The New Hampshire and Virginia practice is bringing smaller RIAs in under its wing

August 29, 2011 — 2:20 AM UTC by Steve Garmhausen

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Brooke’s Note: You’ve heard of breakaway brokers and tuck-ins. Welcome to another concept: bolt-on advisors.

More than half of fee-based advisors plan to eventually sell their firms, and of that group, 21% plan to sell to an institutional buyer, according to Tiburon Strategic Advisors. But $500 million-AUM McLean Asset Management, with offices in McLean, Va. and Bedford, NH, does not intend to let the big aggregators round up all the stray advisors. The company has prepared for ambitious growth by organizing what managing principal Alex Murguia describes as an in-house turnkey asset management program. At the same time, the firm is building a third-party platform to service outside firms’ retirement assets.

Leading the charge into retirement TAMP-hood is newly recruited Ryon Beyer, formerly with Washington, D.C.-based SFX Retirement.

Name: Alex Murguia, managing principal of McLean Asset Management
Years with firm: 10
AUM: $500 million

SG: How did you start at McLean Asset Management?

Alex Murguia: I came aboard in 2001, joining the firm right out of grad school. I had a doctorate in psychology from George Washington University. And I was a NIH fellow. You give a grad student like me $40,000 [in stipend money], and it’s like I’m rich. I’m an academic at heart, and I wanted to know “How do I manage that amount?” I read academic papers on investing and before you know it, I was obsessed with investing.

I wanted to go to New York and make it big as an investment guy, and I thought I’d work here in the summer, then move to New York. Dean [Umemoto, McLean founding principal] is my wife’s uncle. But within a month, I realized that this was a great business model.

SG: The interest was mutual though.

AM: I’m 38 and Dean is close to 70. The thinking was, What if something happens to Dean? We needed hit-by-a-bus insurance. And then, Dean and I thought we could try and institutionalize it and scale it.

Once the firm became institutionalized, we’d get resumes from planners who wanted to bolt onto the firm. We do a lot with DFA, so investment strategy is central. See: Dimensional Fund Advisors still has low RIA acceptance rate and stunning growth . If an advisor wants to join us, we can’t be trying to convince them that this is how to invest. A lot of ensembles share letterhead and not much more. Bringing in likeminded advisors has helped us to tremendously scale our operations. (The firm brought in $145 million over the past year alone by recruiting two advisors.)

The next phase was, we noticed our client servicing needed to be formalized as well. All our advisers went through the CEG [Creating Equity Group] coaching program. That gave the firm a common fabric to centralize client service. We needed a common language with regard to our client servicing. As much as the investment philosophy needed like-mindedness, our client service needed like-mindedness as well, because then we can scale back the office workload.

Ryon Beyer: The way firm is set up, we have two or three sets of eyes looking at every movement; there’s a system of checks and balances in place and it automates the workflow.

AM: This allows our advisors to be nothing but client-facing. If we can get to that goal, that’s the idea. We’re bringing on advisors who want to buy into our client-servicing approach and investment philosophy – CRM and DFA. Are we going to attract every single advisor? No, but we are going to attract enough so that we can scale the business and be significant in size.

My clients have become advisors. That’s how I now view myself. And we have our own general counsel, compliance director, controller, estate planning attorney.

SM: Where do your technology investments fit in?

AM: One year ago, we acquired an advisor in New Hampshire who wanted to move to D.C. He had an existing book in New Hampshire of $110 million. He could have started his own firm in D.C. When we told him what we have and how he could bolt on, he realized he could make more money by bolting on.

We have remote office servers located at Savvis [The Missouri-based managed hosting and cloud computing company]. Essentially we’re working remotely from McLean and New Hampshire, which allowed us to create a great solution for this advisor. By the same token, we could have advisors anywhere because of the remote infrastructure.

Eileen [O’Connor], who has five kids, built a $50-million book since joining us five years ago. Our phones are VOIP; she works from her house three times a week.

