GenSpring Family Offices, SunTrust Banks Inc.’s wealth management unit for very rich families, plans to develop a national family-office network by acquiring providers in “secondary markets.”
The Palm Beach, Fla., unit, which has expanded along the East Coast since selling itself to SunTrust in 2001, announced its first acquisition outside its traditional area of operations last week, when it bought Inlign Wealth Management LLC, a Phoenix firm with $2 billion of assets under advisement.
Maria Elena Lagomasino, GenSpring’s chief executive, said the acquisition could provide a blueprint for further expansion, and analysts said they are confident that the unit can remain a real growth engine for its Atlanta parent.
“The large wealth markets are obvious. We think some markets that are not as obvious are very, very interesting,” Ms. Lagomasino said in an interview last week. “There is a great deal of demand for the services that we can provide families in these markets.”
Phoenix is a good example of the type of market GenSpring is considering, because “it is not Chicago, San Francisco, Los Angeles, or New York,” she said. “It is a secondary market, but it has a significant nucleus of wealthy families. Some are residents all year round, and others are part-time residents. It is a very interesting opportunity for us.”
Jeff K. Davis, an analyst at First Horizon National Corp.’s FTN Midwest Securities Corp., said SunTrust has not made a lot of wealth management acquisitions over the past four or five years as it has developed its product mix for that business.
“SunTrust has always been a robust player in asset management,” he said. “What I have heard them say over the last four or five years is that now that they have the products in place, it is a matter of expanding who they reach, and SunTrust has the size and the capital to do that.”
It is one of the few banking companies that has made a “largely successful transition” from having only a trust department to being a full-service wealth management provider, Mr. Davis said. “SunTrust has realized that asset management and wealth planning doesn’t take much capital, it doesn’t tax the balance sheet, and the returns can be huge, massive, and recurring.”
GenSpring, founded in 1989 as Asset Management Advisors, caters to families with more than $25 million of assets. Since the SunTrust acquisition the unit has gone from having one office and $500 million of assets under advisement to having 13 offices with $15 billion.
Ms. Lagomasino, who was the chairman and chief executive officer of JPMorgan Private Bank before SunTrust hired her to run GenSpring in 2006, said her unit’s growth began around “SunTrust’s footprint,” but has since expanded along the East Coast up to Connecticut and New York.
“No question, we want to make this a global business, but it needs to be national before it can be global,” she said. “There are a lot of opportunities out there for us to acquire. There are a lot of individually founded companies that built for a small number of families and have grown to a point where the people running them have realized that they need to make a move in order to get to the next level.”
William Rogers, a corporate executive vice president of corporate and investment banking, mortgage, treasury management, and wealth investment management at SunTrust, said it will be difficult to duplicate GenSpring’s growth over the past six years. He expects the unit to grow at a “double-digit rate annually for the foreseeable future,” but doing so will require acquisitions.
“This kind of growth we want to do with the strategy we employ can’t just be done organically,” he said. “The traditional banker’s mentality is for an adviser is to grow by increasing its clients. That is an easy organic solution for growth, but that completely undermines the proposition of a family office.”
GenSpring has strict rules to ensure that its offices do not get too large. The typical office has 14 or fewer employees, and each team of advisers — typically three in each office — handles 20 or fewer clients. For example, when its Atlanta office began to accumulate too many clients and advisers, the unit opened a second office there.
“We are committed to this boutique approach,” he said. “Rather than just stack people on top of each other, we think it is critical to be true to our value proposition and open another office. … It is important for us not just to be a big provider. Our offices have to have the look and feel of a single family office.”
Ms. Lagomasino said that there are opportunities to acquire nationally, and that GenSpring is in the process of talking to three or four wealthy families in the United States. “If a family is in a location where we are not now, we’d open an office and build a business around them.”
GenSpring will remain opportunistic, she said. “We want to build around families and around talented people, rather than a goal for growth of how many offices and certain locations. GenSpring has proven this is a model that can be replicated, and the intellectual capital, the process, and the technology is scalable.”
Mr. Rogers said when SunTrust acquires small family-office service providers like Inlign, they will carry the GenSpring brand but retain their management team.
“We are trying to create the platinum brand in the space,” he said. “What attracted our partners to us is that we can build this brand together. We want wealthy families to think of us when they think of family office services.”
Analysts said SunTrust is one of many financial services companies in a crowded market trying to cater to these families.
The number of U.S. individuals with more than $30 million of investable assets increased 11% in 2006, to about 37,100, according to a report by Merrill Lynch & Co. and Cap Gemini Group. And a survey of 80 multifamily offices by the Family Wealth Alliance shows these families’ assets jumped more than 20%, to about $305.2 billion.
Large financial services companies, including UBS AG, Wilmington Trust Corp., Citigroup Inc., and Wachovia Corp., are competing with SunTrust for customers.
Ms. Lagomasino said GenSpring will continue to stand out by remaining committed to its strategy of serving only a few clients in each office and expanding in secondary markets. It is critical not to “plant a flag in all of the usual markets,” but also to “build a business model that is about intimacy and personal attention” while having the scale and resources to offer a complete array of products and services.
“I am a 30-year veteran in this industry, and when I started there were few choices and even less differentiation from one firm to another, but now there are thousands and players, and the complexity of choices is overwhelming,” she said. “It takes a degree of specialization to know how to choose and coordinate things for these wealthy families.”
