How Bill Hamm is turning a $10 billion-plus loss of 401(k) assets into a revenue-neutral, neural-neutral experience

Brooke’s Note: Business is hard because ultimately nothing can be controlled. If customers, employees, affiliates or vendors want to leave you, they can pretty much do so at will in a free enterprise system. I am aware you can stop reading this article right now and never come back to RIABiz. But business owners persist in this atmosphere of uncertainty because is they know from experience that if they keep going to the best of their ability, good things can and generally do. Bill Hamm’s case is a good case in point.

In the RIA business, it’s not so much about getting knocked down, it’s about how you scramble to your feet.

Just ask Bill Hamm.

The chief executive of Independent Financial Partners has enjoyed some tremendous success in building a giant RIA by affiliating his firm with LPL Financial as an office of supervisory jurisdiction.

In 2011, Tampa, Fla.-based IFP was on a roll, adding 140 new advisors a year. The recruiting windfall was thanks in part to LPL Financial’s 2010 purchase of National Retirement Partners Corp., IFP appealed to many of the (mostly) retirement advisors in the firm who were seeking a new place to park their retirement-focused practices. See: Amping up recruiting efforts, giant LPL firm grew its revenue by 300% in 2011.

But taking on all that compliance responsibility turned out to be a double-edged proposition and Hamm felt the blade cut against him in the fall of 2012, when an employee caused compliance problems severe enough that he had no choice but to take a break on recruiting in order to clean up his processes.

Fresh blow

No sooner had Hamm, 58, resolved that situation than he was hit with the defection of Pensionmark, a 40-advisor practice helmed by Troy Hammond, to CAPTRUST Financial Partners. The Santa Barbara, Calif.-based affiliate grew to $10 billion of 401(k) assets by using IFP as its platform. See: As $160-billion CAPTRUST makes a snack of $10-billion Pensionmark, Fielding Miller accelerates his roll-up plans with a liberal structure.

Hamm suspects some of the advisors that worked with Hammond may ultimately stay put at IFP. “I’m not sure the full $10 billion is going to leave. There are quite a few Pensionmark people who will probably stay with us.”

The damage didn’t stop there. Hamm acknowledges that another two or three advisors are leaving to join Global Retirement Partners LLC in Capistrano Beach, Calif. Bill Chetney founded National Retirement Partners and ultimately sold it to LPL. Chetney declined to comment for this story. See: Bill Chetney is back to compete with LPL (among others) and Mark Casady is very much on board.

When the dust clears, Hamm suspects that retirement assets will stand at around $35 billion and total assets at $44 billion or $45 billion. Retirement assets represent about 35% to 40% of IFP’s gross revenues.

Replacement dollars

Jim O’Shaughnessy: Very few people out
there are like Bill Hamm and
are willing to accept a challenge
to try to attempt to scale
a very difficult scalable business.

Those defections, coming after the compliance snafu, might have seemed like a one-two punch of knockout proportions to some in the industry. But those people weren’t seeing the whole picture, according to one RIA with firsthand knowledge of Hamm’s tenacity and circumstances.

“They don’t understand what Bill Hamm has built. Yes, retirement assets are important to him, but he’s so much more than that. He’s got wealth managers and insurance as well,” says Jim O’Shaughnessy, founder of Sheridan Road Financial in Northbrook, Ill., an advisory firm that uses Hamm’s services. “I would view IFP as very healthy. This is a firm that has a well-rounded business.” See: Cerulli report: Specialized RIAs likely to win middle-market 401(k) plan battle.

Sheridan Road manages about $12 billion in mostly retirement assets.

The trick, Hamm says, is to add to the bottom line — in his case by adding 25 wealth managers and former bank brokers.

“The margins in wealth management are higher than large retirement offices we’ve lost. It works to even out. We recruited more than $15 million in revenue last year, which more than replaces what we’ve lost. We also have another $49 million in revenue in the pipeline.”

'Skinny business’

Hamm fattened up his profit margin by giving more value to his wealth managers, according to O’Shaughnessy.

“What they’re providing us on the retirement side as an RIA is supervision and compliance. What they provide to a wealth management business is so much more, including product development. The margins for retirement for them are 50% of what they make on the traditional wealth management business. It’s a very skinny business.”

O’Shaughnessy adds that Hamm’s ability to absorb former National Retirement Partners advisors was a gut check unto itself.

“Very few people out there are like Bill Hamm and are willing to accept a challenge to try to attempt to scale a very difficult scalable business. The retirement industry was thrown at him and he’s now about the same size as HighTower.” See: HighTower adds two battle-hardened T. Rowe generals to the 401(k) field.

Full package

Despite the departures and lower revenues, Hamm has no intention of giving up on the retirement side of his business.

