It was about 12 years ago when the lead advisors in a large Atlanta-based practice with Merrill Lynch met with Diamond Consultants to discuss going independent. As per the consultancy’s CEO, Louis Diamond, the response was a friendly but firm “No.”
“They said, ‘We’re the largest team at Merrill, we’re growing by an insane amount,” Diamond recalled. “Basically, use your time elsewhere, because we’re not a prospect for you.”
About a decade later, the times had changed. Merrill’s Global Corporate and Institutional Advisory Services team was consistently ranked by Barron’s as a top institutional wealth consultant and private wealth team. According to court documents filed last week, leadership had gotten frustrated with what it described as Merrill’s lack of investment in the division. It turned back to conversations with Diamond about what a move to independence would look like.
After about two more years of talks, the result was last week’s launch of OpenArc Corporate Advisory, a $129 billion Atlanta-based RIA specializing in corporate and individual wealth management. The firm is majority-owned by its senior leadership, has minority backing from a noncontrolling investor and boasts a pipeline of potential clients from its institutional business. In short, it is a ready-made, mega-RIA that would generally take years and multiple acquisitions to build.
“When it comes to moves, this is another order of magnitude,” said Corey Kupfer, who helps structure wirehouse moves at Kupfer & Associates, but was not involved with this deal. “First of all, for a team of that size and that nature to move at all is a big deal, and not to have moved to another wirehouse or private bank—it’s a new frontier.”
The road to creating OpenArc has not been easy, according to those who worked on the move. Nor was its launch, with a formal announcement preceded by a lawsuit filed by Bank of America’s Merrill in a federal court in Georgia, alleging that OpenArc leadership and its partners, Dynasty Financial Partners and Charles Schwab, breached contractual obligations regarding client information and solicitation, and the poaching of existing team members. Merrill is calling on the courts to put a restraining order on OpenArc’s operations.
Those lead advisors, minority investor and partner Dynasty, and custodian Schwab, are fighting the allegations in court. If they can clear those legal hurdles, OpenArc will become a new competitor in the mega-RIA space and likely join the acquisition spree.
“Our institutional clients have consistently told us that traditional brokerage models no longer meet the needs of their people,” Jeff Crowell, OpenArc’s managing partner, said in a statement upon launch. “From C-suite executives to entry-level employees, everyone deserves better tools, greater choice and personalized service.”
OpenArc declined to comment on its launch until after the court rules on the temporary restraining order. In addition to Crowell, its leaders include Senior Managing Partner Erik Bjerke, Managing Partner Emily Fletcher, Managing Partner James Kaufman and Managing Partner Kevin Higginbotham.
The OpenArc leadership team
Finding Penney
At Merrill, the Global Corporate and Institutional Advisory Services team comprised about 60 advisors and over 100 staff members. Its services range from individual wealth advice to employee benefits, including 401(k) plans, employee stock purchase programs, equity compensation and financial wellness. The group noted it previously worked with over 95 Fortune 1000 companies.
According to Diamond, during early discussions, the only real possibility of a move for such a shop appeared to be a switch to competitor Morgan Stanley. The competitor had built out a robust workplace-to-wealth division called Morgan Stanley at Work. However, leadership’s interest was in independence—no captive technology, product pushes or guardrails on what leadership could invest in or when.
“What if you can recreate everything you have at Merrill, but in the construct of owning your own business and not being confined to one institution?” Diamond recalls asking them.
To make it happen, he turned to Dynasty Financial Partners, a network for RIAs that provides middle office services paired with Charles Schwab for custody.
The firm “had the right connectivity with the various custodians to try to make it so that [OpenArc’s] needs were met in a completely different way than any custodian, any firm had ever supported an RIA client before,” Diamond said.
Dynasty founder and CEO Shirl Penney has been building the firm’s wealth platform and its adjacent businesses for about 15 years. However, earlier in his career, he spent time at what was then known as Smith Barney, where he led a corporate executive initiative. As Penney tells it, he had been building up Dynasty’s capabilities and breadth to land an institutional practice with the look and size of what would become OpenArc.
“I always used to say, all roads lead to retail,” he said. “You have retirement accounts, you have stock plans, stock plan administration, because ultimately you want to work with the executives as they’re exercising and selling their options or their stock.”
Custodian Schwab, itself a minority investor in Dynasty, has a stock plan administration platform, along with private banking and other capabilities that could fit OpenArc’s diverse needs. After getting looped into the potential breakaway, Penney said he started working with Schwab leadership on how they could help make the move happen.
“Our vision was to bring that capability together, obviously, with their custody business and sit Dynasty’s middle office, integrated technology and service model on top of that,” he said. “So the custodian is the back office. We’re the middle office and the advisory team, obviously, is the front office, where the client service happens.”
In addition, Penney’s Dynasty would take a less than 20%, non-controlling minority stake in the firm—similar to its usual setup. He would also take a board seat on the new entity.
Schwab did not immediately respond to a request for comment. In court filings, it argues that it treated OpenArc like any other potential custodial client and did not engage in vetting proprietary information.
Full Team
Even as the setup started coming together, Diamond questioned whether the whole team would move, or just a smaller breakaway group, as often happens with wirehouse deals. However, unlike other movers, he realized, the team was fully formed, with operational leadership and department heads in place.
“It wasn’t like a lot of these huge teams, where everyone has their own book of business, and they’re kind of sharing resources,” he said. “They were more similar to a diversified financial services company that just happened to be employed by Merrill.”
OpenArc would move as one team, with its recently published website boasting 77 advisors, 95 corporate clients, and more than 10,000 individual and family relationships.
Dynasty’s Penney said that time, and the markets, will ultimately decide how the new venture goes. However, he said the entrepreneurial leadership team will succeed because they “are not running away from something. They’re running towards something.”
“They’re missionaries, they’re not mercenaries, right?” he said. “They’re driven by some bigger cause, and they’re willing to pass on some huge upfront check to go to another wirehouse, or whatever it might be. And you know … if you look at it over a longer period, call it a 10-year time frame, usually the missionaries tend to be more financially successful than the mercenaries.”
On Tuesday of last week, Merrill’s lawsuit hit the courts before a press release on the firm’s launch, making many of the first headlines about OpenArc being allegations of it, Dynasty and Schwab’s “corporate raid.”
In court documents, Merrill paints a different picture of a team taking advantage of something they had built with Merrill’s help.
“This is the tale of a few practice group leaders who became disenchanted with their long-time employer, recognized the value of what that employer built over 20+ years, and decided they could claim it as their own and monetize it,” the firm wrote.
Attorney Kupfer said while he wasn’t advising OpenArc, the first thing he would have told such a breakaway client is to expect to be sued.
A wirehouse would never “let a team this big leave without friction,” Kupfer said. “No matter how on the mark they were on the setup, I would bet you are going to get sued.”
The court dispute is ongoing for now. A hearing on Tuesday will determine whether OpenArc can continue operating in the short term.
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