Brooke’s Note: I’m finding that every breakaway is like a snowflake. The timing, circumstances, personalities and future ambitions all vary. The one common denominator is the zeal of the converted and this team is no different. Ever wonder what words advisors choose to let their clients know about their plans to run an independent RIA? Pointe Capital Management shared the letter it wrote after its breakaway from UBS and it’s appended at the bottom of this article.
Grosse Pointe, Mich., is graced by boxy Tudors and neo-Georgians with large backyards and leafy old-growth trees. There are mansions down by the town’s lake.
The Ford-driving Detroit suburbanites are not generally thought of as rebels.
But by the standards of these environs, Charles Huebner, 64, and John P. Jagger, 68, are taking radical action. The two 30-plus year UBS veterans left their comfortable wirehouse circumstances on Feb. 12 and bring “several hundreds of millions” of assets under management with them.
But they don’t plan to stop there. They have big plans to grow organically and by adding partners – most likely by recruiting breakaway brokers.
The reasons for their departure so late in their careers are varied and many of them are spelled out in this article. But their ambitions in forming Pointe Capital Management LLC boil down to this: they have a pent-up desire to flex their entrepreneurial muscles after years of restricted motion in the wirehouse world.
“We believe there are people who wouldn’t do business with us at a Wall Street firm,” Huebner says. “We’re getting in front of business owners. You can see it in their eyes. They say: You can tell what it’s like to take the risk.”
Getting in front of business owners is strong medicine. Not only do business owners have money, but a financial advisory practice takes on a dimension and energy that comes from the association. Pointe Capital’s typical account is $3 million but it has a number of clients with $100 million or more of assets. Pointe Capital assets are being transitioned into the custody of Pershing Advisor Solutions.
Tom Ruggie, a long-time LPL advisor, recently started a separate RIA under Raymond James precisely for this same reason because he loved working with entrepreneurs. Read: Why Raymond James is getting an LPL advisor’s wealthiest new clients
“Clients on the high net worth side are more work, but I’m driven by working with them,” Ruggie said in an earlier interview. “They’re entrepreneurs, and I consider myself an entrepreneur. I like working with someone like that. It’s what excites me.”
Dispersed among other brokers
Initially, Huebner says, the question of succession helped drive the firm’s breakaway. At UBS, they could have passed along a portion of the assets to their younger partner, Paul Huebner, 31, but the rest of the book of business would get dispersed among other brokers in the office.
By breaking away, the partners can create a business where accounts can be thoughtfully distributed to advisors of their choice.
“Succession was a big deal,” Huebner says.
Now, succession is looking more like footnote to their current plans. These retirement-age partners have not plans to retire anymore.
Can’t play golf that much
“We looked at each other one day and said: we don’t see ourselves retired,” Huebner says. “I can’t play golf that much. I can’t sit around.”
Despite all the appeal of turning independent, Huebner and Jagger say they might have stayed in the wirehouse world were it not for how badly the images of wirehouses were tarnished amid scandals and market crashes.
“It was the state of the industry and all the travail that really got us going,” he says. “It was being unfairly characterized as the villains.”
Making matters worse was that the future remains so cloudy at UBS under its new leadership.
“UBS will change its stripes. Now you’ve got Bob McCann and you don’t know what UBS will do,” he says. “It wouldn’t be shocking to see it take the old Paine Webber name or spin off. It’ll change quite a bit. McCann is a Merrill Lynch [former executive] and UBS is likely to take on more of those characteristics.”
Considered cashing in
Jagger and Huebner briefly considered the possibility of cashing in on an offer from another wirehouse but soon realized that they were not solving the problems of clients.
“A payday would be great,” he says. “But they’re telling me [the commitment] is nine years. I don’t know what their company will be like in six months.”
The partners entertained keeping one foot in the commission brokerage business.
