Just because a wirehouse broker doesn't win the account doesn't mean that another advisor will

December 22, 2009 — 4:41 AM UTC by Brooke Southall

0 Comments

On Saturday I took a United flight from San Francisco so that I could spend the holiday season in Maine, where my family is from.

The conversation of the man sitting next to me in seat 33B made it seem likely that he was a high net worth investor. He was discussing houses he owned in exotic places and movies that he had produced.

Eventually I tapped him on the shoulder to see if he’d be willing to discuss how he invested his money. His surprising answer became the germ of one of four recent conversations that left me more enlightened about the financial services industry.

One chat reminded me of how many affluent investors have lost faith in all financial advisors, thanks to experiences with brokers. A second one let me know that $50 million clients still occasionally blanch at the prospect of using a “discount broker” as a custodian. A third made me appreciate Google even more. A fourth made me glad people can loosen the purse strings for holiday cheer.

Sophisticated trades

It turns out that my United seatmate, John, keeps all his liquid investments with E*TRADE because he finds he can do sophisticated trades with ease, including options.

I asked John, 50, why he didn’t hire a financial advisor; he said that the system was “crooked” and “corrupt.” He was quite certain of this based on three years he had worked for a national brokerage during the 1990s, before he had veered toward the entertainment business.

He didn’t know any RIAs, but said he pays $350 a year to subscribe to the recommendations of Paul Rabbitt, a breakaway analyst who founded RabbittAnalytics. John plans to stick by Mr. Rabbitt, who turned him on to Apple [AAPL]stock, he says.

The one change John made recently was to move his trading account to Bank of America from E*TRADE. He promptly moved it back. The move to BoA married his deposits to his money management but the bank’s less-developed trading capabilities left him frustrated, he says.

Afternoon in San Jose

Shortly before leaving San Francisco, I got a last-minute invitation from David Hou, principal of Luminous Capital, to have lunch downtown. His practice manages about $2.7 billion, and I wrote about his team of Los Angeles-based brokers after they broke away from Merrill Lynch, in a three-part series: Merrill Lynch stars take a leap of faith to a new office and independence. I had just never met Hou in person.

The 90 minutes we talked was carved out between a meeting Hou had just completed with a $50-million prospect in San Francisco and a meeting with a client he was scheduled to visit later that afternoon in San Jose. He planned to be back in LA by day’s end.

Since writing in detail about the Hou-Sear breakaway, I had been meaning to write a sequel about what happened in the ensuing 18 months. It’ll be interesting. All the energy that Mark Sear and David Hou applied to executing their departure from Merrill Lynch is now being poured into an innovative growth plan.

Hou worked for Goldman Sachs followed by Merrill Lynch. He says that clients and prospects are starting to understand that their assets are actually safer at custodians like Fidelity Investments and Schwab Advisor Services, the two custodians that his firm utilizes. Look for the innovations Hou and Sear are applying to growth in a story coming soon.

Google rules

Right before I left for New England I also had a chance to sit down with David Selig, CEO of Advice Dynamics Partners. Selig is an M&A consultant in Mill Valley, Calif., and he’s working on at least a couple of promising deals. He’s also helping custodians to design M&A services and he’s busy finding sellers on behalf of serial buyers. I can only presume from Selig’s upbeat mood that the M&A market is positive for 2010.

Another note about our café stop: He expressed frustration over searching RIABiz for stories. I explained that, by a combination of tags and Google that you can find almost any story very quickly and easily.

Only our top 10 tags are available on the front page for the searching. But a reader can also type, say, “Selig” and “RIAbiz” into Google and most of the stories will come up. By clicking on the Selig tag at the top of any story, it will bring the searcher to all Selig stories.

Nevin Freeman, our RIABiz webmaster, is working on rolling out a search function on our site. Selig suggested we explain the tag and Google system on our site in the meantime. It’s on Nevin’s list to make “search” a tab on our site. There are a number of simple improvements like that one that you should see us roll out in January and February.

Progress on some of those simple features was delayed by the laser focus demanded to launch the RIABiz Directory. We are already accepting free and premium listings for our imminent debut in early January here.

100 important providers to RIAs

We are launching the directory with about 100 important providers [These are names of companies that we identified; the capacity is unlimited for companies that serve RIAs]. If you are one of them, reach out to us to be sure your information is updated. If you haven’t talked to us, as an RIA or provider to RIAs, send an e-mail to Elizabeth@RIAbiz.com.

Finally, I thought I’d mention the holiday gala thrown for reporters, wealth managers and other industry people by Cognito Media at the Bubble Lounge in San Francisco earlier in December. It was a swanky event for this day and age when people feel guilty for feeling optimistic.

Cognito is big in London, New York [where Focus Financial, the big roll-up, is a client of theirs] and LA and the firm recently opened a small office in San Francisco. They plan to build a practice that includes many wealth managers.

I made good contacts at the affair including Dave Waluk, senior managing director of BondDesk of Mill Valley, Selig, Paul Hynes, a principal of Burns Advisory in San Diego, and a breakaway from UBS who might prefer if I leave his name out of this article.

The Bubble Lounge is actually dark and wood-paneled despite its bubble-gum name, and it sits at the foot of the TransAmerica pyramid building. It was the type of affair I got invited to regularly back around 2000; it’s been rarer since then. I don’t know if it’s a good sign for the advisory industry or not but everyone there seemed to be in a bubbly mood.


Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally



Share your thoughts and opinions with the author or other readers.

Submit your comments: