The past six months have seen US wealth managers generate a flurry of mergers and acquisitions, as firms race to grab assets and market shar...

The past six months have seen US wealth managers generate a flurry of mergers and acquisitions, as firms race to grab assets and market share in a weak economy. Most notably, AMVESCAP snapped up New York private wealth manager Whitehall Asset Management from the Industrial Bank of Japan Trust; American Express Private Bank bought Schroders Private Bank's Miami business; and Wells Fargo acquired FAS Holdings, a San Diego investment firm. Many larger wealth managers are also buying up smaller firms to gain a presence in new markets. Northern Trust, which Barron's private banking survey rated eighth in terms of assets under management ($92bn), has bought Atlanta-based Legacy South. Legacy has $300m in assets and $3m in annual revenues and will give Northern Trust a foothold in Atlanta. Lower down the scale, mid-west firm Gold Bancorporation snapped up George K Baum Trust, a Kansas City wealth manager with $350m in assets under management. "The advantages of buying up smaller firms are that you can buy a book of existing assets and, more importantly, you're buying the relationships through the key principal of that firm. You're also buying good performance and performance records take time to build. You don't have to spend your time building the firm and hunting for assets," Josh Slater, a portfolio manager with T Rowe Price Private Asset Management, told Private Client Management. Rob Rowan, founder of the Family Office Exchange, believes there are two reasons for the popularity of M&As in the boutique wealth management marketplace. "Some of these firms are doing it in order to have a broader reach of products and strategies. They can grow the business but they can also retain the positive things from each boutique firm. It's a best of both worlds approach," he told Private Client Management. "Another important reason is that many of the people who are running these smaller firms are growing older and closer to retirement, so they sell their firms because it's hard to monetise their investment in a firm in today's harsh markets without selling it to someone else. The owners of such firms, who are close to retirement, are concerned about the bad markets so they embrace the merger wave. It means they can get their investment out and retire comfortably," Rowan added. John Duffy, managing director of the north-east regional client practice at JP Morgan Private Bank, also believes the trend is fuelled by small firms' desire to grow; taking over another firm is often the simplest way to grow quickly. He believes, however, that the smaller firms, once merged, may look to sell up again. "Everyone in the wealth management business would like to grow and growth typically comes from doing first-rate client work and expanding your influence in a particular market. This means that many firms are trying to grow their influence in local markets or markets where a firm sees that it has a gap in its capability. They are looking for complementary regional business. It's still too early to say whether these smaller acquisitions will be a success because such buy-outs are often expensive and you expect to be successful over a long period of time," Duffy told Private Client Management from New York. "This business of private wealth management has a high price-earning multiple impact on a company's stock price. Many of these smaller firms believe that they will achieve a rollup-type merger and acquisition strategy, where they'll eventually sell their business to a larger buyer. I don't think it means they're adding significant value to their firms yet. I think those factors are what's fuelling the trend. Buying big wealth management practices is very expensive and so adding a lot of small firms together is a good way to build and consolidate," he added. One New York consultant who specialises in providing wealth management advice to wealthy families told Private Client Management that the number of small M&As is because many boutique firms are trying to grow because their business models demand it. She was optimistic, however, about the success of such ventures. "Buying another small firm is often the most cost-effective way of maintaining infrastructure and obtaining the new technology needed to grow. The big, big mergers have had mixed success and the smaller ones will be more successful because they are more attentive to cultures and synergies and there are often more fits between the two organisations. I think there will be spin-outs from the larger companies as people leave the big firms and set up their own. These smaller firms will again eventually merge to survive." The consultant's prediction is underscored by the November launch of a Boston firm which caters for the UHNW family office market by David Ogens, former chief of high-tech investment banking in New England for Goldman Sachs, and Peter Mattoon, the a former COO for the global mutual fund group at Zurich Scudder Investments. Ogens and Mattoon managed to lure several seasoned investment executives from firms like Eaton Vance and Pell Rudman & Co as partners in their new firm, SCS Financial. They expect the firm will have more than $3bn in assets under management within two years. Private bankers are not the only people in the US leaving the fold to set up their own boutique wealth management firms. Rubin, Brown, Gornstein & Co, a St Louis-based accountancy firm, launched a niche wealth management services group earlier this year offering tax, retirement and stock option planning to investors with $1m in liquid assets. A group of former Arthur Andersen financial planning executives and James O'Connor III also jumped on the bandwagon in May, when they opened the St Louis Family Office. Whether such firms will have to merge to survive or grow remains to be seen.