Loving Merrill but leaving Merrill, two 38-year olds and an 'old guy' take $700 million of assets to an RIA citing the model's better mousetrap

Brooke’s Note: We have heard this theme before but maybe it’s found its muse in Jeffrey Krum, who has a couple quotes in this article that capture the essence of leaving success to achieve greater success, with all the paradoxes that entails. Merrill Lynch, as I read it, is becoming the victim of the one emotion worse than hatred — the one that makes you yawn. We’re not talking Sony Walkman versus iPhone. Not yet. But there’s a greater sense of that than ever. Dynasty Financial is again on the spot in bridging the gap.

Three career Portland, Ore.-based Merrill Lynch brokers walked out the door Friday taking their roughly 70 years logged at the firm and $700 million in assets to Fidelity Institutional Wealth Services — and a new life as independent advisors mostly under an RIA.

Former Merrill team members David Christian, 38, Jeffrey Krum, 57, along with a member from another Merrill team, Brian Hefele, 38, all based in Portland, Ore., have formed Cable Hill Partners, named after a historic cable car that used to serve Portland. See: Breaking away from Merrill with $1 billion of assets, a HighTower RIA returns to scoop up $200 million more.

The move by these advisors has, by this stage in the RIA movement, a cookie-cutter quality in its surface attributes. But Cable Hill Partners allude to a catalyst that Merrill may find harder to counter than previous defections — simply being too feature-poor in a business that is reinventing itself. Dynasty Financial is again on the spot to weave it all together. See: How heavy the lifting was to get a $1-billion wirehouse team to independence in 2014 after a de facto false start in 2007.

Missing ingredient

Krum explains the difference between Mother Merrill and his new RIA this way:

“When you’re at Merrill, it’s not so much drinking the Kool-Aid, but it’s what you know. We began reading more about our industry post-financial crisis and saw the independent channel, which frankly didn’t have the strength in the 1980s and 1990s, has now become a force. We began peeling back the onion and started looking at the RIA movement. We started to get really excited. It wasn’t what we were missing at Merrill but we wanted more and we found that in the independent space.” See: How the breakaway movement is driving the outsourcing trend.

Merrill mantra magnifique

The advisors had certainly achieved success with the Merrill platform. Christian was recently ranked in the Barron’s 2014 Top Advisor Rankings as one of the top advisors in the state of Oregon. The three advisors collectively advise on more than $700 million in client assets.

Christian and Krum say they were content at Merrill Lynch, buying into the company mantra that that the New York-based wirehouse was the best in the industry and going anywhere else was second best. Christian and Krum had been at Merrill’s Portland office for two decades and Krum had just celebrated 30 years at Merrill Lynch. (Hefele was not available for an interview because he was meeting with clients.)

Shirl Penney: Sometimes advisors can’t control
their excitement and want to move
up time frames.

Another unusual aspect of this breakaway was that advisors found each other across teams. Building trust in that awkward circumstance was helped by forming ties outside the workplace.

The three advisors gravitated toward one another because they all ran similar practices with an emphasis on financial planning and saw each other socially as well. All three are members of the same athletic club in Portland. Hefele runs marathons and gave tips to Christian when he began training to compete Iron Man contests. Merrill’s Portland branch has approximately 45 advisors.

'Happy discovery’

“We’ve been close friends and colleagues for almost two decades,” Krum says. “Merrill Lynch has maybe 45 to 60 advisors in the Portland office but if you break down those practices, not many of them are doing financial planning and doing the type of services the three of us were doing. So, we agreed on all of the same aspects. It was a happy discovery to have a like-minded colleague who also wants to pursued the independent channel.”

But their link to the firm was not just a sentimental one. In forming Cable Hill Partners, they walked away from a retention bonus that still had two years to go. The three advisors received a seven-year retention bonus when Bank of America purchased Merrill Lynch in 2009. See: Merrill Lynch and Bank of America cultural tension may spin out a new round of breakaways, recruiters say.

“I’ll tell you happily that our decision to leave now had nothing to do with these contracts or did it factor into our decision to leave now. Those are seven-year agreements and we have money we have to pay back to the firm. But that wasn’t a blip on the radar,” Krum says.

Merrill Lynch has not responded to an e-mail seeking comment about the departure of these advisors.

