Death, Delusional Clients and Other Hard Lessons From a Breakaway Broker

How a friend’s death led a wirehouse broker to go independent; lessons learned from a difficult, delusional client; how to prevail against a client suing for alleged portfolio mismanagement—these are just a few of the stories the 30-year veteran advisor Bob Collins tells in a new book he hopes will inspire advisors to reach success.

Collins’ just published book, Principle Matters, tells the unlikely success story of a newly minted college graduate who in 1982 took his first job with a brokerage firm, First Jersey Securities, where the branch manager handed out scripts. He had not known the firm was a boiler room pushing penny stocks.

“I started on a Monday and quit on a Friday my first week in the business,” Collins told AdvisorOne in an interview. The firm’s CEO eventually went to jail, but Collins learned through a career strung with surprising ups and downs how to make it in an industry he feels fortunate to be a part of.

The 52-year-old principal of Bethesda, Md.-based Collins Investment Group, an independent broker clearing through Wells Fargo Advisors Financial Network (FiNet), heads a team managing around $600 million, and is a former Research Magazine Advisor Hall of Fame honoree and a Barron’s Top 1,000 Advisor.  

But even just a few years ago things were not going so smoothly for Collins, having made the fateful decision to go independent just months before the Lehman bankruptcy that brought the market plunging.

Collins tells how the sudden death of a friend, in his late 40s, sparked the decision to go independent, with all the difficulties such a move can entail for a wirehouse broker. Collins started worrying about what would happen to his wife and his daughter if he were unexpectedly to die.

And on the business side, “I started thinking about what would happen to my team if I got hit by a bus. My team would have to find new jobs and everything I built up just implodes. That is probably the No. 1 reason why I left.”

Wirehouses, at least at that time, he said, just divvied up the clients and dissolved the team that managed the business. Wirehouses today have some better policies to address succession, but the approach then, he said, was “I hope you have a lot of life insurance.”

The move was costly and risky. Collins had to leave behind nearly $1 million in forgone retention bonuses and would have to pay a percentage of first-year revenue to buy his book of business.

Bouyed by an outside valuation that valued his business at something like four times the retention money, Collins determined the pain could be endured to free him and his team to build their business independently.

“In a corporate situation you don’t control your own destiny,” he says.

What he could not have foreseen, though, was the Lehman crisis, which brought about a litany of woes: “assets dropping; fees dropping; clients getting nervous; and [I had a] team of eight with a lot of overhead.

“My clients got through the crisis because their income off their principal did not drop dramatically,” said Collins, adding that he always told his clients: ‘You never want to count on the stock market to pay your bills.’”

But the advisor found that to survive the downturn, he had to suspend that principle himself, dipping into his own capital in early 2009, to weather the storm.

“There were months there where I had to go against my cardinal rule about going into principal. So I made a decision to take it quarter by quarter.” Collins said the market bottomed out by the spring of 2009 and by September of that year, the business was on a secure footing.

That fact that his incipient firm survived Lehman and has gone on to thrive suggests to him that “high-end advisors don’t need wirehouses anymore. I predict that more and more higher-end advisors will leave the wirehouses and start their own businesses.”

Another lesson learned from going independent?