Financial Advisor

A Potent Mix

Laird Norton Tyee has succeeded at blending two very different firms: one that catered to old-money wealth and the other to first-generation millionaires.


July 2009

The game goes something like this: Children are given a certain amount of money each month to spend on the items they would buy to furnish a bedroom. Those who choose a bed first are rewarded. Those who opt for a television are given a talking to.

In another game, the children follow a dollar as it moves through the economy—from the bank to the consumer to the pizzeria, where it is spent on cheese and so on. One girl had her dollar move from America to Africa—where her family had gone on vacation—and then back again, undergoing currency exchanges in between. What she was doing would have been savvy if she were a teenager. But she was actually 5.

“They surprise you with what they know,” says Kate Brown Donnelly, who oversaw this game as a client analyst at Laird Norton Tyee, the largest privately held wealth management firm in the Pacific Northwest. The exercises were part of the firm’s effort to educate the children of its wealthy clients.

The game serves two purposes: The clients feel their heirs are getting a better understanding about money. And the firm develops a relationship with its clients’ children. It’s like the board game Othello. The trick is to gain control of the spots along the edge of the board. If one controls the nearest and farthest positions, one controls everything else in between. In wealth management, too, firms that successfully court the oldest and youngest members of a family have a good chance of retaining the assets between them.

The Seattle-based firm knows a little something about family wealth. The Lairds and the Nortons were sawmill owners from Winona, Minn., who made a fortune in 1900 by helping Frederick Weyerhaeuser acquire 900,000 acres of timberland. That partnership created Weyerhaeuser, the world’s largest lumber company. The two families managed their fortune themselves until 1967, when they launched a family office and trust company to oversee their assets. In 1979, the company began managing the assets of families outside the Laird Norton empire.

The firm became Laird Norton Tyee in 2004 when this office merged with Tyee Asset Strategies LLC, a rapidly growing advisory firm serving first-generation millionaires from Puget Sound-area companies such as Microsoft Corp., Inc. and RealNetworks Inc. In partnering with Tyee, the old money firm of Laird Norton Trust Co. picked up an independent advisory business offering services to the region’s wealthy young entrepreneurs. And Tyee joined a firm that managed money for more than 300 members of one of the Pacific Northwest’s lumber scions, giving it expertise and a reputation in managing intergenerational wealth—not to mention the trust company and estate planning component. (See sidebar, “The Making of a Merger,” for more on how the firms combined.)

Barbara Potter, who heads up the firm’s fiduciary services team and is an alumnus of the old Laird Norton Co., says the tenor of the firm has changed a lot from its days as a family office. Employees once had to watch what they said to clients, because they might want to show something that one client did as a bad example for another, and yet for all they knew, they were talking to the first client’s sister or cousin.

“It was very different in that it was only a handful of non-Lairds or Nortons,” Potter says, noting that today, these family members are only 25% of the client base. Much of the other 75% is not inherited wealth at all. “It’s money people made by owning or selling their business. It’s personally made wealth rather than inherited wealth, and that’s very different.”

With about $4 billion in assets and more than 425 clients as of September 2008, the firm caters to business owners, founding shareholders and senior managers of private companies as well as multigenerational wealth. Its average client has about $7 million in investable assets. Its most wealthy clients have as much as $100 million.

The firm prides itself on its open-architecture approach, meaning it puts clients into third-party products rather than its own. Moreover, none of the investments generate referral fees for the firm, which makes its recommendations conflict-free. Laird Norton Tyee makes its money by charging clients an annual fee for its advice.

“We don’t take soft dollars or the whole laundry list of other things,” says Kaycee Krysty, the firm’s chief executive officer. “We are only paid by our clients. There are a lot of people who say they are fee-only, but they aren’t as strict about it as we are.”

The firm has a team model for client service. Each client is served by three members led by a client advisor. The teams, composed to fit each client relationship, bring expertise in financial planning, asset allocation, estate planning, fiduciary services, multigenerational wealth, investment manager selection and family business succession. If expertise is needed that goes beyond the skills of the team members, the firm will call in either internal experts or outsiders who specialize in the area needed. This model has evolved since the merger of the two companies.

