Roundtable: Key attractions

Key attractions ® oundtable:

Leading investment advisers discuss the factors attracting capital to Tampa Bay, the impact technology is having on how business is done and the challenges the wealth management industry is facing in the current environment.

Marc Blumenthal CEO Florida Funders

What is the key to attracting more venture capital into the Tampa Bay region? Ultimately, it’s about the number and quality of companies. While it is directionally accurate to say 2% of US venture capital is invested in Florida, the reality is di™erent because a massive amount of money comes from sources like family o©ces and other investment vehicles, that oftentimes do not necessarily get rolled up in those reports. Seventy percent of all the dollars that are invested in venture capital happen in four cities: San Francisco, Silicon Valley, Boston, and New York. The figures are skewed by the bigger investments. Florida is the third-largest state by population. It is the third or second, in terms of the number of accredited investors, surpassing New York. We are the 17th-largest economy in the world, with a population of 21 million people. I will be so bold as to predict that, looking toward 2030, Florida will be well into the double-digits in terms of venture capital investment.

How would you describe Tampa Bay’s startup culture and ecosystem? Exceptional. A lot of people who come to the Synapse Summit are astounded by phenomenal resources such as Embarc Collective, the University of South Florida, University of Tampa, Tampa Bay Wave, Synapse or Florida Funders. There is a tremendous depth of opportunity of customers for most businesses. PwC’s o©ce here is the second-largest in the United States. When you combine the resources with our welcoming and supportive culture, you end up with an ideal place to build your business, life and career. Tyler Iller Senior Vice President & Director of Client Advisory - Florida First American Bank

What makes the Tampa Bay market di¡erent? Tampa Bay is neither a seasonal market nor a snowbird market – it usually stays active year-round, similar to Orlando and a few other Florida markets. On a grand scale, however, this is di™erent than most national markets. When we look at the overall population growth and new households that are moving into Florida, there is a good percentage, I believe around 5%, that are coming specifically into Tampa Bay. This is a significant number. There are also many diversified industries in this region, which is due to the entrepreneurial spirit in the area. A lot of accelerators are starting to open up all around Tampa to promote new companies coming in, which creates a very exciting atmosphere. All of this is beneficial for the banking sector.

What does increased competion mean for the banking sector? Bringing in more competition to the region is not necessarily better for every financial institution, but I believe it is better for the consumer to have more options. Our SBA lending products, business and commercial banking o™erings, and wealth management team enables us to stand out among the competition. On that same note, our midtier size enables us to get to know and understand our clients, their needs and goals, allotting us a better chance to make a di™erence in their lives. As a bank focused on midmarket business, we have the ability to compete with larger institutions by o™ering similar products, while simultaneously focusing on specialized products that larger institutions have moved away from.

Travis Jennings CEO & Founder Finance Cape John McDonald Senior Managing Director Hyde Park Capital

What do you believe is the best approach to managing wealth? The family o©ce approach is how the wealthiest among us typically choose to manage resources, and it’s with good reason. My firm’s approach takes elements from the family o©ce model and a™ords it to our client base who may not be as wealthy as the top 1%, but still deserve and expect this kind of service. One example of this is working with accountants to proactively look at future tax liabilities for clients. There are strategies and solutions that mitigate the impact of large tax liabilities but require proactive planning, which my firm spearheads. It is this kind of service that is important to our clients because it lets them know that we are looking out for their financial well-being both now and in the future.

What is the biggest challenge your business faces in today’s environment? The biggest challenge to our business is that innovation can be challenging to spread because of stigmas that exist within the financial services industry. Ninety-five percent of folks in the financial services arena have a broker license, which means they get paid for the transaction. We need to begin transitioning o™ that model and on to more of a fiduciary model where the person who is providing the advice has a vested interest in your success and is held accountable if there were better solutions that were not o™ered. Getting this message to penetrate the market is very di©cult, and there are a lot of people working to make sure this message never reaches the masses. With the onslaught of new technology in investment banking, how do you maintain the human element? It is interesting because when we interview young students who desire to be in investment banking, they normally associate it with spreadsheets and discounted cash flow analysis. In the first few years as an analyst they may be doing a lot of that, but this is really a people business. Technology is a great tool for our business, but at the end of the day our clients are entrusting the most important financial transactions in their entire life to you. You have to build friendships fairly quickly out of the gate because to be successful it can’t be just about making money.

