Jeff Spears, CEO of Sanctuary Wealth Services, helps wealth managers who have decided to leave “captive wealth management” at a bank or insurance firm to form an independent firm–typically a registered investment advisor (RIA). His background as national sales manager at Bank of America Private Bank, head of Montgomery Securities Private Client Group, and then as a partner in RIA Presidio Financial Partners informs his thinking and his candor.
Sanctuary provides “support and set-up…systems integration,” Spears said in a recent interview. Most of his clients, he says, are leaving wires for the RIA side of the business. Spears helps them “make the transition” and set up compliance, and he works with them on the due diligence function with Fortigent, a service provider to independent wealth managers.
Sanctuary, according to Spears, was founded to address the sea change that he believes will continue in wealth management from “sort of captive brand-name wealth managers that are conflicted–whether it be Wall Street or even trust banks” to an independent business model that serves clients as well as advisors. “We support them in that move, to get set up in that business as an independent wealth manager and help them to run it…something that [requires] expertise that most don’t typically possess.”
Spears spoke to WealthManagerWeb.com Editor in Chief Kate McBride on July 16.
WM: So, then, you’re a third-party provider of outsourced services?
JS: We would be comparable to a systems integrator in technology or a vendor services company.
WM: And your firm doesn’t manage wealth itself?
JS: We are entirely a support organization.
WM: And you work with the broker/dealer and RIA wealth managers?
JS: Many of the people that we help start their businesses–and we don’t advocate this long-term–are dually registered.
WM: So is the bulk of your business helping with the move from wirehouse to independent wealth manager of one kind or another?
JS: That is a significant part of it because that requires some heavy lifting; however the ongoing demands of running that business are significant. We remain very involved with our clients that we help transition, in running their business.
WM: What is the biggest piece you do for firms after transition?
JS: I’ll start with compliance, which is pretty topical…and a selection and vetting of myriad investment options, software for reporting, that type of stuff.
WM: Is it a due diligence kind of function–and are people actually making you the fiduciary in terms of money manager selection?
JS: We partner in the due diligence function–most of the due diligence function–with Fortigent; however we also have our own internal due diligence for alternative managers that might not be covered by Fortigent.
WM: When you say alternatives do you mean hedge funds, limited partnerships, or do you mean oil and gas and off-traded REITs?
JS: All of the above.
WM: You’d mentioned [in an e-mail] the new financial legislation: derivatives on exchanges lowers costs, more transparency, fees going down–all of that, are there any drawbacks about derivatives on exchanges?
JS: The positives [are] just dramatic–the price discovery against over-the-counter [derivatives]. The price of an over-the-counter derivative that shows up on you statement comes from the over-the-counter derivative’s dealer.
WM: So the price of, say a Goldman ABACUS deal–the underlying mortgages could be anything Goldman decides it to be?
JS: Yes, we’re saying the exact same thing, so that is, to me, a huge win for the consumer, to take something from the shadows–an oblique pricing structure of an instrument–and take it onto the public exchange.
WM: Just to have a tracker of the prices?
Sure, then the market is deciding what that price is, not some conflicted computer model.
WM: Still, it’s challenging to be able to price those exotic pools of securities–there will be some models going into those pricings anyway if you’re looking at 1,000 or 100,000 underlying mortgages, right?
JS: Yes–that will be the initial price, correct? By the originating firm: “This is why we think it’s worth par.” Then, minute two, it’s going to be worth…
JS: (Laughing) There’s no doubt that the embedded sales fees come right out of it, and then you get on a public exchange, the buyer or seller is going to set the price. The originator might be involved but they’re minimized. It’s analogous to decimalization on over-the-counter stock market–[when it] went to decimalization, and you really started to see more customer-friendly pricing. It’s a good thing, unless you’re a broker/dealer-wealth manager that was making 3% selling those over-the-counter derivatives.
The revenue and profits [after decimalization of OTC stocks] went down significantly. You’ve got to assume the same will happen in over-the-counter derivatives.
WM: And that lines up with the kind of protests that we’re hearing.
JS: The complaints, to me, have been pretty transparent, from Wall Street–and they’ve all been around, “Yeah we’re going to make less money, and we were able to make so much money because we were doing things that might not have been in your best interest, Mr. or Miss Client.”
WM: And that brings me to fiduciary: what will the firms that you have that are dually registered going to do about that?