Schwabbies and those who custody with Fidelity and TD Waterhouse take note: If you have at least $100 million under management, the Bear wants your business. Long a major player offering custody, clearing, and other services to broker/dealers, hedge funds, and institutional asset managers, the Bear Stearns Companies Inc. is now zeroing in on the independent advisor. Investment Advisor has learned that the New York-based broker is bent on capturing what it sees as an attractive and growing clientele: high-end investment advisors who are disenchanted with custody and clearing services provided by other brokerage firms.
“We’ve identified a relatively unsatisfied segment of the securities business, and that is the investment advisor,” says Ron Suber, a senior managing director. Most custodians don’t offer advisors the types of services they need to help them battle their staunchest competitors: big Wall Street firms and banks, he says. That’s where Bear Stearns hopes to come in. It offers advisors’ more sophisticated clients specialty services, including structured products, securities lending, and cash management. “Our goal is to provide [advisors] with resources so they can compete with the most powerful names on the street.”
Since launching Bear Stearns Advisor Services two years ago, Bear has experienced such success in signing up advisors with at least $100 million in assets that it’s adding new services and personnel to the division. John Tyers, a former Schwab executive, has been tapped to help spearhead the endeavor. “In the last 8 to 12 months, the firm has made a full commitment to be a top-tier provider to that mid- to large-size advisor business, just as we are a top-tier provider to the broker/dealer and hedge fund markets,” says Tyers, who heads registered investment advisor sales. He says the firm is targeting 1,500 RIAs who are registered with the Securities and Exchange Commission and have from $100 million to $5 billion in assets. “We will go below or above those numbers for firms that make good business sense. But it’s that pocket of firms where we see a huge void in the market in terms of the services they’re asking us for,” he says.
Bear already has 62 independent advisor clients with assets of $31.1 billion. It faces stiff competition from the top three custodians of advisor assets: Schwab, Fidelity Investments Institutional Brokerage Group, and TD Waterhouse Institutional. All have also set their sights on the high-end advisor market. But Robert McMillan, an analyst with Standard & Poor’s Corp., says the securities firm’s “really good brand name and tremendous assets” should help in attracting advisors.
Before joining Bear in April, Tyers worked at Credit Suisse First Boston, where he was part of a group charged with building an advisor division. From 1994 to 2000, he helped Schwab build its advisor business as regional VP for the Southeast. Both Suber and Tyers report to Richard Lindsey, president of Bear, Stearns Securities Corp., which is a prime broker for hedge funds, broker/dealers, and RIA services via Bear Stearns Global Clearing Services. The firm is best known for its longstanding record in servicing B/Ds and hedge funds, but Suber says Bear Stearns is no newcomer to the advisor business. “Bear Stearns clears for B/Ds that manage money, and those who are investment advisors,” he says. “Many of those broker/dealers are, in fact, money managers and RIAs, so we have tremendous experience and understanding of the [advisor] business already. What’s happened over the last couple of years is that many advisors have come to us saying, ‘I’m not a broker/dealer, but I’d like to utilize your unique solutions.’”
What’s unique about Bear, Tyers says, is the synergy that exists among Global Clearing’s three business lines–prime brokerage, broker/dealer, and RIA services. All three “are extremely complimentary in servicing client needs,” he says. Suber adds that the head of technology oversees all three groups and can therefore “ensure that the [service] benefits, if applicable, are applied to all of our various clients” within each group. “If we learn something new that an advisor wants, we can apply that expertise and experience to the broker/dealers who may have that very same issue,” he says.
While Bear Stearns boasts 69 years on Wall Street and 25 years in the clearing business, the firm also offers advisors sophisticated trading technology, performance reporting, prime brokerage to 850 hedge funds, and customized portfolio systems, as well as custody services. But to address clients’ ever-changing needs, and position itself more strategically in the market, Bear Stearns has refocused its business around capital markets, wealth management, and global clearing. According to Bear Stearns’ latest quarterly report, released in August, the firm has $29.6 billion in capital and, as of May, total assets of $185.6 billion. The global clearing business represents a “significant portion” of Bear Stearns’ profitability, Suber says. Net revenues for Global Clearing Services in August were $186.6 million, a 2.8% decline from $192 million last year. Net revenues for the Wealth Management division, meanwhile, which includes private client and asset management services, hit $124 million, a 3.1% decline from the $128 million reached last year. Suber says Bear’s private client business boasts 400 brokers in the U.S. and abroad.
Tyers says being able to tap Bear Stearns’ wealth management resources is crucial in helping advisors compete for wealth management business. For example, he says, a number of high-end advisors are coming to Bear Stearns for help with short-term cash management. “There is a tremendous amount of money in cash, and it’s being parked for various reasons,” he says. “We’re able to leverage off of Bear Stearns’ treasury department business, which manages more than $20 billion of Bear’s own capital, and take that expertise and make it available to an investment advisor’s client or prospect who just sold a business and has $20 million,” Tyers notes. But the client “needs to keep $10 million available until he pays his taxes next year. We’re able to go to our treasury department and ask them what solutions they recommend in terms of cash management needs to help this advisor make a proposal to land that piece of business.”
Another draw for advisors is Bear’s experience in derivatives and structured products, Tyers says. That’s what convinced Jeremy Radcliffe, a partner with Salient Advisors in Houston, to custody his $300 million in clients assets with Bear. His clients are high-net-worth individuals and families with assets ranging from $10 million to $50 million, and many of them have concentrated single stock positions. “Bear has been helpful [in] working with us on ways to get liquidity and diversification for those types of clients, mostly through derivative transactions” like synthetic collars, Radcliffe says. “Bear can help us get the right transaction in place and get good pricing on it.”
Competing With Goldman Sachs
Tyers says Bear also has a nine-person restricted stock desk, and can assist advisors’ lending needs by providing large credits to their clients. Other successes have been Bear Stearns’ private-labeled client Web sites, as well as its performance measurement and reporting solutions. The firm also services a significant number of advisors “that use separate account managers, and we provide them with the technology and reporting infrastructure to handle that business,” he says. The new separate accounts consulting product will combine the due diligence, technology, and reporting services of the top three providers, Tyers says.
Custody and clearing also help Salient go head to head with its biggest competitor, Goldman Sachs’ private client group. “With Bear, we can provide the same kind of services and do anything we want to on the derivatives side, and we are not constrained by proprietary product offerings like a lot of [brokerage] firms,” says Radcliffe. He is also fond of Bear’s specialized product offerings like low-leverage, arbitrage-based hedge funds.
Bear provides clearing services for about 380 B/Ds, Suber says, serving firms that fall under four categories: money management, institutional, full-service retail, and active/quantitative trading. Because the needs of independent B/Ds who are money managers are converging with those of RIAs, Suber says, Bear Stearns can offer both “seamless integration from the moment they decide what they want to buy or sell, to how they report to the end client.” Tyers adds that by targeting the top 10% of advisors, Bear will be able to “provide a higher level of service” to these firms. In offering many sophisticated products to a few, Bear hopes to stand out.