While much of the financial services industry has become fixated on
building scale through record-level acquisitions of registered investment advisers,
Texas-based RIA Ed Butowsky is going against the grain by launching a broker-dealer aimed at recruiting smaller wirehouse reps.
Mr. Butowsky is targeting brokers with books of business from $75 million to $200 million.
"I don't want those multimillion-dollar producers that think they have it all figured out," he said. "My guys will be ninja brokers because I will train them right."
Plano, Texas-based Chapwood Securities is affiliated with Mr. Butowsky's $200 million RIA Chapwood Capital Investment Management and is designed specifically for hybrid advisers who work with clients on both commission- and fee-based models.
"Any RIA worth a damn has to be a hybrid," he said. "So I went out ... and built one."
Mr. Butowsky said he is talking with seven reps who might join his B-D by the end of the year, but that could be delayed until after bonuses are paid out in February 2020.
According to Finra,
Chapwood Securities is not yet working with a clearing firm. The B-D was originally registered in 2011 to sell oil and gas interests in Texas.
The B-D's history is not unusual and should not raise alarms, said industry recruiter Jon Henschen, president of Henschen & Associates. "They bought it for the shell, not for the reps."
In terms of Mr. Butowsky's focus on reps with between $75 million and $200 million, Mr. Henschen said that end of the market will be happy to have a firm rolling out a welcome mat to them.
"There's a lot of reps doing a half million to a million dollars who are treated like redheaded stepchildren by their firms," he said. "It's a good niche area. I see it as along the lines of firms going after investors in middle America."
Mr. Butowsky is in the midst of an ongoing legal dispute with Charles Schwab Corp. triggered in 2018 when the custodian kicked the Chapwood RIA off the platform, in what Mr. Butowsky claims was
retaliation for his conservative political views.
Mr. Butowsky has
filed a $100 million defamation lawsuit against Schwab and is currently involved in a mediation process with the company.
Chapwood is now custodying client assets at TD Ameritrade and Interactive Brokers.
By focusing on the smaller end of the market in terms of brokerage reps, Mr. Butowsky said he will be providing a home to reps who are often looked down upon at the larger brokerage firms.
"They're not treated well at the wirehouses, because you've only got $75 million, you're costing them money and you're not profitable to them," he said.
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While Mr. Butowsky said he is generally following the
model that HighTower established when it launched in 2007 to recruit breakaway brokers, the Chapwood model will not include paying teams to join.
"The bigger guys still have this mentality that they want to get paid upfront money to come over," Mr. Butowsky said. "I don't want to go out and get a bunch of private-equity money."
Payout ratios will range from 70% to 91%, he said, adding that "everyone who joins us will become a partner in the firm and they will participate in the growth of the firm."
Reps will the option of working under the Chapwood banner or using a private label for their businesses.
Barbara Herman, senior vice president at the recruiting firm Diamond Consultants, said offering employee status with the potential for equity is "the new boutique."
"Equity can be attractive to the right adviser," Ms. Herman said. "There's absolutely room for new entrants in that space."
