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Why one Merrill Lynch advisor needed to break away twice to become an RIA

Rahul Shah's first breakout attempt to Wachovia's FiNet fizzled and, his wife, Tejal Shah masterminded the second effort

Tuesday, February 22, 2011 – 6:23 AM by Brooke Southall
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Tejal and Rahul Shah: I was on the phone like Jerry Maguire, Rahul says, I had all my e-mails prepared for clients and I pushed send, send, send.

If Rahul Shah can survive this ordeal on his way to becoming a registered investment advisor, then perhaps any wirehouse broker can.

Nearly three years ago, he departed for an IBD that didn’t work out. He returned to Merrill Lynch, a move that renewed his disillusionment with the wirehouse world. He departed again – this time to become a RIA custodying assets with Fidelity Institutional Wealth Services.

Shah, 36, now runs Peninsula Wealth LLC with his wife of 10 years, Tejal, 33, his partner at Merrill Lynch. She had refused to leave for the IBD but actually — the daughter of an entrepreneur — led the charge in joining the RIA world. “I didn’t really see the difference” between the IBD and the wirehouse model, she says.

Tejal helps him run his 500 square-foot, no-frills office in San Francisco, Calif. He worked for Merrill Lynch in its San Mateo, Calif., branch.

Google and Oracle executives

The Shahs’ practice is growing rapidly, as the couple brings on executives in Silicon Valley from publicly traded companies like Apple, Genentech, Oracle, Google and privately held companies such as Facebook and Zynga, (a company that connects people using online games).

The current smooth sailing belies one of the all-time false starts in breakaway history.

Shah’s story begins in March 2002 as he sought a new life after working in the dot-com boom and then seeing its bust. From his graduation from Merrill’s training program, he was a prodigious cold caller, logging at least three hours a day.

He built his practice to $60 million of assets under advisement by 2006 and then split from his team and went solo. He then got Tejal to join Merrill’s advisor training program in 2006 and become his team partner at Merrill Lynch in 2007.

Between 2006 and 2008, his assets jumped up to $80 million with his wife at his side — the two of them sharing an administrative assistant and building the business. Yet despite these successes, Rahul still felt constrained.

Internal competition at Merrill Lynch

“My biggest competition was not all the other firms, it was all the internal competition within Merrill Lynch,” he says.

Merrill Lynch declined to respond to a request for comment for this article.

What Shah found most frustrating was that certain prospects fell into gray areas, a situation that resulted in hours of haggling in a side room of the office. It often proved to be a total waste of time when the prospect turned out to have no interest in becoming a Merrill client anyway.

Aug. 2008: The false start

Sensing an opportunity to more fully capitalize on his own enterprise, Shah turned independent in August of 2008 using FiNet, Wachovia’s (now Wells Fargo’s) independent broker-dealer.

The move was ill-fated. Tejal had a bad sense about it and wouldn’t leave with him. “I asked him: where do you see the future? He said: being an RIA is the future.” Something didn’t add up to her that he was seeing one future and acting on another. Tejal was also still new enough to the advisory business that she felt it would be premature for her to turn independent.

Rahul Shah went ahead with FiNet in the momentum of the deal. He knew it was probably a mistake because he walked out the Merrill Lynch door expecting euphoria but felt numb instead.

“Two weeks into the process clients had transferred, but I was depressed,” he says.

Shah declined to elaborate about his cold start with FiNet except to say that he underestimated how similar the products and services were to what he left behind.

Rachelle Rowe, a spokeswoman for Wells Fargo, says she can’t respond directly to Shah’s circumstances but offered these thoughts.

“It sounds like he’s been on a shopping spree. We find our FiNet folks are very happy and in fact the independent channel is one that works very well for those with an entrepreneurial spirit. And our SmartStation brokerage platform is widely considered to be among the most robust and most admired in the industry.”

Other advisors agree with Rowe. See: A UBS broker lands at FiNet, which helps him win a nasty tug of war over clients and A young advisory pair escaped wirehouse cost cuts to land at Wells Fargo

Feb. 2010: The final break

Shah had coffee with his Merrill Lynch manager. “I told him I wanted to come back; if I was going to be part of a broker-dealer, I’d want to be with Merrill Lynch.” One recruiter says Merrill’s ability to evoke this sentiment is it’s secret. See: Sallie Krawcheck, a recruiter’s nightmare

It was not an entirely happy homecoming, however. The combination of the market meltdown and accounts reassigned to other Merrill reps during his FiNet detour resulted in him being paid on roughly the equivalent of $30 million of assets.

