A $2 billion, 69-year-old Merrill Lynch advisor passes up the gold watch in favor of breaking away

Advisor John Beirne Jr. had 45 years under his belt as a Merrill Lynch advisor and figured he’d retire from the wirehouse, but when the company refused to let advisors manage new public-pension-fund accounts, he knew he must leave or his business would likely shrink.

Beirne Jr., 69, along with John-Oliver Beirne, Jim Betzig, and Eric Passeri, launched RIA Beirne Wealth Consulting LLC as part of the Focus Financial Partners, LLC Connections program — a service that bestows many of the consulting advantages of being owned by the consolidator without the firm getting absorbed. They will open their office at the end of this month in Milford, Conn., and three support staff members will join the group, which manages about $2 billion in assets.

“It was really traumatic to go to my manager’s office and resign,” Beirne says. “I told the manager that I always thought I’d stay another five years and get the so-called gold watch. But I had a decision to make. If I stayed, I knew I’d lose revenues and clients. The only way to grow my business was to leave. I felt I was left with no choice.” See: Why a senior Merrill Lynch advisor reluctantly broke away with ultra-affluent clients from the Texas oil patch.

About 60% of his group’s revenues come from institutional clients with the bulk of those in public funds. For more than four decades, Beirne has built a niche with entities such as cities, towns and municipalities. Two of his biggest public clients are the Connecticut cities Milford and Bristol.

Litigation worries

Last year, Merrill Lynch began prohibiting advisors from accepting new pension accounts from municipalities. Merrill Lynch spokeswoman Selena Morris declined to comment on the departure but cited regulatory and litigation issues as the reason for the policy change.

“Regulatory, reputational and litigation risk are increasing in the public-funds space. Because of these factors, Merrill Lynch Wealth Management opted to take a more focused approach to segments of the space,” she says.

Wooing governments hard task

When an advisor leaves a wirehouse, there are never any guarantees that all of the high-net-worth clients will move assets. But the chore of convincing public entities to move assets is even more challenging, because the entities must make decisions at public meetings and typically have rules requiring them to interview a number of potential managers.

Often, city councils must vote on the decision after completing a thorough search interviewing a number of potential candidates — a process that can take months.

Already, several of the municipalities have held special meetings allowing Beirne’s company to manage their assets on a temporary basis.

He is hopeful that he can gain the nod from these municipalities long-term because he’s built a strong track record and it took him a long time to get their confidence in the first place.

For instance, his first municipal client — the city of Milford — signed on with him in 1978. But it took him 10 years to convince officials to agree to let him manage the funds. Over a 10-year-period, he repeatedly went to meetings, letting city officials know that their performance growth was dismal.

Solid track records

In 1978, Milford’s public pension fund had $12 million in assets and in his tenure, it’s grown to more than $350 million in assets and is fully funded.

He has been managing Bristol’s pension fund since 1979, and it has grown from $12 million in assets to $550 million, and is overfunded by $200 million.

Same service and style

If he stayed at Merrill, he says, he would have had to change his process. For instance, Merrill wanted advisors to begin removing alternative assets from public accounts, and he would have been forced to make dramatic changes.

“What it means was it would have jeoporadized our relationship with the underlying account and interfered with investment performance,” he says. “The only choice I had was we could stay and change and our process and get less revenues or leave and keep our process and grow the business.”

As an RIA, he will be serving as a fiduciary for the public clients, but he says that at Merrill, his group always operated as if it were the fiduciary for clients. See: One-Man Think Tank: The fiduciary standard may sink Wall Street’s advisors-on-yachts. Should we care?.

Rich Gill: This team has the
entrepreneurial spirit.

“Now, we are officially fiduciaries,” he says. “But we always as thought we were fiduciaries anyway. While a lot of people are afraid about taking the leap to be independent, we were working like we were independent anyway and already following the rules and regulations.” See: Do 401(k) assets require all fiduciary care all the time?.

On guard

While Merrill’s decision to no longer allow advisors to take on public accounts was certainly the final straw for Beirne, he admits that in recent years he was growing increasingly unhappy as his responsibilities were being changed with little notice or explanation. See: This Merrill Lynch team leader broke away for fear of what might happen under Bank of America.

Twice in recent years the company downgraded his pay and responsibilities with little explanation or warnings. See: Merrill Lynch unveils changes to broker compensation.

“I think every financial advisor is in the same boat and should be examining their options at all times,” he says. “I had a few disruptive events occur.”

Shopping around

He says his firm looked at other wirehouses and was told it could keep its business in the public arena. But he was fearful that the other wirehouses might adopt philosophies similar to Merrill’s down the road, and it would ultimately curtail his firm’s growth.

The downside of becoming independent was the fear of having to spend a great deal of time focusing on setting up shop with a new firm. That’s why he was attracted to Focus.

“We were impressed with the services at Focus and were impressed with the quality of people,” he says.

Mike Durbin: BWC explored a variety
of options for independence.

Rich Gill, managing director and head of Focus Connections, said in a statement that his firm is excited about the leadership of this newly formed RIA. “The team at BWC represents the caliber of professional that Focus looks for in advisors, and, along with the highest standards of client service, this team has the entrepreneurial spirit that defines the family of firms at Focus.”

Rudy Adolf, founder and chief executive of Focus Financial Partners, added in a statement that he too is enthusiastic to see such a sophisticated team join Focus.

“Over the last year, we’ve seen an accelerating trend of sophisticated advisor teams looking to make the move toward an independent, fiduciary-based business model,” Adolf says. “We have a great deal of momentum as we continue into 2012.”

Tight race for custodian

One of the most difficult decisions was choosing an asset custodian, and Beirne says that Schwab Advisor Services and Fidelity Institutional Wealth Services were tied neck-in-neck. Ultimately, he says, Fidelity won the firm’s assets mostly because it is not a public company. See: Mike Durbin is putting his stamp on Fidelity as an RIA custodian for asset-flush breakaways.

“We liked the idea that we didn’t have to deal with earnings announcements which we had to deal with all of the time at Merrill Lynch,” he says. “They assigned a team to us and whenever there’s a problem in our accounts, we’d have one individual we can contact.”

In a statement, Mike Durbin, president of Fidelity Institutional Wealth Services, said he was impressed with the collaboration between Focus Financial and BWC.

“BWC explored a variety of options for independence and determined that working with Focus would ultimately offer them the greatest flexibility to design their practice and serve their clients,” he said. “We are thrilled to be working alongside both of these industry-leading firms.”