The Seattle wealth management sector has grown rapidly and its prowess is underscored by a number of M&A deals and launches. But as readers know, the city has had its share of problems. How should industry figures approach the market and what are its prospects? This article takes a detailed look.
(Editor's note: This news service is profiling a series of regional markets within the US, and has already cast its gaze over the Dallas/Fort Worth area of Texas. We will continue to examine developments around the US and elsewhere by region.)
The best part about the metropolitan Seattle market for wealth management firms?
“It’s where you have to be,” according to John Patnaude, managing director for Bernstein Private Wealth Management.
The biggest challenge? “It’s where you have to be,” Patnaude said ruefully.
Wealth managers are flocking to Seattle for good reason: the metropolitan area is one of the wealthiest, and fastest-growing in the United States.
The region has old, multi-generational wealth from the timber, retail and aerospace industries; a second wave of millionaires from the spectacular success of local companies like Microsoft, Amazon and Starbucks and a more recent surge of newly-created wealth from entrepeneurs in a wide variety high tech businesses including cloud computing, biotech and gaming.
The Puget Sound region, which includes such wealthy communities as Bellevue, home base for Microsoft, has the country’s third-highest median household income at just under $100,000; the median net worth in the biggest counties is nearly $400,000 and the number of venture investments in startups rose to 433 last year, up 18 per cent from 2015.
Led by The Bill & Melinda Gates Foundation and The University of Washington, Seattle is a world leader in philanthropy and research. The region is also home to over 150 global health organizations and ranks as having one of the most highly educated populations in the US, with 56 per cent of residents having at least a bachelor’s degree.
The city’s Pacific Northwest location makes it distinctive among American markets: the Port of Seattle is second only to Los Angeles as the gateway for trade with Asia and the metro area is the leading US market for mainland Chinese homebuyers. Another distinction: software developer is the most common occupation in the city.
Oh, and Washington doesn’t have a personal or corporate state income tax.
Challenges - and optimism
Not everything is sweetness and light, of course.
Long-simmering political tensions in Seattle erupted in violence, looting and civil unrest over the summer, sparked by protests over the murder of George Floyd. The longstanding clash between Seattle’s populist City Council and pro-business interests shows no signs of abating. Nor does the region’s housing crunch: Seattle is one of the most expensive cities in the country to buy or rent and the homeless population continues to grow and spill onto the streets.
And while the Seattle market has been fortunate that companies like Amazon and Microsoft, which each employ over 60,000 people in the region and continue to thrive during the pandemic, COVID-19 has definitely taken a toll.
The area’s unemployment rate, which was around 3 per cent before the virus struck in March, has now tripled. More than $13 billion in gross business revenue was lost in the first six months of the year, compared with the same period in 2019, according to the Chamber of Commerce. Many of the region’s industries, the Chamber reports, “are experiencing major disruptions that may extend for months or even years.”
Wealth managers are clearly optimistic, however.
“The Seattle market is a really important place to be,” said Ken Hart, managing director for Pathstone and the former CEO for Cornerstone, a local RIA fixture which was acquired by Pathstone this year. “It’s incredibly diverse and desirable and it’s thriving. Seattle is not without challenges: it’s been a small town for long time and now it’s grappling with what it’s like to be a big city.”
Bernstein’s Patnaude points to the market’s “incredible growth story” resulting from what he describes as the successive waves of wealth creation, culminating in the most recent surge of tech and cloud-based start-ups, M&A activity and liquidity events.
“There’s a very big halo effect,” Patnaude said. “It impacts real estate, executives with equity in their companies and families who now have to think about multi-generational wealth.”
Indeed, those entrepeneurs, executives and newly-minted millionaires appear to be the primary target clients for the local RIAs battling each other - and established national banks and financial firms - for share in this lucrative market.
Metro Seattle has at least 23 RIAs with more than $1 billion in AuM - a number that, relative to the size of the region, appears to be more than any other market in the US. And the wealth accumulated by entrepreneurs keeps surging. Seattle-area companies have already raised $3.2 billion in venture capital through September, up 14% from the same period last year, according to the Puget Sound Business Journal.
The region’s legacy of progressivism and philanthropy plays well to RIAs’ strengths, according to Kristen Bauer, CEO of Laird Norton Wealth Management, one of the largest and oldest independent local advisory firms with over $5 billion in assets under management.
“Seattle is a market where clients want to align their investments with their values,” Bauer said. “They think creatively about their impact on the world and they have really great role models here with organizations like the Gates Foundation. And they want to have like-minded partners when they make their decisions.”
Independent advisory firms also believe that they are well positioned to attract affluent, younger tech employees and executives who are accumulating wealth, especially those who are spinning off their own businesses, but are not yet in the crosshairs of large Wall Street firms.
“Most of these employees need help understanding stock equity and options, which has been a boon for firms like ours,” said Anne Marie Stonich, managing director for Paracle Advisors. “These people are busy with their jobs and need an accountability partner to help them reach their goals.”