How a former Barron's top advisor was able to offload 350 clients and raise profits after leaving UBS

Brooke’s Note: Often when we write these breakaway articles, the wirehouse involved only hands us a 'no comment.’ In this instance a UBS spokeswoman responded with interesting information about her firm that added to this well-written article by Elaine Pofeldt.

When Gil Baumgarten started his financial advisory career in the mid-eighties, he knew he’d want to start his own business one day. But it wasn’t easy to leave a high-powered corporate career. Baumgarten spent 15 years at E.F. Hutton, later Morgan Stanley Smith Barney, eventually becoming a senior portfolio manager. In 2000, he left to join UBS Wealth Management, where he was twice cited in Barron’s list of the top wealth advisors in the country.

But Baumgarten waited years before pulling the trigger. “I put it off and put it off. It was such a risky and scary proposition. And you know, they say you stay in one situation until the pain of staying is greater than the pain of leaving.”

The pain of staying finally became too great in 2010 when Baumgarten was a senior portfolio manager and senior vice president at UBS, managing $409 million worth of client deposits.

Increasingly frustrated with the way that UBS was pricing securities and communicating with him about the liquidity of auction preferred stock — and about the compensation packages for high producers —he decided it was time to leave.

Paid-for house

Unlike the times Baumgarten considered going solo while his children were young, he was now in the financial position to act on his entrepreneurial instincts and quit the firm where he’d worked for more than a decade.

“My house was paid for, my kids’ college education was paid for, I had no debt and I had reached a financial position where I could take some risks,” says Baumgarten, now 52. “I’d reached the point where I could go face first and not have to fear I’m going to lose my house.”

He left UBS in October 2010 and, that same month, started Segment Asset Management, a fee-only advisor in Houston, leasing an office about two exits down the freeway from his old UBS office.

The decision has paid off. Fourteen months into his new venture, Baumgarten has $330 million worth of assets under management, about $250 million from clients who worked with him at UBS. At the same time, he has reduced his number of clients from 450 to 100.

“My client costs dropped by 15% and revenue per client jumped by 25%,“Baumgarten says. As a result, profitability is way up. “My profit margin went from 43% to 69%,” he says.

That 3 a.m. feeling

Better yet, Baumgarten is happier with his career than he has been in years.

“It has been the best decision I have ever made,” Baumgarten says. “I am making a lot more money, I’ve got a lot fewer hassles, I’m in a lot better control over my own destiny and I can provide better solutions to my clients. And I don’t wake up in the middle of the night feeling like I’m cross-wise with what my firm wants me to do.”

Karina Byrne, head of media relations for UBS Wealth Management Americas, said via e-mail that the firm does not comment on assets transferred by former employees to other firms, but did have this comment:

“While the entire financial services industry suffered reputational damage during the past couple of years, UBS advisors are now the most productive of the major firms and have the highest invested assets per advisor of the four major firms, which we consider to be concrete indicators of our clients’ confidence in us,” said the spokesperson. “In addition, UBS just ranked highest among the four main firms in advisor satisfaction, according to Registered Rep's annual Broker Report Card. Two years ago, we were dead last in that survey.”

The 'Come to Jesus’ moment

After he’d set up shop, Baumgarten realized that only about 15% of his business resulted from his Series 7 license and that the FINRA regulations he had to follow to hold this license created the bulk of his compliance burden.

“I had a 'Come to Jesus’ meeting with myself,” Baumgarten says. “The money wasn’t enough compensation for the hassles I had to endure.”

So he ditched his Series 7 registration and partnered with CONCERT Advisor Services, which provides back-office support, legal and compliance services for RIAs. “[Now] I only have to deal with SEC rules. They are much more straightforward and much less onerous.” See: CONCERT Wealth Management nabbed 12 wirehouse teams in the last 12 months and this wirehouse-lite is just getting started.

Baumgarten hired two full-time assistants and uses CRM and portfolio management software from Schwab. “We have about 80% of our money at Schwab, about 15% at Pershing, about 5% at Fidelity,” he says.

Now, Baumgarten spends a little more than $600 a month for real-time quotes from Reuters. He describes his investment strategy as contrarian, in general. “I’m a big picture guy. We’re about whether the dollar is strengthening or weakening. Do we want to be long on gold, energy or not?”

A new $19-million client

Despite Baumgarten’s fears about striking out on his own, Baumgarten says he has been pleasantly surprised by how easy it has been to acquire big clients. “I opened four new relationships in the first four months of my new firm,” he says. “The biggest one was $19 million. All told me they would have never done business with me at any wirehouse. They think the system is rigged. They think they don’t get a fair shake.”

He has also enjoyed being able to pick and choose from his former UBS clients. “I had about $100 million of my clients I did not invite,” he says. “I either didn’t like them, they weren’t doing business in a way that is compatible with my new business model, they had static assets or were people who were just not fun,” he says.

Going independent has considerable benefits for clients, too, Baumgarten says, allowing him to go beyond UBS products. “The ability to service the clients’ needs could currently not be any better in terms of how open the platform is,” he says.

Responding to that comment via e-mail, UBS’ Byrne said that “UBS has a very robust open architecture platform that allows FAs to go outside of UBS for products that best suit their goals.” See: 13 things to know about Bob McCann recruiting his old Merrill Lynch team to UBS .

Not UBS per se

Baumgarten is bullish on his future. “I immediately saw my income jump by 40%.” And he feels a lot better about the work he’s doing, too. Two years ago, when networking at a holiday party, the conversation came to a dead halt when Baumgarten revealed what he did for a living to an acquaintance, who wasn’t impressed by his chosen occupation. “It wasn’t UBS, per se,” Baumgarten says. “It was industry-wide.” Now, he says, others respond to what he does in a genuinely positive way.

“My social standing in the community has increased,” he says.

Other UBS-related articles:

How a UBS skull session was complicit in showing this advisor the path to independence

Two senior UBS brokers pass on retirement to pursue aggressive breakaway plan.