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This Merrill Lynch team leader broke away for fear of what might happen under Bank of America

Red Goldstein loved Merrill Lynch but he deemed any chance of increased restrictions too risky to his business model

Tuesday, April 20, 2010 – 7:38 AM by Brooke Southall
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Red Goldstein: All we have ever known in the financial business is folks leaving one wirehouse to go to another wirehouse.

When Daniel J. “Red” Goldstein left Merrill Lynch almost a year ago, he wasn’t so much trying to get away from Merrill Lynch. He was leaving a disembodied version of the corporation where he had grown up.

The partner of TeakTree Capital Management in Fort Worth, Texas, had been an employee of the big wirehouse since 1987.

“First and foremost, we really enjoyed our years at Merrill,” he says with a Texas drawl. “There’s no negative on Merrill. Frankly, I would have finished my career there but when Merrill was no longer — but was a name owned by another firm — it felt uncomfortable to us.”

Goldstein and his partners — Adam Deem and Stephen Kaye – are on the verge of their RIA’s one-year breakaway anniversary of April 24, 2009 at 2:18 p.m. Their RIA manages about $150 million of assets.

Avoiding upheaval

The teams that have left Merrill since the merger with Bank of America are avoiding what may be significant upheaval, says John Furey, principal of Advisor Growth Strategies in Phoenix, Ariz. His consultancy serves as a temporary chief operating officer for breakaway brokers.

“Nobody can predict what the Global Private Group at Merrill will look like in the future,” adds Furey, formerly an overseer of Schwab’s breakaway program. “There is always risk post-transaction and changes could be instituted that could be restrictive to advisors. At this point, it has been ‘business as usual’ except for BofA’s big push to cross-sell banking products.”

The mere specter of greater restrictions was enough to push Goldstein and his two partners out the wirehouse door, according to Goldstein.

“It was our sense that it would get more restrictive; we didn’t want to take the risk that it would,” he says. “It was beginning to change in the last year or so before the merger. They just kept sending signals to us that things were going to be more restrictive.”

Particular draw

The more fluid world of RIAs had a particular draw, he adds. “We could market ourselves as we saw fit,” Goldstein says.

Howard Diamond, managing director and COO of Diamond Consultants in Chester, N.J., says many breakaways are driven out the door by extreme compliance measures at wirehouses.

Here’s an excerpt Diamond wrote for a white paper he is preparing for publication:

More often than not the single greatest complaint from advisors working at larger firms is the ‘draconian compliance’ measures that they must ascribe to on a daily basis. Becoming an independent, by virtue of the fact that there are far fewer advisors involved, will mean much more streamlined compliance requirements, thus allowing [RIAs] the freedom to focus more on growing your practice and servicing your clients.

Big checks

Goldstein and his team were carefully weighing the pros and cons of staying with the new Merrill last year, because the company was offering big retention bonuses. Had the team accepted them, it would have been harder to leave. “They were offering big checks, and we wanted to decide,” Goldstein says.

Even if Merrill never becomes more restrictive, compliance as a registered investment advisor already is much more favorable than for a wirehouse advisor, Diamond writes in his report:

Wirehouses have oversight that is even more stringent than required by FINRA, as they must shape their compliance requirements to cater to the lowest common denominator within the firm (i.e. the less experienced and non-compliant advisors). By being an independent, you will be in a position to fashion a compliance regime that is geared specifically to your practice. Third-party compliance consulting firms are readily available to assist the independent advisor in establishing and maintaining an appropriate compliance regime.

In finding their way into the less restrictive RIA business, the TeakTree partners were not the beneficiaries of the mentoring of other breakaway pioneers in their Fort Worth branch office of Merrill Lynch.

“All we have ever known in the financial business is folks leaving one wirehouse to go to another wirehouse,” Goldstein says.

Fidelity stood out

Originally, the TeakTree partners looked closely at Schwab Advisor Services and LPL Financial as custodians but found that Fidelity Institutional Wealth Services stood out.

“They showed dogged determination and service with a smile,” Goldstein says. “They went to the mat for us.”

There was only one big frustration in the breakaway – that it couldn’t encompass a switch to a Mac.

“The only thing we didn’t like about Fidelity and the rest of them is that they weren’t Apple-friendly,” he says.

Deeper roots

Despite all his years with Mother Merrill, Goldstein says he was prepared to make the leap to the entrepreneurial side as an RIA, because it’s a return to his deeper roots.

“I come from a family of entrepreneurs,” he adds. “I am the first and only person in my family to have ever worked for a large firm. Our family has been in personal service businesses (either clothing or jewelry stores) for as many generations as I can count. Personal service to clientele has been drilled into me since I was a kid. Whether finding the right gem for a lady’s hand or the right security for a family’s portfolio, it’s all the same; listen to the needs and fulfill them with appropriate services.”

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Top Executive: Dan Arnold

Schumacher Silvan

Schumacher Silvan

March 29, 2017 — 1:51 PM
Great article with lots of interesting insights, even in 2017! :) I was wondering whether you have an idea why Sigfig stopped providing their dashboard to Yahoo Finance and CNN Money? Was it them stopping the service, or was it the media companies?

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