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Why exactly is Ron Carson forming an RIA and why is it happening now?

LPL still works as a custodian for his $3-billion practice, but the lack of custodial flexibility was hurting his plan to bring on scores of new partner firms

Wednesday, May 4, 2011 – 3:08 PM by Lisa Shidler
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Success for Ron Carson (far left) is measured in summits, both of the mountaintop variety and billions of AUM. LPL's soon-to-be mega-RIA principal is photographed here on Mt. Ranier south of Seattle.

Lisa’s note: We were surprised that Ron Carson made this announcement before he’d actually finalized the deal to become his own RIA. See: LPL’s biggest rep, Ron Carson, will convert his firm to an independent RIA. Most advisors don’t announce such a move until after they’ve transitioned. But it turns out advisors had begun leaking the news. This week, Carson was at the helm of the Peak Advisor Alliance conference with more than 350 advisors in attendance. He wanted to be straight with advisors about his move to become his own RIA and work with Schwab and TD Ameritrade as custodians and decided to make the announcement before he actually made the move.

LPL’s number one advisor Ron Carson wanted to buy other advisory firms, but the deals always got hung up because the advisors couldn’t custody assets at any other firm if they joined Carson.

As a result, he came to the realization two years ago that he needed to forge new relationships with other custodians.

Carson announced this week that his firm, Carson Wealth Management, which manages $3 billion in assets, will become an independent RIA and will continue to custody the majority of his current assets with LPL. He also intends to custody assets with Schwab Advisor Services and TD Ameritrade.

Carson’s Omaha, Neb.,-based company is completing the move in July and will form its own broker-dealer by the end of this year. Wasting no time, Carson is hoping to begin purchasing other advisory firms by early next year, focusing on firms whose advisors are part of his coaching practice. See: The top LPL producer has a second RIA-related company that could eclipse the stature of the first one.

He says this new arrangement will enable him to more rapidly build his firm, which is made up of more than 400 clients whose net worth on average is about $30 million. His two top clients’ net worth tops $1 billion each.

His plan to grow the business centers on clients whose assets are slightly lower – around $2 to $10 million.

“We wanted to have several custody options for advisors that we’d bring in,” he says. “I think there’s a big opportunity in the market place for the middle-class millionaire. There are a lot of advisors who don’t have the value proposition.”

A special deal

Carson, who has been the poster child for LPL Financial for years, says LPL has created a unique relationship with him to ensure the majority of his assets will stay with them.

LPL is allowing him to use its hybrid platform for his RIA assets. At the same time, LPL will also oversee custom clearing services for Carson’s new broker-dealer.

“This is brand-new territory for them,” Carson says. Under the deal, Carson will be operating his RIA separately and be responsible for the compliance and technology for his firm.

An LPL spokesperson says that it is unique for the firm to serve a broker-dealer Carson’s size. Typically, LPL works with broker-dealers that are larger.

Whether LPL will be willing to make similar deals with other advisors is unknown, but industry leaders say it was a smart move on largest IBD’s part to make these exceptions for Carson allowing them to still keep a chunk of Carson’s assets.

“Given his size relative to every advisor in the industry, they cut him a special deal to get him to stay under the LPL umbrella, albeit in a lesser way,” says Bing Waldert, an analyst for Boston-based Cerulli Associates. “They’d like to have him in a more captive arrangement, but the fact that they’ve retained most of his assets for custody and retained him as a clearing client is probably a nice save.

Technology a hot issue

Branching out on his own will also allow Carson to pursue more flexibility for technology solutions. He said that LPL’s options didn’t give him the freedom he was seeking, thought he praised LPL’s ability to work with eMoney.

“One of the reasons that we wanted to make the move is to have access to any technology that was available,” he says.

He’s in the midst of ironing out a contract with a technology vendor and is hoping to finalize a deal in the next month. He declined to say which provider he’s leaning toward, but said that he’s already ruled out popular technology provider Orion Advisor Services LLC, which is also based in Omaha.

“We looked at them. They’re a good solution,” Carson said. “We don’t think they’re the best for us.”

Waldert says that many advisors find problems with older technology that’s available at IBDs, While many advisors simply can’t afford to purchase a better product on their own, Carson can afford to pay for a high degree of customization, Waldert says.

Chip Roame, managing principal of California-based Tiburon Strategic Advisors, says the complaint about technology is a common one. “Few IBD reps are thrilled with their firm’s technology,” he says. “Many IBDS allow reps to utilize third-party technology, which, by the way, is exceptional these days. But even in that case, there is always the challenge of integration.”

RIA move should spark major growth immediately

Carson’s new custodian relationship will allow him to grow his business in two ways. He’ll be able to manage more assets of the advisors he coaches, and he’ll also be able to more easily purchase advisory firms.

Carson manages assets for LPL advisors, which he can continue to do, but now he can also manage assets for some of the advisors he coaches – noting that 58% of the 800 advisors he coaches aren’t currently with LPL.

“From day one, it opens up a few hundred million of additional assets that we can bring into this program,” he says.

Ideal acquisition target

The other big part of his growth strategy is he intends to start purchasing advisory practices starting early next year with acquisitions of other advisory firms.

He says he couldn’t pursue growth solely at LPL because he wanted to buy other advisory practices but the deals could never come to fruition because those advisors had their assets elsewhere – typically at Schwab or TD Ameritrade.

He’s looking to buy advisory firms – and a few of them may be the firms he’s coached over the years.

“The advisors we work with are our natural market,” he says of the advisors he coaches. “We had several opportunities. We always had this limitation (until recently) that if they aren’t with LPL it won’t work.”

The ideal advisor will have a minimum of $100 million in assets and will be an advisor who doesn’t have a succession plan, but is within five to 10 years of retirement. He wants advisors who are willing to change their office to mimic his structure and methodology.

He says he’s making all of these changes now to lay the ground work for what he believes will be a huge opportunity to purchase advisory firms when the next downturn occurs. Smaller advisors who aren’t making a huge amount of money may be seeking help when the market collapses again, he says.

Growth easier with more custodians

Carson feels good about using TD Ameritrade and Schwab as custodians, but also points out he may add other custodians down the road too. “We wouldn’t hesitate to add Pershing or Fidelity if need arose,” he added.

For their part, TD and Schwab are excited to be working with Carson and his team.

“As an industry influencer, his decision to go independent solidifies the RIA business model as an attractive option for advisors looking to take control of their futures and provides independent objective financial advice to investors,” says Tom Nally, managing director of TD Ameritrade Institutional in a statement. “As an industry influencer, his decision to go independent solidifies the RIA business model as an attractive option for advisors looking to take control of their futures and provide independent objective financial advice to investors.”

In an e-mail statement, Nick Georgis, vice president of Schwab Advisor Services, also expressed his company’s excitement.

“We are in discussions with Carson Wealth Management and look forward to working closely with them as they make exciting changes to their business of serving individuals and other RIAs,” Georgis says.

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Mentioned in this article:

LPL Financial
Asset Custodian
Top Executive: Dan Arnold

eMoney Advisor LLC
Financial Planning Software
Top Executive: Edward O’Brien

Carson Group
Consulting Firm
Top Executive: Ron Carson

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