Split from Lydian could mean best of both worlds for investment provider. Multi-family office Lydian Wealth Management has split into two units: its core family-wealth advisory, which is keeping the "Lydian Wealth" name, and a third-party investment platform provider called Fortigent. Both firms say the move -- undertaken about a month ago and foreshadowed last summer by the formal branding of Lydian's extramural investment arm as Fortigent -- will "better segment" both firms business strategies and increase their overall efficiency.

Two floors up

Before the split, Fortigent was a separately branded part of Lydian Wealth, a registered investment advisory (RIA) owned by Palm Beach Gardens, Fla.-based Lydian Trust , a privately held financial-service company that also owns Lydian Data Services and Lydian Private Bank. Now Fortigent, though still a Lydian Trust subsidiary, is an RIA in its own right and structurally independent of Lydian Wealth.

Separating Fortigent and Lydian Wealth gives both businesses "the flexibility to [serve] and support their specific market segments and establish their own brands within those segments," says Andy Putterman, Fortigent's president -- and formerly president of Lydian Wealth. "The common thread will be objective advice, innovative thinking, and a client-first service mentality."

Though the firms are based in the same building in Rockville, Md., Fortigent recently moved to its own office. "We're only two stories higher," says Putterman, "but it seems like we're a thousand miles away."

In addition to Putterman, who fills the top managerial slot at Fortigent, Fortigent's managers are Scott Welch, head of research and strategy, Gary Carrai, head of sales and client services and technology head Jamie McIntyre.

Lydian Wealth meanwhile is still headed buy CEO Steve Lockshin, executive v.p. David Zier, CFO David Elliott and newcomer Larry Miles as chief of staff.

Words in edgewise

The split helps Lydian Wealth by sliming it down and streamlining its overall focus. Fortigent picks up 85 of its employees -- analysts and techies for the most part -- leaving Lydian's staff of 61 to concentrate on delivering high-touch wealth-management services directly to families and individuals with at least $10 million.

The separation also sharpens Fortigent's focus, in part because the new structure relieves Putterman, Welch and McIntyre from doing double duty as Lydian Wealth executives. That frees them to put everything into developing and selling bespoke wealth-business programs to banks, trust companies, fee-based brokers and independent advisories that serve clients in the $1-million-to-$10-million bracket.

As an example, Putterman says that, pre-split, about 70% of Lydian Wealth's Monday morning strategy meetings were spent dealing solely with Lydian Wealth matters. Now the two businesses have separate meetings without managerial overlap -- leaving Fortigent's team to "focus on what Fortigent needs."

It also hasn't hurt Fortigent's marketing efforts to put more distance between itself and Lydian Wealth, a pure-play advisory that some potential clients might view as a competitor. In fact Putterman says Fortigent is already getting more queries since the split with Lydian Wealth, specifically because of the formal separation of the business units.

Separate but akin

But Fortigent doesn't want to distance itself from Lydian Wealth completely -- a glance at the two firm's websites is enough to tell they're related. The association with Lydian Wealth, generally viewed as one of the cannier operators in the private-client business, works to enhance Fortigent's cachet as a delivery system for wealth-management systems.

In keeping with this high-end pedigree, Fortigent likes to emphasize that it isn't just another turnkey asset-management program, or TAMP; a generic term for third-party managed-account and mutual-fund wrap programs. Mind you, every TAMP out there says the same; and each one, viewed fairly, has differentiating characteristics.

Still, with its emphasis on supplying customized investment platforms by providing access to wide selection of "boutique managers," alternative investments and consolidated reporting, and by building out its clients' wealth-management businesses through practice-management consulting, end-client-relationship management and staff training, Fortigent sounds a bit swankier than some others in the game. If Fortigent resembles anything, it might be SEI's Wealth Network, which also sells a wealth-management platform combining standard TAMP services with marketing and practice-management support.

In the May-June 2005 edition of the Investment Management Consultant Association's journal Monitor, Fortigent's Welch writes of the need for wealth managers to deliver "experiences" to their clients if they hope to win -- and keep winning -- market share with an otherwise increasingly commoditized service offering.

