Of all the things that got on the nerves of Jim Scanlon as a broker for UBS Financial Services, the one that bothered him most was a demand that his boss made on his time.

Periodically, mutual fund companies sent marketers to Pittsburgh, Pa., to present their products at the UBS branch where Scanlon worked. Though he didn’t use mutual funds on behalf of clients, he was still subjected to these pitches.

“I wasn’t a big producer so [my boss] could say: I need you to be in this meeting,” he says.

Escaping this indignity stands out for Scanlon, 43, now that he and his partner, Brian Kapp, have become RIAs and moved their $47 million of assets from UBS to TD Ameritrade Institutional [May 8].

“I don’t go to meetings to be a body in a chair,” says the principal of Kapp Scanlon Financial Group.

Fatter commissions

One of the reasons that Scanlon wasn’t a “big producer,” he says, is because he dug in his heels when it came to selling any of the wirehouse products that carry the fatter commissions.

Managing a portfolio of stocks as a registered investment advisor [compared to what he received as a broker using the same approach] is generating a much improved paycheck.

“It’s at least twice as much,” he says. Scanlon and Kapp were receiving a payout of 40% of their commissions from UBS. The wirehouse, which has seen a number of major breakaways in recent months, has hired a former Merrill Lynch executive, Robert McCann, to reinvigorate its wealth management brand.

Working with TD, Scanlon and Kapp receive 100% of the asset-based fees they charge, minus the overhead expenses of running their own shop.

Tom Nally: “You can eliminate a
tremendous amount [of overhead] by doing
it on your own.”

“You can eliminate a tremendous amount [of overhead] by doing it on your own,” says Tom Nally, director of institutional sales for TD Ameritrade.

Scanlon didn’t always chafe against being an employee of a Wall Street firm. He started in the business working for Merrill Lynch & Co. in 1996 and was thrown together with Kapp. The two of them hit it off and – working on a “handshake deal” – have split their earnings 50-50 ever since.

At Merrill Lynch, it was two young guys building a book of business during a bull market.

“Life was good.”

“Life was good,” Scanlon says.

But the good times were ended by the crash of the technology bubble.

“In 2002, everything got crushed and I sat down with people at their kitchen tables who had lost half” their wealth, he says. “We realized it wasn’t going to work” to stay with Merrill Lynch and manage people money based on product sales.

At about that time, Scanlon had a meeting with his bosses where the message seemed to be to operate in a business-as-usual approach, which included continuing to invest in aggressive mutual funds.

“I left the meeting and said to Brian: they don’t get it,” he says.

For Scanlon, it was repugnant to manage money in a footloose fashion. He had grown up in a blue collar family where money was hard-earned. Many of his clients fit a similar lunch bucket profile.

He and Kapp took their clients to UBS because they believed that the smaller wirehouse would be more sympathetic to their desire to put clients first.

But eventually they realized that UBS saw their low-fee, high-care approach to investing in the much the way that Merrill Lynch had.

“UBS didn’t think it was a good idea either,” Scanlon says.

Special approval

In addition, UBS required that they receive special approval to serve clients with assets of less than $50,000, even if that client was part of a larger relationship.

Like many advisors, Scanlon and Kapp were wary of turning independent for fear of losing their clients and letting down their familes. Scanlon describes his wife as “very conservative.” Kapp’s wife, he admits, was actually eager for the team to give it a go on their own.

Kapp Scanlon ended up getting 93% of its clients to follow them and they are amazed at how much referrals have picked up since they broke away.

The move to independence under TD has yielded some other positive surprises. Scanlon finds that the technology is just as good. He is also pleased by the research he can access. At UBS, he felt constrained by the ratings that they placed on stocks.

His one complaint with TD Ameritrade comes from clients who would like to receive stock quotes in real time, he says. [For back office software, Kapp Scanlon chose Black Diamond Performance Reporting.]

The decision to use TD Ameritrade over it competitors came down to attitude, Scanlon says.

“We interviewed a lot of [asset custodians],” he says. “TD seemed the happiest, most eager about us coming on board. The other ones didn’t seem that interested or priced our clients out of the ballpark.”

Other asset custodians, however, also report great success in recruiting financial advisors with about $50 million of assets. In the past two years alone, Schwab has about doubled the assets it manages for RIAs with fewer than $50 million, said Jon Beatty, national sales manager of relationship management for Schwab Advisor Services in an earlier interview. The firm also attracted 500 new small [fewer than $50 million of assets] RIAs in 2008,

To attract more of these small RIA clients, Schwab hired 50% more service agents and relationship managers who are dedicated to the group, says Beatty.

Fidelity has also stepped up its pursuit of advisors with about $50 million of assets during the past two years, said Pat Jancsy, a senior vice president of Fidelity Institutional Wealth Services in an earlier interview. Fidelity shifted its approach to this group in order to attract breakaway brokers, the bulk of which manage $40 million to $50 million in assets when they arrive.

“We view this as a critical component to our business plan,” Jancsy said in the interview. “The breakaway broker opportunity brought it to light.”

Contagious

Breakaway success stories like Kapp Scanlon are starting to feed on each other, according to Nally.

“It’s contagious out there,” he says.