Wielding its Texas six-shooter, TD Ameritrade wins a $500-million rep in the Dallas area from LPL

Brooke’s Note: There’s no chauvinism quite like Texas chauvinism. Only someone from the Lone Star state would disassociate themselves from the miracle of Wal-Mart to demand comparison with Nieman Marcus. Having very briefly lived in Sherman, Texas, I get it. And it’s easy to forget that TD Ameritrade now has its own Dallas cowboy in Tom Nally. More interesting here is how Levi McMellian built a huge practice under LPL by helping clients manage UPS wealth before the delivery giant had a ticker symbol.

A $500 million firm with its sights set on hitting $1 billion in assets in three years left LPL Financial because it felt it had outgrown the nation’s largest independent broker dealer.

After 14 years with LPL, CFO4Life LP of Coppell, Texas, became an SEC-registered RIA in October and moved all of its advisory assets to TD Ameritrade Institutional. The firm is using Orion Advisor Services, LLC for its technology and continues to use Redtail Technology for its customer relationship management system. The firm had used Redtail when it was with LPL. For a small portion of its commission assets, the company is using the broker-dealer Ausdal Financial Partners Inc. in Davenport, Iowa.

“We believe LPL has become Wal-Mart for advisors. When you have 13,000 reps, their focus is really on the small advisor with $300,000 or $400,000 in production,” says Levi McMellian, chief executive and managing director at CFO4Life. His firm was among the top 1% of advisory firms at LPL. “It almost felt like we were ahead of LPL in technology and they were catering to their small advisors. We want to be Neiman Marcus — which is very intimate and very service-orientated.”

UPS niche

The firm was originally part of the accounting firm Cornwell Jackson, which was started in 1981 and in 1998 brought on McMellian and Brian Chastain to build an advisory business with LPL as the broker-dealer. Quickly, the firm grew to $60 million in two years and hit $100 million in five years. In 2006, the firm had an amicable split with its advisory and accounting business and McMellian and Chastain sold their interest in the accounting portion of the business and bought the advisory part of the business — separating it and re-branding it as CFO4Life.

Tom Nally is showing his Texas
bona fides.

CFO4Life has 16 employees and is clearly in rapid-growth mode. The firm started the year with $452 million in assets and by the end of the first quarter will have grown by $71 million, or 16%, to $523 million. Assets are up 35% from the start of 2012 and the company has grown 318% since 2009.

CFO4Life’s client base consists of high-net-worth individuals with about 15% of them coming from UPS. The company also began to target 401(k) plans a few years ago and the retirement plan accounts now make up 55% of the firm’s assets, compared with 45% for its high-net-worth clients. So far, in just six years, the company has attracted about 30 401(k) plans whose average assets are about $10 million. See: 10 most influential RIA figures going into 2013 and how they’re reshaping the industry, Part 1.

LPL responds

“We decided we outgrew LPL,” says McMellian.

LPL issued a statement about this matter, saying that the firm doesn’t comment about specific former advisors, but emphasizing that it does cater to large firms, citing Private Advisor Group LLC as an example. See: How LPL’s biggest branch office added $3.5 billion this year by beating LPL itself with a key service. (Indeed, too, in the next couple of days we will publish an article about a big LPL advisor that recently left JPMorgan.)

“In our experience, advisors who choose a custodial partner outside of LPL Financial will do so for subjective reasons,” the statement says. It points to the fact that the company has one of the highest average AUM per RIA firms at more than $214 million, according to Cerulli Associates Inc. See: Why an 18-year LPL rep moved most of his firm’s $250 million of assets to Schwab.

“From the perspective of enabling growth, the LPL Financial RIA Platform has proven to be an extremely effective custodial partner to the largest and fastest-growing fee-only and hybrid RIA firms in the country,” the statement says. “The growth that we have helped foster among the RIA firms on our platform is underscored by the fact that after launching at the end of 2008, we are already the nation’s fifth-largest (RIA) custodian, and continuing on this trajectory as one of LPL Financial’s fastest-growing businesses.”

Choosing TD

CFO4Life chose to keep its advisory assets with TD Ameritrade after meeting with all of the custodian’s executives at TD’s nearby Texas offices, McMellian says. In fact, CFO4Life executives chatted at length with TDA president Tom Nally. See: In his first big move in his new job as TD’s RIA chief, Tom Nally picks the replacement for his old one.

Executives at TD are impressed with CFO4Life’s rapid growth, says Scott Collins, an ex-LPL veteran recruiter who just joined TD Ameritrade and briefly had his own recruiting firm after leaving LPL. See: Two former LPL execs set up a breakaway boutique that works with Raymond James and Schwab, among others.

In fact, Collins was approached by CFO4Life in his recruiting job at FirstPoint Partners LLC, and he had known these advisors since 1998. See: Veteran recruiter effects a reverse breakaway of his own, moving to a more captive, more compensated life at TD Ameritrade.

“When I first met with them, they were managing about $20 million and they wanted to put an emphasis on growing the advisory side of their business. Fifteen years later, they managed over $400 million for their clients with a significant amount of that being advisory based,” Collins says.

Collins is impressed with CFO4Life’s approach to business.

Scott Collins: When I first met
with them, they were managing about
$20 million.

“The CFO4Life team built the business by working with fewer clients, with larger asset levels and delivering exceptional service. As the firm grew and the needs of their clients became more complex, they realized they needed greater control over technology solutions and how they choose to deliver advice to their clients,” Collins says.

Collins says he feels TD won these advisors because they simply needed better services and technology.

“The need for greater control over technology, marketing, branding and how they deliver advice ultimately led them to aligning with TD Ameritrade Institutional,” Collins says.

Growth track

One of the fastest growth engines for CFO4Life was its early niche in UPS executives, dating back to 1998. Many of these executives had had their tax returns done by Cornwell Jackson and then began to use the firm to manage assets.

When UPS went public in 1999, many of these executives held substantial shares.

“We went to all of the UPS hubs and the problem was these guys had it pounded in their head to never sell UPS and we had to coach them to get more diversified,” McMellian says. “These executives did not want to sell their stock so we had to come up with a way to create value while holding this stock. We started writing covered calls on the stock, on average creating anywhere from 3 to 6 points per share of stock they owned in that first year.

At that time, the firm realized its own advisory business had too high a concentration of UPS clients. who accounted for about 90% of the firm’s advisory revenues. Company executives began to recruit new high net worth clients.

Culture cash

The advisory business had clearly began to take on a path of its own growing quite rapidly and in 2006, company executives decided to part ways.

“By 2006, it became apparent that there was a clash of two cultures: the accounting side, where everything was transactional in nature, and the financial planning side, where the sales process could take many months and called for developing a deep relationship, which sometimes included dinners, golf, etc.,” McMellian says.

Industry leaders always point to the inherent cultural conflicts within accounting and advisory firms. See: Two accounting firms abandon merger talks leaving giant Schwab RIA surprised and crestfallen.