WEALTH MANAGEMENT - Boston Private’s Federal Style

The wealth manager grows by letting acquisitions maintain their independence.

Against a backdrop of mega deal making in the wealth management market, Boston Private Financial Holdings, which owns 14 ®≠rms with a total of $33 billion in assets, is taking a different route. Rather than integrating the ®≠rms it acquires, Boston Private prefers to let its acquisitions remain independent to preserve the personalized service of small, entrepreneurial firms. It believes the strategy will enable it to prosper against much bigger rivals like Bank of New York Mellon and Bank of America, which completed its acquisition of U.S. Trust Corp. last month.

“The approach is about acquiring firms but not swallowing them whole,” says Timothy Vaill, Boston Private’s chairman and CEO. Although bigger competitors boast impressive products and distribution, Vaill contends that their M&A activity disrupts client services and presents him with opportunities. “These mergers take the air out of the entrepreneurial balloon,” he says.

Boston Private targets newly wealthy investors with $2 million to $25 million in assets. For acquisition, it seeks out companies with $300 million to $1 billion in assets. On July 2 it paid $72 million for Bellevue, Washington°©based Charter Bank, with $294 million in assets. The firm keeps its acquisitions in a loosely knit federation so they can continue to operate independently.

The formula has generated some impressive growth. Boston Private’s revenues rose by 227 percent in the five years ended in 2006, and assets under management grew by 358 percent. The company’s stock produced a total return of 604 percent over the 11-year period ending in June, compared with a return of 565 percent for the SNL asset manager index.

Boston Private structures its deals in various ways, from buying companies outright to phasing in a purchase over several years. Founders of affiliates get liquidity and help in planning their succession. Acquired firms also can tap into Boston Private’s staff of 35 for marketing and strategy ideas, human resources help, information on best practices and capital raising. But that’s about it. “There’s no central boardroom. We purposely decided not to have a fully integrated model,” says Vaill.

Vaill, 65, joined the firm in 1993 with a mandate to expand and diversify away from what was then essentially a one-location private bank, Boston Private Bank & Trust Co., which had $80 million in assets. The bank had focused on real estate lending in New England and suffered during the real estate crash of the late 1980s and early 1990s. Vaill knew all about the benefits and shortcomings of large-scale operations. He joined from the Boston Co., where he had been president of Boston Safe Deposit and Trust Co., the $10 billion private bank. Vaill experienced upheaval at Boston Co., which was acquired by Shearson Loeb Rhoades in 1981 just months before Shearson was in turn bought by American Express Co. He left the company before it was purchased by Mellon Financial in 1993. “You can’t try to beat the big guys by taking business away from them,” he says. “But what you can do is beat them at customer service.”

Boston Private’s target customers tend to receive generic product solutions from rivals, who save the truly customized approach for clients with more than $25 million. Focusing on less-affluent customers still leaves plenty of opportunity. According to the World Wealth Report produced by consulting firm CapGemini and Merrill Lynch & Co., individuals with $2 million to $25 million in assets are expected to see their holdings grow 8.4 percent annually, to $14 trillion in 2009.

Finding the right acquisitions and ensuring that founders want to remain involved is critical to Boston Private. Steven Hayworth, chairman and CEO of $1.5 billion Gilbraltar Private Bank & Trust, based in Coral Gables, Florida, says he talked to Vaill over the course of three years before agreeing to sell his bank to Boston Private for $245 million in cash and stock in 2005. Hayworth says he considered alternatives, such as going public, but recoiled at the regulatory burdens. He brushed aside entreaties from many of the big firms that were attracted by Gilbraltar’s strong position in the wealthy south Florida market. “We would have been merged and integrated into someone else’s organization,” says Hayworth, who liked the fact that ten of Boston Private’s 11 affiliates at the time still had their original leadership in place. The Gilbraltar deal made Hayworth a major shareholder of Boston Private, increasing his commitment to staying put.