Column published on Aug 6, 2009

Guest Columnist: Allan Starkie is a partner at Knightsbridge Advisors, an executive recruitment firm specializing in wealth management.

Asset portability has declined drastically since the beginning of the financial crisis. Even the historically steadfast portability of asset management relationships among the great wirehouses has somewhat declined, while portability among private banks has suffered drastically.

In this environment, the majority of wealth management firms have struggled to better estimate the portability of relationships, often with frantic and even eccentric attempts at analyzing the advisor’s book of business. Most objective analyses have proven only slightly less disappointing than the reading of tea leaves. Conclusions based on recent anecdotal information would tend to associate higher levels of portability with the individual qualities of each successful private banker. Fine bone structure, attractive eye color and engaging wit seem especially key.

As such criteria seem somewhat subjective, I suggest a more structured approach. The first two questions that the hiring company must consider are:

1. Does the wealth advisor believe his or her own portability assessment?
2. Do you believe the wealth advisor?

Shocking as it might sound, a private banker might at times err on the side of optimism when representing the degree of asset portability. Then there are other cases in which the banker’s estimates were clearly sincere, yet the results were still disappointing.

The first task, therefore, is to assess the signals that often reveal a lack of sincerity or lack of objective thought on the advisor’s part. I recommend focusing on discussions about the book of business in terms of specificity and connectivity.

Specificity

Does the private banker speak of the assets under management in his “book” as a single and absolute number? We often hear advisors comfortably throwing around billion dollar assets under management numbers, when in actuality the book is comprised largely of credit, investment management, custody, trust and some brokerage accounts. Many candidates will have severe difficulties in breaking down the distribution of these products and delineate the relative profitability of each.

The typical reasons provided for this absence of specificity are attributed to the inaccessibility of such reporting from the candidate’s current institution. Some advisors will even make the claim that the institution itself is incapable of such detailed reporting. The inability or evasiveness of candidates to provide such information is a significant warning that they are either uninformed or deliberately obtuse.

Connectivity

The largest error in logic when analyzing a book of potentially portable business rests not simply in understanding the composition of the book, but in assessing the inter-relationships of the holistic product mix and its significance to each client.

Even in the best of times a private bank enjoys significant advantages in client retention over a wirehouse, because of the wider mix of products it can offer. That’s why inter-bank portability numbers average about 20% while brokers generally maintain a much higher range of around 85%. This “institutionalization” of the client, by binding him into a web of products and services, has taken on a new and sinister importance since the crisis’s onset.

As the credit markets tightened, clients became ultra-cautious about risking the loss of their credit facilities. The primary reason for the drastic decrease in private banking portability is the terror among clients that by transplanting their relationships they will lose a term credit facility at their current institution.

It’s therefore no longer possible to simply subtract the raw credit number from total assets and focus on the movement of investment management relationships. The assets simply will not accompany the wealth advisor without assurance of exactly the same or better facilities being offered. This sacred connection can be lethal when moving a banker from an international money center or strong regional bank focused on balance-sheet lending, to virtually any other peer group within wealth management.

After assessing the structure of the book and the product connectivity, one must continue the portability assessment in earnest. They must do so by remembering that regardless of the hiring company’s analysis, the two people best suited to judge the strength of the client-banker relationship are the client and the wealth advisor themselves. Therefore, it’s extremely important to pay close attention during the interview process, not simply to what the private banker says, but how, and for what he or she negotiates. This will go a long way in ensuring that portability assessments live up to expectations. However, remember that until we witness a true renaissance in lending, we will continue to see astonishingly poor performance in portability.

Column published on May 21, 2009

Guest Columnist: Allan Starkie, Ph.D is a partner at Knightsbridge Advisors, an executive recruitment firm specializing in wealth management.

Even before the financial service meltdown began, there were some very clear compensation trends developing within wealth management, particularly as it relates to incentive bonuses in private banking. At all international money centers – those practices with global reach – incentive bonuses for private bankers has become discretionary, except in the case of Citi Private Bank. Some firms claim to use a structured set of criteria upon which the discretionary bonuses are based. However, in reality, the annual dispensing of bonuses resemble the Academy Awards, where the winners are only announced after the envelope is opened, so that it resembles a popularity contest. This structure is the most difficult to defend in this new age of ultra-transparency. Both the government and clients will exert a higher level of scrutiny on the discretionary financial decisions made by our banks. As such, large discretionary bonuses will be much harder for international money centers to substantiate and defend.