What makes Tampa Bay conducive to the success of an investment banking firm? If we look at all 50 states, Florida is clearly one of the fastest-growing and has been for a long time. Tampa Bay happens to be a high-growth area within a highgrowth state. What is interesting is that with all this growth, we still have very little competition. There are very few, if any, truly high-end investment banking firms that provide a high-end investment banking service to small and medium-sized public and private companies throughout the state of Florida. Why they don’t exist we are not sure, but we enjoy the lack of competition. The other key of our location in Tampa Bay is we have the staying power to weather the storm in the case of an economic slowdown or recession. Within Tampa Bay, we have history, reputation, capital and connections, more than any of the other smaller firms, which is a huge benefit for us.

Jeff Bonick Chief Practice Officer, Southeast Region – CLA

We are very optimistic regarding growth as a firm, and even more so here in the Tampa Bay market. We’ve experienced double-digit growth during the two years that I’ve been here. We are looking forward to that again in 2020. One of the areas we are adding is a franchise practice. We’ve seen many opportunities with both franchisers and franchisees. They need someone to help them with their accounting, business plans and things like that. It is a very fast-growing part of our economy and there is a lot of that going on in Florida.

( ) in order to keep more of what they make. We certainly always try to help our clients make more money, but we are also keen on helping them keep more of what they make. The common thought was that they were going to essentially pay less, but they did not realize how else they could use this to their benefit. I believe they now recognize the need to have an outside consultant and help them with the opportunities available to them.”

There is also the generational factor as the profile of those seeking financial advice begins to change. “When the Great Recession hit, there was a huge shift in the focus of individuals realizing that they need to become directly responsible for themselves. We see that focus even more being heavily driven in younger people who are in the age range of 28 to 35 years old. They realize that if they do not take care of their own financial situation, then they are not going to have financial security for the future. What is unique is that this demographic is still looking for that immediate reward at the same time. As we are building their plans, we have to make sure that their reward/vacation/experience money is accounted for,” said Lance Becatti, private wealth adviser at Becatti & LaRocco Ameriprise Wealth Financial Services.

Private equity deals (PEDs) are another significant driver of growth for Florida’s banking and finance industry. PEDs are buyout-like transactions used to either stimulate the growth of companies or rally those that are financially distressed. Throughout 2018, 118 PEDs closed in Florida, an impressive number despite being down slightly from a record-setting 2017 with 145 deals. In total, 449 companies throughout the state are backed by PEDs, many of which are in Tampa Bay thanks to its booming and diverse economy.

Another notable growth driver in the Tampa Bay region is Cadence Bank’s rollout of a $2.5 billion commitment over five years that will work to accommodate the needs of underserved communities where Cadence has a presence. Cadence is No. 17 on the list of Tampa Bay’s largest banks, so the plan’s impact will certainly be felt in the area’s low- to moderateincome communities. The plan involves Cadence partnering with community stakeholders via the newly created CRA Advisory Committee to review the features of the bank’s various mortgage loan projects, with the stated goal of expanding access to home financing. In addition to the $2.5 billion plan, Cadence will also allocate $686 million for small-business lending to businesses located in low-income areas (or businesses with gross annual revenues under $1 million), as well as $706 million for community-development investment.

Insurance Although Florida is blessed with an incredible climate that washes its pristine beaches in year-round warmth and sun, there is an unfortunate and often destructive counterpoint: hurricanes. Over the last couple of years, hurricane season has been particularly active and destructive, which has led many property owners in Tampa Bay, like people all across the state, to understand the need to purchase insurance.

The demand for insurance in the face of nature’s fury has supported the development of $100 million in premium business across the state, including Auto Club Insurance Co. of Florida, USAA Property and Casualty Insurance Group, and Citizens Property Insurance Corporation. Citizens, is particularly notable, and successful, due to the fact that it is the state of Florida’s official insurer of last resort, boasting premium business totaling $894.1 million in 2018.

A person’s insurability depends on market health and factors specific to the person and their assets.

Being Florida’s insurer of last resort means that state law requires it to insure those who the private market will not insure. Whether an individual is considered uninsurable by the private market depends on the market’s health and other factors specific to that individual and their assets. When the insurance market is healthy, insurance companies are making money and are more willing to insure more people, and take bigger risks. Consequently, Citizens experiences “depopulation,” or a decline in the number of people it covers, whenever private insurers are doing well. However, when there is a dip in the market, as is often the case in the wake of a particularly intense hurricane season during which private insurers had to pay out a lot of money in claims, Citizens tends to receive an influx of applicants. This is why Citizens insured 60,000 new policyholders in 2018.

