U.S. Trust loses $5.9B adviser to new wealth venture

Todd S. Thomson, Citigroup Inc.'s former head of wealth management, lured a top Bank of America Corp. financial adviser with $5.9 billion in client assets to join a new business that caters to independent advisory firms. Michael C. Brown, 52, said he left Bank of America's U.S. Trust unit last week to join New York-based Dynasty Financial Partners, founded by Thomson and Shirl Penney, another ex- Citigroup manager. Brown's clients had a typical net worth of $50 million, according to Barron's, which ranked him 28th on its most recent list of the top 100 U.S. financial advisers. His departure may revive concern about the ability of brokerages such as Bank of America's Merrill Lynch to keep top producers as the companies grapple with mergers, stagnant stock prices and bad publicity tied to probes of mortgages and securities underwriting. More than 7,300 advisers have left the four largest full-service brokerages from the beginning of 2009 through June, according to research firm Aite Group LLC. Brown's defection is “another indication of what I would define as the dysfunction of Bank of America and other major firms,” said Tim White, a partner at Dallas-based executive recruitment firm Kaye/Bassman International Corp. Bank of America, the biggest U.S. lender, took $45 billion from U.S. bailout programs and had to offer retention packages to keep top advisers when the Charlotte, North Carolina-based company acquired Merrill Lynch & Co. in 2009. Its biggest rivals include Morgan Stanley, Wells Fargo & Co. and UBS AG. Big Against Small “Every one of those businesses is in some way in a bit of disarray,” Thomson, 49, chairman of Dynasty, said in an interview. “It used to be an advantage to have a large brand on your card. I think many today feel it's a disadvantage. If you're a financial adviser, you don't want to spend time talking to clients about what's going on at your firm.” Matt Card, a spokesman for Bank of America, said yesterday the bank had no immediate comment, and media representatives for Morgan Stanley, Wells Fargo and UBS didn't return calls placed after regular business hours. Brown, who will be director of wealth management at Dynasty and an investor, declined in an interview to specify how many Bank of America clients will migrate with him. Typically, an adviser takes about 70 percent of their customers when they leave a brokerage, said White of Kaye/Bassman. Thomson's Return Dynasty is a potential comeback for Thomson, once considered among potential successors for ex-Citigroup Chief Executive Officer Charles O. “Chuck” Prince. Thomson was dismissed by Prince from the New York-based bank in January 2007 after infractions that included inappropriate use of company aircraft, three people with knowledge of the decision have said. Thomson was head of Citigroup's brokerage and private bank for two years and was the bank's chief financial officer for four years before that. Penney, Dynasty's CEO, worked for Thomson in various roles, including director of business development for global wealth advisory services at Citigroup's Smith Barney, according to Dynasty. He left Citigroup in 2008. Dynasty investors include William Donaldson, 79, former chairman of the U.S. Securities and Exchange Commission and ex- CEO of the New York Stock Exchange, and Harvey Golub, 71, the former American Express Co. chief who resigned as chairman of insurer American International Group Inc. this year. Both men are also directors. They confirmed their participation in Dynasty without elaborating. Assets Increase Penney cited research by Boston-based Cerulli Associates that independent advisers will reach $5 trillion in client assets and said Dynasty can capture 1 percent of that, or $50 billion, by 2016. His firm offers a technology and services platform for independent advisers, some of whom, like Brown, left established brokerages. Penney is in talks with about 30 teams managing more than $15 billion in assets who are independent or considering making the leap, he said. Dynasty will also extend loans to pay for setting up offices and returning retention bonuses, he said. Brown graduated from Columbia University in New York, where he played football, according to Dynasty. He began his career three decades ago at Merrill Lynch, spending six years there and about 10 years at Bear Stearns Cos. before joining Bank of America in March 2001 through its purchase of Montgomery Securities, leading a six-person team. His departure from Bank of America could serve as a template for other wealth advisers weary of being yoked to huge financial organizations with disparate missions, Penney said. Consumer finance divisions at U.S. banks are being pressured by slow growth and new regulations. Focused Approach “Our only focus here is wealth management,” Brown said in an interview. “No other business is going to have a negative impact on our firm.” Bank of America, led by CEO Brian T. Moynihan, 51, declined 21 percent this year in New York Stock Exchange trading on concern that costs from improper foreclosures and soured mortgages may be a drag on profit. The bank also endured public hearings and investigations tied to its takeover of New York- based Merrill Lynch, which spurred the bank to take a second round of U.S. bailout funds. The money was repaid last December. Dynasty provides research on institutional money managers, private equity and hedge funds, enabling advisers with at least $250 million in client money to attend to the “sophisticated needs” of individuals worth more than $10 million, Thomson said. By eliminating pressure to sell house brands, the business model lets brokers “sit on the same side of the table as their client and act as an adviser and get paid for advice, not have to act as a sales professional,” Penney said. Retention Pay Bank of America has spent millions of dollars to keep its best financial advisers. In November 2008, the bank said more than 6,200 Merrill brokers accepted retention packages, including 99.3 percent of those who generated annual revenue of more than $1.75 million. About 6,600 brokers who generated more than $500,000 were eligible for bonuses from 50 percent to 100 percent of annual production. As the merger took shape, recruiters said some veteran brokers were worried Bank of America would impose a more hierarchical, cost-conscious style. Sallie Krawcheck, 46, the head of wealth management, vowed in August 2009 to preserve Merrill's own culture. U.S. Trust, founded a decade before the Civil War, was purchased by Charles Schwab Corp. in 2000. Bank of America agreed to pay $3.3 billion for the business in 2006 to add to its units that manage the assets of wealthy Americans. Wealthy Clients Brokerage firms are ramping up expansions that cater to the wealthy. JPMorgan Chase & Co., Citigroup, Goldman Sachs Group Inc. and Deutsche Bank AG are hiring bankers devoted to helping more affluent clients. Meanwhile, assets under management at the four top brokerages declined 16 percent to $4.75 trillion from 2007 through 2009, while jumping almost 14 percent to $1.54 trillion at independent firms, according to Aite. Bank of America had about 20,000 brokers, advisers and wealth-management bankers with $2.2 trillion of client balances as of Sept. 30, according to its website. Wells Fargo, which acquired Wachovia Corp. in 2008, has about 15,000 advisers running $1.1 trillion of client assets. The bank is based in San Francisco. New York-based Morgan Stanley's wealth-management business has about 18,000 advisers and $1.6 trillion of client assets. The figures include the Morgan Stanley Smith Barney brokerage, created last year through a joint venture with New York-based Citigroup, which is still 11 percent owned by the U.S. government following a $45 billion bailout in 2008. Zurich-based UBS, which had to get its own bailout from the Swiss government, has about 6,800 advisers with about 743 billion Swiss francs ($763 billion) of client assets in its Americas wealth-management unit. While the government has since sold its stake, the shares remain down 76 percent since the start of 2007. --Bloomberg