Considering the recent headlines about the perilous state of California’s finances, not to speak of the problems all wealth managers have had to face over the last year and a half, you’d think wealth managers in Los Angeles wouldn’t be especially optimistic about the future. But that would be a mistaken view.

Considering the recent headlines about the perilous state of California’s finances, not to speak of the problems all wealth managers have had to face over the last year and a half, you’d think wealth managers in Los Angeles wouldn’t be especially optimistic about the future.

But you would be wrong.

It turns out that wealth managers in Los Angeles, especially independents, see a bright future indeed for the Golden State in general and the City of Angels in particular.

“We had one of our best years for new assets in 2009, and we’re hiring new people this year,” said Todd Morgan, senior managing director, Bel Air Investment Advisors, which has approximately $20 billion in assets under management. “I think California is still one of the best kept secrets in the business. It’s a great place to live and a great place to do business. Don’t count California out.”

Luminous Capital, one of the fastest growing shops in town, fully expects that growth to continue, according to founding partner David Hou.

Last year the firm added $800 million in new assets and now has nearly $3 billion in assets under management, Mr Hou said.

This year, Luminous is aiming to add $500 million to $600 million in assets, he said, and hopes to add a lift-out team to the firm, as well as hire new advisors.

Whittier Trust Company and Convergent Wealth Advisors also claimed record growth in 2009 with more expected this year.

Whittier’s dozen new clients last year were the most in the multifamily office’s history, said president and chief executive officer Michael Casey.

While Mr Casey said he expects growth rate for wealth creation to slow in the current economic environment, he added that he also believes existing wealth management firms will maintain a competitive advantage.

Whittier’s assets have been doubling every five years and have now reached $9 billion, and Mr Casey said he expects that pace to continue.

The Los Angeles office of Convergent, a unit of locally-based City National Bank is nearly three years old and Convergent’s fastest growing office nationally, according to Steve Lockshin, Convergent’s chief executive officer.

The Los Angeles’ office run rate, or recurring revenues, is $5 million, Mr Lockshin said. He expects to increase the office’s professional staff by 50 per cent this year, and said he anticipates the Los Angeles office eventually becoming the largest in the firm.

Mr Lockshin credited some of Convergent’s success to its affiliation with City National, a well known force in the entertainment industry’s financial circles.

But he also noted Los Angeles’ many entrepreneurs and “significant amounts” of newly created wealth.

By way of comparison, Mr Lockshin described the New York market as “mature, fully loaded, with lots of competition and fully staffed.”

More room for enterprise

Los Angeles, on the other hand, is more entrepreneurial, with more growing businesses and not fully staffed.

“I think the opportunities are significant here not only in 2010, but for the rest of the decade,” said Mr Lockshin.

In fact, Mr Lockshin said Los Angeles was “underserved in the open-architecture space.”

Rob Francais, who succeeded industry legend Tim Kochis as chief executive of Aspiriant late last year, agreed.

The Los Angles wealth market, Mr Francais said, is still in its “infancy as far as awareness of the different models [of wealth management] that are available.”

Compared to markets like New York and San Francisco, he said, the market is “just not as aware of what the industry does.”

Business Managers Seen As Gatekeepers

One possible reason, and certainly an idiosyncrasy of the market, is the importance of the business manager in the financial lives of wealthy entertainers and athletes.

“Business managers are very important here,” said Linda Davis Taylor, managing director of CCM Family Advisors, a unit of City National Bank that works with ultra high net worth families “They are the gatekeepers".

Both wealth managers and business managers agreed.

“They need us badly,” said one business manager, noting that most matters involving their client’s money, whether as weighty as selecting someone to manage tens of millions of dollars or as pedestrian as hiring a landscaper, tend to go through a business manager.

Privately, some industry executives complain that business managers are control freaks and paranoid.

But their influence in Los Angeles is unquestioned.

“In Los Angeles, business managers do a lot of what multifamily offices do in other markets,” said Jeff Glowacki, managing director and senior resident officer for Bessemer in Los Angeles.

“In entertainment, business managers tend to be the clients’ primary financial advisor,” said Jim Berliner, president of Westmount Asset Management Inc. “All others work through and with them.”

But the Los Angles market shouldn’t just be defined by the entertainment industry, local executives say.

A Highly Fragmented Market

Aerospace, transportation, retail, real estate, professional services and the garment industries also provide plentiful sources of wealth, they point out.

“Entertainment makes up less of our clients than you’d think,” said Bel Air’s Mr Morgan. “Wealth in Los Angeles tends to be pretty diversified.”

The market is also very fragmented geographically, executives point out, citing pockets of wealth that stretch from the Pacific Ocean beach communities eastwards to the San Gabriel Mountains inland and south through the Orange County suburbs towards San Diego.

“The sheer geographic sprawl of Los Angeles makes it a highly fragmented market,” said Ms Taylor. “It’s a big challenge firms have, national and east coast firms especially. They’re not really sure what the Los Angeles market is because there’s such a huge geographic area. You have entertainment, real estate and professional services on the west side and an entirely different mindset in Orange County and old money in Pasadena.”

As Mr Francais put it, “there’s no cohesiveness in LA.”

Not coincidentally, nationally known firms with strong brands such as Merrill Lynch, JP Morgan, and Morgan Stanley Smith Barney have a strong presence in the Los Angeles wealth market, as does one of the country’s biggest money managers, the Capital Group Companies, a division of American Funds, which is also based in the city.

Well known firms including Bessemer Trust and Northern Trust have carved out market share on the high end of the wealth market, and big banks such as Wells Fargo and Bank of America, as well as local banks like City National are considered formidable competitors for the mass affluent market.

“Retail and product sale is in full force in L.A.,” Mr Francais declared.

But he makes the argument that independent firms like his ultimately benefit by comparison, especially after the problems that wirehouses and big banks have endured over the last year and a half.

In fact, Mr Francais sees the problems suffered by large financial institutions as fertile grounds for business development.

“I think the events of the last two years reinforced the many reasons why firms like ours exist,” he argued.

Aftermath of Financial Crisis

Nonetheless, if pain wasn’t spread equally among wealth managers, the aftermath of 2008, in one form or another, was felt by everyone.

“People are willing to accept lower returns to preserve capital,” said James Hausberg, managing director of Presidio Financial Partners, “and they’re more concerned with who the custodian is.”

“Prospective clients are more inquisitive,” said Mr Glowacki, “they’re doing more due diligence and it’s elongating the process more.”

“People are still a little bit gun shy and are more concerned with liquidity, third-party risk and fraud” according  to Mr Francais. “They’ve learned more about tolerance for risk and more than ever, clients want to be in on the portfolio conversation and bigger picture conservations.”

Despite all the well publicized problems of the last 18 months, Westmount's Mr Berliner said there was less change than he thought there would be.

“There was less money in motion than many anticipated,” he said. People were hesitant to move out, and then the rally came quickly.”

Nonetheless, clients remain “anxious and skeptical about the future,” Mr Berliner said, “and question if the markets will hold on to value.”

“Clients don’t think wealth managers are crooks,” Ms Davis Taylor said, “but they are asking how they can be better protected.”