Citizens’ numbers are further buoyed by the prevalence of assignment of benefits (AOB) abuse in the Florida insurance market. Many private insurers refuse to provide coverage to residents of areas where AOB abuse is widespread, forcing Citizens to provide the coverage at risk to itself. Citizens and other insurers are dedicated to legislative reform and other initiatives to combat AOB abuse. In May 2019, Gov. DeSantis signed House Bill 7065 into law to reform the benefit.

Looking ahead Despite needing to weather the continued stress of a trade war and anticipated economic downturn, as well as redressing widespread issues with mortgage application fraud, Tampa Bay’s banking and financial services sector is performing extremely well. Bay area banks acquired more than $6 billion in additional assets between 2018 and 2019 and posted impressive returns on those assets, and major national player, Fifth Third Bancorp, also identified Tampa Bay as a target region for

Trevor Baldwin CEO – Baldwin Risk Partners

In our business, we trade on the insights of our colleagues, so one of the very few long-term advantages that we can cultivate is the ability to attract and retain the best talent. Being located in a geography that has a lot to o™er, whether it be the tax and climate environment, the development and exciting things that are going on in our various districts, the access to the beach and various recreational opportunities, that fact that it is a great place to live, work, have fun and to raise families has been integral to our ability to attract talent.

branch openings. The rise of credit unions continues, as they assert their position as “the new community banks” through aggressive campaigns of merger and acquisition.

Finally, of course, it isn’t hurting the local industry that an exodus of wealthy residents and financial services companies from states with higher state taxes and costs of living is settling in Florida’s many attractive cities.

Further out on the horizon is the potential for a recession that gained some steam with the impact from the coronavirus that stretched across borders early in the year. In the event of a recession, which most observers still believe is a long shot for the Tampa Bay area, having a good strategy in place with be a key to riding out the storm. “In the case of another recession, there are a couple steps people can take to protect their wealth. One step is to have as little debt as possible and not to overstretch your dollar. For instance, if you are going to get a mortgage, the best move is to purchase a home that you can actually afford. The second step is to build up a solid cash reserve, which should be somewhere between three months of your monthly expenses and six months of your monthly expenses. In a recession, the No. 1 priority should be making sure that you can keep the lights on and pay the bills,” said Jorge Blanco, president of Success Wealth Management.

Yet, many bankers remain optimistic, particularly given the growth and diversification of the economy. Daniel Dowell, office managing partner at Marcum LLP, is among those holding a positive view of the region’s prospects. He cites the burgeoning startup ecosystem as one reason. “I am bullish. I am in contact with many of our clients, and I know they are continuing to see success.

Even with increased M&A activity in the banking sector, community banks have remained an essential part of the industry’s continued growth.

Michael Hendricks Office Managing Partner – Tampa, Frazier & Deeter

The one issue that we consistently hear in our industry relates to talent acquisition and retention. I believe this is changing. We see a lot of students from Florida universities deciding to move to the Tampa Bay region after graduation. One of our most successful recruiting tactics has been finding people who want to live in a place like Tampa Bay but who aren’t already here. Of our last 10 hires, four have come from out of market. We o™er a lifestyle in this region that is still not on everyone’s radar, and as more people find out about it, they love what it has to o™er.

Certainly, for the next few years, there is a lot of strength out there. The growth of startups, particularly in IT, is also continuing to attract a different demographic to the Tampa Bay region. If we can continue to attract these startups by providing seed funding and other support these companies require, that could really change the dynamics of the region.”

Another factor that will play into the success of the banking sector moving foreward is the transition from one generation to the next. Owners of smaller businesses are turning over their companies, or at least planning for succession. Those that fail to put their house in order could watch their assets decline. A new generation of leadership can pump fresh ideas into a company and lead it into the future. “Frankly, most businesses get to the point where the current business owner is getting older and less likely to invest in the future of the business because they are not going to be there to reap the rewards of that investment,” said Mike Ertel, managing director of Transworld M&A Advisors. “As a business owner starts resisting the opportunities to invest, the business starts to decline because there are other business owners who are younger, more enthusiastic and are going to be here for the future, creating a different and more competitive company. If the lack of investment goes on too long, then the original company becomes uncompetitive and less valuable because the market has moved on without them. There comes a point in time when it is healthy for new money and new leadership to come in to keep a company growing and investing in the long-term future.”

Finally, the big unknown for the banking and financial services industry is the COVID-19 pandemic and how it will play out. The potential fallout, especially for smaller businesses, could change the sector’s outlook. In the short-term, some negative impact is certain.