"Black Diamond rolled up their sleeves and became very competitive; their pricing is very different from Advent.” Black Diamond uses an unusual pricing scheme where the advisor pays in direct proportion to asset under management. David Welling, chief solutions officer with Black Diamond, says that Harter’s team was concerned with a number of other key issues – including the ability to report on investments like hedge funds and private equity...
How Harter broke away from Morgan Stanley Smith Barney to find new vendors—and found old friends.
Brooke’s Note: There’s a tried and true path for most breakaway advisors. The story for the perhaps 400-500 advisors across all the wirehouses who handle books of ultra-affluent business is different. Precious few have wanted to tempt the fate of walking away from such a plum job and bungling it in the process of trying to set up an independent practice. Part of the reason was that outsourcing platforms and RIA custodians were largely geared to win smaller game. Here’s an article that shows how Alan Harter made his initial decisions in setting up an independent shop for his ultra-affluent clientele and seems to have found who and what he wanted.
It may be a sign of the times that when Alan Harter broke away from Morgan Stanley Smith Barney, he was able to do so with nearly the same Rolodex of service executives.
Many of the vendors that he worked with at Smith Barney had preceded him from the wirehouse world to the RIA side of the aisle, including those at Dynasty Financial Partners, Fidelity Institutional Wealth Services and Private Client Resources of Wilton, Conn.
The involvement of fellow Citi/Smith Barney alumni in Harter’s new venture was fortuitous, says Harter from his McLean, Va.-based offices. He broke away on Jan. 28. See: Why an elite Morgan Stanley Smith Barney advisor jumped ship and plans 10 offices around the globe
Unforeseeable
“While many of the events leading up to the launch of Pactolus Private Wealth Management were carefully planned, we could not have foreseen the good fortune to work with this talented group again at such a critical juncture. I anticipate many more opportunities to work together seamlessly moving forward.”
The Citi connections at Dynasty are the most obvious. The firm was founded in December by Shirl Penney, Todd Thomson and Ed Swenson, who all held leadership positions at the wealth management arm of Smith Barney and Citi. See: What exactly is Dynasty Financial Partners and why is the Smith Barney execs’ startup gaining so much attention?
Thomson headed it, and he and Penney overlapped tenures with Harter, who joined Smith Barney in 2006. Harter will access the software of Black Diamond Performance Reporting and Fidelity’s custody, clearing and family office expertise through Dynasty’s platform.
Harter’s choice to come aboard as a pure customer with no equity ties is an important event for proving the efficacy and attractiveness of Dynasty’s business model. The firm aims to get $50 billion of advisor assets on its platform. Its first platform user was Mike Brown, a U.S. Trust advisor with $5.9 billion of assets; he is an owner of the firm.
Dynasty milestone
“(Harter) marks the first new network advisor,” Penney says. “This is definitely a milestone.”
Pactolus’ business model has a strong family-office orientation and Fidelity’s Ed Orazem, Chris di Bonaventura and Eddie Brown of Fidelity all worked for Citi’s family office unit. Orazem and di Bonaventura both headed it at one time and they now lead of Boston-based Fidelity’s unit devoted to family offices. See: Fidelity arms its RIAs for battle with white-glove brands
Pactolus is technically a client of Fidelity Institutional Wealth Services because it is a multi-family office and Orazem’s unit focuses on single family offices. See: Fidelity is winning family office assets at a terrific rate Mike Durbin, president of FIWS, is an 18-year veteran of Morgan Stanley.
The Smith Barney brand has been among the strongest on the wealth management side among wirehouses and created a diaspora of executives with recognized expertise in this area.
“Smith Barney was the first mover in fee-accts amongst the wires and built a strong and long reputation on that side of the business,” says Charles “Chip” Roame, managing principal of Tiburon Strategic Advisors. “Many of these folks were the leaders in the wires in manager selection, performance reporting, etc. Many also left the firm when it merged with Morgan Stanley.”
Morgan Stanley Smith Barney uses Private Client Resources of Wilton, Conn. to handle the aggregated view and reporting of assets. Harter’s practice will continue to use it alongside Black Diamond.
Despite all the familiar faces, there is a big difference in the way Harter will do business as an RIA compared to what he was able to accomplish at Morgan Stanley Smith Barney, according to Penney, who is CEO of Dynasty Financial Partners of New York City.
Fiduciary concerns
“At Smith Barney it’s impossible to act as a fiduciary,” he says.
Being a fiduciary requires being able to choose the vendor with the best pricing and execution – something a staff advisor cannot accomplish, he says, for example with regard to capital markets capabilities. All such business would be funneled internally, according to Penney.
Morgan Stanley Smith Barney did not immediately return two calls left late yesterday but responses received today will be added here.
Harter’s 42 clients at Morgan Stanley Smith Barney – many of whom he believes will follow him to his new Mclean, Va.-based practice — have a minimum of $25 million in liquid assets and some of them have assets that range into the hundreds of millions.
Providing top notch management of these assets starts with hiring the best money managers possible.
Smith Barney did bring strengths to the table. Harter knew he’d have to look hard to find the level of due diligence on money managers that Smith Barney is known for in its wrap account program. “Smith Barney has a very strong consulting group capability with manager selection, research, access, etc.” Penney says
Coveted Callan
In the independent realm, Harter liked Callan Associates of San Francisco but he didn’t believe it was economical for him until he found Dynasty Financial Partners, which is able to leverage its scale to achieve savings.
“I would never have been able to go to Callan directly,” he says.
The research firm has many big selling points, Penney adds.
“Callan with its trillion dollars of assets under advisory allows an advisor to have differentied intellectual capital, research, manager selection, and access that many advisors feel is superior to anything available in the wirehouses.”
A handful of RIAs do access Callan directly. See: Unravelling why a big, loyal SEI advisor moved its assets to Schwab
Forming his own broker-dealer
Harter plans to form his own broker-dealer – a route taken by other advisors recently. See: A HighTower-like consolidator rises from Texas ground
This transactional platform would allow Pactolus to fulfill insurance plans and to lead private equity deals that its clients seek to do. It also allows it to make referrals for investment banking deals and get paid a commission.
Mike Durbin, president of Fidelity Institutional Wealth Services, says his company’s discrete units for various advisor models is helping to win assets of advisors like Harter’s.
“Firms like Pactolus/Dynasty continue to change the landscape for advisors or teams looking to go independent. We are proud of our role with firms like these as we continue to leverage our unique position in supporting more destinations for independent advisors than anyone else.”
For porfolio management software, Harter decided on Black Diamond. Advent was a strong competitor, he said.
Black Diamond and Advent Software choice
“(Black Diamond) rolled up their sleeves and became very competitive; their pricing is very different from Advent.” Black Diamond uses an unusual pricing scheme where the advisor pays in direct proportion to asset under management
David Welling, chief solutions officer with Black Diamond, says that Harter’s team was concerned with a number of other key issues – including the ability to report on investments like hedge funds and private equity..
“His firm is a multi-family office-type structure and needed extensive flexibility including the ability to report on alternative assets. Black Diamond’s customization of things like asset classification schema, benchmarks and a branded client portal really appealed to him.”
Advent Software indicates that it wishes to comment for this article but I had not received by publication time last night.
Final note: Shirl Penney assured me that, Citi ties aside, Dynasty Financial Partners is agnostic about vendor choices. In fact, on Thursday he’s meeting with Bernie Clark, head of Schwab Advisor Services, and he hopes to have news about bringing a Schwab-bound breakaway aboard in the near future.
Read the full article at RIA Biz: http://www.riabiz.com/a/5527565