“You could go to LPL or you could do a hybrid thing,” Huebner says. “The more we thought about it… FINRA is so heavy-handed today. If you want to serve your clients, that’s at odds [with that objective.] That’s how we came to the RIA conclusion.”
Looked at State Street, Northern Trust
Huebner allows that he also put all the RIA custodians through the wringer in his vetting process and even demanded a personal meeting with Mark Tibergien before joining Pershing. He also looked at State Street, Northern Trust, Fidelity, Schwab and TD Ameritrade as possible custodians.
As a former Goldman Sachs advisor, he was wary of the more retail-oriented brands. Huebner questions whether they can provide the depth of investment choices and trade execution needed to serve the most sophisticated clients. “There’s too much spread [between bid and ask prices] in the retail community,” he says.
The non-retail brands like State Street and Northern Trust weren’t set up to service his RIA, Huebner adds.
He was also determined – post 2008 – to put clients assets in the safest place possible. “Bank of New York is in a class by itself” with its $22.3 trillion of assets, he says.
Tibergien, CEO of Pershing Advisor Solutions, says that he prefers advisors who take the process of vetting custodians seriously because it means they are “not cowboys.”
“I like people who are tough customers,” he says. “You really have to be on your toes. If they approach their clients the same way, I have confidence in them.”
When last I spoke to Huebner, he had not yet decided on a portfolio management system or whether to ante up to use a Bloomberg machine. He had chosen Redtail for customer relationship management. The firm is considering Black Diamond, Advent Software and AssetBook for its PMS.
Very deliberate guys
“We wanted to be deliberate,” Huebner says. “We’re very deliberate guys.”
Editor’s Note: The Pointe Capital principals used the Broker Protocol as a legal tool in their breakaway under the guidance the Hamburger Law Firm and Stark & Stark. They also relied on the gentle prodding of Shelly Muzio, a recruiter with Diamond Consultants. Huebner appreciated Muzio’s approach. “She never aligned herself with a particular firm,” he says.
The post-breakaway letter sent by Pointe Capital Management’s partners to its clients:
We are pleased to announce that we have formed a new, independent Registered Investment Advisory firm, Pointe Capital Management LLC. Our new firm is registered with the Securities Exchange Commission (SEC) and organized as a Michigan entity.
As you certainly know, the nature of our industry has been altered dramatically over the past two years. We have been bombarded with changes to the investing world almost too numerous to mention, and that has caused us to think critically about the future. Almost weekly we have been sought after to “jump ship” to other firms tempted by significant financial gain, all of which sounded hollow to us. While the financial packages were attractive to us personally, we could not come to grips with how another brokerage firm would benefit our clients.
These events caused us to analyze our business and to use our combined 80 years of experience to formulate strategy which would give us the most open architecture free from as many conflicts as we could identify and “sit at the same side of the table” with you, our clients. This would allow us to represent you even more efficiently and effectively in the marketplace, offering unfettered advice and service.
We then had to scour the industry to be able to effect our strategy. As all of you know, it is one thing to have a vision and another thing to make it reality, especially in a business as complicated as ours. At every turn, we tried to maintain the singular idea that our clients were the number one priority, and each of our decisions should reflect what each of you would want us to do if you were in our position.
Given all the travail with financial service companies, perhaps our foremost concern was seeking out a safe, secure and transparent clearing agent to custody our clients’ assets. The answer became obvious. Pointe Capital Management will leverage the services provided by Pershing LLC, a leading global provider of financial business solutions for over 70 years. Pershing’s parent company, Bank of New York Mellon, is one of the world’s leading providers of securities services, holding over $22.3 trillion in assets under custody. Investors around the world have spoken with their money.
None of this would be possible without you. Our goal quite simply is to provide the highest possible level of service, advice, counsel and effective investment management suitable to the needs of a select group of substantial investors. We hope you are supportive and encouraged by the steps we have taken, and look forward continuing to work with each of you as we navigate this unusual and challenging investment world.
Charles P. Huebner, John P. Jagger, Paul J. Huebner