Justin Berman's firm has thrived by investing his own family's money alongside that of clients

November 15, 2011 — 4:21 AM UTC by Elaine Podfeldt

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One year after starting Berman Capital Advisors, Justin Berman has no regrets about leaving Goldman Sachs to strike out on his own, though it might seem to be a daunting decision to some. Working with a team of 10 private wealth professionals in Goldman’s Atlanta office, he’d helped manage about $3 billion worth of client assets.

“It came down to: Do I want to be part of a 30,000-employee organization having multiple businesses or running a company that only services the needs of high net worth individuals?” he recalls thinking.

Today Berman Capital Advisors is thriving, with $1.2 billion under management. The seven-employee firm manages the wealth of 29 families.

“I’m a firm believer that it doesn’t really matter what [company] name is on your business card,” he says. What matters to clients is that they have to trust the individual who is managing their money.

Smooth transition

Berman had a promising career on Wall Street ahead of him when he decided to break away from Goldman in August 2010. After graduating from Washington D.C.'s Georgetown University—where Berman was varsity tennis captain and a Rhodes Scholar finalist— he began his career at Arthur Andersen in the private client group, in the high-net-worth market in 1999, then joined myCFO, a venture-backed company that offered a “virtual, outsourced family office.” Berman then applied to The Wharton School of the University of Pennsylvania, spending his first summer as an associate in Goldman Sachs’ Philadelphia office, before eventually joining the firm after his graduation in 2004.

Lost illusions

Becoming a vice president in the private wealth management division at Goldman in 2006, Berman found he didn’t like the changes he was seeing on Wall Street. “At some point, working inside a large investment bank is just not that easy,” Berman says. For instance, moving an asset outside of the bank to another institution to benefit the client would put the advisor in conflict with his employer, he adds.

“Goldman Sachs private wealth advisors are incentivized to meet their clients’ needs,” said a Goldman Sachs spokesman. “They are able to access products created by a wide array of investment companies.”

Plus, what with the heightened scrutiny of the industry after the Bernie Madoff scandal, working at a big firm was starting to lose its charm, Berman adds.

“When I first started there, we could do no wrong,” he said. “Today, these firms are in the news every day. It’s draining. Big firms are under a microscope, with no division under any more scrutiny than the private client business.” See: One-Man Think Tank: Inside the legal issues of the Goldman Sachs hearings.

David and Goliath

After giving notice to Goldman Sachs, Berman had to abide by a 90-day nonsolicitation agreement. The Atlanta native used the time to set up his business, locating a high-rise building in Atlanta’s Buckhead neighborhood in which many financial businesses are located. Berman also made and carried out some key decisions such as establishing Northern Trust, Pershing and, to a lesser extent, Schwab, as custodians. See: What headway Pershing’s RIA unit is making after four years under Mark Tibergien.

He was delighted to find that loyal clients were willing to follow him. “Taking clients away from large institutions that have been very successful is very difficult,” he says. “The biggest surprise, quite frankly, is how successful we’ve been in acquiring assets from my former employer. It’s not easy. We have seven employees.” Goldman Sachs now has 34,200 employees. See: Goldman Sachs’ wealth managers are taking recruiters’ phone calls amid concerns over scandal fallout.

“It’s a David and Goliath story,” Berman says. “It all boils down to trust, integrity, transparency, honesty.”

That’s not to say that Goldman doesn’t try to retain clients who say they’re leaving, he adds. “I don’t think they’re happy about it,” he says. But he’s not directly involved with processing the transactions. “Usually the client will call Goldman and say they’re transitioning their assets,” he says. “Everything is electronic.”

Leading the way

One selling point for Berman, whose grandfather is a retired executive with the Parisian department store chain, is that he invests his family’s money in the funds he advises his clients to try. The goal of his clients isn’t to achieve wild returns on their money. “Our clients come to us extremely wealthy,” he says. “Our job is to preserve their wealth.”

Many of the investments he pursues—typically about 30 to 40% of his portfolio—are in hedge funds, he says. “That is the asset class with the greatest risk-return profile,” he explains. “The remainder is in investment-grade bonds.”

Berman said that his strategy enables him to make money for clients while limiting swings in their portfolios.

Heard it through the grapevine

In one major new development, Berman Capital Advisors just merged with Grapevine Partners, which runs the family office of the Reilly family, affiliated with the outdoor advertising firm Lamar Advertising in Baton Rouge, La. Berman declined to list the assets he manages for the family.

As a result of the merger, Wendell Reilly, the family patriarch, has become chairman of Berman Capital, offering advice on strategy.

The Dodd-Frank Act may soon require family offices to register with the SEC as investment advisors, so more are considering becoming part of a multi-family office, Berman explains.

“There’s a lot going on with legislation in Washington,” says Berman. “We’ve been able to take advantage of that.”

Raiding Wall Street

To support his approach, Berman has outsourced due diligence to Massey Quick in Morristown, N.J, attracted by the management of founding partners Stewart R. Massey and Lesley C. Quick III. “These two gentlemen have the same philosophy I do,” he says. “They have to put their own family’s capital into a strategy. Then they can recommend it.”

As he’s grown the firm, Berman has enjoyed the challenge of luring talent Wall Street talent. Kelly Dishmon, a director and COO of Berman Capital Advisors, is alum of Goldman Sachs; Geoff Lasda, a director and chief compliance officer, came from Credit Suisse; Mary Moore, a client analyst, was previously affiliated with Wells Fargo Advisors; and CPA Jill Asrael, his chief compliance officer and CFO, came from Grapevine Partners, where she was CFO.

“By being independent, we’re able to tap into talented people everywhere,” he says. “That’s the part of being a registered investment advisor that is extremely refreshing to me.” See: No eff-ing way: Goldman professionals can’t email profanely?.

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Jeff Spears said:

November 15, 2011 — 2:34 PM UTC

Wonder if Seven Post, another Goldman breakaway team, was movitaed by Berman’s success.

Seven Post’s three month “garden leave” ends on December 2.

I’m sure other advisors are watching.

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