“We’re going to beef up our retirement platform. I want to replace all of the services that Troy Hammond was doing. I actually see his departure as a positive because it opens up the door for us to start doing different things.”

To that end, Hamm plans to start recruiting more retirement advisors.

“We’ve got 300 advisors who don’t do retirement and to have a complete platform to service advisors you need wealth management, retirement and banking. I think you need all four of the legs of the stool and we’ve got that and it makes us more valuable.” See: The great 401(k)-or-not debate: RIABiz webinar lays out the perils and rewards for RIAs thinking of wading into the fast-moving 401(k) stream.

Close support from LPL

William Morrissey: IFP has and continues
to be a great firm and
partner of LPL Financial.

IFP currently has 510 advisors after adding 65 in 2014. Of those advisors, 150 are exclusively retirement-centered. The rest are focused on wealth management and insurance. About $5.9 billion of the AUM is managed inside the firm’s RIA. IFP has 17,400 clients, according to its most recent ADV.

Despite the turbulence at IFP, San Diego- and Boston-based LPL Financial has remained steadfast and supportive of Hamm and his efforts, says William Morrissey, managing director of independent advisor services of LPL.

“IFP has and continues to be a great firm and partner of LPL Financial. Bill is a strong leader and is guiding the firm on a path of success.” See: Amping up recruiting efforts, giant LPL firm grew its revenue by 300% in 2011.

Wealth-retirement pairing

IFP has made two key hires. Sean Brennan is now director of marketing and will work with existing advisors. Brennan has worked at Haneke Design, which designs mobile phone applications, and Gensler, an architectural design firm. Additionally, Michael Fox is now onboard as advisor recruiting consultant reporting to Louis Hanna, the firm’s director of recruiting.

But IFP will need to do more than make hires to stay competitive — it will need to raise capital.

“We’re looking at and talking to a number of sources now about access to capital that may give us the ability to compete in that space,” Hamm says. “We’re about to consummate an important deal and we’re beefing up our retirement offerings with more tool sets. There’s a lot more services we’re going to provide. Most wealth managers don’t do retirement plans and we marry the two together.”

LPL to the rescue

Hamm’s compliance woes began in fall 2013 when SEC examiners discovered one person affiliated with the firm who didn’t satisfactorily complete documents. In March 2013, at IFP’s request, LPL took over the firm’s compliance duties and IFP temporarily halted its recruitment of new advisors. See: An LPL super-client hits 'pause’ on recruiting after an SEC inquiry and LPL is playing a parental role.

Hamm declined to talk specifically about what transpired. “It was a non-client related issue. One of our administrative staff got lazy and improperly did an internal form and it created a problem. We got LPL involved and made some changes in our compliance structure on the brokerage side.”

LPL did such a good job taking the compliance reins that Hamm decided to keep LPL on long-term to handle compliance for the brokerage assets, thus freeing up Hamm’s team to focus more on its RIA compliance.

“I spent close to $100,000 and we had two auditing firms come in together to go over our compliance and procedures and we got a clean bill of health,” says Hamm. It was a good experience because it opened our eyes. We’ve gotten to the point where we’ve laid out a good foundation.”

IFP’s new technology cost about $150,000 to buy and nearly $200,000 to maintain annually. “But it’s necessary,” he says.

“It was ironic. We’re doing all of the compliance on the RIA side and that’s what we’ve really beefed up. On the brokerage side, we outsourced it back to LPL. They came to me before the compliance incident happened and said they were working on supervision to see if we were interested. This all came down to a price, but they’re doing all of the supervision for us on the FINRA side.” See: LPL Financial wins more breakaway brokers by sacrificing a revenue stream.

The arrangement reduces risk as well a providing rewards. “It removes the regulatory risk away from us and to LPL. It’s a sizable benefit and it’s a pretty good marriage. There is less risk to the firm,” says Hamm.

Fair trade

One way that Hamm’s firm is building up revenues is by partnering with retirement-averse RIAs. “A wealth manager reaches out to us and says, I’ve got a few retirement plans and we take it and manage it for them,” Hamm says. See: How a Kansas wealth manager ate New York — or at least one of its big advisory firms — owned by an Arthur Andersen orphan.

IFP also inked a deal recently to begin working with Private Alliance, an LPL advisory firm that works with banks. The firm has about 25 advisors and a call center as well as $1 billion in assets.

“We’re creating a partnership with it to start recruiting advisors for banks,” says Hamm. “It has banks and needs relationships and I’ve got advisors.”

O’Shaughnessy says the root of the IFP problems — and its successes — is how difficult the retirement business is to master. “I think IFP had a steep learning curve as did LPL. IFP had to be at front of spear and had to build everything out. If they took a few steps back, they took multiple steps forward. There have been growing pains but they’ve learned our personalities and they realize that where we need help at Sheridan Road is different from other practices.”