Chuck Bean sought better technology, more marketing room, more objectivity and a bigger payout

October 25, 2010 — 3:49 AM UTC by Mike Byrnes and Brooke Southall


Charles “Chuck” Bean III broke away in July 2009 from one of the big independent broker-dealers. His team, Heritage Financial Services, had been its biggest producer for three years.

The Norwood, Mass.-based firm now has $570 million of asset under management and 18 employees; it was on Barron’s top 100 independent financial advisors in 2008.

Some big IBD reps are jumping to RIA custodians, such as, in Bean’s case, Schwab Advisor Services. These advisors already enjoyed many of the benefits of independence, and often were showered with high levels of service and respect by the top executives at these companies. This interview elucidates why – for one former IBD rep firm – such benefits were no longer enough.

Why leave the safety net of working with a broker dealer?

It came down to freedom, independence and autonomy. With the broker dealer, we had to go through FINRA. Now we are responsible to the SEC and there are benefits to being under one governing body.

There was also the b/d haircut. By leaving I have more control over revenue and expenses.

Many breakaways choose to take the halfway approach of becoming a hybrid advisor but you became an RIA cold turkey so to speak. How did you make this decision?

We got away from commissions three years before breaking away. It was less than one percent of our business. We wanted to look clients in the eye and say: we don’t have any incentive to put money anywhere except for what benefits you.

We were having two audits every year. Why deal with two levels of red tape?

What asset custodian did you choose and how did you make the choice?

Schwab. It came down to Fidelity and Schwab and they courted us for over a year. Schwab was just more proactive, more timely in providing references from other RIAs and more willing to customize to our liking. Schwab got back to me within a day when I asked for references from other advisors.

How was the transition?

Essentially we tore up the old business plan and started anew. Almost every system was improved or replaced. [Schwab] was great in helping us transition to our own RIA. Re-papering all the accounts takes a lot of work. Plus, leaving one system and having to learn another, combined with having to teach our clients about the new access to their accounts takes a lot of work. I would say the performance reporting probably took a full year [to fully learn]. It is probably doable in 6 months, but we had some complicated accounts (e.g. trusts, alternatives, etc.), plus we were working with 10 years of data.

It was a victory in the long run, but for 12 months or so it takes a lot of focus and time. This place was upside down for like nine months. We were one of the more complicated conversions that they’ve gone through because we had over 10 years of data and over 2,000 accounts.

Financially has it made sense to drop the IBD affiliation?

Yes, we are more profitable now. Although we have more responsibility and expenses for a number of things, it is still less than the haircut the broker dealer was taking, plus the other a la carte fees.

Were there any drawbacks to making the move?

We had to get a rack of computer servers to host the new systems in house – one for e-mail, one for the performance management system and one for the Junxure CRM. The outsourcing didn’t work for us. We also had to hire a firm to monitor and upgrade those servers. By hosting and maintaining system in house, nobody owns our data. We own our data and nobody can dictate what we can and cannot do.

Why is being an RIA less of a compliance headache?

We run a clean ship. However, when – under the broker-dealer — we tried to do any marketing activities, we had to jump through hoops and it really slowed down the timing. We would end up writing articles and by the time they were approved they were no longer current. In 2008, when our clients really needed timely communications, we couldn’t do it. Being at the mercy of an additional compliance team was frustrating.

How do you grow your business?

We don’t do any advertising or marketing. We are referral only. Fifty percent comes from existing clients and the other half from professional alliances like attorneys and accountants.

Without the services of the broker dealer, did you have to add to staff?

Yes, we had to add a couple administrative people and a couple interns. We brought on a project manager, a paraplanner and IT manager.

What vendor did you choose for your portfolio accounting system and how did that go?

We went with Schwab PortfolioCenter after having been with Advent [at the broker-dealer]. That was one bear of a transition. That’s what got us looking at Schwab in the first place. We couldn’t customize Advent to our liking. We also use Morningstar Office for investment research and client presentations and MoneyTree software for financial planning.

What started you on the road to success?

I credit my grandfather, Joe Pelusi. He was a top producer at MetLife and is in their hall of fame. He taught me about goal setting and the value of professional relationships. He pushed me to get my chartered financial consultant and chartered life underwriter designations, which gave me the education and credibility to build strong strategic alliances.

Any advice for an advisor that might be considering the independent RIA model?

It’s clearly not right for everybody. Being with the broker-dealer was right for the majority of my career. Do your homework. The independent RIA model doesn’t make sense for everybody. There is a tipping point where you hit a critical mass when it makes sense financially to leave a broker dealer.

Mike Byrnes performed the initial interview for this Q&A. He founded Byrnes Consulting to provide business planning and marketing strategy consulting services.

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