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Independent-within-Smith Barney breaks away after hitting wall

Former Smith Barney peers light fuse for Swope independence

Wednesday, November 18, 2009 – 6:17 AM by Brooke Southall
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Doug Swope: There’s no independence per se [at a wirehouse]. You’re [restricted] by the [inventory of] products.

The Swope Group took every conceivable step to achieve independence without walking out the Morgan Stanley Smith Barney door. Then, the group hit the wall.

Despite all the changes they’d made, and the fact the wirehouse had found some ways to accommodate the team, the Swope Group felt like they were standing still.

“We didn’t find that our clients were benefiting at all from being part of a big firm,” said Doug Swope, principal of the firm of seven employees that includes four professionals. The Swope Group manages about $325 million from Wayne, Pa. (For another Smith Barney breakaway story, see: How an Olympic hurdler and Smith Barney broker made the leap to his own RIA.)

The Swopes were part of Smith Barney’s Portfolio Management Group. The program puts a number of brokers under a single ADV, which allows them to act upon investment decisions they make on behalf of clients. Smith Barney also allows these brokers to charge an asset-based fee rather than commissions.

“We had been operating as an independent within Smith Barney for a number of years doing discretionary asset management” and operating under the “Swope Group” name, said Swope.

But the powers of discretionary management still left out a vital element of independence.

No independence per se

“Really at the end of the day, you’re a wirehouse rep,” says Doug Swope, who works with his father, Jack. “There’s no independence per se. You’re [restricted] by the [inventory of] products.”

Smith Barney media office did not return a phone call placed to them for this article by publication.

What clinched the Swopes’ decision to truly turn independent in May was what they heard in conversations with former Smith Barney brokers who had already succeeded in making the leap from the Portfolio Management Group.

“Talking to someone with the same business model was really important,” Doug Swope says. “That’s critical.”

Swope’s realization about what was most critical to the breakaway decision may seem common sense but it’s an element of recruiting that is coming into increasing focus for financial advisors.

Though many people would not think of going to a movie before someone personally gives it a favorable review, that step can get forgotten in trying to effect major business transactions — to their detriment, according to breakaway advisors and recruiters.

Level of trust

“You can hear it from a recruiter. You can hear it from a custodian,” says Bill Loftus, principal of LLBH Group Private Wealth Management of Westport, Conn.,. “But those [brokers] get called by recruiters ad nauseam. You need to talk to somebody who has been through the experience. There’s a level of trust. We all built a business: it’s smile and dial.” He and his partners left Merrill Lynch last year.

“It’s one thing if I explain, but it’s all graphs and spreadsheets and talk,” he says. “You’ve been trained [as a broker] to discount that all to zero.”

What the Swopes couldn’t get a read on from recruiters was precisely how freely clients would transition over and how to handle ones who reacted badly to the news of the breakaway.

“We asked former Smith Barney colleagues: “what kind of pushback did they get?”’ he says. The colleagues said that “there’s going to be one of 10 that gives you pushback. It could just be the personality type [of the client]. Change is hard,” Swope adds.

Even after making the series of carefully considered decisions leading to independence, Swope says he braced himself for the worst. The challenges have been as steep as advertised but the rewards are already readily apparent

Three years

“Our colleagues who left Smith Barney said a year out you’ll be happy and in three years we’ll be very happy,” he says. “We’re anxious to get there.”

But the suspense about whether or not breaking away is a good idea has already given way to certainty about its merits, Swope says.

“It’s the best thing we’ve ever done,” he says. “Our clients have been extremely loyal.”

It was also this yearning for independence that guided The Swope Group in its decision to choose Fidelity Institutional Wealth Services as its asset custodian.

“Fidelity’s a private company and that rang true with us in the last 12 months,” Swope says. The past year has been a time of publicly-traded financial institutions encountered problems and fell into disgrace. He also considered using Schwab Advisor Services and LPL Financial as custodians.

The trend of RIAs mentoring breakaways helps take the whole industry to the next level, Gill says.

“I think it professionalizes the industry,” he adds. “If the best people move to your environment, your environment is the winner.”

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See more related moves

Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Dan Arnold

Tim Murray

Tim Murray

November 18, 2009 — 11:45 PM

Welcome to the independent RIA world! You’ll soon see it’s best for you and, more importantly, your clients.

Tim Murray, CFP
Murray Financial, Inc.



November 21, 2009 — 2:23 AM

I used to be a Smith Barney Branch Manager. Congratulations on your successful move – I recently did same. it’s sad but SB is dead. You made the right move.

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