Further undermining this compensation model is that virtually all regional banks and trust companies, and most RIAs, use formulaic incentive bonuses for their sales and client service professionals. The results of our recent quarterly compensation survey indicate that the current average incentive payout of 10 regional banks we follow is 40% of first year revenues. Further, there has been some movement toward creating lifetime trailers among those firms where the professional that sources the business remains the primary client manager. Again, these trailers are formulaic, and clearly tied to recurring fee revenues. As a result, they are not prone to be regarded as subjective and gratuitous rewards for nebulously defined goals. It would be very difficult for this type of compensation to be seriously reduced by government policies, with perhaps the exception of mortgage brokers, whose compensation might well be singled out and penalized.

The disconnect between these two compensation models is indicative of how the industry needs to focus on something more than just ample reward for the generation of new revenues. With the exception of the RIA peer group, all other members of the wealth management community have lost enormous share value. Senior professionals generally have the majority of their net worth concentrated in restricted stock and stock options in their own institutions. This means many in our industry have lost large portions of their own wealth.

The best way of resolving this situation is to increase the use of significant stock option packages as a major form of compensation. Firms that recognized this at the crisis’s peak have already taken a major step in restoring lost wealth to their professionals. This is not simply an altruistic gesture, nor one meant solely to align interests that for the most part should inherently be compatible. The use of option grants as the major form of incentive compensation will re-forge the “golden handcuffs” that have been shorn off by the lost value of employee equity. Due to the depletion in value of unvested restricted stock and options, there has never been a time in which top professionals have been so inexpensive to move to other institutions.

So the direction of future wealth management compensation – in order to placate regulators, restore lost wealth, and align interests – will be to use formulaic incentive models mixed with generous allocations of stock options. Such a model will help bring about the positive changes that we need.

Marianne Nardone 11/26/2008

Knightsbridge Advisors will host its fourth annual holiday party Dec. 11th in Midtown Manhattan. The search firm will invite roughly 200 clients, intermediaries and friends of the firm for cocktails and a three-course dinner at French restaurant Madison Bistro.

Allan Starkie and Steve Wade, partners of the firm which also focuses on mergers and acquisitions consulting, will host the event which will include live entertainment and bag pipes. Costs could not be determined.

05/30/2008

Executive search firm Knightsbridge Advisors hosted a CEO Roundtable and networking event, coined Wealth Management Industry Leader Dinner. The evening reception, held at the New York Athletic Club on May 19, was moderated by founding partners Allan Starkie and Steve Wade, as well as Craig Saint-Amour, industry solutions director for Microsoft.
Industry heads and executives each discussed challenges that are facing the wealth management industry in today’s market. Jamie McLaughlin, managing director with Convergent Wealth Advisors, remarked that smaller firms can offer a more personal experience because of size and dedication to its clients, as opposed to larger firms who in turn can offer scale. Saint-Amour discussed the role that technology plays in the industry and how it needs to be refined to better streamline information for wealth advisors.
Industry veteran John Dowd, who has joined Wachovia Wealth Management (see related story, page one) was also on hand to share insights. Wade discussed the frustration among wealth managers looking to leave firms, particularly because of a lack of transparency or direction from top management. “It’s like Vietnam. Some advisors are on BofA conference calls and they’re e-mailing me because I know more of what’s going on in the trenches,” he said.
The evening kicked off with cocktails and hors d’oeuvres, followed by a three course meal that concluded with the roundtable discussion.

12/27/2007   Executive search firm Knightsbridge Advisors held its third annual holiday party and networking event in Manhattan this month. Founding partners Allan Starkie and Steven Wade hosted the evening reception, which included around 100 clients, intermediaries and guests of the firm.  The reception, held at French restaurant Madison Bistro in Midtown Manhattan on Dec. 13, included live entertainment by guitar soloist Laura Jean Binkley, cocktails and hors d’oeuvres, and a three course meal. Knightsbridge, launched in 2005, focuses on executive placement, mergers and acquisitions consulting, and sector compensation surveys.   

