Sanctuary Wealth Services is quietly gaining traction by establishing a strong niche among newly minted registered independent advisors in the San Francisco Bay Area, as this article explains.

Dynasty Financial Partners and HighTower grab most of the
headlines when it comes to the business of providing a platform of support
services for high-end breakaway brokers, but Sanctuary Wealth Services is
quietly gaining traction by establishing a strong niche among newly minted
registered independent advisors in the San Francisco Bay Area.

In fact, the nearly three year-old company is holding its first
annual advisor conference today [October 3] in its San Francisco home office, bringing together
its nine client advisory firms who together have approximately $3 billion in
assets under management.

All but one of those firms are based in the Bay Area (the other
is in Colorado), and of the three new firms Sanctuary expects to sign by the
end of the year, all are in California and two are close to San Francisco.
What’s more, Sanctuary expects to continue building up its base in California and the Bay
Area for two to three more years before expanding nationally, according to
chief executive Jeff Spears.

“Our advisors tend to work with high net worth clients who
own public companies, and you see a lot of that on the west coast,” Spears
said. “Our platform is most attractive to that type of advisor.”

Broker-dealer
addition

To accommodate the specialized needs of owners and top
executives who own shares of restricted stock in publicly traded companies,
last year the firm launched its own broker-dealer, Sanctuary Securities.

The move was logical because so much wealth on the west
coast is tied up in stock from tech companies who have gone public, such as
Facebook or LinkedIn, Spears said. Shareholders are required to disclose any
sale of their stock, and having a brokerage firm who can handle the legal
requirements of the sale is a big plus for the firm, Spears said.

Having a broker-dealer who can execute restricted stock
sales also allows Sanctuary advisors to better discuss financial planning
diversification strategies with their clients, Spears added. “After a company
goes public, owners often have 90 per cent of their wealth tied up in the stock
and that’s just too much. They need to diversify and this way we can help them
do it.”

Sanctuary, which is one-third owned by San Francisco-based
brokerage firm and investment banker JMP Securities, also has a Securities and
Exchange Commission registered RIA, Sanctuary Advisors, which advisors can join
if they don’t want to brand their own firm.

And for all its advisors, the firm provides transition
services and support services such as compliance, access to multiple
custodians, financial accounting and performance reporting, client billing and
money manager due diligence and research through its partnership with LPL-owned
Fortigent.

Dynasty dominates
field

For all of Sanctuary’s progress, it  is still very much in the shadows of Dynasty,
itself less than four years old, which now works with 16 advisory firms which
have over $13 billion in assets under management, and seems to average about
one blockbuster announcement a month.

Spears, who, along with his co-founders Keith Ogden and
Randy Baum owns the other two-thirds of Sanctuary, says his firm and Dynasty
rarely compete for the same client. He says, for example, that Sanctuary
wouldn’t be the right provider for a Dynasty client like a large bank trust
department, while Dynasty hasn’t made inroads into Sanctuary’s specialized Bay
Area tech niche.

Also, Dynasty provides its support services on an a la carte
basis, while Sanctuary pay the firm a percentage of revenues and can access any
service on its platform.

As for the newest entrant in the outsourced platform market,
Spears thinks HighTower made a “smart move” to join the party and diversify
from its established acquisition model.

“They already have the infrastructure, and now they can
appeal to a wider audience,” Spears said. “There are large advisors out there
who don’t  think the economic proposition
of HighTower buying their business is that great, but now they’re potential
clients for HighTower services.”

Boutique experience

According to industry consultant Jamie McLaughlin, there’s
plenty of room in the market for Sanctuary to compete with Dynasty and
HighTower.

Sanctuary gives brokers a “boutique experience,” McLaughlin
said, along with a combined "wise counsel" and a capital resource,
although perhaps not with “a phalanx of people, however capable and resourceful
the other, larger presumptive competitors may be.”

The brokers are often “great relationship guys who are
highly self-aware and know they lack the full range of business experience to
go independent”, McLaughlin continued. 
“Jeff provides them a combination of emotional comfort and
straight-talking, business judgment to assuage their fears and help them focus
on what they need to manage in transaction or where they can cobble together
the resources to stanch the operational gaps.”

“Time is on our side”

As Sanctuary approaches its third anniversary in February,
Spears remains optimistic. The firm’s biggest challenge, he says, is convincing
breakaway brokers that it’s in their best long-term interest to take the chance
of going independent rather than realize the short-term gain of selling out to
another broker for cash upfront.

But he also thinks Sanctuary and other outsourcing firms
will benefit from an upcoming crop of brokers who signed retention bonus deals
in the depths of the financial crisis and whose seven-year contracts in the
form of forgivable loans are winding down.

“Someone who signed a deal in 2008 only has two more years
to go next year,” Spears said. “If they want to go independent, we’re working
with City National Bank and can offer them a loan to allow them to pay off the remaining
balance of their retention deal.”

For Sanctuary and Dynasty and HighTower, “the math works
better today than it did one year ago,” Spears said. “Time is on our side.”