It was 8 p.m. in the Washington, D.C., office of Merrill Lynch and a young, up and coming broker named Joe Perry (no, not the guy from Aerosmith) was preparing for a client meeting set for the next morning.
“I’ll never forget what happened,” Perry recalls, a decade later, sitting in his Seattle-based Potomac Investments office. “A manager walked up to me and angrily asked why it was that I was not on the phone cold calling? Right then and there I knew this wasn’t the model for me. I was supposed to forgo developing a relationship with clients instead focusing on bothering people at home?”
From his start as a broker’s assistant at Merrill to his current perch atop a hybrid firm with offices in Seattle, Portland [Maine] and Washington, it has been a journey full of baby steps to freedom for Perry. Currently, he runs a hybrid firm that operates in the traditional RIA orbit, where he clears with Schwab and also has a commission side of his business, using JHS Capital Advisors as his broker/dealer and clearing through RBC.
After deciding to leave Merrill, the next step provided an opportunity for Perry to discover and develop what would later be his prime identity as a hands-on type of advisor.
Insight from a Bloomberg terminal
“I went to Paine-Webber, which at the time was being bought by UBS,” he said. “It is funny, since at Paine, they really left us alone to do our thing, but almost too much. At Merrill, there was a lot of mentorship opportunities, both formal and not. During my time at Paine-Webber, the market was going through a dip and there were not many elder advisors around to provide guidance.”
While at Paine Webber, Perry conducted in-depth research and found himself drawn to a Bloomberg terminal. There he discovered his method of managing equity portfolios.
“I wanted to find out if there were events or trends which signaled market moves. By primarily looking at tech screens, the idea is to get a sense of institutional movements in as close to real time as possible. This is trading data – we won’t know who the buyer might be, but we see the action. We spot a significant block trade – up or down – then track it. We examine the footprints in the sand of institutions.
“At that point we take the S&P 500 and reduce that list down to maybe 100. Then through deep traditional research, we wind up with a final list of 30 or 40 stocks.”
Seeking more freedom and what he hoped was the ability to market his methodology, Perry left Paine Webber in 2002 and hooked up with Wachovia’s FiNet, now WFA FiNet, a quasi-indie option. Again, another baby step towards leaving the wirehouse world all together. He was with the firm between 2002 and 2007.
“I loved it there as they were excellent people to be around, but here I was, managing money as an RIA, but under their RIA platform. I decided I needed to put my own numbers out there and advertise, but the firm said absolutely not.” See: How far can RIAs go with advertisements?
The wheels were turning
Echoing what so many of his peers say regarding the flight from wirehouses, Perry wanted to make certain he was stepping out from behind a tainted brand. He wanted to give advice and be the broker of record.
“I was happy, at Wachovia, but they were limiting the stock availability. Why could I not take a position in a stock if their guy doesn’t like something?”
(A spokesman for WFA FiNet says that since 2007, the company has allowed advisors to do their own branding. And a young advisory team that RIABiz recently wrote about said they joined the company, now owned by Wells Fargo, precisely for the freedom of management it offers. See: A young advisory pair escaped wirehouse cost cuts to land at Wells Fargo).
Back in 2007, though, the wheels were turning in Perry’s head and the answer was to make a break for it. In June of that year, he first bought the RIA practice of Seattle-based Marcia Joslyn Sill, and her book of business. Sill is now working with Perry. He then started his hybrid firm. In total, Potomac Investments has five employees. Why not just go out as a total RIA?
“Our clients have a say in how they pay us. Sometimes it makes more sense to be compensated on a commission level when, say, setting up a 529 plan, or an individual may just be starting out in their career and might not have enough assets to buy 50 stocks, so they would pay a one-time fee,” he says.
Gunn Allen fiasco
Potomac Investments went with Gunn Allen to be its broker/dealer and had no problems, until the company teetered and collapsed. “I have boxes and boxes of documents – nothing but due diligence files,” Perry said. “After going through the unfolding of Gunn Allen, we were very careful in interviewing firms. Some were offering these huge upfront signing bonuses that made no sense. It would take forever for them to recoup it. They were so eager to get reps, but there was no value proposition.”
When Perry spent a day last spring with former Gunn Allen chief John Sykes, he felt comfortable signing with JHS Capital Advisors, a dually registered broker-dealer and RIA, last spring.“It was clear Sykes’s new firm, JHS, understood the business and from an ethics standpoint, they presented me with a four-page document- a code of ethics which they ask all their clients to sign. Sykes had also just hired Mary Kennemur, a former Merrill superstar whom Perry had met years earlier. “She really impressed me when I heard her give a talk. So when I knew she was at JHS, that made a huge difference.”
The hiring of former wirehouse stars is a deft move for those wishing to lure advisors looking for alternatives. “To get somebody who speaks the same language as the wirehouse guys can only help in developing a firm’s pipeline, “ notes Howard Diamond of Diamond Consultants in Chester, N.J. “So, bringing Mary on board is smart on many levels.” See: RIAs are rushing to take advantage of a fire sale on talent
After Sykes spent a day with Perry, the deal was done. “We had a tough choice, as we liked First Allied, United Planners, Commonwealth, and a few others, but how the ethical guidelines at JHS were presented spoke volumes.”
JHS looks at their code of ethics as a differentiator in much the same way as Perry looks at his own code. “We are a hybrid, so bringing a strong, upfront, transparent code of ethics to our clients on the commission side-a no-conflict-of-interest approach is just the right thing to do, and yes, sets us apart.” explained Perry
Potomac Investments currently has $100 million in AUM and is looking to keep growing by bringing on other advisors.
“We are looking for like-minded advisors who take a very serious ethical approach, and we are also looking for advisors a few years out from retirement.” All aligned with Potomac will handle a wide-ranging client base, most of them with $500,000 or more of assets.
Considering their presence in Seattle, Perry and crew are well versed in the financial complexities that come along with being in the high-tech orbit.
Updated at 2:25 p.m. to correct the spelling of Mary Kennemur’s name.