By JEREMY W. PETERS and ERIC DASH

MOORESTOWN, N.J., July 24

There are no grand sendoffs planned. No speeches, either. In fact, Vernon W. Hill II, who founded Commerce Bank 34 years ago, is not even planning to go to the office on Tuesday.

Faced with a federal threat of not being allowed to open any more bank branches unless he stepped aside, the board members of Commerce Bancorp, which Mr. Hill hand-picked, voted last month to remove him as chairman and chief executive effective July 31.

How Mr. Hill rose to become so influential a figure in New Jersey business and politics is the story of an ambitious real estate developer who cultivated powerful friends as he built a network of Burger Kings and then banks across the state. It is also a story of pride and excess.

‘’It’s a Greek tragedy,'’ said Allan Starkie, an executive recruiter at Knightsbridge Advisers, who lured several senior managers to Commerce. ‘’Vernon was an incredibly gifted protagonist who challenged the fates and won, but he developed such extreme hubris that in the end, it undermined his success.'’

Mr. Hill’s career has been defined more than anything else by a willingness to defy the establishment. He founded Commerce with a plan to make retail banking more like retail shopping, opening spacious branches when the rest of the industry was scaling back. And in the highly regulated world of public corporations, he openly awarded tens of millions of dollars of contracts to friends and relatives, including about $50 million for his wife, who decorated and designed many of the nearly 450 branches.

In Moorestown, the well-heeled South Jersey town he calls home, he built a 46,000-square-foot Tuscan-style mansion where a farmhouse once stood. Construction of the home, complete with a 4,000-square-foot gym and fountains inside and out, so alienated his neighbors that Moorestown established a historic preservation commission.

But last month the establishment pushed back.

Under the terms of a cease-and-desist order with federal bank regulators, Commerce agreed to stop signing contracts that entangled the bank with businesses run by its board members, officers and members of their families.

But his troubles have not ended there. The federal Office of the Comptroller of the Currency, the bank’s primary regulator, says it is continuing to look into possible insider dealing at Commerce, and two people close to the investigation say the 61-year-old Mr. Hill is at the center of the examination.

Mr. Hill’s lawyer, Robert S. Bennett, said in a telephone interview that his client did not believe he had done anything improper. ‘’I can’t believe that he would ever put his interests above those of the bank,'’ Mr. Bennett said, noting that the business deals in question were all publicly disclosed. ‘’These things were done in the sunshine.'’
Mr. Hill declined to be interviewed for this article.

This was not Commerce Bank’s first brush with the law. In 2004, a federal grand jury indicted two Commerce executives, Glenn K. Holck and Stephen M. Umbrell, on charges of giving loans to the Philadelphia city treasurer in exchange for the city’s financial business. In 2005, the two executives were convicted of conspiracy and the treasurer was found guilty of fraud and conspiracy. Although investigators disclosed that they had taped Mr. Hill talking about business with the treasurer, Mr. Hill was never charged.

The son of a prosperous Virginia real estate developer, Mr. Hill ran the bank as if it were his own personal patronage system. He hired numerous people with deep connections to New Jersey municipal and state governments, and then he hired their relatives. He befriended George E. Norcross III, one of New Jersey’s most influential Democratic politicians, and appointed him chief executive of Commerce Bank’s insurance business. The bank has done business for more than 30 years with the law firm in which Mr. Norcross’s brother is a managing partner, and last year it paid the firm $1.4 million for legal services, a move the bank said in a regulatory filing was not approved by the board.

Ever since he opened the first Commerce branch in Marlton, N.J., in 1973 at the age of 27, Mr. Hill was a self-styled maverick with little patience for tradition. Owner of more than 40 Burger Kings, he brought a retail mindset to the banking industry, which never operated that way.

When rivals were closing their branches, Commerce aggressively opened new ‘’stores,'’ as Mr. Hill called them, and kept them open long past the closing times of other banks. Today it is New Jersey’s largest bank and has reached into New York City, Washington and Palm Beach, Fla. In light of its recent legal troubles, Commerce has scaled back plans to open new branches this year from 65 to about 50.

