Peter Mangan is back, and he is looking to run a custodial business catering to independent advisors again. Only this time, Mangan owns the firm. Mangan ran the advisor division of Jack White & Co. in the 1990s. In 1998, after Waterhouse acquired White, Mangan served for two years as the president of T.D. Waterhouse Institutional Services before being tapped to run Waterhouse’s mutual fund supermarket. About a year ago, Mangan left Waterhouse to move his family back to San Diego, and now he has resurfaced to run Shareholder Services Group.
Why would you start a custody firm for RIAs in the middle of a bear market when the established firms in this market are struggling? With the market in the tank and with Wall Street analysts discredited and wirehouses up and down the Street having their names dragged through the mud, it may seem like a terrible time to start a brokerage firm. But we think the timing is perfect. Individuals who have been burned by the market and who have lost value in their portfolios realize they cannot do it on their own. People relying on wirehouses for advice realize their research and advice will only be as good as the brokerage firm allows it to be, and many of them have been found to have been compromised.
Independent advisors are what people are looking for, and we’re only in the first inning of that game. The brokerage firm we’re starting will capitalize on these undeniable market trends. We have the full array of brokerage services. That is, access to all equity markets and securities, a mutual fund supermarket, fixed income and options as well as money markets, check-writing, and debit cards.
We have not yet fixed prices on trading, but we are planning to be neither the most expensive nor the least expensive. To make a trade, you call our 800 number to our staff in San Diego, where we have four staffers handling these calls. We know the San Diego labor market in this industry and have hired capable people who have worked with advisors in the past.
What Your Peers Are Reading
Aren’t there already enough custodians? Why would advisors use you? We are a brokerage and custody services provider exclusively for financial advisors. We won’t market to individuals. We won’t sell investments or advice directly to investors. This is part of our corporate charter. So when an advisor’s client looks at a statement from us, they see Shareholder Services Group in one corner and the advisor’s name in the other corner. The client won’t have any deep connection with SSG.
We’re just a vendor that sends out the statements for their advisor, and we want it that way. We have been in this industry long enough to know that investment advisors need a place, and demand a place, where they know their business will be protected and where the relationships with their clients will be secure. So our mission is to provide services only to advisors and never market to individual investors. We want to be the most trusted custodial firm for independent financial advisors.
You are clearing through Bank of New York. Firms like Schwab, Fidelity, and Waterhouse are self-clearing. So you are imposing a fee as a middleman that they do not need to impose. How can you effectively compete? Bank of New York acquired Pershing earlier this year, and the combined firm is by far the largest clearing firm out there, which keeps our costs low. But a clearing firm does not provide discrete services to the underlying customers. We do. If you are self-clearing, you have some costs that you don’t have as a correspondent of a clearing firm.
Think of the overhead that goes along with being in the clearing business: a full margin department, a seat on an exchange, data processing, producing statements. A lot of the overhead does not bring revenue to the bottom line or is irrelevant to being a broker for RIAs. By not being self-clearing, we don’t have the same expenses and can work more efficiently in our niche. At Jack White, we cleared through Pershing for years and we know the costs. Our advisor division at Jack White was profitable. It was the crown jewel of the operation. So we’ve have had experience clearing through firms like Pershing and BONY.