Brooke’s Note: This was a fun story to report on because it has a surprising twist. It involves one of the fastest-growing RIAs, Rehmann Financial, and a broker-dealer, Royal Alliance, that seemed to be more likely to lose a hot RIA than to gain one. It’s about how these two companies seemingly headed in two different directions formed a promising marriage. The two articles that I wrote previously about the AIG Advisor Group subsidiary seemed to fit with statistics showing steady attrition of advisors from the company. These articles included: New RIA with a Royal touch about Barry Glassman taking his assets to Schwab Advisor Services and Why a Royal Alliance champion gave up the cause after AIG made changes which was about Jim Warren moving his practice to Geneos Wealth Management, following in the path of other Royal Alliance advisors. Elizabeth MacBride wrote an article about a loyal Royal Alliance advisor, Steve Cassaday, entitled: A breakaway story, old-school style

The last few times Royal Alliance landed in the media spotlight, it was for the kinds of news stories make executives cringe: several big advisors — and dozens of smaller ones — departed Royal Alliance for other broker-dealers in recent years.

The departures were helped along by the turmoil surrounding Royal Alliance’s parent company, AIG. Some advisors said also that the culture of Royal Alliance had grown too corporate under the big insurer’s ownership.

Through this period of attrition, New York-based Royal Alliance stuck by its guns, with a message that it is, for instance, the broker-dealer to go to for forming a large branch office.

It’s also a good place for smaller advisors who are willing to be folded into a larger practice, its executives say.

Big boost

The message got a big boost on Wednesday when Rehmann Financial moved its $2.5 billion book of business from Atlanta-based Triad Advisors to Royal Alliance. Triad is a fast-growing IBD that was formed in 1998 and already serves more than 425 [mostly hybrid] reps with more than $8 billion of assets under advisement.

“It validates all the work we’ve done and the technology we continue to develop,” says Arthur Tambaro, president and CEO of Royal Alliance.

The New York-based broker-dealer is close to releasing a web portal for advisory practices that will allow them to track all the financial and compliance information about far-flung branch offices from wherever they are.

This technology could be important to Lansing, Mich.-based Rehmann, which has 38 financial advisors in offices in Florida, Michigan and [Cleveland] Ohio. An additional 10 advisors are expected to join Rehmann in the near future and its pipeline is significantly larger.

Hyper-growth

Rehmann Financial is following a long-established pattern of hyper-growth that brought it to $2.5 billion in about seven years. When its president, Fred Schaard, sold his wealth management practice to Rehmann in 2003, it had about $240 million of assets under management. Rehmann itself had just about $30 million.

But Schaard believes that the company can grow much faster and it has plans for hiring breakaways in all its markets, which are extensive.

Rehmann is foremost a CPA firm [41st largest in the United States] with 600 professionals in 16 offices. It has financial advisors in a number of those offices. It also provides its wealth management capabilities to CPAs outside its firm on an outsourced basis.

Fred Schaard: Switched broker-dealers largely to
pick up the RIA custodian he
wanted.

With all this growth in the offing, Schaard decided to seek out a broker-dealer that could manage the scale and complexity that he could see coming down the pike. Among other things, he was certian that he wanted to deal with a broker-dealer than could work with Pershing LLC and its RIA custodian, Pershing Advisor Solutions.

Bonds and foreign securities

Rehmann wanted to access Pershing’s platform for bonds and foreign securities. He also liked Pershing’s new technology platform, NetX360. “Pershing’s technology has improved dramatically,” Schaard says, referring to Netx360.

Schaard also likes the sense of stability and predictability of Pershing and its service team.

Schaard wasn’t interested in doing business directly with Pershing because it would have required him to set up his own broker-dealer — a problem because it involves too many complexities and it could make clients suspicious.

“We don’t feel comfortable with handling compliance issues directly,” he says. “You [also] cast yourself in the [mold] of Bernie Madoff of running your own broker-dealer.”

Fidelity

At Triad, Rehmann used Fidelity as its custodian, but he grew frustrated with the arrangement. “Fidelity continues to lose people,” he says. [For more about Triad and Fidelity, see the note at the bottom of this article.]

Schaard said he considered LPL Financial three and a half years ago but decided against it. He said the Boston and San Diego-based custodian would not have allowed him to use multiple RIA custodians, he says.

“[Bill Dwyer, president of LPL] told me candidly: You can’t use [an outside custodian],” he says.

Joseph Kuo, an LPL spokesman, says that his firm doesn’t comment or disclose conversations it had with prospective clients.

But he says that advisors on LPL’s platform now have the option of putting assets on competitive custodial platforms.

LPL has same flexibility

“Through our RIA platform launched in late 2008, we offer the same flexibility as any other major player in the custody space with respect to being able to custody assets elsewhere,” Kuo adds.

“That said — the vast majority [of LPL advisors] choose to custody with us,” he says. “Advisors join our platform because its power lies in the integration and consolidation of service and capabilities. Advisors on the platform quickly discern that to custody elsewhere undermines this core value proposition.”

Rehmann placed an emphasis on RIA custody because 66% of its assets are fee-based and the company plans to continue to de-emphasize transactional business over time.

The $1.4 billion of assets managed from the home office in Lansing Mich. is already about 83% fee-based.

Editor’s Note: I spoke with Mark Mettelman, CEO and president of Triad Advisors, last summer about why he was sticking with Fidelity Investments and its clearing subsidiary National Financial Services when other IBDs were headed to Pershing. He described the blend of its clearing and RIA custody services as what then was branded as HybridOne in this way:

“It’s not wonderful functionality yet, but [reps can] look at a commission account and place a trade without a new sign-on,” he said in the earlier interview. “I’ll give Fidelity credit that National Financial and Fidelity Institutional Wealth Services were completely different operations and now they’ve embraced the breakaway.” A “breakaway” is a stock broker who leaves the employ of a full service firm and turns independent.

Mettelman has worked with Fidelity’s National Financial for the past 17 years as an executive at broker-dealers.