As technology goes, so goes the San Francisco Bay Area wealth management market. And business at tech companies, especially Internet-based firms, is booming.
Palo Alto-based Facebook, which already has more than 500 million users around the world, appears poised for even more growth (and apps and advertising) after introducing a new messaging system last month that takes dead aim at e-mail. Zynga, the four-year-old social gaming phenomenon that is expected to hit $500 million in revenues this year, just signed a seven-year deal for 270,000 square feet of office space in San Francisco, the biggest new commercial deal in the city in nearly five years. Other Internet companies, including Twitter, have also been flocking to the Bay Area, bringing the total number of tech firms in San Francisco alone to over 500, according to the city's Office of Economic and Workforce Development. And that's not counting Google, Yahoo, Cisco, Oracle and other Silicon Valley giants.
Bay Area wealth managers couldn't be happier. Tech entrepreneurs and the companies they build generate a lot of wealth. Of course, real estate, finance, privately held businesses and large corporations also play their part in wealth creation for the San Francisco market. According to a study released this fall by Phoenix Marketing International's Affluent Practices division, the Bay Area has 115,526 households with more than $1 million in investable assets, the sixth largest concentration of wealth in the country. (See table below for the rankings of other regional wealth markets.)
“Venture capital is the engine of wealth creation,” says Tim Kochis, chairman and director of new business lines for San Francisco-based Aspiriant, “and technology, bio-tech and green energy is embedded in the Bay Area's infrastructure.”
“This is a hotbed for entrepreneurs, and the pulse of the wealth management business reflects the pulse of the entrepreneurial spirit that makes the Bay Area so vibrant,” declared Menlo Park-based Alan Zafran, partner and co-founder of Luminous, an RIA wealth management firm.
The pervasive influence of tech entrepreneurs in the Bay Area has been particularly beneficial for independent wealth managers, who have a commanding position in the market, perhaps more than in any other American city, according to industry insiders.
Indeed, the list of successful independent wealth management firms in San Francisco is long and impressive. In addition to Aspiriant and Luminous, a number of the country's largest RIAs are here, including Argos Wealth Advisors; Baker Street Advisors; Bingham, Osborne & Scarborough; Cypress Wealth Advisors; Hall Capital Partners; Mosaic Financial Partners; Presidio Wealth Management; Private Ocean; Sand Hill Global Advisors; Silver Bridge Advisors; Springcreek Advisors; and Wetherby Asset Management. It can't hurt that the biggest custodian for independent RIAs,Institutional, is also headquartered in San Francisco.
What makes San Francisco such fertile ground for independents? The prevailing theory is that entrepreneurs and independent wealth managers are kindred spirits, which makes for good working relationships.
“Independent types gravitate to other independent types,” says Jeff Spears, chief executive for San Francisco-based Sanctuary Wealth Services, a wealth management consultant and platform provider. “And out here, the tech guys who started and run their own business tend to view the big Wall Street firms as the establishment who are not on their wavelength.”
Kristi Kuechler, San Francisco-based president of the Institute for Private Investors, agreed. “It's always been my sense that entrepreneurs here tend to be more interested in finding wealth managers who, like them, have built and run their own business, than working with an advisor whose company headquarters is 3,000 miles away.”
But that's not to say that signing on tech entrepreneurs as clients is a breeze. They can be demanding, and San Francisco is a highly competitive market. “There are a lot of engineer types out here,” says Brodie Cobb, managing director of San Francisco-based Presidio Financial Partners, whose wealth management division has close to $4 billion in assets under management, “and they tend to question everything and are not going to take things on face value. It's more like if you say something, you have to prove it and you know they're going to do their due diligence.”
Big Banks Battle For Share
Of course, a few big banks also have a substantial stake in the San Francisco wealth market., a hometown firm with a dominant West Coast presence, has a strong toehold in the Bay Area via Wells Fargo Advisors and FiNet.