SG: You really want recruits to fit within your system, not the other way around.

AM: I probably get one call every two months from a significant person who wants to join us, who, for one reason or another doesn’t make sense for us. I don’t want to mess around with our systems and efficiency because then margins will get compressed.

SG: What will the firm look like in five years?

AM: In five years, I suspect, we’ll have 10 more advisors and I hope another billion dollars.

SG: Why was Ryon a good fit for the firm?

There are three advisors who I’m talking to now, and I decided to hold them off and bring in Ryon. His investment philosophy is a fit, the client service fit was there as well, and he allows us to scale our investments. It seemed like a no-brainer.

We had about $25 million in 401(k) assets, but with new [ERISA] regs coming down the pike, we realized we either have got to get all in or get out of the business. There are too many potential landmines and it’s not worth the risk [to be partly committed]. The 401(k) market is a huge opportunity Ryon specifically wanted to address. He had developed a platform in his previous firm, but he’d hit the ceiling with the other firm [SFX Retirement] and really wanted to create a platform. That was almost perfect synergy.

RB: To me, investment philosophy is crucial. There are not many firms out there that believe in passive management, and how to effectively structure portfolios. Finding that firm was critical and it took a while but we found each other. Aside from that the other big decision maker was my wanting to build this 401(k) platform. A bunch of rules from the Department of Labor that are coming out in the next year [new disclosure requirements] are going to change the retirement plan landscape. See: Why the DOL’s massive new 401(k) disclosure requirements are a 'very, very big deal’.

What we envision is a shift from a traditional broker-dealer model to an RIA business being invested in qualified plan management. McLean and I shared the same vision of what was going to come down the road. I wanted to be allied with a firm that will invest in the technology for this platform, to build that out and streamline the process for compliance and for plan optimization down to providing individual advice to participants. It was not only the culture, it was a commitment to building the platform. See: Advisor Spotlight: Two small Dean Witter breakaways are now Symmetry, a big DFA TAMP.

AM: We could build this into a TAMP services into a 401(k) platform. I’m willing to bet many firms like McLean once you have in excess of $150 million under management and $10 million to $25 million in 401(k) plans you brought on opportunistically but now have become unweeded gardens. Because of the new regulations. Advisors are going to have to give a hard look at whether to spend money to build (their platforms) out or to outsource from a TAMP standpoint.

RB: The TAMP is about three months away. The platform will be used to streamline all the McLean plans, then other firms looking to outsource ERISA compliance and platform management. They’ll partner with us, and we’ll essentially be their back office.

SG: How do you go about recruiting?

AM: Three years ago, I realized my job at MacLean should not be seeing clients but rather overseeing the firm. What I’ve done is develop my network with centers of influence. TD Ameritrade (the firm’s custodian) and DFA, those are two of them, along with practice management consultants; they know thousands of advisors. They know who’s looking for what, it just comes up in conversations all the time.

RB: We have a mutual center of influence; that person saw what I was building at my prior firm, and recognized I’d hit the ceiling in terms of what that firm was willing to invest in it. He said, “You need to talk with this guy over here; your investment philosophies are in line.”

SG: How’s demand in the bolt-on market?

AM: Great. In the last year, there are two firms in Florida that are about $150 million that I’ve been talking to, one in D.C. at $200 million alone and two others at $100 million each. Right there that’s about $650 million that, if I wanted to bolt on, I could. I’m being a little finicky. There’s another in New York that’s $100 million; in addition to that there are two advisors at other firms within D.C. than can each bring $20 million books.

We’re not interested in bringing over salaried advisors not at this point. We want to bring over entrepreneurial advisors, and we have a healthy revenue share and a quasi-deferred compensation model: If they want to leave the firm and start their own firm, they just pay us our share of revenues in the deferred comp model. But there’s really no reason you can’t bolt on and make more money.


Mentioned in this article:

inStream Solutions
Financial Planning Software
Top Executive: Alex Murguia



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