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What Merrill Lynch was able to strip away from breakaway RIA Cardan Capital and why the advisors made the ‘tactical’ decision to let go – RIABiz
These Denver-based advisors achieved a rarefied status at BoA’s broker-dealer as money manager and wealth manager before deciding to bolt.
By Brooke Southall
December 1, 2015 2:46 PM EST
Brooke’s Note: This breakaway story highlights another facet of turning a wirehouse book of business into an RIA shop: It’s not always what you can take with you but the ability to let go in service of the bigger picture. The wirehouse world has been in a state of oxidation for years, one which has mostly taken the form of rust. Now that oxidation is looking more like fire that demands advisors make unsentimental decisions and focus on what is important for the future.
When your house is on fire, you grab a few things on the way out the door: the cat, the passport, the prescription glasses — not necessarily in that order. All else is meaningless as the flames lap at your feet.
In getting the heck out of Merrill Lynch, the partners of Cardan Capital Partners LLC left behind something both hot and irreplaceable: a 12-year track record of investing success — one that had helped them amass more than $700 million in managed assets from their own clients, some of whom had migrated from other advisors within the Merrill Lynch and U.S. Trust ecosystem. See: Merrill Lynch and Bank of America cultural tension may spin out a new round of breakaways, recruiters say.
Unburdened of assets
The bold move by the breakaway RIA was both practical and strategic, according to the attorney whose firm assisted in its transition.
“They left that performance behind so that they could leave unfettered by any restrictions,” says Brian Hamburger, head of Market Counsel, based in Summit, N.J.
“The team made a tactical business decision that the opportunity that lay in front of them was infinitely more valuable than what they were leaving behind.”
Under Merrill, the Denver-based practice acted as both wealth manager and a de facto separate account manager, which reduced fees for Cardan’s wealth management clients.
But it was also a factor in the team’s decision to leave behind the assets it managed as a money manager, says Matthew Papazian, a managing partner at Cardan Capital.
“We had no intention of ever going after them,” he says. “Their financial advisor was their primary contact.”
Brian Hamburger: The opportunity that lay in front of them was infinitely more valuable than what they were leaving behind.
The Cardan team follows in the path of former Merrill Lynch/Smith Barney portfolio managers like Jack Swope who, with his son Doug, left after 23 years at the wirehouse to start his own RIA in Wayne, Pa. back in 2009 — even though Smith Barney had a robust program, Portfolio Management Group.
In taking the independent route, Papazian sees an opportunity to work more closely with corporate executives, professionals, business owners and entrepreneurs in Denver and other key Colorado cities, Vail and Aspen. The team is comprised of Matthew Papazian, Dick Sisung, Ross Fox, Marti Awad and Sarah Keys. Awad and Keys are lawyers by training in addition to being advisors.
Indeed, certain Cardan Capital clients made it abundantly clear that it behooved the team to turn independent.
“We have clients at hedge funds and money managers and they asked what we were doing,” Papazian says.
Escaping the wirehouse corporate structure also opens up new vistas in terms of inorganic growth, says Shirl Penney, president and CEO of Dynasty Financial Partners in New York. “The Cardan Capital Partners team is poised for expansion — both by adding advisors and expanding their geographic footprint,” he said in a release.
Cardan will use Dynasty’s financial services platform, which includes Tamarac reporting technology.
Schwab Advisor Services will provide custody services and MarketCounsel will providing ongoing compliance support. Papazian chose Schwab because of its big presence in southern Denver.
Steady as she goes
A “Cardan suspension” is navigational tool used in sailing to ensure a ship’s stability and balance in both calm and rough waters.
Thus far, with legal help, the startup is charting a steady course.
“The team was purportedly the first advisors within ML to have their own composite performance reports,” Hamburger says. “Our role is, as always, is to frame out a business decision and put the team in a position to make it with eyes wide open. The best surprise of all is no surprises in these transitions.”