept has gained traction this past year with the families’ younger generations as they can equate a family committee to a similar board of directors at any given firm, he said.
Bob Casey, senior managing director of Family Wealth Alliance, said that he is also seeing the trend as a move toward more formal governance structures. “Many SFOs are struggling and are not economically viable, and expenses are such that they’re having difficulty,” said Casey. To combat this, many are setting up these structures to make sure the family office works properly and multi-generational family members work together to find a solution.
MFOs have started getting in on the act, noted Paul Karger, managing partner for Boston-based MFO Twin Focus Capital Partners. “Such committees can aide not only in educating the family on matters at hand, but also gather a collective voice in the overall decision-making process,” said Karger. “Given the dynamics of varying family members, and based on level of interest, we generally encourage each individual family member to use one’s natural skills in indentifying their own desired role within the family committee.”
Twin Focus works with traditional advisors such as attorneys, accountants, investment management consultants as well as specialists in arenas like hedge funds and private equity to staff committees. “We’ll also work with consultants in areas such as philanthropy that may help not only to work with the family to identify charitable endeavors, but also possibly help with the due diligence process involved around grants and gifting,” Karger added. –K.O.
RWE Private Wealth, a recently-launched Orlando multi-family office, has rolled out Law Firm Advisory Services, a sub-division designed to garner investment clients among personal injury lawsuit winners. The firm will network with personal injury law firms to gain referrals to accident victims who have won large settlements, in order to put their cash into long-term investments. The firm will relax its $5 million investment minimum for this initiative, which has already yielded a $3 million client.
This program is predicated on the fact that recipients often squander their cash. Also, many plaintiffs who receive structured settlements designed to provide lifetime income streams, are vulnerable to offers of instant lump sum payouts, at huge discounts to their settlement.
“These aren’t business owners; they’re people who came across the money because of a catastrophic injury, and, unfortunately, they usually don’t come to the table with strong fiscal education,” explains RWE principal Seth Ellis. The firm will set up clients with a palate of investments, including annuities and fixed-income investments, and will park their excess funds in trust accounts with Raymond James as trustee.
The inspiration for this program unfolded over a conversation between Ellis and his old college friend John Morgan, a partner at Orlando personal injury law firm Morgan & Morgan, which RWE has aligned with for this initiative. Morgan says he’ll get no kickback from this arrangement, but thinks it’s a worthy cause, especially following the recent Wall Street crisis. “After AIG, I became particularly concerned that a client could get structured money from an insurance provider that would go defunct. I’m suspect of everything now,” Morgan notes. “And those folks on TV who say they’ll buy your settlements outright, but for a huge discount? They’re loan sharks. Their behavior would embarrass Tony Soprano.”
For lawyers, the upside is delivering additional post-trial service to the client and building up a relationship that may cause the client to put in a good word with friends or acquaintances. Ellis says he’ll charge the same 1% management fee he charges typical family office clients. Once the program is fully up and running, Ellis says he’ll approach other law firms in an attempt to set up similar arrangements. –Andrew Bloomenthal
Massey, Quick & Co., a Morristown, N.J.-based wealth manager with roughly $1.5 billion in assets under management, is looking to acquire firms with $100-300 million in assets under management and opportunistically pursue team lift-outs. “Many of the smaller firms have realized that their growth is probably capped and they can do a better job for their clients and not have to worry about the business side,” Stewart Massey, founding partner and cio, told PAM. The buying spree comes as the firm sees opportunity to expand nationwide. The firm will be funding the acquisitions internally.
The firm is particularly focused on independent cultures similar to multi-family offices, as they would fit best with Massey’s model, said Massey, adding that larger firms would also be considered. Massey, Quick, which formed from the Massey and Quick family office in 2004, services clients with an average account size of $15 million. The firm has brought on four executives this year, including Jack Kemp, former president and ceo of Morgan Stanley Asset Management Distributors, as partner to run the Vero Beach, Fla., office (PAM Daily, 5/8).
Massey, Quick is also planning to roll out its inaugural print advertising campaign to get the word out to potential new business. It recently launched a new Web site to attract clients and has brought on Bob Ward as a dedicated marketing specialist (PAM Daily, 5/8). The print campaign, for which the firm hired an outside consultant, is set to debut sometime in the fall in regional and national print publications. “Up until now, our firm has just been word of mouth and we’ve made the decision to get out there more aggressively,” said Massey. The theme of the campaign and budget has not yet been determined.
On Investing
The firm is allocating the largest part of clients’ portfolios to long-short equity and is looking into credit via distressed debt and long/short preferred stock. Massey declined to provide specifics regarding allocation, as each portfolio varies greatly. The firm uses only outside managers across all asset classes. “We tend to use ‘old pilots’ or managers that have demonstrated the ability to add value over multiple market cycles,” said Massey. Additionally, the firm is looking for managers with strong risk management procedures, a business continuity plan and state-of-the art technology. The firm insists on independent pricing of clients’ portfolios by a third-party custodian or administrator.
Fixed income is at the core of many portfolios and when it comes to hedge funds, the firm will not employ managers that use leverage or managers that have their own broker-dealer, said Massey. He also noted that even though the firm started out by catering to ultra-high-net-worth clients and families, it also consults foundations and endowments that came to them via their UHNW clients. Uniquely, the firm still runs the family wealth for all of the firm’s five partners, investing side-by-side with clients.
–Kristen Oliveri
