Close Close

Technology > Investment Platforms > Turnkey Asset Management

Three Advisors, Three Stories

Your article was successfully shared with the contacts you provided.

Louis Berger, Washington Square Capital Management

When Louis Berger and his partner founded their RIA, Washington Square Capital Management, in New York City in 2009, they had to adjust their mindset.

“You go from being an employee of a major firm of 70,000 people to being a small business owner,” says Berger, who hooked up with Charles Schwab after leaving UBS Financial Services. “The psychology is completely different. You’re used to going through a chain of command, getting expenses approved or expensing. Suddenly, you’re writing the checks. All these expenses do add up.”

Berger took a hard look at projected fixed costs before making the jump. Here’s what the partners spent to start up: $10,000 legal fees; $2,200 a month for an executive office suite shared with other firms that includes a reception area, kitchen, conference rooms, phones, utilities, Internet and copier; $2,000 a year for a compliance consultant; $3,500 a year for a CPA who does the firm’s taxes; $2,000 for additional office furnishings (a couch, TV, lamps, filing cabinets, book cases and fridge); $5,500 a year for Morningstar Advisor software. Berger’s partner, by the way, designed the firm’s website.

Three years on, the firm, with $27 million under management, has retained 80% of its former clients. It was profitable within its first year.

 Jon Wakely, PW Global Advisors

As Jon Wakely, a partner in Boston-based PW Global Advisors quickly learned, the cost of legal and compliance consulting represents the biggest hit when an independent advisor sets up shot.

Wakely suggests setting aside $10,000 to $15,000 for that major expense. When Wakely formed PW in 2008, after leaving Merrill, the firm spent $10,800 the first year alone on compliance. Wakely, who custodies with TD Ameritrade, also recommends choosing a shared office suite, as he did.

“It got us a far better address in the financial district than we could have had without it,” says Wakely, whose firm currently manages $135 million in assets. “You’re a presence Day One. You don’t have to go out and buy furniture, you have an instant receptionist, access to conference rooms and videoconferencing and an Internet connection. And in this day and age, with almost everything Web-based, you don’t have to go out and spend tens of thousands of dollars on technology.” Their real estate cost that first year: $1,500 a month.

“When you’re making these initial investments you know in the back of your mind: Here’s my revenues for the last two years. If 80% of my clients come with me, here’s my projected revenue and here’s my estimated costs,” Wakely adds. “From a finance aspect, it’s fairly basic. Cash in, cash out and here’s what’s left over. There’s not a lot of guesswork involved.”

Robert Amato, Compass Wealth Management

It wasn’t the legal fees, rent or technology costs that took Robert Amato by surprise but some of the “unexpecteds”: E&O insurance, a city of Atlanta business tax, even compliance.

But with the help of a Charles Schwab transition team, Amato, a partner and office manager were able to leave Morgan Stanley Smith Barney in 2011 handily and with eyes open. Estimates at the time for upfront start-up costs ranged from $75,000 to $100,000. They came in at $50,000.

“The biggest wild card was legal issues and we didn’t have any. Our landlord was flexible, and we went middle of the road with furniture. We didn’t do the $25,000 mahogany desk. We kept it respectable but reasonable,” says Amato, who split costs down the middle with his partner. Both men, incidentally, each repaid the wirehouse $200,000 still left on their contracts.

The partners also secured from Schwab a just-in-case loan to help finance first-year costs. “We really didn’t need it but it sure was nice to know it was available,” says Amato, whose Compass Wealth Management manages $125 million in assets from its Peachtree Street address in Atlanta’s Buckhead district. “It gave us a comfort level.”

Ongoing first-year costs—health care, salaries, taxes, among them—were estimated at $290,000. Amato says they are coming in at around $225,000. The firm was profitable its first quarter.

“One of the biggest surprises is the a la carte scenario that’s available: outsourcing. Frankly, we’re amazed at the companies that will piecemeal in and do any facet of what you don’t want to get your hands dirty with,” he adds. “We outsource anything and everything we can that takes us away from asset allocation and client communication. As a result, clients are going to get more of our A game.” 


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.