Wirehouse Team Moves to IBD
Frustrated Wirehouse Team Seeks Turnkey Independence, But Wants to Monetize Business as Well
“Sam” and “Thomas” had been partners at Merrill Lynch for more than 20 years. Thomas was the more senior of the two and Sam joined him right out of college. Their partnership was a match made in heaven, having grown their business from $50mm in assets under management when Thomas was a solo advisor to more than $350mm. Sam is the primary rainmaker, business developer, and relationship nurturer while Thomas is the “behind the scenes” guy, managing much of their client assets via 4 different portfolios. Merrill Lynch had always seemed the ideal firm at which to run their mostly fee based business. With a branch manager that left them alone, office mates they respected, a robust platform, great technology, and a name brand with much cache, Sam and Thomas never thought about leaving even though, over the years, many of their colleagues had jumped ship.
Fast forward and much of what ensured their loyalty to their beloved Merrill Lynch disappeared. After 2008, the brand had much less swagger (and in one case, even caused them to lose a sizable prospect), the team wanted more flexibility in terms of pricing business, Bank of America ownership had changed the culture to make it more bureaucratic, and Sam and Thomas felt increasingly resentful of giving up more than 50 cents of every dollar they generated to a corporate behemoth they respected less and less. They were ready to understand their options.
Where to go?
While the pair was well aware that competing wirehouses were offering high water mark deals to incent multimillion dollar producers like them to join, Sam and Thomas felt that that move would be nothing more than lateral; there would be no way to justify this change of firms as value-add for their clients. Regional firms like RayJay and RBC seemed interesting from a cultural perspective but the team didn’t feel that those names would resonate with their high net worth clients. What Sam and Thomas really wanted was to become business owners- to create an independent wealth management firm in their own image. They knew that as portfolio managers, their business was ideally suited for independence. Their dream was to build out an infrastructure to accommodate their current staff but also to be a landing pad for other frustrated wirehouse advisors who wanted to associate with them; they wanted to be able to have complete control over their client service model; and they wanted to brand and market themselves with freedom and flexibility. But, and it is a big BUT, Sam and Thomas were not willing to make this move without a safety net- the safety net provided by a sizable transition package to offset the significant unvested deferred comp they had both amassed after years of service at Merrill and to mitigate the risk of making a move.
After many years of bi-annual conversations with Sam and Thomas, they finally reached a point where they wanted to get educated and Sam reached out to us to share their frustrations, goals and concerns. Diamond Consultants conducted a comprehensive review of their business in order to map out a plan that took their priorities and needs into consideration. They were clear about wanting to minimize the amount of time they spent on due diligence so that their service to clients would not be disrupted and asked that we do as much of the legwork as possible. While we agreed with their thinking that joining another wirehouse would feel like a lateral move and wouldn’t necessarily give them the control they craved, we felt it important that they at least take the time to meet with 1 other major firm in order to prove their hypothesis was valid and that they were truly comfortable passing up a life-changing transition deal. We suggested that the balance of their due diligence center on the independent landscape, knowing that we could easily identify options that would allow them to meet their needs.
Sam and Thomas met with one other wirehouse and, after only 1 meeting, became more convinced than ever that they no longer wanted to be employees. If they were going to go to the trouble of leaving Merrill, they wanted to make the leap to independence and gain complete control over their professional destinies. We also suggested that they meet with HighTower Advisors because HighTower’s partnership model offers advisors a decent cash incentive up front (usually ranging between 80 and 100% of T12) plus equity in the overall entity. That equity is likely to be monetized at some point as the firm either goes public or has a liquidity event. While they liked the concept of HighTower, they did not like the take home economics- a payout almost exactly the same as what they had at Merrill. They met, too, with Focus Financial Partners. Focus would offer significant cash and equity in the overall entity and partnership with other world-class entrepreneurs. They loved the Focus folks but felt that selling a portion of equity in their business now would be premature. If they were going to go independent, they wanted to own 100% of the business. Sam and Thomas had also met with Schwab and explored building their own hybrid RIA from scratch. While aligning with Schwab would offer them ownership, there would be a lot of “heavy lifting” involved and what they really wanted was a clean, turnkey solution that could support their business.
The World of the Independent Broker Dealer (IBD)
We believed verily that the IBD space was where Sam and Thomas might find the best of all worlds. As such, we introduced Sam and Thomas to several IBD’s, but the pair felt an instant connection to Wells Fargo’s Financial Network (FiNet). As an independent business associated with FiNet, they could brand themselves leveraging their well-respected names, build an enterprise with freedom to acquire other practices and recruit advisors, create and deliver a customized service model, access banking solutions for clients, achieve a net payout after expenses of almost 65%, and importantly, monetize their business to the tune of 100%+ (40% of T12 cash up front plus working capital loan plus 3 back-end incentive bonuses). And, the Wells Fargo name and FiNet’s turnkey transition support, commitment to partnership in helping them grow, and access to a fully built out platform including best in class products and services gave them great confidence.
Sam and Thomas left Merrill Lynch in the middle of last year to form their own wealth management firm through Wells Fargo FiNet. Within 45 days of the move, almost 100% of their assets moved with them and the response from clients and prospects was unanimous: “Why didn’t you move sooner?” Sam and Thomas found it very easy to make the case to clients that they were choosing to leave Merrill because they felt that they could better serve them as independents- with greater freedom on pricing, service, and capabilities. And, for the team, they knew that they would be building equity in something for their futures. Thomas will likely retire in the next 3-5 years and is ecstatic that not only will he be leaving his legacy in Sam’s capable hands but in the right environment as well. Sam will eventually recruit a successor to replace Thomas, likely another “breakaway” advisor just like them. “The world is their oyster” and they are excited to live their best business lives.