Lessons Learned About Going Independent from a Former $275mm Merrill Lynch Team

Background

Terry Murray and his son-in-law, Brian Westcoat, were a $275mm team at Merrill Lynch in Walnut Creek, CA, serving a small, loyal base of high net worth clients. Terry’s career with Merrill started in 2001 and four years later Brian joined him from RBC Wealth Management. Over the next 13 years they built a high-touch, holistic wealth management practice they were proud of.

As the next generation leader, Brian began to take on more responsibility, including investment management, serving as the primary relationship manager for most of the book and prospecting for new clients.

The Frustrations

When Bank of America took over Merrill Lynch in 2008, the culture at the firm began to change – at first slowly and then quite rapidly – as the bank forced its way more and more into the lives of their advisors. The focus shifted from serving clients to driving metrics such as the number of referrals to the bank, net new households and percentage of clients with bank related services. It was a shift that made it increasingly difficult to efficiently manage their practice and focus their time on their clients’ best interests.

Yet, they were “model citizens” by Merrill standards – with clean compliance records, consistent growth and focused on financial planning – a multi-generational top team that was no longer treated as such, leaving them to feel disenfranchised.

Over the next five years, corporate mentality shifted further, from encouraging advisors to do what was in the best interests of their clients to being penalized for not meeting the bank’s requirements for lending or referrals.

The team had long insulated their clients from the bank—shielding them from most of the day-to-day bureaucracy and red tape. When they were no longer able to protect their clients, act as fiduciaries and efficiently grow the business, they called Diamond Consultants.

The Due Diligence Process

In their initial conversation with Diamond Consultants, the team expressed concerns about their frustrations, and wonder if what they were experiencing was specific to Merrill or changes within the industry at large. As a seasoned entrepreneur and long-tenured Merrill advisor, Terry, in particular, wondered if there were better alternatives for the team and its clients.

Diamond guided Terry and Brian through their 7-Step Process for Advisors™—paying particular attention to the self-assessment which clarified their frustrations and goals.

After walking through the findings of this assessment, we identified several goals that were most important to them:

1. A straight-forward and consistent compensation plan where incentives were genuinely aligned with clients and did not require growth for growth’s sake or selling of specific bank products.
2. The autonomy to run their practice the way they wanted, but with enough scaffolding and support to focus on clients and not on the day-to-day of operating a business.
3. A firm that had sound compliance and oversight, but was more business-friendly and not based on managing to the lowest common denominator.
4. A platform that was equal to or better than what they had at Merrill.
5. Technology that was integrated, offered a chance to advise clients on all assets, and featured a robust planning tool.
6. The opportunity to build a legacy and add inorganic growth to the mix.

Yet the team still was not convinced of what model would best align with their goals and wanted to explore the potential of each, so they could ultimately home in on the right option. Here’s what their exploration revealed:

Wirehouses: They quickly ruled out a move to another wirehouse because that would likely still have the bureaucracy they were looking to escape. In addition, they decided they couldn’t justify such a lateral move to their clients: While the move would benefit the team by way of a transition deal, the clients would be left with “more of the same” in terms of service and platform.

Regional Firms: Having come from the regional channel, Brian initially thought it was the option that had the best potential. They would have more control, operate with less bureaucracy and still have all the same capabilities as today. That said, superior technology and the ability to create an enterprise were lacking, and the firm still would retain majority of the revenue as Terry and Brian grew their business. Since an outsized recruiting check was not a driver for them – something they could have obtained in a transition to the regional space – the decision was made to focus on independent options.

Independence: Although the idea of independence was appealing – the ability to be “their own bosses,” access to cutting-edge technology and open architecture, and growing through recruitment and acquisitions – there was initial concern about building something from scratch. And the idea of creating a new firm would require too much attention from what they did best: Focus on the needs of their clients. While so much of independence was intriguing, they were unwilling to step into the world of compliance, vendor management or “not knowing what they didn’t know.”

While they liked the freedom, control and support of independent broker dealer models (IBDs), they would have to alter how they traded and also felt there were too many hidden costs. The limitation on platforms and custodian exclusivity was also a deal-breaker. Plus, Brian’s vision was to one day operate his own RIA and moving to an IBD would mean needing to repaper in the future—a task he wanted to avoid.

The supported independent space offered a middle-ground with the turn-key support of the IBD models, plus the freedom and flexibility of full-on independence. So, we introduced Terry and Brian to Sanctuary Wealth Partners, the hybrid RIA model built by former Merrill division leaders, Jim Dickson and Vince Fertitta.

As we anticipated, the team felt Sanctuary “spoke their language,” and the firm’s mission to “build a better toolbox” was consistent with the vision they had for their business. And Sanctuary offered the freedom of independence, with the safe custody of assets at Schwab (plus an option to custody with Fidelity, TD, or Pershing), along with the scaffolding they were looking for, which included:

• Providing platform and technology setup and on-going technical support;
• Creating a brand and website;
• Managing employee benefits;
• Making sure every aspect of the book mapped over; and
• Continued support as they grew their business.

The investment options aligned with Terry and Brian’s business, plus, Brian’s concerns about technology were allayed knowing they’d have access to the best third-party/non-proprietary technologies available on the Street.

Results

With over $250mm in AUM, Terry and Brian made the leap to form Ensconce Wealth Partners in June 2019, after seven months of discussions with Diamond, due diligence and transition planning. In their first six months, they successfully transitioned over 95% of the assets they wanted to move, with more continuing to follow them.

Perhaps more impressive, they were able to gain new clients that were out-of-reach while still at Merrill, and they took on additional assets of existing clients that were either at other firms or already custodied with Schwab.

The team found that the cloud-based platform offered at Sanctuary gave them the flexibility to work remotely and greater latitude in responding to client requests. Stripped of the layers of bureaucracy imposed upon them by Bank of America, they have been able to act more quickly on behalf of their clients and operate more efficiently with a smaller support staff.

Overall, they’ve found that they are able to provide a better experience for their clients because they’re no longer bound by the bank’s rules or requirements.

Yet, what’s most important is that Terry and Brian are far happier—and that’s had a positive impact on their clients as well.

They’re still absorbing the seemingly endless possibilities before them in the independent space, but they plan to further customize their tech stack, and become more involved in the advisor community. Most exciting is the chance for inorganic growth, either through mergers or acquisitions, that now exists for them.

Lessons Learned

Terry and Brian both recommend that advisors considering a move take a very realistic look at their book, client relationships and the origins of those relationships. None of their clients were inherited, and over the years, they had built strong, personal relationships with them all.

And although Brian and Terry knew a move was in their future, their clients, obviously, did not. They increased communications with their clients before the move, deepening the already-strong connections. They also carefully outlined how moving to the RIA channel would benefit their clients and planned how they would communicate those benefits once the time was right.

By treating their move as a positive change, they were able to successfully announce their move to their clients.

Having gone through the process, they shared some advice based on their experience: “Always expect a surprise or two.”

Present Day

While most clients were immediately on-board with the move, others took some time to consider it. But by moving with the best interests of their clients at heart and being able to clearly articulate the benefits, they’re currently at 110% of their pre-transition AUM.

A final lesson they shared was to keep an open mind—and try to let go of preconceived notions about firms and business models. Initially, there was not much excitement about the independent channels because they believed that the technology was far worse than the wirehouses, clients couldn’t be served on both sides of the balance sheet, and that they would need to spend their days running the business and not growing it and enjoying their lives. After seeing how the space advanced and how many turn-key, supported independent models existed, the team was all-in on creating their own business—and ultimately their legacy.

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