In Battle for Breakaway Brokers, Sanctuary Is Building a Strong Bay Area Base

Charles Paikert

3 October 2012

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 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 , 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.”