As its presence in the state grew, so did its political influence. Today the Commerce board includes not only Mr. Norcross, but also a former Senate president and acting governor, Donald T. DiFrancesco, who came on in 2002, and a former chairman of the Ocean County Republican Party, Joseph Buckelew. On the same day in 1996, Mr. Hill purchased the insurance businesses of both Mr. Norcross and Mr. Buckelew and folded them into Commerce.

As much as Mr. Hill’s departure from Commerce raises questions about how the bank, based in Cherry Hill, N.J., will fare without its founder — analysts have already speculated that it will soon be sold — it also raises questions about the possible collateral damage to Mr. Norcross.

‘’The power in South Jersey has been George Norcross,'’ said Senator Raymond J. Lesniak, a Democratic senator from Union County and former chairman of the Budget and Appropriations Committee. ‘’Vernon was just part of the political empire built by George Norcross.'’

As Alene Ammond, a former Democratic senator in New Jersey who has clashed publicly with Mr. Norcross, put it: ‘’They formed a cartel. It was a very happy marriage. With George Norcross’s clout as a political boss, he then paved the way throughout the state for them to establish themselves with bonds, insurance — town by town, county by county.'’

In the late 1990s and early 2000s, Commerce Bank was the largest underwriter of municipal bonds in New Jersey. Indeed, by 2002 it was underwriting more than half of them.

Even as its bond business grew, Commerce was making contributions to Democratic and Republican politicians alike through its political action committees. It stopped making the political donations in 2003, as Wall Street analysts and others questioned whether they created conflicts of interest.

As far back as 1993 a state grand jury was investigating whether the design company operated by Mr. Hill’s wife, Shirley, was awarded business from Camden County, where Mr. Norcross was then the Democratic Party chairman. When the grand jury subpoenaed phone records, the county said they were inadvertently destroyed. Neither Mrs. Hill nor any county official was ever charged.

The business arrangement at Commerce that has attracted the most scrutiny is its relationship with InterArch, the architectural and design company owned by Mrs. Hill. Over the past decade, the bank has paid the company about $50 million to design and furnish bank branches. Last year alone, it paid Mrs. Hill $9.2 million for her services.

In addition to her role as the bank’s chief interior designer, Mrs. Hill became the bank’s de facto protocol officer, making surprise inspections — sometimes with her Yorkie, Sir Duffield, in tow — to ensure that employees were complying with company standards.

Mrs. Hill and her husband shared a flare for the flamboyant.

At Christmas, he has held lavish parties at their home, Villa Collina, with a different theme, and food, in each room after being greeted by trumpeters and served canapés while Broadway entertainers performed.

The bank held annual ‘’Wow Awards'’ to honor its best employees, renting out Radio City Music Hall for a night of festivities for hundreds of workers, with Mr. Hill escorted to the stage arm-in-arm with two sequined Rockettes.

Mr. Hill’s neighbors are familiar with his grand scale. When the couple was building their mansion on a wooded 44 acres here, they complained of a parade of construction vehicles: earth movers, dump trucks, water tankers to fill the artificial ponds on the property. Then there were the helicopters overhead at all hours. One neighbor said she asked why the helicopters were necessary, and was told by a construction worker it was so Mrs. Hill could give orders to construction crews through a megaphone.

‘’I work at home, and when I say there was one dump truck a minute going in and out, I’m not kidding,'’ said Jeannie Roulet, a quilt maker who lives on the street the Hills use to get to their service entrance. ‘’I have the cracks in our plaster to prove it.'’

June 18, 2007

Eric Dash

Bank of America built its brand as a financial supermarket that could be all things to all people. Now, it will see if a new name can burnish its private bank’s reputation in catering to the very rich. The company is expected to announce today that its business serving high net-worth customers will be called U.S. Trust, Bank of America Private Wealth Management, taking advantage of its $3.3 billion purchase last November of U.S. Trust, one of the most prestigious names in private banking. While Bank of America has long been an acquisition machine, the rebranding represents the first time it has adopted the name of a business it bought. Perception is important in the world of private banking, widely considered one of the fastest-growing and most lucrative areas in financial services, and Bank of America’s private banking operation has long been overshadowed by the bank’s predominantly middle-class image. “Clients told us, ‘Your brand gets lost in the market,’ ” said Brian Moynihan, president of the company’s Global Wealth and Investment Management division, which includes the private bank. “We are saying to clients that you are in this large franchise, but are in this special place.” A new advertising campaign is being developed and is expected to be rolled out shortly after Labor Day. Although the marketing giant Omnicom Group won the roughly $600 million account for the entire bank in August 2005, the private banking group’s campaign was quietly moved to Hill Holliday, an agency at the Interpublic Group, a few months ago. Nonetheless, some competitors snipe that the changes will ultimately prove to be cosmetic or they suggest that the merger and rebranding effort will water down the U.S. Trust name. For the bank that now calls itself the “bank of opportunity,” they argue, promoting white-glove service for the extremely rich at the same time that the broad company is hawking credit cards and mortgages to first-time home buyers is a particularly tricky sell.

