Capitalizing On The Power Of Trust

If doing the right thing for investors comes with a price, it also comes with exponential upside potential.

Just ask PagnatoKarp, a Reston, Va.-based registered investment advisor formed by a high-net-worth team of brokers who made the leap from Merrill Lynch toward independence seven years ago. The firm has capitalized on the trust it created with clients—more than quadrupling advised assets to nearly $4 billion in just seven years.

The firm was founded by veteran Merrill Lynch financial advisors Paul Pagnato and David Karp when the duo decided to trade in the safe bet of well-known corporate affiliation to create their own independent “True Fiduciary” firm.

“We found we just couldn’t get the products and services we needed from the broker-dealer’s platform to serve our clients—many of them business owners who were selling their life’s work and coming to us for solutions,” says Pagnato, who will be speaking at Financial Advisor's Inside Alternatives & Asset Allocation conference in Las Vegas on September 25.

Walking away from Merrill cost the firm’s founders a steep 30% of their compensation that first year as they set about building an independent registered investment advisory free from most of the conflicts and overhead costs brokerage firms are famous for.

“We were very early in terms of high-net-worth teams breaking away, but whatever we lost, we have more than made up for in revenues, especially when you strip away the layers of costs and infrastructure inherent in the so-called ivory tower,” says Karp, who 20 years ago was mentored by Pagnato at Merrill after being recruited from Morgan Stanley.

Today the firm, which services over 300 clients with a robust team of nearly 30 employees, is on track to grow to $10 billion in advised assets over the next five years, Pagnato says.

All of the firm’s enviable growth is organic. “We consistently have growth because our clients are ... telling their friends about us,” he adds.

The clients are almost all entrepreneurs, with a sprinkling of corporate executives, who have sold their own company or are about to. “We’ve assisted more than 70 entrepreneurs through their liquidity events and creating portfolios that will take care of them and their families’ needs,” Pagnato says.