HighTower Advisors, a firm that is expanding by poaching financial advisers from the big brokerages, said on Monday it hired a private banking team from Merrill Lynch managing more than $1 billion of client assets.
HighTower's latest additions are Paul Pagnato and David Karp of Washington, D.C., two advisers from Merrill's private banking and investment group who built a practice specializing in entrepreneurs and business owners. The two opened a new office in Reston, Virginia, on Friday.
The move, Pagnato and Karp told Reuters, was three years in the making and spurred by their pursuit of financial stability for client assets as well as for their own independence from the traditional big-brokerage way of doing business.
"It's been a fabulous career, and I have no regrets at all about Merrill: it was more about looking forward," Pagnato said of his move to HighTower. "There's a transformation taking place in this industry."
Chicago-based HighTower, which launched in December 2008, said the Pagnato-Karp group represents its first private banking hires. Pagnato, a 19-year brokerage veteran, founded Merrill's private banking office in Washington.
The firm, which has amassed more than 50 financial advisers and about $20 billion in client assets, employs an open platform that lets advisers use multiple securities custodians and choose from outside money managers. In the wake of the 2008 financial crisis, and the collapse of several major banks, where a client's assets were held became a top concern.
The traditional brokerage, by comparison, encourages brokers to execute client transactions through the firm's trading desk and purchase the firm's own investment funds.
Karp predicts the pending changes to brokerage regulation, including the challenge of conforming to a higher "fiduciary" standard, may prompt more big-firm advisers to see an independent platform.
"There's a paradigm shift in the industry towards the independent firms," he said. "Over the next 12 months, there will be a wave of people moving in this direction from the integrated large-firm model."
HighTower CEO Elliot Weissbluth in May told Reuters he expects the pace of breakaways from big brokerages such as Merrill will begin to accelerate because retention deals signed by advisers in 2008 and 2009 are gradually losing their grip.
Pagnato and Karp, to be sure, said their move was not driven by any channel conflicts between the Bank of America's two high-net-worth private banking businesses -- Merrill's Private Banking and Investment Group acquired in 2009 and the U.S. Trust unit purchased in 2006.
"It was never an issue for us," Pagnato said. "Our clients were all first-generation and entrepreneurs, as opposed to clients with legacy wealth."