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Wealth management’s newest competitor is 177 years old

An almost 177-year-old investment bank aims to be the newest player in wealth management, courting talent from both RIAs and wirehouses. Is there room for another entrant in the lucrative, but competitive wealth management marketplace?

New York-based Laidlaw intends to find out.

The firm has tapped a former wirehouse and IBD executive, Richard Calhoun, to oversee its expansion into wealth management. It’s already recruited several advisors and plans to ramp up hiring efforts in 2020.

“I see myself as the general manager and I’m trying to find the right talent for this team and just let them run with it,” CEO Matt Eitner says.

Laidlaw intends to entice advisors with a recruiting deal, an offer of equity in the company and the ability to tap into its existing investment banking operations. Advisors will be able to offer clients access to IPOs and private equity deals, executives say. Plus, there will be far less bureaucracy than exists at the wirehouses.

“We can make decisions nimbly and quickly. We don't have to go through three different committees to get to a ‘yes,’” says Calhoun, who previously oversaw Wells Fargo’s independent broker-dealer, Wells Fargo Advisors Financial Network.

To be sure, other firms have trod a similar path — and stumbled. Lebenthal Wealth Advisors and Cantor Fitzgerald tried to leverage legacy names to gain a foothold in wealth management. Both firms failed to gain traction.

In Lebenthal’s case, the firm had some early notable successes, recruiting a few top wirehouse advisors and filling management posts with former Smith Barney executives. But the firm struggled in a fierce recruiting environment, and shuttered its wealth management business in 2016.

"We probably were just not competitive enough in terms of what we could offer," Alexandra Lebenthal, CEO of Lebenthal Holdings, told Financial Planning following the firm’s denouement.

But even as some firms have bid adieu to wealth management, new players continue to throw their hat in the ring and some have shown sticking power in recent years. Among them: Steward Partners, Snowden Lane, HighTower and Focus Financial.

“If the niche is well defined enough, then I’d argue there is [room for a new wealth management firm],” says recruiter Danny Sarch.

But to recruiter Frank LaRosa’s mind, it’s less a matter of finding a niche than execution.

“All these different firms have the same solutions, they’re using the same technology. It’s about how they present it, how they support their advisors and what’s the culture they will supply,” LaRosa says.

Adding Calhoun was a smart move, he adds. “I know Rick from when we were at Smith Barney together. He’s a good recruiter. He can resonate with wirehouse advisors because he’s lived that.”

To replicate the success of some independent firms, Laidlaw has tapped two consultants with past experience at Steward Partners: Scott Abry and Michael Maurer.

Steward Partners was founded by former wirehouse executives in 2013 and grown to more than 100 advisors operating from more than 20 offices.

Of course, wealth management’s appeal as a business is obvious; there’s recurring fee revenue to be had, widespread need for financial advice among aging baby boomers and a number of dissatisfied advisors ready to decamp to greener pastures. It’s why firms like Steward Partners, Lebenthal and others keep making a go of it.

“Seeing what other independent firms had done over the past 10 years, plus the exodus from the wirehouses … that to me looked like the perfect opportunity” Eitner says.

Cerulli Associates estimates average AUM for advisors across the industry was $65.5 million in 2018, up from $55.1 million four years prior. Wirehouse brokers remain the industry’s most productive, overseeing on average $147 million in 2018, according to the research firm. That’s up from $132 million for 2014. It makes them a prime target for firms looking to grow via recruiting, particularly from national and regional BDs, according to Cerulli.

“Although much of the industry buzz has been around advisor migration to the independent channels, for wirehouse advisors interested in a change due to dissatisfaction with their current firm’s culture, or senior management, migration to the national and regional BD channel can be the most natural fit,” the research firm says in a recent report.

Top reasons for moving include dissatisfaction with senior management, desire for greater independence and the ability to build financial value in independent business, according to Cerulli.

“We're trying to attract advisors who are running to something rather than away from something,” Calhoun says of Laidlaw’s efforts.

In offering new hires equity in the company as an enticement to move, Laidlaw is mimicking what some other independent firms founded in recent years have done. And, like other aggressive recruiters who tout amenable corporate environments, Laidlaw is banking it can foster an attractive culture for disaffected brokers.

Mel Lewis, who left Morgan Stanley to join Laidlaw’s New York office, pointed to his start at E.F Hutton in 1983 as a reason to switch. “I wanted to get back to a firm with a similar culture and commitment to my clients and me that I felt at E.F. Hutton,” Lewis said in a statement.

Culture is also a reason Laidlaw has eschewed the IBD model. The firm’s leadership does not believe they could cultivate the culture they want via a 1099 model, which would result in a more fragmented advisor force.

“That’s our secret sauce,” Eitner says of the firm’s culture. “It’s something that you need to come sit with us to really understand."

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