This time last year, Capital Guardian Wealth Management was a small firm with a single office in Belmont.
Today, Capital Guardian has seven offices, including new locations in Miami, Fort Lauderdale and Orlando, Fla.; Knoxville, Tenn.; Raleigh; and its first office in Charlotte.
By the end of the year, that number will increase to 12, with openings planned in Atlanta, Hickory, Winston-Salem, and West Palm Beach and Boynton Beach, Fla. The number of advisers at the firm has jumped to 32 from 10 at the end of 2008. That will likely increase to 75 by the end of this year.
And that dramatic growth has occurred amid a recession and a financial crisis that sent companies such as Wachovia Corp. into the ditch. How has Capital Guardian pulled it off? Alan Boyer, the firm’s chief executive, acknowledges Capital Guardian’s expansion seems counterintuitive at a time when the financial-services industry is in turmoil. But without that turmoil and its effect on retail brokerage firms, Capital Guardian couldn’t expand now, he says.
“We’re kind of benefiting from the debacle going on at all the large banks and large firms,” Boyer says.
The financial crisis has led to changes in ownership at some of the nation’s largest brokerage firms. Merrill Lynch & Co. — and its “thundering herd” of more than 16,000 financial advisers — was purchased by Bank of America Corp. Wachovia Securities, the retail brokerage arm of Wachovia, which has nearly 15,000 advisers, is becoming Wells Fargo Advisors this month, part of the bank’s merger with Wells Fargo & Co. And Morgan Stanley and Citigroup Inc. are combining their brokerage forces, with Morgan paying $2.7 billion for a 51% stake in the new entity, to be called Morgan Stanley Smith Barney.
Big brokerage mergers often lead to adviser defections. But even before those mega mergers, the brand names of the large brokerage or “wirehouse” firms had been badly tarnished during the financial meltdown. As the merger integrations continue, more advisers will look to leave for smaller regional and independent firms, some analysts believe.
In a research note this week, Daniel Fannon, an analyst with Jefferies & Co. Inc., wrote that “adviser defections will likely gain steam” going forward. Advisers and their wealthy clients will depart firms such as Citi, Morgan Stanley and Merrill Lynch for firms such as Raymond James, Edward Jones or the growing number of independent firms. “Given the reputational ‘black eyes’ and intensified regulatory scrutiny these firms are dealing with, we anticipate an accelerated shift away from the traditional power brokerage houses,” Fannon wrote.
For Capital Guardian, that shift means an accelerated growth plan. The company aims to be a Southeastern boutique brokerage firm. Boyer says now is the time to bring established advisers on board and to open offices in the markets where they live. During a single week in March, the firm opened its first offices outside of Belmont — in Knoxville, Orlando, Raleigh and Miami. The new Charlotte office is in the Morehead Place building, where the firm will have nine advisers. It likely will move its headquarters there this year from Belmont.
Capital Guardian also is negotiating to take over some space in the Packard Building on South Tryon Street, Boyer says. And it has hired real estate firm New South Properties of the Carolinas to scout for office space in the Lake Norman area and south Charlotte as well.
“There’s never been an opportunity like this to have the wirehouse guys come out and go independent,” Boyer says. Over the last four months, he says, he has spoken with 150 brokers up and down the East Coast about joining the firm. “It’s a little overwhelming.”
Tony Montanari, a Charlotte adviser who left Smith Barney to join Capital Guardian earlier this year, says his former firm had watered down its broker compensation plan and raised fees for clients. That makes it easier for brokers to make a move, he says.
“With everything that’s happened with all these larger firms, I think everyone began to realize that if anything, the name on the door was probably hurting your chances at getting clients,” Montanari says.
Capital Guardian’s three operating partners are Boyer, Chief Financial Officer Michael Fayed and Chief Investment Officer David McMahan.
The firm’s roots date to the early 1980s, when McMahan’s father, Michael, founded Investment Planning Services of Gastonia Inc. That firm ultimately became IPS Financial Services Corp. In 1999, Fayed and the younger McMahan, both graduates of Winthrop University, joined the firm. After working as an investment banker at Wachovia predecessor First Union Corp., Boyer, a Wingate University alum, joined in 2003. In 2005, the group relaunched the firm under the Capital Guardian name.
The firm previously functioned as a branch of Raymond James. But in 2006, Capital Guardian became its own registered broker/dealer, outsourcing its back-office operations to Pershing, an affiliate of The Bank of New York Mellon Corp.
Capital Guardian’s typical client has between $500,000 and $1 million in investable assets.
Boyer says the firm’s rapid expansion is financially taxing. But the firm expects its new offices to break even within 12 months after opening.
The downturn in the market has been tough for clients and brokerage firms, Boyer says, but it’s also giving smaller firms such as his an opportunity to transform themselves.
“It’s been a net positive.
