The past 12 months or so have seen some of the largest advisory teams on Wall Street move to other firms. But a number of these deals—involving teams with more than $1 billion of assets under management and in excess of $5 million in annual revenue—are in the institutional consulting space. Traditionally, these teams have been less likely to move.
So what’s changed in the institutional space and started this billion-dollar trend?
Understanding the Institutional Space
Institutional practices cater to foundations, endowments, educational facilities, etc. Historically, these types of advisors have had difficulty moving to other firms not only because of their massive size, but also because of the process involved. These accounts would typically go through an RFP (request for proposal) process, and most advisors feared the clients—boards from foundations, for example—would have to be resolicited.
Aside from the fear of client portability, the bigger question was: Where could they move to? Wirehouse-to-wirehouse didn’t seem like it would offer enough potential for positive change to warrant all the work. Going independent was always a good option for an advisor serving private clients, but it would be a challenge serving übersophisticated businesses run by institutional consultants outside of the major firms.
What Really Moves You … Now?
“One of the burning questions facing elite institutional consulting teams as they consider departing the wirehouse world is, will they be able to offer their clients more transparent service and advice as an independent advisor?” says Chris Dupuy, president of the Connections team of Focus Financial Partners, a strategic and financial investor in independent fiduciary practices. “The unconflicted nature of independent wealth management allows for the opportunity to lower costs not just for high-net-worth individuals, but for institutional investors as well.”
With the option of independence also comes the ability to expand service and offerings, and technology has improved this dramatically.
Within the last two years, Focus has brought on two large institutional consulting teams. The first was Beirne Wealth Consulting (BWC), a high-net-worth and institutional team that broke away from Merrill Lynch in January 2012, with $1.5 billion at the time. BWC has grown from $1.5 billion in 2012 to roughly $2 billion in client assets, and has expanded from seven to 19 employees since 2012.
A UBS team consisting of Tim Kneen and Clayton Hartman came over to Focus last year to form IFAM Capital. The team left UBS managing $900 million, and has grown to $1.6 billion in less than 12 months. All of their institutional clients moved with them.
These teams have been “able to build their own ecosystem and create very efficient places to manage enormous sums of money,” says Dupuy. “The greater transparency, fiduciary standard of care, and cost savings all directly benefit the institutional client.” Also, it is now much easier for these überinstitutional teams to move over from the big firms “due to greater access to research and advances in technology.”
To be sure, all of the wirehouses are hungry to grow their institutional consulting presence. Take Morgan Stanley’s Graystone Consulting, for example. The firm provides a complete range of investment consulting services to institutional clients, which include corporations, endowments and foundations, health care organizations, insurance entities, state and local governments, Taft-Hartley funds and family offices. Graystone recently recruited the Brice Group, a $4.5 billion advisor team, from Merrill Lynch in September 2014, and the Stephans Van Liew and Oiler Group, overseeing $6.5 billion in institutional and private client assets, in January. Advisors serving institutional clients are attracted to Graystone’s research platform, separate performance reporting, analytics, and a technology infrastructure governed by a chief investment officer.
While changes in the industry have made the physical move easier and expanded the choices that teams have, it’s the client mindset that has created the most meaningful impact in the institutional space. Their allegiance to their advisor, combined with the advisor’s well-developed fiduciary responsibility, have paved the way for institutional teams to seek new opportunities that benefit all sides.