Secondary offering creates adviser power bloc

Its dream was deferred once, but National Advisors Trust Co. wasn’t going to make the same mistake twice.

The Overland Park, Kan., de facto cooperative of independent advisers did far more than raise $2 million in cash and add 26 firms as shareholders with the closing of its secondary offering March 31. It injected new life into the dream of creating a pool of independent advisers who can make their own rules and flex their muscles in the market.

The first efforts to form the company date back to 1999.

“The first time around, a lot of firms were just investors,” says Tom Burkhart, chairman of The Savant Group, a San Francisco-based independent, privately owned, fee-only investment advisory firm.

“Only 20% were committed” to putting up assets, adds Mr. Burkhart, an original investor in, and board member of, National Advisors Trust. Now “it’s a whole new ballgame.”

With this injection of activist blood, David Roberts, president and chief executive of National Advisors Trust, says the company is back on track in creating the dream scenario for lone wolves who also want the power of a pack.

Cash is pouring in at a rate of $50 million a month, and Mr. Roberts is cutting favorable deals left and right because of the trust and asset custody company’s buying power.

“The attraction is that they can be owners,” he says. “They have some control over who runs it, pricing, services and technology. That’s something they can’t get from Fidelity or Schwab. What is possible here is really quite incredible.”

National Advisors Trust has already negotiated some deals to reduce minimums with elite money managers. It also signed a national contract with BenefitStreet Inc., a San Ramon, Calif.-based 401(k) provider, and the contract improves the economies of scale for independent advisers who wish to offer plans.

“A number of the things we dreamed about are really happening,” says Kurt Brouwer, another original NAT investor. Mr. Brouwer is president of Brouwer & Janachowski Inc. in Tiburon, Calif., which has $400 million under management.

‘2 million reasons’

Robert J. Powell III, a consultant with Acadient Inc. of Boston, a developer of Internet-based training programs, says it isn’t clear to him that the world needs another agglomeration of advisers, considering the number and quality of the ones that already exist, such as Schwab.

But one new investor/customer, whose firm has $250 million under management, says it was an easy decision for him.

“There are 2 million reasons we wanted to affiliate,” says Mack Washam, president of Harbor Capital Management in Charlotte, N.C. “But most of all, we wanted to get away from the broker-dealer environment, where the clients are bombarded by the mailing and all that stuff.”

Mr. Burkhart says that atmospheric difference is key.

“Not that we can’t get similar products from Schwab or Fidelity,” he says. “But with [National Advisors Trust], we get a seat at the table. We are the table — it’s ours.”

For example, Mr. Burkhart expresses frustration that San Francisco-based Charles Schwab & Co. Inc. raised its OneSource fee to 0.4%, from 0.35%, as of April 1 (InvestmentNews, March 3).

Technology bottleneck

Of course, National Advisors Trust’s board of directors raised the company’s own administrative trust fee to 0.3%, from 0.25%, at its most recent meeting, Mr. Roberts says.

National Advisors Trust now has $600 million in custody and another $100 million that has been committed, but the potential pool represented by its 108 owning firms is “way north of $30 billion,” he adds.

“If we can get 5% to 10% [of the latter pie] over two to three years, this will be a very viable offering,” Mr. Roberts adds.

One huge improvement in attracting assets was the addition of an interface with Advent Software’s back-office system. National Advisors Trust chose to create an interface with Centerpiece, Schwab’s back-office software, first.

Mr. Burkhart says this technology bottleneck deterred many of the larger advisers, including his company, from placing assets with National Advisors Trust.