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A Former Branch Manager on Why BOMs Should Keep Their Books

It's tough being a non-producing branch manager. As we've written in the past, complexing and branch-consolidation have created a game of musical chairs and, very often, branch managers are left without a chair when the music stops.

What many non-producing managers are doing is approaching independent broker/dealers, saying, "Hire me, I've got lots of successful brokers who used to work for me and love me and would follow me and I have a pipeline of recruits as long as my arm," says Mindy Diamond, an industry recruiter and principal of Diamond Consultants. "But the truth is, it doesn't always work out that way."

Why? Because unless an IBD is offering big upfront money or equity, it's tough to dislodge FAs from wirehouses, even if they are somewhat disgruntled, says Diamond.

This is also another reason why BOMs should try to keep their books (or even a handful of top clients): It’s easier to land on your feet if your branch gets consolidated and you are left without a job.

Take for example U.S. Capital Advisors (USCA), a new, full-service wealth management firm based in Houston. It was launched by a disgruntled former UBS BOM in September 2010. The former BOM who established the USCA, Patrick Mendenhall, left UBS in 2009. He recently was able to use his connections and reputation to score a major coup last month when he recruited a top-notch advisory team from UBS. Three of the four recruited advisors—Matt West, Doug Hall, Christian Bauman and Scott Selzer-were UBS' top three $1 million-plus account closers; they joined USCA on October 8. Equity in the new wealth management firm was used to lure the UBS team.

At UBS the team oversaw $450 million in client assets and generated $4.5 million in annual fees and commissions, according to Rick Peterson, president of Rick Peterson & Associates, an industry recruiting firm based in Houston. With a strong focus on retirement planning for executives and employees in the energy industry, they have an average account size of $2 million.

"They are among the very best at what they do," says Mendenhall. And, Mendenhall ought to know. A 30-year industry veteran, he, too, was among the best at what he did: He spent 15 years managing one of largest and most successful branch offices at UBS and its predecessor firm. He began his career as an advisor for PaineWebber in Houston. By 1994, Mendenhall was given his own branch to manage (about $6 million in production). He then combined two downtown Houston branches and revenues soared. In 1998, with over $30 million in revenues, Mendenhall’s complex was one of then-PaineWebber's top three producers. By 2000, earnings more than doubled to $65 million. "We were always the firm's top branch in Texas," he says.

Despite his enviable position and hefty, seven-figure BOM earnings, by 2005, like many of his peers, Mendenhall had grown frustrated by his job. "In the early days, as long as I ran a clean and profitable business and increased my market share, I could do pretty much what I wanted," he recalls. "Now, I was running one of the largest branch systems at UBS, but as the wirehouses centralized so much of their operations, I felt like I couldn't get anything done."

Expenses, products and prices were centralized with little regard for what the advisor needed, he contends. And where, historically, a lot of power lay in the branch manager’s hands, by 2005, he had virtually none. Mendenhall says, "I used to be able to help brokers attract large clients by helping them negotiate down fees. We couldn't price things the way we once did to gain business; the products and services department set the prices for us. Compensation schemes surfaced at the wirehouses to cut our income. The bottom line: Wirehouse branch managers no longer have control over their success. The firms no longer have a client-centric model." (Of course, wirehouse firms strongly deny these criticisms and have maintained when confronted with such a criticism, that clients always come first.)

Fed up with the wirehouse world— in August 2009, Mendenhall did the seemingly unthinkable: He walked away from his very lucrative BOM job at the "top" of his game- technically "retiring"-though he was just 50.

He began intense research on building his own full-service wealth management firm. "Clearly, there was demand for a platform that didn’t possess the inherent conflicts you find at the large financial supermarkets," he says. "Advisors and investors were disgusted with how large financial institutions were privatizing their profits and socializing their losses. And clients seemed increasingly reluctant to support the very institutions that brought this country to its fiscal knees."

His research showed that, in order to attract the type of advisor he wanted, he'd need to own a B/D and also have an advisory side through an RIA. "I wanted to replicate an environment that the advisors already know, not recreate the wheel."

He also wanted a highly reputable partner that wasn't a contributor to the financial crisis. Fidelity became his choice through its National Financial Services (NFS) subsidiary. In early September 2010, USCA was born. It now has 22 employees, six producing advisors- four of whom are the aforementioned whom Mendenhall had managed at UBS—and over $500 million in assets. It will be predominantly employee-owned, Mendenhall says. Though it is based in Houston, Mendenhall says he is planning to expand into five more major markets and is considering several secondary market opportunities.

Edward Randall IV, a 14-year industry veteran, has joined the firm as a managing director and partner. He is also making a substantial personal equity investment in USCA, Mendenhall says Mendenhall's advice to other BOMs: Despite the fact that compensation on his book of clients had been capped many years ago, he always produced. He had partners help him manage the $400 million in client assets he brought to the job with him and oversaw an additional $100 million himself from 10 client relationships. "To me, production is any branch manager's first line of defense," he says. "Even if your compensation is capped, it gives you a lot to fall back on." The money he made by doing so enabled him to retire at such a young age—and to launch his own firm.

To disgruntled wirehouse BOMs, he says, “If you can tolerate the cookie-cutter approach the big firms are pushing onto your branch, then go along and don’t rock the boat. But, make sure that your advisors know your true feelings. Let them know that you don't believe in the firm's push but do understand the firm’s goals and the fact that profitability protects payouts, benefits and support levels.

"Being a successful producer is the best job in our industry," he says.

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