(Adds Focus comment on breakaway brokers, paragraphs 7-8)
By Jed Horowitz
NEW YORK May 6 A team of Merrill Lynch advisers in Bethlehem, Pennsylvania, whose senior member has been with the firm for more than 40 years, left last Friday to set up an independent firm.
Herman Rij, who joined Merrill in 1971, and partners Jason Cort, Brian Cort and Kori Lannon - who is Herman Rij's daughter - have established Quadrant Private Wealth to manage the money of wealthy individuals, their businesses and charitable organizations primarily for fees rather than commissions. At Merrill, they managed between $900 million and $1 billion of client assets, said people familiar with their move who could not be quoted because the transfer has not been announced.
A spokeswoman at Merrill, which is owned by Bank of America , confirmed they left the Bethlehem office but declined to comment on their assets or annual revenue.
Calls to the partners were not immediately returned. Jason Cort has been with Merrill since 1997, Brian Cort since 2002 and Kori Lannon since 2008, according to regulatory records. At least one associate also left with the team, a person at Merrill's Bethlehem office said.
Veteran financial advisers at traditional brokerage firms have been moving at a slow but steady pace in recent years to set up their own firms, making fee-based investment advisers the fastest growing "channel" within retail brokerage, according to consulting firm Cerulli Associates. Some leave because their former firms have raised the bar on the revenue they must earn, but successful advisers also have been moving to escape restrictions and bureaucracy associated with large firms, particularly those who were absorbed into much larger banks as a result of the financial crisis, or because they believe they can earn more by running their own firms.
Quadrant made its move through Focus Financial Partners, a New York-based company backed by private equity firms that buys stakes in independent firms and sometimes finances their start-up costs. Focus, which declined to comment before it formally announces the arrangement, is part of a satellite industry that has arisen to help so-called breakaway brokers from the securities industry establish and operate their businesses.
It particularly seeks to attract financial advisers from big brokerage firms such as Merrill Lynch, UBS Wealth Management and Morgan Stanley, known in Wall Street vernacular as wirehouses, giving them equity in the firm with the hope that Focus may someday go public.
"For wirehouse teams, ...our model will enable you to increase your effective payout while also working towards highly attractive growth incentives through earn-outs and the ability to participate in a future Focus liquidity event," reads a brochure that Focus distributes at securities industry events.
The founders of Quadrant converted a shell firm called Chloe Advisors, an investment adviser regulated by the U.S. Securities and Exchange Commission, to hold its business, according to a regulatory filing made on May 2 with the U.S. Securities and Exchange Commission.
Many independent firms charge fees based on the total client assets they help manage and eschew pay-as-you-go commissions based on trading of investments. Quadrant is mostly fee-based but its principals are maintaining insurance licenses and the ability to receive certain commissions by affiliating with an outside broker-dealer, according to the disclosure document.
Quadrant's planning and consultant fees generally will range up to $20,000 or more on a fixed basis, or up to $400 or more on an hourly basis, according to the filing. Clients for whom it manages investments directly or through outside money managers will pay 1 percent a year on the first $1 million of assets, ranging down to 0.4 percent on amounts over $10 million. Rates on amounts over $25 million are negotiable, the filing said. (Editing by Eric Walsh)