LOS ANGELES — Like Southern California itself, the Los Angeles wealth management market is vibrant, sprawling, lucrative, growing and fragmented.
And although the entertainment industry is the most glamorous and best-known source of wealth in Los Angeles, the market also is fueled by a torrent of money from real estate, small business, manufacturing and corporate professionals.
“There’s lots of gold here, but it’s important to remember that not all of it glitters,” said James Berliner, president of Los Angeles-based Westmount Asset Management Inc.
Mr. Berliner, who manages nearly $1 billion in assets, estimates that his business has grown about 30% each year over the past five years.
Quintile Wealth Management LLC in Los Angeles has nearly doubled its assets under advisement to $2 billion in the past two years, according to partner Kenneth Anderson.
Like bees drawn to nectar, such growth in a county that has more millionaire households — 262,800, according to London-based research firm TNS Financial Services — than any county in the nation is enticing more wealth managers to open up shop.
Earlier this month, for example, Los Angeles-based City National Corp. acquired Lydian Wealth Management Co. LLC of Rockville, Md., and will open up a new office this summer in Century City, Calif., targeting the ultrahigh-net-worth market (see separate story, Page 17).
More independence
And industry observers say there will be plenty more to come, from both established financial services companies and breakaway advisers hanging out their own shingles.
“It’s an absolutely fantastic market,” said Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy LLC, a wealth management industry consultant.
“If firms don’t have a presence [in Los Angeles], they’re looking to expand there,” he added.
“As teams [of brokers and advisers in wirehouses] become more powerful, more will leave the big shops and strike out on their own,” predicted Jim Hausberg, a Los Angeles-based managing director with Presidio Wealth Management LLC of San Francisco. Prospective wealth managers must come to grips with the idiosyncrasies of the market, such as the key role played by business managers of wealthy entertainers, who can be both a source of revenue and frustration (see accompanying story).
“Los Angeles is a complex market because it’s so heavily intermediated,” said Kristi Kuechler, the San Francisco-based West Coast director for the New York-based Institute for Private Investors. “It’s so different from anywhere else.”
Then there is the sprawling geography and congested traffic that tends to fragment the market into clusters around the west side of Los Angeles, the San Fernando Valley, Pasadena and Orange County.
“Los Angeles and Orange County, even though they are right next to each other, have very different business models and clients,” Mr. Welsh said. “Believe it or not, the freeways and the traffic dictate this, and both advisers and clients don’t want to travel the 20 miles, so you need to be local.”
Many submarkets
“There’s a parochial dimension to the market,” agreed Michael Casey, president and chief executive of South Pasadena, Calif.-based Whittier Trust Co. “There are a lot of submarkets.”
Industry professionals also agree that the market is fragmented in more ways than one, lacking a dominant player or players.
“You’d think it would be saturated by now, but there’s a lot of wealth creation going on,” said Elizabeth Nesvold, managing director of New York-based Cambridge International Partners, who served as an investment banker in the City National–Lydian deal. “It’s still very dynamic.”
Particularly heartening for prospective entrants, say industry professionals, is the relative lack of influence commanded by major Wall Street firms compared with other wealth markets.
“Out here, Wall Street brands do not resonate as much,” Mr. Welsh said. “It is actually more preferable to be an independent boutique shop.”
Todd Morgan, a Goldman Sachs & Co. veteran who left the New York firm 10 years ago to help found Los Angeles-based Bel Air Investment Advisors LLC, agrees.
“People out here want boutiques that specialize in wealth management,” said Mr. Morgan, a senior managing director of the firm, which now manages more than $3 billion in assets. “This is all we do. There are no conflicts of interest. We’re a pure wealth management firm.”
To be sure, Wall Street firms and major banks are hardly invisible. Goldman Sachs and San Francisco-based Wells Fargo & Co., in particular, have stellar reputations in the market.
Wealth managers from local branches of Wall Street firms were well represented, for example, in Barron’s most recent annual listing of “Top 100 financial advisers,” published last month. And as one competitor who asked not to be identified admitted, although boutique firms have the inside track, “the Wall Street brand name can still be very powerful.”
But industry observers point to City National’s plan to open
this summer an office of Convergent Wealth Advisors LLC target-
ing ultrahigh-net-worth clients as emblematic of the markets’ direction (see story, Page 17).
“You’re seeing more brokers break away from the Wall Street firms who are targeting ultra-
affluent clients with more than $25 million,” Mr. Berliner said.
As a result, he added, the market for clients with $1 million to $10 million in investible assets in Los Angeles remains “underserved.”
Wealth managers also say that despite the attention reflexively given to the entertainment business in Los Angeles, it is important to keep in mind the diversified nature of sources of wealth in the market, particularly real estate.
“L.A. is a real estate town,” Mr. Hausberg said. “That’s where so many people have made their money.”
“It’s a huge part of most of our client’s personal wealth,” Mr. Berliner said.
Consequently, “clients appreciate advisers who understand real estate,” Mr. Welsh said.
Even in Bel Air, well known for its Hollywood connections and clients such as Barbra Streisand, only 20% of the firm’s business comes from entertainment clients, he said.
“Not that many there have the excess substantial amount of capital to invest in securities,” said Mr. Welsh, noting that Bel Air clients must have a minimum of $10 million to $20 million in investible assets.
For other stories in the Wealth Management Market Reports series,
click here.
