The final straw: clients openly asked why he was still with a wirehouse

October 29, 2010 — 4:24 AM UTC by Bob Margolis

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Without intending to do so, the wirehouse world gave Ben Marks the idea to gather his team and take a step towards independence. The president and chief investment officer of the Minnetonka, Minn.-based Marks Group Wealth Management remembers when he started to think seriously about leaving his perch in the Minneapolis/St Paul UBS office, which he did as 2008 came to a close.

“It was late 2006, and I was at an off-site conference,” he explains. “The particular session was about offering advice to US clients and that the RIA space was attracting the lion’s share of new assets, so the discussion was about how wirehouses should respond. It became clear that the RIA side was able to focus on process rather than product. I also thought if you can’t beat them, join them. I’m certain this was not what UBS wished for!”

As part of the UBS Private Wealth Management Group for almost a decade, Marks developed a client base that consisted of high net worth individuals and private foundations, whose financial well-being depended on a long-term approach. This, according to Marks, made them ideal clients for an advisor who adheres to a fiduciary standard of care.

Unanswerable question

“It was less evident before late 2008, but the high net worth [clients] were quickly becoming more educated and knew they wanted to get advice from a conflict-free source, as opposed to the same firms that were creating product. In fact, we had many clients ask us, once the market downturn took place, why we were still at UBS?”

When Marks mentions his growing roster of clients, he is referring to not only affluent individuals and families, but also private foundations involved in charitable giving.

Private foundations provide an often-complex way for high net worth families to deal with their charitable giving. It turns out directors of these 501©3 setups also viewed the wirehouse world with raised eyebrows.

“Actually, one of these multi-million dollar foundation clients left us not long before we left, asking why we were still at UBS,” explains Marks. But the tricky rules about what you can and can’t say to clients prohibited him from telling them that he was leaving to set up his own shop. The rest of his foundation client base stayed with him and enjoys MWM’s compensation model.

“We use a different process, where we receive a consulting fee, which is not tied into their annual AUM. They find that attractive. We also provide long-term performance monitoring that covers all their assets with various custodians.”

The foundations Marks work with have anywhere between $1 and $50 million in assets, volunteer boards, and are mandated to give away giving 5% of that figure on an annual basis. Many give much more than the required amounts.

Director of philanthropic activities

“Since this demographic makes up a sizeable part of who we work with, we have just brought on a woman who will be our director of communications and philanthropic activities.”

Marks, who now has $325 million in AUM, is quick to point out that the widespread distrust of the financial services industry was aimed at big banks and of course the wirehouse world, not just a particular firm.

“There are excellent, dedicated people at UBS and I have a huge amount of respect for them and consider many to be close friends. My branch manager said he was sorry to see us go, but was glad we opted to go independent rather than take a big check from another firm down the street.”

The process of working in secrecy made for a rough six months.

Fire walker

“Look, it is not easy to set up your own firm, or everybody would do it. It was six months of walking through fire, where you are glad you did it, but would not want to go through it again.” After researching various custodial platforms, Marks chose LPL. “Their resources, and the flexibility offered made the difference. I can still have a Series 7 license and be dually registered. It’s crucial to be surrounded by good partners.”

Since LPL is a signatory to the broker recruitment protocol, when Marks signed with them, he too was covered. “The key thing for us was having our new office, just four miles away, immediately up and running once we made the move.”

With a functioning workspace, the task before the six-person team all left UBS together was to make contact with clients. “First, we called all our clients and sent out letters explaining our thinking and how this will affect them. Finally, we set up in-person meetings with everybody, which was about setting up long term goals and in the short-term, helping them with new paperwork.”

During regular meetings, Marks and team, which has grown to eight, including four advisors, also engage in educating their already sophisticated clients.

“We create an internal document called biases and outlooks. Think of a coach talking to his team before a game. It usually contains a dozen bullet points. It addresses the environment we are in, including topics that investors hear on the news.

So when they ask what does QE2 really mean [Note: it’s a monetary policy tool which the US Federal Reserve will use to increase the supply of money by increasing excess reserves of the banking system], we talk them through what can be a jargon-filled language.”

What defines the firm and is there a particular approach to handling a client’s affairs? We are all about three words, explains Marks. “Liquidity, transparency and proximity.”

Regarding liquidity, the firm works exclusively with investments that have daily pricing. In essence, this means stocks, bonds and ETF’s and no interest in hedge funds and other forms of private equity.

No middleman

“When we talk about transparency,” Marks adds, “that means all costs and fees are up front and easy for the client to access and understand. We manage separately managed accounts. With our firm, proximity means the close connection between the client and the person making investment decisions. We are managing the portfolio, so there is no middleman.”

Looking ahead, Marks hopes to see the firm grow and looks at the Twin Cities as fertile ground for doing so. “ You wouldn’t know it, but there are 2 million people in Minneapolis and St. Paul. The medical device industry in this area is surging, and don’t forget General Mills is based here, as is 3M, Target and many others.”

Marks looks at growth opportunities for his company along the same lines as he views advising clients: “We look at decisions based on years not months. That is something the wirehouse model is not set up to do.”


Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Bill Morrissey



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