A recent merger in wealth management has observers wondering if this time around, the cultures of banking and investment advisors will successfully mesh.
In an effort to bolster its wealth management practice, Wachovia Corp. - the nation's fifth-largest bank - acquired wealth advisory firm Tanager Financial Services Inc., for undisclosed terms.
Tanager, which over the years had fielded a number of acquisition and merger feelers, attracted Wachovia's attention for a number of reasons. The banking concern thought that the large network of existing clients in commercial and investment banking, as well as securities, in the Boston area might benefit from Tanager's services. The quality of personnel and independence of advice were also determining factors.
"We're approaching this as a merger of two firms," said Dan Prickett, executive vice president of investments at Wachovia Wealth Management, in Charlotte, N.C. "We see this as professionals at Tanager and at Wachovia working together to achieve a more advanced set of best practices."
When the acquisition was announced in October, Wachovia said that it would fold the 47-employee Tanager under its Wachovia Wealth Management and Calibre family office business brands.
Tanager has roughly $2 billion under management, while Calibre provides financial services to families of multi-generational wealth, and currently has more than $10 billion under management and serves roughly 180 families.
The Boston area office of Tanager is slated to become Calibre's third location, joining offices in Philadelphia and Winston-Salem, N.C. David Beatty, president of Tanager, becomes managing director of the new Calibre office.
Despite rapid growth since its inception in 1995, Tanager management felt that they wanted to offer services beyond the reach of an independent firm. "We aspired to be associated with a trust platform," explained Beatty. "Without scale it's hard to get the level of client reporting or data security available to us now."
But independence and different cultures are two of the usual suspects with regard to problems between banks and advisors following a merger.
As an example, the difficulties in meshing the cultures between U.S. Trust and Charles Schwab following their merger have been well documented.
"Here are two first-class companies, but structural and cultural problems keep the combination from the kind of success they expected," said Harold R. Evensky, CFP, principal of Evensky, Brown & Katz, in Coral Gables, Fla.
Valuing independence
Evensky said that his firm has been courted by many but has never found a fit. "We want to be totally non-proprietary," he said. "That's hard to present products or services from a parent company without a fiduciary conflict."
Evensky, who has been credited with coining the term "wealth management," said that his firm abandoned a national expansion plan that called for buying top independent advisors, and is growing the firm. "Practices like ours retain all the intellectual capital in this office," said Evensky. "We have an open universe of investments with no biases."
Wachovia's plan is to maintain Tanager's independence. The strategy is to keep each of the three offices separate, but to have professionals share knowledge and expand capabilities. They expect to be able to expand due diligence practices to a larger universe of money managers, as well as to negotiate lower minimums and lower fees based on the larger client universe.
In addition to sharing the highly regarded Tanager investment approach, the three offices plan to communicate on other matters. "We offer more than investment work to our family office clients," said Beatty. "Now we get the combined best practices across the board, in estate planning, philanthropy and knowledge across the spectrum of issues particular to wealthy families."
"The key to the relationship was the open architecture," he said.
According to Prickett, Tanager's independence is assured because the investment track record and philosophy of Tanager's professionals will benefit the other Calibre offices.
Tanager's track record attests to its success in adding hard asset classes like timber and commodities to passive core portfolios. "This group of talented people provides independent counsel and advice, but also thinks about the next generation of ways of managing money," said Prickett.
The scale that Wachovia brings to Tanager isn't critical for all wealth management firms, according to Prickett. "From an industry perspective, there will always be room for the small, independent, entrepreneurial operation," he says. "Sometimes that's the appropriate-sized firm for the customer."
Evensky sees things a little differently. While he thinks that larger institutions have things to offer, the planning space does not fit well within the culture. Their commitment now is to grow the firm internally. They are adding a couple of professionals each year to the nine now on staff. "The day when an entrepreneurial wealth manager can start from scratch is gone," says Evensky. "The little guys have won the battle, but we may lose the war."
