The story of Coldstream, an employee-owned wealth management firm, is a fascinating journey through the world of finance and business ownership. In this article, we'll delve into the unique path Coldstream has taken, the challenges it has faced, and the insights it offers for those navigating similar waters.
The Birth of Coldstream
Coldstream's origins can be traced back to 1996, when four founders with Bank of America roots established an investment management and financial planning firm. The firm's strategic location near Microsoft's campus in the late '90s led to a client base heavily influenced by the tech boom.
Succession and Ownership Changes
As the business grew, Coldstream faced its first succession planning challenge in 2002. Two founders sought liquidity, leading to a decision-making process that involved considering selling the firm or taking on minority capital. Ultimately, they partnered with Boston Private, a publicly traded bank, which was a rare move at the time.
The partnership with Boston Private lasted for almost a decade, during which Coldstream learned about the dynamics of having private equity partners and a publicly traded bank as stakeholders. This experience shaped Coldstream's perspective on ownership and succession planning.
Employee Ownership and Growth
In 2011, Coldstream's management team decided to buy out Boston Private and the private equity firm, returning the firm to 100% employee ownership. This move was motivated by a desire to align the interests of clients and teammates and to pursue a disciplined growth plan. Since then, Coldstream has experienced significant growth, reaching $15 billion in assets and $100 million in revenue.
Unique Ownership Structure
One of Coldstream's distinctive features is its C Corp ownership structure. This structure allows for broader ownership participation, as it eliminates the administrative costs associated with filing state tax returns for multiple states. As a result, Coldstream has approximately 170 owners out of its 250 team members, with a minimum investment of just $1,000.
Succession Planning and Balancing Act
Coldstream's succession planning involves looking ahead three, five, and ten years, with all owners accounted for on a spreadsheet. The firm aims to keep ownership stakes below 10% to ensure a more manageable cap table. CEO Kevin Fitzwilson, who owns 37% of the company, emphasizes the importance of transparency and his commitment to staying with the firm as long as he can add value.
M&A Strategy and Cultural Alignment
Coldstream's M&A strategy focuses on finding culturally aligned partners who bring more than just assets and revenue. The firm aims to enhance its human and intellectual capital through mergers. This approach is guided by board members like Rush Benton, an M&A guru, and Heather Redmond, who runs an AI-focused venture fund. Coldstream's stated business plan is to complete two mergers per year, but it prioritizes cultural fit over growth thresholds.
Geographic Expansion
Coldstream plans to expand geographically throughout the western US, particularly into states where it sees wealth migration patterns. The firm aims to open an office in Incline Village, Nevada, later this year, as part of its strategy to cater to clients and prospective clients moving away from the coastal states.
Conclusion
Coldstream's journey offers valuable insights into the complexities of ownership, succession planning, and growth in the wealth management industry. Its unique ownership structure and focus on cultural alignment in M&A set it apart. As Coldstream continues its path as an employee-owned firm, it navigates the pressures and challenges that come with this model, striving to balance the interests of its owners, clients, and the business itself.
Personally, I find Coldstream's story inspiring, as it demonstrates the power of employee ownership and the potential for sustainable growth when aligned interests are at the heart of a business.
