Luminous Capital makes partners of on-the-loose former Shepherd Kaplan wealth managers

Brooke’s Note: I asked Andrew Malloy why he chose to join Luminous Capital from an original list of 20 prospective wealth managers. He said that it’s because the big Los Angeles-based RIA has a plan for growth and the other firms in contention really didn’t. I know what Malloy means. We’ve written about Luminous’ principals making and executing interesting and ambitious plans — including using a Goldman Sachs-style selling program. Last time I spoke with the principals, they made clear that their goal is to get to $10 billion of assets under management. This is the next chapter of the Luminous growth story.

Luminous Capital has nabbed two big rainmakers who specialize in serving the ultra-affluent.

Andrew Malloy and Steve Conte are set to become partners at the Los Angeles-based advisory firm formed by the biggest Merrill Lynch team to break away to independence.

Totally stoked

“We’re stoked, as they say, to be at Luminous,” Malloy says.

If the two new Luminous partners build big books of business – including ones generated from former clients at the RIA where they most recently worked, Shepherd Kaplan – it will add to the already impressive growth of Luminous.

Assets there grew to $3.5 billion in August from $1.8 billion last July, according to the firm’s ADV and Luminous partner David Hou. He says amount now is closer to $3.75 billion – with about $4.3 billion of assets under advisement in total.

Malloy and Conte have specialized in clients with more than $100 million of assets. Most recently, they worked for Boston-based Shepherd Kaplan, an RIA they left in July. They are becoming owners in their new firm.

Shepherd Kaplan, a Boston-based registered investment advisor, hired Andrew Malloy two years ago for the purpose of developing a West Coast presence, he says. Malloy hired Conte during that time.

Paying dividends

These development efforts may now pay dividends for Luminous.

“We’ve spent the last year developing [ a Western region book of business] for Shepherd Kaplan so we’ve done the heavy lifting,” Malloy says.

A call to Shepherd Kaplan went unreturned. Malloy did not specify why he and Conte parted ways with their former employer but he said that it was a mistake that he learned from. “You learn from your mistakes and not your successes,” he says.

Malloy and Conte have a strict non-solicitation agreement with their former employer, Malloy adds, but he is optimistic that former clients and centers of influence will seek them out. “After 25 years, we have developed relationships in terms of clients, families and people of influence – trust and estate attorneys, accounting firms – who are proponents of what we do and how we do it.”

Earlier this year, Hou said that his company would take baby steps in trying to grow. He said it would add people but only aim to add about one $1-million producer annually.

Waiver wire

The availability of Malloy and Conte, like the sudden appearance of a major professional sports talent on the waiver wire, upended previous intentions.

Sometimes things happen.

“Sometimes things happen and you take advantage of opportunities,” Hou allows.

Hou says that his firm was able to move quickly because it could shorten the typically prolonged period necessary to vet new talent. Malloy and Hou first got to know each other in 1994 when Hou was still with Goldman Sachs and Malloy was with New York-based Tag Associates.

The two men worked cooperatively on common clients. Tag is a big family office and at the time had 110 employees and four partners. Malloy was one of the partners; he cashed out when the company was sold.

In the meantime, Hou and partner Mark Sear worked at Goldman Sachs and then Merrill Lynch. In June 2008, they made a dramatic down-the-elevator breakaway from the Century City office of Merrill Lynch’s Private Banking and Investment Group office. In the months following the breakaway, they managed about $2 billion of AUM – an amount that subsequently shrunk to about $1.8 billion as of last July.

Dialing for dollars

Hou and Sear attribute most of the past year’s growth, to their current $3.75 million of AUM, to a high-intensity cold-calling approach that they adapted from the one used by Goldman. See: Hou-Sear team applies Goldman Sachs marketing approach in second year as RIAs

The $1.7 billion increase in AUM from the trough breaks down as approximately $575 million from three families including two $200-million family accounts and a third $175-million account. They gathered an additional $400 million from 20 other families. The remaining $600 million of growth is attributable to market appreciation.

Of the new assets, 90% was won from brokerage firms and the other 10% from other RIAs. The assets are largely the result of three full-time salespeople at the firm who call on ultra-affluent clients.

On average the calls generated by this trio results in 1.5 qualified meetings per salesman for about six meetings a month total for the firm. The average prospective client has about $15 million and they’re quite receptive to the Luminous pitch, Hou says.

“We’ve closed on quite a bit.”

Doctor-style bills

The pitch lets clients know that they will receive client-centric advice that includes intensive risk management. For example, Luminous lets clients see a bill for their fees. “That may sound like a trivial process but your doctor or you lawyer doesn’t debit your account,” he says. Luminous also emphasizes that none of its money managers pay Luminous anything.

The addition of Malloy and Conte also required some fast pitching by the Luminous partners. The wealth management duo were deep into talks with several big RIAs and had narrowed the field to a handful when, through an LA acquaintance, Hou became aware of their search for a new home.

“We had offers from four different firms,” Malloy says.

The new partner says that the primary consideration for hiring the advisors was their proven dedication to clients but that it helped that they were based in Denver, Colo. – a place where Luminous has a concentration of clients. John Malone, chairman of Liberty Media, the cable TV and broadcasting conglomerate, is part of the Luminous advisory board and a Luminous client.

DNA

What tipped the scales for Malloy and Conte in choosing Luminous over rivals was their perception of what their new bosses stood for.

“I was always impressed by the DNA so to speak – to be so client-centric – sitting side by side with the client.”