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Mercer Launches Broker/Dealer for Legacy Assets

Mercer CEO Dave Welling says the new brokerage will help it better serve prospective clients and M&A prospects with long-standing commission-based assets at outside broker/dealers.

Mercer Advisors, a rapidly growing buyer of registered investment advisors, is launching its own broker/dealer, seeded by one of its acquisitions. The firm, which has $48 billion in assets under management and more than 25,000 clients, says the move will help it better serve prospective clients and M&A prospects that have legacy, or long-standing, commission-based assets.

“We feel like this move is very consistent with our position as a fiduciary, and we feel like this makes a lot of sense to be able to support our clients and be able to act in their best interests to have this capability when and where it’s needed,” said CEO Dave Welling. “This is one of the areas where our scale shows up; taking this on is not for the faint of heart; it’s an operational lift, and is a regulatory lift. We’re big enough and have enough business that we felt like the direct investment made sense.”

Since 2016, the firm has acquired over 75 firms, about a dozen of which had partnerships with "RIA-friendly" broker/dealers, including Raymond James, Commonwealth and Lion Street Financial, said Welling. But the firm found the operational support model was "weak" and created a subpar client experience. Bringing those legacy assets under Mercer’s b/d allows the firm to control the client and advisor experience, he said.

Mercer has had a particularly close relationship with Raymond James, having acquired some 11 teams affiliated with its independent contractor channel, including McGee Wealth Management, Atlanta Financial Associates, Quest Capital Management and M.J. Smith and Associates. The firm currently has $5 to $6 billion of fee-based assets custodied with Raymond James, and those assets will stay there as it remains a custodial partner. The assets on Raymond James’ and other third-party brokerage platforms, however, will eventually be consolidated into Mercer’s b/d.

Mercer has received approval from the Financial Industry Regulatory Authority to convert Heim, Young & Associates’ b/d affiliate into a Mercer Advisors company, MA Brokerage Solutions. Mercer acquired $1.2 billion RIA HYA Advisors and its b/d affiliate last May. Welling said the firm’s b/d was well established, with a strong operational and compliance team, which gave Mercer the conviction to move its other brokerage business to it. 

“[HYA] was led by people who were already operating an RIA, already approaching the world as fiduciaries, so how they were using the broker/dealer under their roof is very consistent with our approach,” Welling said.

HYA also had a lot of success serving millennials and younger clients, where the relationship with an advisor can start at the b/d and move to an AUM-based fee model as their financial means and complexities change. Welling said Mercer is excited to see if that growth model can continue.

The decision was not only driven by M&A, however. Over the last couple years, the firm has had many prospective clients come to Mercer already holding some commission-based products, such as annuities, and the financial planning analysis will typically find that it’s in the best interest of the client to continue to hold those assets.

“What we’ve learned is that our clients and prospects also look to us as that financial planner who helped them connect the dots of their financial lives and help pull all the pieces together and help represent them across a broad spectrum of not just their investment portfolio, but also as it relates to other aspects of their financial lives,” Welling said. “Trying to coordinate on their behalf across a cadre of other broker/dealers, whether they go under the ‘friendly’ broker/dealer or not, was just really choppy.”

For example, having to coordinate several data feeds across other parties was more complex than it should be for a firm that wants to provide clients with a seamless experience. 

“It adds yet another entity in the chain of communication between the client and getting something done,” Welling said.

Welling stressed the launch of the b/d does not change the firm’s mission and trajectory as a fee-only fiduciary. Mercer advisors’ compensation plans will continue to be based on serving the client, not related to the sale of any kind of product. Advisors are paid a base salary and bonus based on how well they serve clients and whether clients stay with the firm.

“The person in the position of providing the guidance or advice to the client is incented in a way that allows them to act in the best interest of the clients,” Welling said.

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