Two teams, twice the risk

This deal raises New York-based Dynasty Financial Partners tally to 21 advisory firms with 66 advisors in 10 states totaling $20 billion in assets, says Shirl Penney, partner, president and chief executive. See: Dynasty Financial recruits another field general from the Citi-Smith Barney army.

Penney observes that when multiple teams leaving the same wirehouse are involved there is increased risk that their departure could be leaked before they are ready to make the leap.

David Christian was ranked in the
Barron’s 2014 Top Advisor Rankings as
one of the top advisors in
the state of Oregon.

“I can’t speak to specifics of any particular deal. All I can say is that sometimes advisors can’t control their excitement and want to move up time frames. But once a team has signed with Dynasty our transition team stands ready to execute the transition on the advisor’s time frame. When you two have two teams, it adds to layers of complexity. They have two books of business They’re all founders and equity owners of this new entity. Previously, they were two separate teams, but now they’re operating as one firm.” See: MarketCounsel launches legal hyperspace button for breakaways who get fired by Merrill Lynch (and friends) before the 'go’ date.

Ramp to independence

It’s true that breakaway teams are becoming more complex, says Brian Hamburger, founder of MarketCounsel and Hamburger Law firm. But he thinks that is becoming the norm.

“As long as there is planning involved, these situations are completely digestible. Nothing here is rocket science but what we’re doing is taking a very dedicated approach and making sure we’re creating a sound plan and adhering to it. The days of servitude are over and we’ve built the chassis to accommodate these types of complexities. We don’t expect them to come with easy problems. What we’re seeing more of are teams that don’t follow cookie cutter model. We’re not just talking about more assets. It’s different types of equity structures and all sorts of complexities and this isn’t that complex in the grand scheme of things.”

Hamburger says he feels these advisors awakened to the idea of the independent arena. “I remember having initial conversations with these guys and hearing the flash bulbs go off for them. That’s exciting for us and it gives us a charge. It’s a rather complex operation and being able to plug in with Dynasty on day one is huge. They avail themselves to contracts that are already taken care of and it has given them a quick on-ramp to independence.”

Fully loaded

This newly formed RIA is putting all of its advisory assets with Boston-based Fidelity Institutional Wealth Services and is holding its commission assets, which make up roughly 10% of the practice, with PKS Financial. The firm is using Black Diamond for performance reporting and eMoney for financial planning. MarketCounsel is handling the compliance.

It is also using Envestnet Inc. separately managed account program and Callan Associates Inc.. See: Attack of the killer app: Dynasty targets the corner-office broker by combining Envestnet and Callan.

Rich Pacific Northwest vein

Penney is familiar with the Oregon market having recruited freely from that area when he was at Smith Barney.

Marathon runner Brian Hefele gave tips
to Christian when he began training
to compete Iron Man contests.

“It’s the second time we’ve done a deal in Oregon,” Penney says. “I know this market well. There are parts of the country that are really entrepreneurial and I think the Pacific Northwest is one of them. Their clients are really entrepreneurial. You’ve got a lot of great businesses in this area too. When the advisor calls and tells clients that they’ve started their own business, the clients aren’t surprised because they’re entrepreneurially minded too.” See: Big Pacific Northwest RIA formed with one brand, two P&Ls and a big Dynasty deal.

The firm has leased a 3,400 square-foot space in the historic Cable Hill section of Portland and currently has six people on staff. Leaving Merrill with the new team were registered senior client associates Kendra Biller and Amanda Peters and client service associate Melissa Rennie.

Penney is excited about this firm, which already has growth on its mind and is hoping to woo over some other advisors.

“When we realized how we wanted to build a real firm and not one with silo versions, we know a few people in town that have a similar vision as we do for growth and the type of planning practice we have and we think there is a place for them here at Cable Hill,” Krum says.

The new firm has 300 clients in 15 states with the majority in the Northwest.

Emotional time

So far, Krum and Christian say the reception by clients has been overwhelmingly supportive. One client celebrated the advisors’ move by showing up on doorstep Monday with a bottle of champagne.

“I’m the old guy at the practice and this experience has been one of the most emotionally supportive I’ve had,” Krum says. “Our clients have been enthusiastically supportive and reminding us that their relationship was with us and not with the former firm. They were with the former firm because they wanted to be with us. They’ve been wonderfully supportive.”