New firm bets it can shed Stanford taint

As if starting a wealth management firm amid this economic environment weren’t hard enough, Solamere Advisors — which opened its doors in Charlotte, N.C., last month — has an additional challenge: 10 of its 11 financial advisers worked in Charlotte for scandal-plagued Stanford Financial Group Co. of Houston.

Nevertheless, the new firm and its financial backers, led by private-equity investor Tagg Romney, are betting that client loyalty and the advisers’ long-standing ties to their city will overcome any negative reaction to their association with Stanford.

“We’ve been in Charlotte for a long time. I’ve worked with Wachovia [Corp. of Charlotte] for 22 years and Stanford for only four months, and no one worked at Stanford for more than 14 months,” said Leila Evans, a Solamere Advisors partner.

“Our clients are aware of that, and they know that we found out about the alleged fraud at Stanford at the same time the public did.”

Mr. Romney said that he and his partners were initially “hesitant” to invest in Solamere Advisors because of the Stanford association.

“But the only people who matter are former clients,” he said.

After doing due diligence among former clients of the Solamere advisers, “no one expressed dissatisfaction,” said Mr. Romney, who is co-founder and managing partner of Solamere Capital LLC of Lexington, Mass., a private-equity firm that has no stake in the new advisory firm. His father, Mitt Romney, is a former governor of Massachusetts and was a Republican candidate for president last year.

The younger Mr. Romney and two other managing partners from the firm are investing in Solamere Advisors individually. They have also invested in a startup firm that specializes in commercial-backed mortgage securities, which he de-clined to name.

HEAVY LIFTING

“The clients were very supportive,” Mr. Romney said. “They recognized that the advisers were in the wrong place at the wrong time.”

But Solamere Advisors still has some heavy lifting to do, industry observers said.

“They’re starting with a negative affiliation and will have a higher bar to get over than other new firms,” said Eric T. Bradlow, professor of marketing at the Wharton School of the University of Pennsylvania in Philadelphia.

“They have to get past their affiliation with a broken brand promise and need to clearly state exactly what their own brand value and proposition is,” according to Mr. Bradlow, co-author of “Marketing for Financial Advisers” (McGraw-Hill, 2009).

Industry analyst Alois Pirker, senior researcher for Boston-based Aite Group LLC, described Solamere’s launch as “the ultimate challenge.”

“It definitely won’t be easy,” he said. “Most of their clients will predate their affiliation with Stanford, but to ask them to change yet again is asking a lot.”

Some industry observers think that Solamere Advisors has a fighting chance to succeed.

In fact, the firm’s challenges won’t be much different than those at any other startup, said Jeff Lauterbach, a wealth management and family office consultant in Chadd’s Ford, Pa.

“It’s awfully hard right now for people to trust any firm that hasn’t been around for five to 10 years,” he said.

“I’m not sure Stanford matters that much for Solamere. If they fall on their sword and say, “We made a mistake and are glad to be out,’ I think 95% of their clients will stick with them,” Mr. Lauterbach said.

That indeed appears to be the basis of Solamere’s marketing strategy.

The firm initially will focus on face-to-face meetings with former clients, preferably those with $2 million or more in investible assets, as well as referrals from local law firms and certified public accountants, Ms. Evans said.

Hans Peterson, a managing partner in a Charlotte private-equity firm, has signed on. He was a client of Solamere Advisors managing partner Stephen Wilson’s for two years at Wachovia Wealth Management and for several months at Stanford.

“I absolutely did not lose confidence in Steve,” said Mr. Peterson, who spoke on Mr. Wilson’s recommendation.

“He and the rest of the team were victims as well. I don’t hold it against them at all,” Mr. Peterson said.

He added that he didn’t lose money at Stanford, because his account was still in the process of being transferred when the firm’s assets were placed in receivership by a federal court in Texas in February.

The advisers and Mr. Romney declined to say how many clients and how much in assets under management Solamere Advisors has at the moment. Solamere’s 11 advisers collectively managed $1.2 billion in assets prior to arriving at the firm.

“GREAT REPUTATION’

The Solamere advisers ended up at Stanford because of its “great reputation” in Charlotte, said Mr. Wilson, who worked for the disgraced firm for four months after spending 15 years at Wachovia Wealth Management.

“We did our due diligence, and we spoke to law firms who spoke glowingly about Stanford,” he said.

“Stanford had hired the best of the best in our industry as it tried to expand its wealth management business,” Ms. Evans said.

She remained impressed after joining the firm and meeting R. Allen Stanford, chairman of the firm, who was charged in U.S. District Court in Houston with orchestrating a $7 billion Ponzi scheme that defrauded about 30,000 investors.

“Things were going really well in terms of the resources they were providing,” Ms. Evans said. “It was a very brief affiliation, and we’re not trying to hide from it.”

E-mail Charles Paikert at [email protected].

Related Topics: Wealth Management