Other retail banks, like SunTrust, have chosen to offer their service to private banking clients under a separate brand name. Even JPMorgan Chase uses the J. P. Morgan brand to court the rich, distinguishing it from Chase, a mass-market commercial bank. But at Bank of America, the entire private bank will be under the U.S. Trust/Bank of America brand. “Banks that have a very strong retail heritage, like B. of A., can often be stereotyped,” said Allan Starkie, a founding partner of Knightsbridge Advisors, a boutique firm that provides consulting and recruiting services to wealth managers, “and it is much more difficult for them to create the image of being an old-world, high net worth and ultra-high net worth advisor.” By buying one, he added, “the sensible thing to do would be to keep it separate and not tamper with its brand, prestige and way of doing business.” Over the last decade, Bank of America has been very successful in smoothly melding a lot of disparate operations, notably the mammoth acquisition in 1998 in which NationsBank bought Bank of America and adopted its name, and more recently, the absorption of the regional banking giant FleetBoston and of the credit card behemoth MBNA. So far, though, the merger of its services with those of U.S. Trust has been turbulent. In trying to capitalize on the boom in global wealth, the new division of Bank of America is facing formidable competition. Investment banks like those at Citigroup, JPMorgan Chase and Goldman Sachs are aggressively courting rich investors, emphasizing their global networks and broad set of capabilities, like tax and investment advice or even financing the purchase of a private aircraft. Yet the industry has at the same time exploded with niche players and boutique wealth management offices, which maintain that they can provide more personalized service and advice free from conflicts. As the deal to buy U.S. Trust from Charles Schwab nears completion early in July, Bank of America has a lot at stake in making it work. With about 5,000 advisers, nearly 134,000 clients and more than $270 billion under management, the company says its combined private banking operations will make it the largest private bank in the industry by assets. And Kenneth D. Lewis, Bank of America’s chairman and chief executive, has made the expansion of its wealth management division a cornerstone of his strategy for increasing its size without striking another big deal. “We are a monster company in this business,” Mr. Lewis said in a brief interview while he was on his way to see private banking customers in the Napa Valley. “We expect it to grow faster than our consumer bank and commercial bank because of its demographics.”

Despite a large roster of existing wealthy clients, Bank of America’s private bank is widely perceived as embodying many of the qualities of the larger institution, which emphasizes size and a standardized approach to customers a characterization the company strongly disputes. U.S. Trust, which counts many old-money families among its clients, carries one of the elite names in private banking as well as a management team that endorses high-cost, personalized service. These different philosophies shortly led to cultural and internal turmoil. While Bank of America executives played down cultural differences and said that client and associate attrition levels were “normal” for a merger, some recruiters and rivals say there are a lot of U.S. Trust advisers who have left the company or are looking to leave. (It may be too early to measure the extent of any lost client accounts.) The differences may have reached a boiling point in mid-April, when Peter K. Scaturro, U.S. Trust’s chief executive, who had been expected to lead the merged private wealth management group, abruptly announced his departure after clashing with Bank of America executives. In the last two months, Bank of America reorganized the division into five geographic regions run by a single management team. In the past, Bank of America had a two-tier structure where its private bank catered to customers with more than $3 million and family wealth advisers served those with $50 million or more. Now, all the clients will be part of a single organization, but with varying levels of private banking service, based on their assets and needs. “With that many customers and markets, our reach was so broad that we could run into each other too much,” Mr. Moynihan said of the decision. “To bifurcate the businesses, it would have been problematic.” Meanwhile, the company installed Frances Aldrich Sevilla-Sacasa, a close lieutenant of Mr. Scaturro at both Citigroup and U.S. Trust, to replace him as the new head of the Private Wealth Management group. Some executives in the private banking industry are skeptical that she will stay, but Ms. Sevilla-Sacasa suggested otherwise.

