Multifamily office slated to be re-branded as "Convergent Wealth Advisors". Beverly Hills, Calif.-based City National Corporation plans to buy Lydian Wealth Management, the multifamily-office subsidiary of Palm Beach, Fla.-based Lydian. The acquisition stands to increase City National's assets under management to around $35 billion, further diversify holdings of its subsidiary Convergent Capital Management (CCM) and -- given Lydian WM's high-touch, open-architecture approach -- make its overall wealth-management offerings more compelling to ultra-high-net-worth clients.

For Lydian WM, which manages or advises on assets of about $7 billion, the deal provides "a wonderful opportunity to access clients through City National," says Steve Lockshin, CEO of the Rockville, Md.-based wealth-management firm.

The change in ownership also puts Lydian WM under the tutelage of Russell Goldsmith, president and CEO of City National, and CCM's president and CEO Richard Adler. "These are two very successful and mature business people," says Lockshin. "As mentors, I expect to learn a lot from them."

Goldsmith returns the compliment, though in less personal terms. "Lydian Wealth Management has established itself as one of the nation's premier wealth advisors for exceptional entrepreneurs and families with very significant levels of investable assets,'' he says in a press release. "With its outstanding leadership and team of colleagues, proven analytics and systems, strong investment performance and service culture, the company will continue to grow dynamically as a stand-alone business while expanding the wealth management capabilities of City National to fully serve ultra-affluent clients."

New name

Elizabeth Nesvold, a managing director with New York-based investment bank Cambridge International Partners, which co-advised Lydian along with New York-based dealmaker Sandler O'Neill, agrees with Goldsmith's assessment of Lydian WM. "They've got a strong management team," she says. "[Lydian WM] is well run and profitable -- words that aren't generally associated with multifamily offices."

City National says the all-cash transaction will be completed by the end of June. The precise terms of the deal weren't made public, but the bank estimates it will dilute its 2007 earnings by about a penny a share and prove accretive starting in 2008. The consensus estimate of City National's 2007 earnings was $4.88 a share on 27 March 2007.

Once the deal is done, Lydian WM will be an affiliate of Chicago-based CCM known as Convergent Wealth Advisors. All of Lydian WM's senior executives have agreed to stay put, sharing what City National calls "a significant minority ownership in their company."

Nesvold says the agreement between City National and Lydian benefits "everyone in the mix."

City National, which Nesvold says is the bank of choice to some of Hollywood's elite, including many of those who manage the stars' financial affairs, gets to augment its own private-banking, trust and securities services with Lydian WM's expertise in open-architecture investment counseling and customized client service.

Right now City National's $4-billion-in-assets investment-management division offers mainly internally managed mutual funds, which aren't generally held out as the investment vehicle of choice for the kind of high-tier millionaire the bank wants to woo with help from Lydian WM. Its Los Angeles-based asset management subsidiary Reed Conner & Birdwell caters to high-net-worth clients all right, but its specialty is in-house management rather than best-of-breed advisory.

"This brings an open-architecture wrapper to City National," says Nesvold. "It's really an incredible prospective distribution opportunity."

The term "open architecture" is generally applied to a combination of proprietary and non-proprietary investment-product offerings. Others, however, refer to that as "enhanced" or "hybrid" architecture, reserving the "open" designation for firms -- like Lydian WM -- with no proprietary offerings at all.

New approach

City National isn't alone in its desire to augment its investment offerings with outside managers. A new study of the open-architecture proclivities of 65 private banks and trust companies by Los Angeles-based investment banking and consulting firm 3C Financial Partners says that 38% of the institutions surveyed said they were using third-party investment platform outsourcers, 17% said they were in the process of building open-architecture platforms of their own and 9% said they were actively evaluating approaches to open architecture.

If the deal with City National gives Lydian WM wider scope for its offerings through City National's private-client division, its affiliation with CCM gives it access to in-house M&A expertise as a possible avenue for expansion.

Though not a serial acquirer in the mold of a Mellon Financial or a Boston Private, Lydian WM turned heads in 2004 with its more or less simultaneous acquisitions of Copper Beech Advisors, which became its Philadelphia office, and Portland, Ore.-based investment consultancy Windermere Investment Associates.

Since then, says Lockshin, Lydian WM has looked seriously at acquiring several firms, though nothing has come of its research to date. "I don't see any of that activity stopping," he says. "In the future we'll be able to hand that off to [CCM] while we concentrate on serving our clients."

Adler agrees that CCM is equipped and ready to assess and handle deals on its new affiliate's behalf. "That's what we do as part of our daily business," he says, adding that CCM has made five "'tucked-in' acquisitions" for its affiliates "over the years."

Adler co-founded CCM with James Hayes, H. Tom Griffith in 1994 as a holding company for a diversified group of investment-management firms run by teams with hefty stakes in their enterprises. Originally funded with venture capital, it became a subsidiary of City National in 2003. To date it has eight affiliates with combined assets under management of around $23 billion.

The chief advantage to CCM of adding Lydian WM to its roster of affiliates is diversification. "We've always made sure we were diversified both by product and channel," says Adler. "[The acquisition of Lydian WM] continues us on a path of seeking out really strong wealth-management and investment-management firms run by strong management teams."

New markets

The deal with City National benefits Lydian, Lydian WM's Florida-based parent, by giving it an infusion of capital -- part of which is expected to go toward building out Fortigent, a high-end, open-architecture investment platform provider that grew out of Lydian WM but isn't part of the deal with City National.

"This is a liquidity event for Fortigent," says Lockshin.

Fortigent itself, like its corporate parent, declined to comment on the City National transaction.

The agreement also exempts Lydian WM's Palm Beach, Fla., office, which will become part of Lydian Bank & Trust.

That leaves City National with Lydian WM's suburban Washington, D.C., headquarters in addition to offices in New York, Philadelphia, Atlanta, Seattle and -- because the acquisition agreement calls for Windermere to be branded as a Convergent Wealth Advisors office -- Portland, Ore.

In other words the addition of Lydian WM gives City National firmer footing in lucrative Eastern Seaboard and in the Pacific Northwest wealth markets. For the moment -- and with the important exception of a branch in New York -- all of its private-client offices are in California.

Within a few months, Lydian -- or more properly Convergent Wealth Advisors -- will open an office in Los Angeles. -FWR

.