Ron Carson quickly sees benefits of converting his practice to an RIA

Ron Carson, LPL’s biggest rep and a well-known coach to advisors, announced on May 2 that he was forming his own RIA, Carson Wealth Management Group LLC.

But instead of immediately hanging out a shingle, the founder and CEO of Carson Wealth announced his plans just before his PEAK Advisor Alliance conference in Arizona so that he could explain his new business model to the advisors he coaches. See: Eavesdropping: Ron Carson gets an electric reception at his PEAK event, and calms the waters surrounding his new RIA.

And on July 1, as planned, the Omaha, Neb.-based advisor with about $3 billion of assets under management completed the conversion from IBD rep to RIA. Such a big shift is always notable but this one was particularly so because Carson’s name is almost synonymous with his broker-dealer, LPL Financial. Carson operated as a rep for the Boston and San Diego-based broker-dealer since 1983 and became its biggest advisor. See: LPL’s biggest rep, Ron Carson, will convert his firm to an independent RIA.

Now that about three weeks have passed since the official launch CWM, Carson talked about how his firm is doing under the new regulatory framework and his restructured relationship with LPL.

Expedited compliance process

The company has received positive feedback from “an overwhelming number of clients.” The improvement they noticed right off the bat is that they are getting information about and confirmation of trades in their portfolios in real-time. Carson Wealth has placed four trades across its portfolios since July 1. Previously, it took a few days to pass through LPL’s compliance department, which slowed the flow of information. See: Why exactly is Ron Carson forming an RIA and why is it happening now?.

“Now we have our own compliance process,” Carson says.

Though virtually all of Carson’s assets remain with LPL, the way he interacts with the largest of the independent broker-dealers shifted radically. Instead of holding the assets in LPL’s corporate RIA, Strategic Asset Management (SAM), the assets are being held by LPL as pure RIA assets.

The benefit to clients, Carson says, is that his firm is able to remove a substantial layer of expense associated with the managers on that platform. Now the assets are more often invested directly into individual securities. The new cost structure has freed up resources to allow for the hire of a chief investment officer and equity analysts. This heavier research enables Carson Wealth to buy individual securities, he says.

The manger expense for clients under the old structure was about 90 basis points. That has been lowered to 40 basis points and the goal is to take it to 25 to 30 basis points, Carson says.

Stamp of approval

Carson’s new approach is OK with LPL Financial, according to Bill Dwyer, president, national sales and marketing at LPL Financial. “Nothing gives us more pride than seeing our advisors’ businesses expand and develop in exciting new directions.”

Bill Dwyer: Nothing gives us more
pride than seeing our advisors’ businesses
expand and develop in exciting new
directions.

Rocky road

Philip Palaveev, president of Fusion Advisor Network, says that Carson’s practice is capitalizing on its large size by eliminating substantial investment-related outsourcing costs – though he says it may be too early for Carson to know its true cost savings.

“It sounds like he’s eliminating platform fees and even eliminating managers. What Ron is doing is making a lot of sense but sometimes the implementation is very rocky and realizing the savings isn’t as easy as it appears.”

For example, Palaveev says there are costs associated with billing, performance reporting and the like that an advisor needs to pick up on their own when they leave a corporate RIA. Also, one bad quarter of investing performance can throw doubt onto investment-related cost savings. “That’s a very philosophical shift to go from (using mostly) managers to doing it on your own. Do you realy have the expertise and the track record?”

As part of his new in-house investing approach, Carson hired former Emerald Asset Advisors chief investment officer (and RIABiz columnist) as its CIO, Robert Isbitts. He will focus on managing Carson’s Global Cycle portfolio strategy.

For one of Isbitts’ most popular columns, see: The top 10 alternatives to alternative investments.

“Rob is well known in the industry for his performance and strategies. With his knowledge and extensive experience, we are able to invest in a more complex and sophisticated way,” said Carson in a release.

Middle-class millionaires

Yet all this is still a warm-up for the grander vision that Carson laid out in May for why he has overhauled his practice – even going so far as to form his own broker-dealer. The hope is to create a landing place for firms that want to get tucked in to a bigger, better organized mother organization.

Thanks to the lead-up to the firm’s opening and the initial articles written about his plans to become an RIA, a number of firms have approached Carson – one RIA practice with $320 million of AUM has already visited Omaha for preliminary discussions, says Carson.

The hope is that scores of these kinds of advisors will come aboard. Carson Wealth Management 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.

Carson plans to grow the business centered on clients whose assets are slightly lower – around $2 million to $10 million range.

“We wanted to have several custody options for advisors that we’d bring in,” Carson said in an earlier interview. “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.”

Ideal advisor

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. Carson notes 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,” Carson says.

Ideal acquisition target

Another aspect of his growth strategy is to start purchasing advisory practices starting early next year.

Carson couldn’t buy other advisory practices at LPL because those advisors had their assets elsewhere – typically at Schwab or TD Ameritrade. Now he has custody accounts with both those firms.

Carson’s ideal advisor will have a minimum of $100 million in assets 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.