Kristi Mathisen, hired in 2006 from the Bader Martin accounting firm to oversee Laird Norton Tyee’s tax and financial planning operation, says her first acquaintance with the firm was as one of those outside consultants. She says she was always struck by the depth of the firm’s in-house expertise and yet it still had a willingness and initiative to look outside for help.

“They kept the advisors they worked with on track, so that if a client really wanted to accomplish something, they helped facilitate it,” Mathisen says. “Other firms say they do that, but they don’t call in third-party advisors.”

Now that she’s on staff, Mathisen says the firm no longer has to reinvent the wheel over and over again every time a client wants to initiate a novel strategy. She also helps the internal advisors better understand the tax consequences of what a client wants to do, so when they speak to a third party, such as the client’s accountant, they can better explain what the client is trying to achieve.

While the wealth management sector has become more competitive, Laird Norton Tyee differentiates itself by being a planning firm first and an asset manager second, according to Robert Moser, the firm’s new president, who says independent planning was in the firm’s DNA from the beginning. The firm helps clients decipher their goals and then finds investment strategies to achieve those goals, rather than the other way around, he explains. The firm stresses that it doesn’t sell products but offers services: including financial and tax planning, generational transfer and trust administration and investment stewardship.

“At its core, it’s a planning firm that helps families come up with strategies to achieve their goals, dreams and targets,” Moser says. “It’s hard for me to call Merrill Lynch a planning firm.”

The firm’s investment offerings and allocations tend to vary with the age of the client. Tyee’s clients were on average younger than the trust company’s clients, and the services appealing to them at first were deferred compensation analysis and education savings plans. They were not as interested in estate planning and legacy planning offerings.

A lot of the firm’s clients say philanthropy is as much a part of their strategic goals as asset appreciation—a radical change from 20 years ago—and philanthropy is one of Laird Norton’s core competencies. “They pay as much attention to a client’s philanthropic goals as they do to managing the financial resources,” says Molly Stearns, a senior vice president of The Seattle Foundation, one of the nation’s largest community foundations. “In our estimation, that is not the norm.”

Stearns says the firm has often pulled her into client presentations on philanthropic giving. While other firms offer such a service, she doesn’t believe they have as complete a Rolodex of outside experts to tap.

Philanthropy is often considered the pursuit of people who have already retired or sent their kids to college, who wait become interested in things like family foundations, donor-advised funds, CLATs, etc. But Laird Norton says that it also has seen quite a few very active young philanthropic families as well, and the age lines aren’t as neatly drawn.

Given its genesis as a family business, the firm has insight into the peculiarities of the family wealth business, a job where emotions can run high, and officers can make decisions based on childhood grievances rather than finances. “Having been deeply rooted in the Laird Norton family, there’s a confidence the client can have that they’ve been through all of these conversations before,” says Peter Evans, the former president of the Laird Norton Co.’s family office.

Moser says that’s what makes the firm a particularly good choice for first- and second- generation wealth creators. “We’ve worked with families that have been extraordinarily successful over many generations, and we can look at what made those families successful and apply some of those skills to the new wealth creators,” he says.

Because the firm has been so successful at what it does, it’s been a target for wealth managers looking to grow by acquisition, according to Moser. It’s grown to a fairly significant size, it has critical mass in terms of assets, it has a well-defined model—and has had for while—and it’s in the Pacific Northwest, one of the biggest “new wealth” markets in the country. It’s a very attractive market for wealth management firms, he says.

“Seattle has that roll-up-your-sleeves-and-get-it-done spirit,” Moser says. “I’m sure every part of the country can say that, but here, it’s palpable. I knew of Laird Norton because anyone who is in the industry who is seeking to acquire a business, Laird Norton Tyee is probably going to be on their radar map.”

But while the wealth management sector in general may be hot, making money serving wealthy families is not easy, says Krysty. Wealthy people demand personal attention, and that costs money. Clients don’t want to go through voice mail, she says. Some family offices will even walk clients’ dogs and pay household bills, and Laird Norton does not.