“This market has always been driven by entrepreneurs,” says Mary Mewha, senior vice president and regional managing director for Wells Fargo Family Wealth in San Francisco. “They want to be involved in decision-making, and they want a great deal of control.” Mewha says very wealthy clients are drawn to Wells because they want “security and longevity,” especially after the financial crisis. “The bank came through the crisis extremely well, and we're getting calls as a result,” she says.
Clients of Wells Fargo Advisors Family Wealth office, who must have a minimum of $50 million in liquid assets, are more often than not, bank customers as well. “Over 80 percent of our business comes from internal referrals,” Mewha says.
Lisa Roberts, head of Northern California forPrivate Bank, which is targeting clients with a net worth of $25 million and up, says Citi “has not found resistance” in its attempt to carve out market share in the Bay Area this year. Citi has already hired 15 professionals this year for its two offices in Palo Alto and San Francisco and plans to add at least five more, Roberts says.
“Clients like our globality,” she says. “They don't just want to be invested domestically. They want access to global markets and they know we can give it to them.”
Of course, all wealth markets got hit by the financial crisis, and San Francisco is no exception.
“Things aren't what they were,” says one veteran local wealth manager. “Transaction volume is down, IPOs have not come back and wealth is still being created, but not monetized as much. And clients have been shaken. There's a lot of movement, and a lot of new firm shopping.”
“There have been a lot of dissatisfied customers,” agrees Dennis Jaffe, a professor at Saybrook University in San Francisco specializing in family businesses and multi-generational wealth. “At large firms, clients weren't sure their advisors would be there for them, and a lot of clients were in proprietary products that didn't turn out so well.”
Many frightened and risk-sensitive clients simply did nothing, according to Kochis. “The biggest difference in the market I've seen since the crisis is a great deal of inertia,” he says. “People gave up using advisors altogether.”
But as the tech rebound has rejuvenated the market, interest in the market has also picked up. In addition to Citi Private Banks' aggressive hiring, Silver Bridge acquired H&S Financial Advisors in August and GenSpring Family Offices plans to open an office in San Francisco soon.
“The first generation wealth in the market fits our typical client demographic,” says John Elmes, senior partner at GenSpring. “We see it as a huge market for independent unbiased advice.” Citi views the market similarly, and sees an advantage in beefing up during a period of retrenchment in the tech business.
“It's a period when people have time to come up with new ideas and start new businesses, and this is a place where wealth comes from new ideas,” Roberts says. “We think the wealth that is here today will continue to grow, and we want to be here in a strong way.”
While Martim Oliveira, a founder of H&S and now Silver Bridge's West Coast regional director, believes the Bay Area market is “probably over-prospected,” he also believes unhappy clients will continue to shop around for new advisors.
“The turmoil [following the financial crisis] has opened up a lot of opportunities for wealth managers,” Oliveira says. “I think there are a significant number of potential clients who are now in the process of looking at what they went through, and re-evaluating their options.”
The continuing appeal of a market with so much wealth will no doubt continue to attract new firms, but locals are mixed on how receptive potential Bay Area clients are to outsiders.
The IPI's Kuechler sees the market as “pretty static,” adding she doesn't “get the sense there are a lot of start-ups.”
“I wouldn't want to come in fresh,” says Roberts. “It's a relationship-based business and the ramp-up time is much longer now.”
But many market veterans believe California's tradition as a destination for newcomers, as well as the Bay Area' tech ethos, means a more welcoming environment. “Is this a difficult market to enter? No, it's very easy,” Kochis maintained. “Of course you need clients, but the infrastructure is cheap and you can get the access to platforms you need from firms like Schwab. Being a newcomer is not a big deal. A city like this is certainly more open than a smaller, more insular wealth community. Being around for a long time is not a disadvantage, but it's not a big advantage, either.”
Zafran, whose office is in the heart of Silicon Valley, points out that Luminous is less than three years old and already has nearly $4 billion in assets. “I think the market is wide-open,” he says. “Relationships are not as important as substance, creativity and expertise. It starts and ends with the mindset of the entrepreneur, who is smart, creative and very fact-based. They don't want a cookie-cutter plan. That's not how they created their wealth.”