A UBS broker lands at Finet, which helps him win a nasty tug-of-war over clients

Editor’s note: Wirehouses used to sue you when you left them. Then for a couple of years there was a resounding silence — a get out of jail free atmosphere. Now the full-service brokers are trying to hold tight to client assets with a form of pernicious resistance that is capturing the attention of industry attorneys, compliance officers and this broadsided UBS breakaway.

When many advisors consider breaking away, they worry about the nightmare scenarios of what their wirehouses will do to hold on to the clients.
Andy Lewis lived the nightmare – and came out the other side.

He wasn’t sued – lawsuits have gotten rarer since most broker-dealers and RIA firms have signed on to the Broker Protocol – but the UBS office he left in Vienna, Va., pulled out all the stops to go after his clients. That included overnight deliveries to clients, a calling campaign to persuade his clients not to switch to his new firm, and pointed comments about Lewis’ capabilities.

“I felt like I’d built this great business, and then I felt like I was under attack for it,” he said. “You go through six shades of feelings.”

The UBS office manager refused comment for this story. Two attorneys who specialize in breakaways says they have seen more cases recently where wirehouses aggressively pursued clients.

More than a year after his breakaway on July 31, 2009, Lewis is running a $180 million practice with Wells Fargo Advisors Financial Network, or Finet, just across the office suite from another UBS-to-Finet breakaway that RIABiz wrote about. A young advisory pair escaped wirehouse cost cuts to land at Wells Fargo.

The mild-mannered Lewis still sounds a little shaky when he reflects back on the six weeks after he resigned to establish his own business.

'Money can cloud judgment’

Lewis first considered going independent in 2005, though he decided against it at the time. But the real roots of his desire for independence go much further back. A 1990 graduate of the University of Maryland, he thought about going to law school, but his girlfriend, Valerie, who later became his wife, helped convince him that finance was the better choice.

Having come from a family of entrepreneurs – his grandfather had owned a supermarket and his father a landscaping business – Lewis liked the fact that so much of the compensation in finance was merit-based. “It’s not like a corporate job where you’re subject to a 3% raise each year,” he said.
He got his first job in the business at Dean Witter Reynolds in a Philadelphia suburb. When the company formed a strategic alliance with a bank, he got a taste of being a bank broker.

“It drove me bananas … that push on proprietary products. I left that after 12 months.”

Then came stints at Wheat First and Paine Webber, where he learned the fee-based business. He stayed on after the company was acquired by UBS in 2000, and eventually landed in the Northern Virginia office.

It was there he met his eventual business partner, Julie Young. She interned for him in 2003. She returned after graduation after they agree to construct a position that suited her analytical talents, including helping to screen money managers, construct portfolios and build financial plans for clients concerned with retirement and complex estate planning issues. She’s now vice president – wealth planning associate.

“He’s been thinking about going independent since I met him,” said Young.

Eventually, in 2009, the tipping point came.

Lewis and Young looked at more than 40 firms, including regional wirehouses and independent broker-dealers.

“Ultimately I decided that the argument for being independent was too strong to ignore vs. taking a huge sign on bonus from another big firm.Money can cloud a human being’s judgment,” Lewis said in an e-mail.

They were intrigued by the independent model, but decided they wanted more support – and thought their clients wanted a big-name company to hold the assets. The business is about 80% fee-based, and about 1/2 of its fee-based business
is custom discretionary portfolio management.

Among the independent broker-dealers, however, many objected to Young’s role. They wanted her to be a broker within a couple of years after joining.

Finet, which has about 900 advisors with a collective $40.1 billion of AUM, put no such requirement on the practice. Moreover, what particularly impressed Lewis was that they had a robust managed accounts platform, including large firm resources such as an estate and tax consulting team at its home office, good compliance oversight and a detailed plan for shifting his clients over within three-six months.

The mistake

When he looks back at his resignation, he says he made a mistake in submitting his resignation early in the day.

“My hand was shaking, and I had to tell him. You feel a little guilty. You’ve built relationships,” Lewis said. “We handed him the protocol list and left.”

Within 20 minutes, he says, the branch management had distributed his client list to the other brokers. They started calling.

The UBS office also shot off an overnight FedEx package to the clients. Enclosed was a letter: “What do do if your broker switches firms.”

Their campaign had an effect, Lewis said. The first day of making calls from their new office went well. But by Monday, some clients were on the fence.

Then, a tug-of-war over clients ensued. “It was nerve wracking to say the least,”says Lewis, who was also joined by Jennifer England, senior registered client associate.

Dan Bernstein, director of professional services, at Engleside, N.J.-based MarketCounsel, which specializes in the RIA space, and Lou Spadafora, founding partner at Winget, Spadafora & Schwartzberg LLP, both said they have seen an uptick in aggressive behavior on the part of wirehouse recently.

Lou Spadafora, whose New York City-based 55-lawyer firm handles about 50 such cases a year, said he’s seen it emerge in the past six months or so, particularly among the big wirehouses. As more brokers leave, he said, the firms are moving faster to distribute client lists and start rounds of phone calls. He said he has also seen temporary restraining orders.

Bernstein said the degree of aggression seems to depend on the office and even on the style of the office manager. “There are these innuendoes. When they are speaking to clients, they’ll say: “Is that what the rep told you? That he left to set up his own firm? Then when the client says, ‘Why did he leave,’ the response is ‘I’m not at liberty to tell you.’”

Lewis case he heard through the grapevine that the gossip around the office was that leaving was his only option, because he wanted too much support from the manager. It particularly rankles him that wirehouses still portray the independent route as being for bottom-tier brokers – “guys at home in their pajamas.”

“It was a little shocking, how stressful it really got,” Young said, “and how many hours you were working.”

“You’re fighting for your livelihood,” Lewis added.

How many moved?

In the end, Lewis won the fight. Some 88% of his clients followed him to the new firm within about four months. He says the key was that he was able to articulate why he was going independent to his clients:

“The energy they put into retention wasn’t worth it,” he says. “It’s a small world. And at the end of the day, you have to live with what you say.”
Now, they are busy building their business, which serves clients in the $1 to $10 million range with both active and passive strategies in their own portfolios.

“You feel a certain extra commitment to clients who have moved with you and your firm,” Lewis said via e-mail. “You have a greater calling and your new firm’s reputation to uphold vs. just leaning on a big name. When your name is on the door it’s a big deal to strive to be even better.”

Young has just passed her level 3 of the CFA program. They expect to add about $12-15 million in assets over the next year, and are working with a business coach to add another person to the practice, who could handle insurance, alternative investments and marketing.

Lewis is the sole owner of the practice for now, though his team members’ compensation is tied to the firm’s perfomance, and he hopes to expand ownership over time.

Lewis said he values the fact that Wells Fargo has found ways to help him with requests that are outside the norm.

Culture of Wells Fargo

“It really has been terrific,” Lewis said. “The culture of Wells Fargo has been a very nice change. Finet has a very small firm feel and I am comfortable to pick up the phone and ask the president if I have a question.”