Design industries

"Wealth management is now in a post-product, post-service stage of development," Welch writes in the article Wealth Management: The Next Design Industry. "Wealth management is now a design industry. Think of Starbucks, Disney, Whole Foods, Nordstrom, the Four Seasons and Ritz-Carlton hotel chains -- what do they have in common? Do they sell quality products? Absolutely. Do they deliver quality service? Of course. But what sets them apart is -- and allows them to charge a premium price -- is the overall experience clients enjoy in dealing with these firms."

Primarily an argument for renting rather than building wealth-management platforms, Welch's paper echoes the published views of Al West, Oaks, Pa.-based SEI's CEO, on the need to deliver a congenial and compelling experience -- best understood as the clients' sense of uniqueness and exclusivity -- along with fiduciary rigor and of course "holistic" advice.

Fortigent and SEI's Wealth Network (as distinct from its TAMP-only offering) are also similar for aiming higher up the wealth chain than most stand-alone TAMPs -- although Houston-based US Fiduciary and Minneapolis-based GlobalBridge also target so-called mid-tier millionaires with added-touch investment platforms.

"Our offering is designed specifically for advisors that want to target the [high-net-worth] space, especially in the $1-million-$10-million range," says Welch. "Many of our competitors are targeting "mass affluence" advisors [in the $250,000-to-$3-million range.]

And the reference to Fortigent's roots in the multi-family office space is clear in its tag line: "If you want to know what the affluent will want tomorrow, look at what they ultra-affluent are demanding today."

Organic growth spurt

Right now Fortigent has 21 "full-service" and five "reporting only" clients. Among the clients it can name are Cleveland-based National City Bank, the capital-management unit of New York-based accountancy Weiser, Arlington, Va.-based investment bank Friedman Billings Ramsey's subsidiary FBR Investment Management, Lexington, Mass.-based Lexington Advisors, Bethesda, Md.-based Meltzer Wealth Management, and El Segundo, Calif.-based Camden Capital -- the last three of which made Wealth Manager magazine's recent "Top RIA" survey. Welch says the overall "full-service" client mix is about half bank, half independent RIA.

Fortigent is careful about claiming assets under management. "[Assets under management (AUM) are] a little tricky in this case because of the double counting that would go on if both Fortigent and our partner advisors report the same AUM," Welch says. "The way I phrase it is that we currently help our partners advise on [around] $3 billion in assets" -- not counting the $6.5 billion or so in Fortigent-administered assets for which Lydian Wealth is advisor.

Looking ahead, Fortigent says it hopes to have about 100 clients by 2008. If it pulls that off -- and if its assets increase proportionally -- Fortigent will have achieved the greatest 18-month organic growth spurt of any third-party investment provider in existence -- an outcome that Steven Pierson, head of investment banking at New York-based investment bank Putnam Lovell NBF, views as anything but automatic.

"It's going to depend on the size and the kind of the client they bring in," says Pierson. Bringing in a big name isn't always a ticket to fat assets, he says, because such deals are in effect "double sales." If, for instance, an investment platform wins entry to a large retail brokerage, it might still have to work to get individual brokers to use its offerings. On the other hand, small-shop sales -- seemingly Fortigent's province -- can lead to greater percentages of the firms' assets making their way to the outsourced platform.

The press v. reality

Pierson also throws water on the trade-press theory that Lydian Trust separated Fortigent from Lydian Wealth in order to sell it, specifically because TAMPs are now commanding higher prices. Contrary to some industry experts, however, Pierson says that multiples on TAMPs have been pretty firm for the past decade or so. "[Prices] have remained in the low teens to high teens times [earnings before interest, tax, depreciation, and amortization] and four to five times revenue going back over about a 10-year period."

And Pierson might know: he's had a hand in a number TAMP deals including Envestnet's merger with Portfolio Management Consultants in 2001, Genworth's acquisition of Centurion later that year, the Bank of New York's acquisitions of Lockwood and EMAT in 2002 and BNP Paribas' purchase last year of FundQuest.

"You can't just look at [assets under management] in evaluating deals," says Pierson. "You have to look at the business and the kind of investments and flows and certainly overall market conditions."

In any case, as eager as the trade press may be to characterize Fortigent as a short-term candidate for the auction block, the firm itself seems to have other priorities. "We are looking to grow Fortigent," says Welch. "Not sell it." --FWR

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