In the world of wealth management, few stories are as captivating as that of Coldstream, a firm that has navigated the tumultuous waters of ownership changes, succession planning, and the pressures of being employee-owned. As the CEO, Kevin Fitzwilson, reflects on the company's journey, it becomes clear that Coldstream's story is not just about numbers and assets under management, but about the people and the culture that drive its success. With a unique C Corp structure, Coldstream has carved out a path that is both innovative and challenging, offering valuable insights for the industry at large.
A Journey of Ownership
Coldstream's story begins in 1996, when four founders, fresh out of Bank of America, set out to build a wealth management firm. Fitzwilson joined the team in 1997, and the original business was investment management and financial planning. The late '90s were a time of great technological growth, and Coldstream found itself strategically positioned next to Microsoft's campus, with over half of its clients being employees at the tech giant. This early success set the stage for the firm's growth and succession planning.
In 2002, two of the founders sought liquidity, leading to a process of selling out or taking minority capital. After evaluating various options, Coldstream ultimately chose to partner with Boston Private, a publicly traded bank, which bought a minority interest in the firm. This marked a rare occurrence at the time, as minority investments in small wealth management firms were uncommon. The partnership with Boston Private provided Coldstream with a rare opportunity to learn about the dynamics of having a private equity partner and a publicly traded bank in its cap table.
The firm's growth continued, and in 2011, Coldstream executed a management buyout, becoming 100% employee-owned once again. This decision was driven by a desire to align the interests of the team with the clients and to preserve the company's finances. Fitzwilson, who had been managing partner since 2010, played a pivotal role in this transition, ensuring that the firm's growth plan included both M&A and organic growth.
Today, Coldstream has around $15 billion in assets under management and $100 million in revenue. The firm has expanded its services to include tax prep, tax consulting, risk management, property and casualty insurance, and private funds. With about 250 people in its offices, concentrated in the West Coast and the Pacific Northwest, Coldstream has established itself as a key player in the wealth management industry.
The C Corp Advantage
One of the key differentiators for Coldstream is its C Corp structure. Unlike many businesses in the industry, which are organized as LLCs or flow-through structures, Coldstream's C Corp status allows it to involve owners at much lower dollar thresholds. This means that young, aspiring professionals can invest in the company without the administrative burden of filing state tax returns in multiple places. Fitzwilson estimates that this structure saves owners significant time and money, making it an attractive option for those looking to build wealth in the firm.
The C Corp structure also enables Coldstream to issue stock options, further deepening the breadth of ownership. This approach aligns with the firm's succession plan, which aims to have owners with less than 10% of the company, ensuring a more stable and sustainable future. Fitzwilson is transparent about his own ownership stake, stating that he has no intention of selling as long as he can add value to the company.
The Pressures of Employee Ownership
While Coldstream's employee-owned structure has its benefits, it also comes with its own set of pressures. The firm must constantly balance the demands of reinvesting in the business, doing M&A, and meeting the expectations of its owners. Fitzwilson acknowledges that the pressures are real, especially for those who have been with the company for a while and have substantial ownership stakes. The firm's EBITDA is a critical resource, and it must be managed carefully to facilitate cash flows and meet the needs of its owners.
Succession Planning and M&A Strategy
Coldstream's succession plan is a well-thought-out strategy that involves a rolling three, five, and 10-year forecast. The firm has a spreadsheet of all its owners, and it makes educated guesses about when liquidity bubbles may occur. Fitzwilson emphasizes the importance of having owners with less than 10% of the company, ensuring a more stable and sustainable future. The firm's M&A strategy is equally thoughtful, with a focus on culturally aligned partners who can bring value to the combined organization.
Coldstream's board includes Rush Benton, a major M&A guru, and Heather Redmond, who runs an AI-focused venture fund in Seattle. The firm's approach to M&A is deliberate and patient, with a focus on finding the right cultural fit rather than meeting IRR or multiple of growth thresholds. Fitzwilson believes that this approach allows Coldstream to control the pacing of its growth and make strategic decisions that align with its long-term goals.
The Future of Coldstream
As Coldstream looks to the future, it is clear that the firm is well-positioned to continue its growth and success. With a strong ownership group, a thoughtful succession plan, and a deliberate M&A strategy, Coldstream is poised to navigate the challenges of the wealth management industry. Fitzwilson's leadership and vision have been instrumental in shaping the firm's culture and driving its growth, and the future looks bright for this employee-owned success story.
In my opinion, Coldstream's story is a testament to the power of employee ownership and the importance of cultural alignment in the wealth management industry. As the firm continues to expand geographically and add new services, it will be fascinating to see how it navigates the challenges of growth and succession planning. From my perspective, Coldstream's journey is a reminder that success in wealth management is not just about numbers, but about the people and the culture that drive it.
