LOS ANGELES — KNN Public Finance, a California municipal advisory firm, cited the regulatory environment in its decision to separate from Zions Bank.
A KNN employee group purchased the 17-member municipal advisor from the investment bank for an undisclosed amount in February, said David Leifer, the firm's senior managing director, who will continue to run the firm.
"There is more focus under new MA rules on duty of care and duty of loyalty," Leifer said. "We wanted to avoid even potential conflicts of interest that could arise from bank ownership, so we thought this was a good time to do it."
The SEC approved Rule G-42, the MSRB's core conduct rule for municipal advisors, in December. It will take effect in June 2016.
Under the rule's core standards of conduct, MAs owe a fiduciary "duty of loyalty" to their municipal issuer clients.
KNN began talks with Zions last summer about buying back the company, Leifer said.
"We think the clients are better served when the firm employs its owner," Leifer said. "Local control and ownership insures our interests and the clients are closely aligned."
The majority of KNN's work has been in California where it works with around 80 municipal clients covering the gamut of the municipal bond business.
KNN ranked 8th nationally and second in California in 2015 among financial advisors advising on $6.4 billion in transactions, according to Thomson Reuters data. KNN also ranked No. 4 nationally in the education category and No. 2 in the public facilities category.
The national rankings are significant, Leifer said, because KNN only conducted business in California in 2015.
Zions, based in Salt Lake City, Utah, offers both financial advisory and broker-dealer services, with the bulk of its practice is in the southwest and intermountain west states.
Zions' primary thrust is on advisory services, offering underwriting on a limited basis to select clients through the bank, not its public finance arm – and it never does both on the same deal, said James Livingston, a Zions senior vice president.
It ranked 6th among financial advisors in the Southwest with $1.5 billion in par in 2015.
Zions has a national municipal bond group that focuses on non-profit tax-exempt issuers like private schools and museums that have worked on California municipal bond deals. But Zions doesn't plan to compete with KNN in the FA space in California, Livingston said.
Livingston called the split amicable, adding that Zions made a strategic decision to exit California with the agreement and will not be competing against KNN for business in the state.
"The bank has enjoyed a strong partnership with KNN for many years, and I wish them the best going forward," he added.
KNN was founded in 1982 by Robert Kelling, Mark Northcross and Raymond Nobriga and purchased by Zions in 1997. The Oakland-based firm opened offices in Los Angeles and Newport Beach in 2014.
Leifer, David Brodsly, Joanna Bowes, Mark Young, Bobby Cheung and Blake Boehm are the KNN employees that purchased the firm.
As KNN has always managed the firm independently, Leifer said he expects the transition will be easy.
Leifer said KNN's "secret sauce" is hiring experienced advisors and providing them with the resources necessary to provide a high level of service.
"We emphasize integrity, independence and analytic rigor above all else and that resonates with what municipalities need right now," he said.