He was overseeing closer to $60 million of assets but had to split account proceeds with other brokers. They had claims on a portion of the revenues, not something he had foreseen over coffee.

The good news is that he and Tejal got back in their cold-calling groove and gathered $5 million of new assets by June 2009.

See: Hou-Sear team applies Goldman Sachs marketing approach in second year as RIAs

They were getting more comments from clients about the Merrill Lynch brand. The New York-based wirehouse was in such tough financial shape that Charlotte, N.C.-based Bank of America was able to scoop it up on the cheap. These negative comments got Tejal Shah’s wheels turning because of the threat she saw to the practice. Her father owns a pollution control equipment manufacturer and she opened the West Coast office for him.

“Wow” moment

“I said: there’s got to be something else out there. I said: what does it mean to be a fiduciary. Once I really started digging, I thought, wow, this (RIA model) is the answer. And I remembered what Rahul had said before” about the RIA model being the future of the industry.

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

After weighing Schwab and Fidelity, the Shahs chose the latter and worked closely with their Fidelity sales agent, Steve Meyers. Another big factor was that many of the Shahs’ clients already used Fidelity for their 401(k) accounts. For those clients, the move seemed more like a consolidation of accounts than a move, he says.

The choice of Fidelity led to them to use Advent Software, which can be purchased as an integrated add-on as part of the custodian’s platform, WealthCentral.

Rahul left Merrill Lynch once and for all this time with Tejal on the Friday of President’s Day weekend of 2010. This time, the euphoria was there. After resigning yet again, he was out the door in five minutes (despite an unforeseen event; see below).

Show me the money

“I was on the phone like Jerry Maguire. I had all my e-mails prepared for clients and I pushed send, send, send. Tejal said to me: we’re making no money but you have a big smile on your face.”

“It’s that Shawshank Redemption feeling.”

The one glitch was that Shah chose the pre-President’s Day date with the expectation that fellow Merrill brokers would make a hasty Friday exit clearing the way for him to contact his clients unimpeded by competing calls from those colleagues.

But then the opposite happened.

“Somehow our office was packed. Somebody decided to have some sort of barbeque. I said: are you kidding?” Rahul Shah said.

“This was certainly a very interesting transition to say the least…Wirehouse firms fight tooth and nail to retain clients when an advisor leaves. Despite some surprises like the full office of brokers available to call clients on a three-day weekend, the vast majority of their clients transitioned,” said Pat Burns an attorney with an eponymous firm in Los Angeles who helped the couple handle the legal and regulatory aspects of their transition efforts.

Year of no fees

Another unforeseen competitive move by Merrill Lynch: When they called Shah’s clients, they offered some of them a year of no fees. It worked with a few people but some of them have since joined Peninsula Wealth.

Shah also had to take a deep breath to call the 13 clients who had gone through all the paperwork to move to Wachovia and had to repaper to return to Merrill. Now they were being asked to join Peninsula Wealth.

Eleven of them made the switch yet again.

Challenges aside, Shah’s new RIA had 25 clients with a combined $45 million of assets, within two months of leaving. Peninsula Wealth now has $68 million of AUM and 34 clients.

Shah had to repay (he never spent it) his Merrill retention bonus.

He attributes his success in so quickly rebuilding his business in part to continuing to cold call two to three hours per week. He has also hired an employee who makes these calls for him. Most satisfying for Shah is that he has succeeded in winning back some of his old Merrill clients.

He is grateful to Merrill for making him battle-tested in winning new business. “We learned how to compete. Now we can channel that in a positive way.”


Right now, LinkedIn Corp. of Mountain View, Calif. is preparing for its initial public offering and that translates into a whole world of executives that will need a wealth manager in short order. The competition for those accounts is not as stiff as you might imagine.

The executives typically get a call from a couple of major Wall Street firms now — and Peninsula Wealth, Shah says.

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Mentioned in this article:

The Law Offices of Patrick J. Burns, Jr., P.C.
Specialized Breakaway Service
Top Executive: Patrick J. Burns, Jr., Esq.

Advanced Regulatory Compliance, LLC
Compliance Expert
Top Executive: Patrick J. Burns, Jr., J.D.

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