“I firmly believe that we are going to be the leader in this business,” she said. “I would love to make this the opportunity for the rest of my career.”�

By Charles Paikert

The bar was crowded, the music was live and the gossip was juicy. In other words, Allan Starkie’s Christmas party at the Madison Bistro in Manhattan was the place to be last week if you were in the wealth management business. Deals and jobs were the staples of conversation, befitting Mr. Starkie’s headhunting and research firm, New York-based Knightsbridge Advisors, Inc., and Topic A, natch, was Charles Schwab Corp.’s impending sale of U.S. Trust Corp. to Bank of America Corp.

“A tough cultural fit,” declared one director of a large European-based firm. “I’m glad we didn’t buy them,” his colleague responded. “I think it’s a better home than Schwab,” opined one investment banker, “but it’s still BofA ”

But not all the revelers were naysayers. The chief executive of a financial services giant’s advisory unit felt the deal was “probably good” for both San Francisco-based Schwab and Charlotte, N.C.-based Bank of America, but wondered if U.S. Trust would retain its own brand name or be folded into BofA.One of the bank’s wealth management rivals said that Bank of America was actually already doing quite nicely in the ultrahigh-net-worth space, thank you very much, having “hired well” for its Family Wealth Advisors division. But, he added, “I can’t imagine [Peter] Scaturro [of U.S. Trust], [Jane] Magpiong [of Bank of America] and [Alan] Rappaport [of Bank of America] in the same room.”�

Marianne Nardone
November 30, 2006

Legg Mason Investment Counsel, the investment management and trust subsidiary of Legg Mason Wealth Management, plans to double its $1.5 billion of assets under management in the Midwest and is looking at establishing a West Coast and Southeast presence over the next three years. The firm is considering lift-outs and acquisitions to accomplish these goals, said Harry O’Mealia, ceo. To head up its new business development in the Midwest, LMIC recently hired Gary Gehm, former v.p. with Northern Trust, as principal in its Chicago office. Manhattan-based Knightsbridge Advisors handled the search. Baltimore-based LMIC, with roughly $10 billion in AUM, also plans to build up its socially-responsible product line, headed by Ron Bates in Cincinnati. O’Mealia said there is a growing interest in this niche, which allows clients to customize investments and is close to making an acquisition in this area.

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-Marianne Nardone

Novemeber 2, 2006

Newport Beach, Calif.-based United Capital Financial Partners is in the market to buy six to eight wealth management firms a year. Joe Duran, ceo, launched United last year and has since acquired 11 firms, and plans grow by $1 billion yearly to add to its current $1.1 billion in assets under management.

Duran, who was president of Centurion Capital Management for nine years before its sale to GE Financial Assurance Holdings, said the firms become subsidiaries of United but retain their original names, corporate culture and location and split profits based on the deal’s arrangements.

To finance its growth plans, United recently received an investment from Boston-based venture capital firm Grail Partners, which put up an initial $15 million in three tranches, said Matt Brinker, v.p. of acquisitions with United. “We go Dutch treat on the cash flow,” he added. Bill Henson, partner with Grail, did not return calls by press time. Manhattan-based Knightsbridge Advisors has been tapped to assist United in its acquisition search.

United is looking to buy firms throughout the U.S. in the $100-400 million range. It offers its full-scale back-office, bill-paying and compliance services, employee insurance and investment management capabilities. This is appealing particularly to smaller firms, because it cuts down on overhead and allows for more client-facing time, Duran said.

Life goals, such as early retirement, a large philanthropic donation, or even large-scale remodeling need to be planned–as well as unexpected events such as an untimely death or job loss. United offers these holistic services to clients at an additional fee, and offers quarterly check-ins to see if goals are on track.

The firm also caters to the mass affluent with $1-5 million in assets, who can often be the most vulnerable to event-driven catastrophes. “It used to be if they had $2 million they thought they were rich, but today, they’re not,” Duran said. “I feel most people are selling things clients don’t need and give mediocre advice.” United currently has a presence in Florida, Texas, Illinois, the Washington DC area and California.