Still, Krysty believes the firm is luckier than most in the current climate. While the firm has seen assets decline along with everyone else’s—assets under management fell from $5 billion to $4 billion over the last two years—the firm has a competitive advantage right now in that it has the capital and critical mass of clients to continue to generate revenues.

“What the downturn has done for some firms that were on the margin is it’s taken away the revenue stream that enabled them to invest in their business,” Krysty says.

Laird Norton, on the other hand, has the luxury right now of investing in technology as well as people. For instance, the firm just installed a new client relationship management system, which will enable it to map out a client’s interrelationships so that all of its outside advisors and the relevant information for those advisors are in one place. The firm always had that capability, but everything was done by hand.

The firm is also actively looking to add new talent, from new advisors all the way up to the executive suite. It recently added Moser as a new president this past fall from SunTrust Bank, as well as a new general counsel and chief compliance officer.

“We are well capitalized, and we are private, which in this marketplace is a bit of a luxury,” Krysty says. “It means we don’t have to make decisions to maximize someone’s quarterly earnings. Publicly traded companies are concerned about managing their earnings projections. We can sit back and say, ‘What do we really need for our clients in the long haul? What will get them the best outcome in the next five years?’”

Indeed, the current economic downturn is making it easier for smaller independent firms like Laird Norton to hire talent, according to Andrew Reese, a financial services recruiter with the McCormick Group in Arlington, Va. Those working for, say, a large bank that has received bailout money from the federal government now face restrictions on their compensation, Reese says. And some advisors have also seen their bonuses cut because other departments within their firms may be suffering.

But Laird Norton is “private, and they’re independent,” Reese says, “and those two words are attractive to most people who are currently working at larger firms, where wealth management is a smaller focus of their business. From a talent perspective, it’s been a great time to recruit.”

Krysty says the firm isn’t just in a good position to gain advisors. It’s also a good time to pick up new clients, something the firm has done in the last several months.

“I think a lot of folks are just getting over reeling from the downturn and are ready to sit back and say, ‘Who am I going to trust in the future?’ And we have the gravitas and the track record to show we can be there for them,” she says.

The Making Of A Merger
The Laird Norton Trust Company was originally created by a family that made its money on timberland and then began serving other wealthy dynasties. By the time it merged with Tyee Asset Strategies LLC in 2004, only 50% of Laird Norton’s client base still comprised members of the original families. These family clients were often third-, fourth- and fifth-generation descendants, although the firm also served some first-generation members of other families. Most clients were attracted by the trust and fiduciary services the company offered or by the perception that the in-house portfolio management was conservative. Tyee by contrast, served mainly first-generation entrepreneurs and younger, newly wealthy Seattleites in the tech field. Tyee’s open architecture platform was a huge draw for these clients, according to company officials. Clients were also attracted by services such as stock option planning—because many of these tech billionaires were paid in options—and also by the firms teaching clients how to raise responsible heirs. By the time the firms merged, many Tyee clients were getting to the stage where the trust and estate planning services offered by Laird Norton Trust Company were of interest to them. Additionally, the trust company was intentionally seeking to move in the direction of open architecture as it allowed for the broadest range of offerings and services for clients. The leadership of the new entity made a concerted effort to integrate not only the systems and infrastructures of the two organizations, but also their cultures and knowledge. They also required that all employees take a new office, which meant some employees only moved from one side of the floor to the other. The idea behind moving offices was to encourage employees to mix with their new colleagues and to feel that they were part of one group. Tyee and Laird Norton employees also formed blended teams. This structure was put in place so that co-workers commingled and so that institutional knowledge from the two entities could be shared. Teams were given budgets for social events and were encouraged to spend time getting to know each other on a personal level. The firm also invested in training that centered on understanding different types of communication skills so that employees at each firm could better understand each other. It was considered effective and is still required for new employees today. As a result, the best practices were plucked from each organization, as if from a Chinese menu, to create a new company with a new culture. Employees were encouraged to take ownership in building this culture; their input was solicited in the form of contests and suggestion boxes, and they received public recognition for their contributions. The new firm also borrowed the incentive program established at Tyee where 25% of pre-incentive EBITDA is divided into employee bonuses annually. This motivated people to help make the merger a success, company officials said.
—Caren Chesler