Why a Royal Alliance champion gave up the cause after AIG made changes

First as a broker and then as an RIA, Jim Warren was with Royal Alliance from the day that his career as a financial advisor began 27 years ago.

To the Vietnam veteran, who values loyalty and his close connections with his friends at Royal Alliance, leaving wasn’t an option, even when the firm was swallowed by AIG in 1998.

Yet, on Sept. 1, Warren moved his practice to Geneos Wealth Management.

“This is the last thing I wanted to do,” Warren says.

What happened?

Wore him down

Warren says that more than 10 years of life as part of the AIG Advisory Network had finally worn him down. He’d spent years as head of its advisory network in order to help keep the old Royal Alliance culture alive.

But, in 2007, AIG made one corporate unit of Royal Alliance, which has 2,100 brokers with $38 billion of account assets, SafePoint Financial Inc., which has 2,300 advisors and FSC which has 1,299 advisors with $26 billion of assets.

“There was a corporate mentality [instilled by AIG Advisory Network] that was the anti-thesis of the culture we had known in the past,” he says. “It was very difficult to accept.”

The advisor experience became so homogenized after the integration of the three firms that when Warren called he found that he was not spoken to anymore as a Royal Alliance affiliate. To hear from another big Royal Alliance breakaway, read New RIA with a Royal Touch

A spokeswoman for AIG Advisory Network did not respond to a phone call placed for this article.

At that point, a number of colleagues at Royal Alliance who were also chafing under the new system informally appointed him to test the custodial choices outside Royal Alliance.

Because his business mix included many advisory assets, Warren shopped independent broker-dealers that encouraged his business model including Cambridge Investment Research and Commonwealth Financial Network.

Warren briefly considered looking at Schwab Advisor Services or TD Ameritrade Institutional but quickly ruled it out.

Less isolating

Warren feels like being part of a broker-dealer like Geneos is less isolating than becoming a pure RIA under an asset custodian like Fidelity Institutional Wealth Management or Schwab.

“The last thing you want to be at this time in the industry is an island,” he says.

Geneos charges its RIAs a fee for keeping advisory assets in its custody to offset the extra compliance it must take on because of the regulatory responsibility it shoulders as a broker-dealer, says Ryan Diachok, vice president of marketing and business development for Geneos.

“There were management within Royal Alliance who felt that I was the heart of the organization,” Warren says.

“I promised Art I would seek out reasons to stay as opposed to reasons for leaving,” he says.

Warren has found that leaving Royal Alliance was surprisingly easy – and energizing. He plans to open three more offices next year.

Warren Financial has 85 clients with portfolios of $1 million to $5 million under his management. His practice has been an RIA since 1993, though he still generates about 25% of his revenues from commissions. He keeps 75% of his assets under his RIA and invests through TAMPs including Brinker, Rochdale, Clark Capital and Russell Investments. His plan is to edge closer to 90% fee-based business in the near future.

Ex-patriots

Warren has also discovered a number of Royal Alliance ex-patriots who have found a good second life at Geneos.

In November 2008, Centennial, Colo.-based G5 Financial Group, a 25-person firm that manages approximately $580 million, moved to Geneos from Royal Alliance.

Warren says that there are more Royal Alliance elite advisors that he believes will come over soon. Another Royal Alliance advisor will come aboard very soon with Geneos, Diachok says.

One reason that Geneos is picking off elite advisors from big broker-dealers is that it has created a clearly differentiated offering, Diachok says.

“We mainly target people from other IBDs,” he says. “Moving people from a wirehouse is a pretty big shock for them. We made the decision we don’t really target them.”

Indeed, Warren liked Geneos for a variety of reasons. It only has about 280 advisors that are served by about 43 employees. It also offers stock options to advisors and employees. Another factor is that the average production of the advisors at Geneos is about $318,000.

In the increasingly strict regulatory environment, Warren sees higher production as vital because it means the exposure to liability is substantially reduced. It is the smaller, “starving” IBD reps who tend to get into trouble.

“It would have been valuable to cut out [the top] 1,000 advisors at Royal Alliance and form another company but you can’t do that” because AIG won’t allow it, Warren says.

Higher producers

The combination of these factors fosters the culture that Warren sorely missed, and, because it has higher producers, he feels he has reduced his risk considerably because larger advisors tend to get into less compliance trouble.

One thing didn’t factor into Warren’s decision to move: his age. He’s 64, but has no interest in retiring now. Not only does he have dramatic plans for adding offices but he has set out a five and 10-year plan for growth.

Besides, Warren is a spring chicken relative to Ryan Diachok’s grandfather, the chairman of Geneos. George Diachok is 83.