Service agencies ready to help would-be RIAs map out their every last move. Three brothers, all of them former Merrill Lynch advisors, recently broke away to form their own wealth-management boutique. La Jolla, Calif.-based Callan Capital, run by Trevor Callan, Tim Callan and Ryan Callan provide investment counseling, pre-IPO and pre-merger planning, private-portfolio management and advice on tax minimization, risk management, philanthropy and estate planning to high-net-worth clients across the U.S.

North and a little inland from Callan Capital, another independent registered investment advisory (RIA) is getting off the ground. At Paso Robles, Calif.-based Taylor Frigon Capital Management former Merrill broker Gerard Frigon and his team provide wealth- and asset-management services to individuals, families and businesses in Northern and Central Coast California.

Trevor and Tim Callan were on the same Merrill Lynch Private Banking team in San Diego, serving clients with at least $10 million in liquid assets. Ryan was a broker with Merrill's brokerage-based Private Client Group. At Merrill they managed $300 million in assets for fewer than 60 families.

Frigon -- whose firm incorporates the name "Taylor" in honor of his late father-in-law Richard Taylor, a pioneering fee-only advisor who worked with Thomas Rowe Price in the 1960s -- is a 20-year Merrill veteran who left in January for the freedom provide custom-tailored asset management services to his clients.

Numbers

The fact that (at least) two RIAs have come into being this year in the same (gigantic) state with principals from the same (gigantic) wirehouse does not a trend make. But the context is pretty clear: some well-heeled fee-based brokers are leaving the safety and convenience of their big-firm homes for a stab at bigger payouts and more freedom of action.

If the exact number of brokers founding or joining RIA firms is a bit sketchy, RIA service agencies -- the companies that custody assets and facilitate trades for RIAs and so have a lively interest in the phenomenon -- say it's becoming more widespread.

In 2005, $30 billion in assets moved from the wirehouses to the independent RIA channel, according to Schwab Institutional. With around $13 trillion in client assets, the independent advisory channel -- independent RIAs together with independent, fee-based registered reps -- was the fastest growing outlet in the financial service arena in 2004, according to Tiburon, Calif.-based market research firm Tiburon Strategic Advisors. Fee-only independent brokers set the pace for the number of new practitioners, RIAs led in terms of asset growth.

Another way to measure growth in the independent RIA space, though it's far from perfect, is to consider growth of the custody providers. San Francisco-based Schwab Institutional, the leading RIA service agency with links to more than 5,000 firms and $502 billion in assets under administration at the end of 2006, has seen a 43% increase in assets through the past two years. Boston-based Fidelity's Registered Investment Advisors Group, which administered more than $247 billion in assets on behalf of more than 3,450 RIAs, bank trusts and third-party administrators at the end of 2006, has seen better than 40% asset growth since the end of August 2005.

Growth at the third-biggest RIA service agency, Jersey City, N.J.-based TD Ameritrade Institutional, is less revealing. With about $70 billion in assets under administration at the end of 2006, it seems to have experienced slower growth than its rivals through the past two years or 18 months -- but then it's still fairly fresh from the merger of its legacy parent Ameritrade with TD Waterhouse; mind you, that deal also gave it the U.S. assets from TD Waterhouse's small institutional business.

Discretion

The RIA custodian in the number four spot -- by a hair as it turns out -- is Pershing's Advisor Solutions (PAS) unit, which had $69 billion in assets under administration as of mid February 2007. Though it owes a good $10 billion of that to its acquisition last year of Neuberger Berman 's high-end RIA custody business, it has racked up a 68% increase in assets since the end of 2005.

Jersey City, N.J.-based Pershing has been supporting RIAs for about 15 years, but the channel wasn't much of a focus for it until 2005, says PAS head John Iachello. Now though, RIAs are responding to the "robust" brokerage and custody platform Pershing has customized to meet their special requirements -- especially around more sophisticated billing mechanisms and views across multiple custodians -- in addition to its moves to position itself as a "thought leader" in the space. A recent effort along those lines was the publication of PAS' Real Deals study on mergers and acquisitions of independent RIA businesses and a series of related workshop presentations.

The overall aim of this trade in intellectual capital, augmented by direct consulting, is to help RIAs "build [their] businesses into something more profitable," says Iachello.

But then PAS' thought leadership isn't unique in the service-agency game -- or even unique to custodians, as many investment-product wholesalers would be happy to remind you. Schwab, Fidelity and TD Ameritrade all publish studies and provide practice-management consulting services and other "industry awareness efforts," as Schwab Institutional's John Furey calls them. Schwab even runs a business-exchange and help-wanted service for RIAs.

Schwab is also happy to offer its services, discretely, to brokers considering the move to RIA status -- though again it isn't alone in that. Fidelity and Pershing run similar programs. "It's a very consultative process," says Furey. "It's starts with our having an understanding of the advisor's needs. So we'll sit down and take the time to understand where they want to take [their careers]."

For some advisors, this early-stage consultation leads to "hooking up breakaway brokers with existing firms," says Furey. For others it lays the groundwork for a new firm, often brought into being with help from the service agency.

Honeymoon

Other brokers go through the initial consultation only to find that the time maybe isn't right to break away. "I wouldn't say we turn away advisors," says Furey. "But if they're commission-oriented or if they have a small book [being an independent RIA] may not be the best fit."

In fact Schwab's breakaway consulting -- a free service, by the way -- is aimed at brokers with books of at least $50 million.

Once the breakaway-consulting ball gets rolling, however, it quickly runs to helping brokers sort through the multitude vendors in the space. "Some advisors choose to outsource an incredible amount of business," says Furey. "There's no one flavor of advisor, and they all have different product, different service needs."

But the care Schwab takes in supporting breakaway brokers pays off in terms of customer loyalty -- it least it has, so far, at Callan Capital and at Taylor Frigon.

"[Schwab] has an army of individuals who help people like us make the transition to our own firms," says Trevor Callan. "That's why we made the choice of using Schwab as our primary custodian -- that, and their deep infrastructure in the RIA space."

Schwab is Taylor Frigon's only custodian. "I'd much prefer to have one custodian," says Taylor -- though he adds that he'd engage whatever custodian he needs to serve his clients best.

"It's been extremely positive working with Schwab," adds Taylor. "I did a fair amount of poking around on my own" in terms of researching RIA-firm best practices, "but they're the masters; they've got the experience from working with other RIAs." -FWR

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