Editor's note: The Harbert College of Business is committed to developing a vibrant entrepreneurial ecosystem for students, faculty, industry, and alumni that will fuel new venture creation. The story that follows is one of eight in a series entitled, "Inspired Entrepreneurship." Showcasing the experience and expertise of Harbert alums who have created successful business enterprises of their own will help equip our students for entrepreneurial success.

“I remember it well – I’ll never forget it. It was late 1997 – before most people used cell phones – and my home phone rang one night. It was one of our advisors telling me ‘I don’t think I’m going to stick with this, I’m going to look somewhere else.’ It was at that point that I and a few close colleagues recognized a sea change pending in the financial services industry that we felt could transform the role of independent financial advisors in a big way."”

Mark Mettelman, graduate of the Harbert College of Business in 1984, came to Auburn on a tennis scholarship and parlayed that arrival into one of Auburn’s most impressive alumni business success stories. As Chairman and Co-Founder of Triad Advisors, Mark has spent the past 30-plus years driving institutional and entrepreneurial change across the securities industry.

“I spent the first 14 years of my career gaining a solid foundation in the stock brokerage and fixed income securities industry, beginning with an intern position at a Milwaukee stockbrokerage firm during the summer of my junior year,” says Mettelman. “After working there for a few years following graduation, I migrated to Atlanta to FSC Securities, where I worked in Fixed Income Trading selling bonds and treasuries. I then went to work for Keogler Morgan & Company for a decade, running the firm's trading and recruiting departments. It was at that point that I and a few close colleagues recognized a sea change pending in the financial services industry that we felt could transform the role of independent financial advisors in a big way.”

The Harbert College of Business sat down with Mark as part of its Harbert Entrepreneur Spotlight initiative to hear how he and his partners leveraged an entrepreneurial mindset and a keen attention to the evolving needs of independent financial advisors into a revolutionary new – and tremendously successful – business model.

HCOB: How did your experiences and success during the first half of your career form your decision to create Triad Advisors, essentially taking the industry in a new direction?

Mettelman: My experiences on both the trading side of the business and the back office side told me that the needs of the independent financial advisor were no longer being well-served by the existing institutional structure of the big insurance companies and Wall Street firms. The market was evolving, with significant changes occurring in terms of compensation models, the desire by advisors to expand their offerings, access to alternative investments, etc. Equally important, my relationships with colleagues across the country played a big part as well – what I was hearing from them was coming across loud and clear.              

HCOB: That sounds like a lot of moving parts – so let’s take them one-by-one. What do you mean by “changes occurring in compensation models”?

Mettelman: The broker dealer marketplace had traditionally operated on a commission-based, transaction-oriented business model – brokers traded stocks and bonds and sold other financial products on behalf of their clients and were compensated for those services via a commission, a percentage of the purchase or sale price of the entity bought or sold. Back then, if you sold your client a mutual fund, for example, you might get an 8 percent commission on the value of that transaction.

As the Registered Investment Advisor (RIA) role began to emerge, advisors serving high net worth clients became interested in expanding their offerings into this new field but were faced with an entirely different compensation model – a fee-based model. In this new structure, financial advisors would charge an annual fee based on total assets under management rather than being compensated on a trade-by-trade or purchase-by-purchase basis. And those fees were much lower – closer to 1-2 percent. 

HCOB: And there was another change occurring in the financial services market that was also at work, right?

Mettelman: That’s right. At that time, broker dealer firms began being acquired by large insurance companies and other financial institutions. Those companies wanted to find outlets for the sale of their own proprietary financial products such as mutual funds, annuities and life insurance.

The financial services companies had the products, and the broker dealer firms they acquired had the clients. When these firms were bought, the broker dealers of the acquired firms had access to a new set of products, but they were required to sell a large percentage of that company’s branded products. If they wanted to expand beyond the stocks and bonds they’d been trading on open exchanges, their choices were severely limited.

HCOB: In fact, Keogler Morgan – the firm you were at before forming Triad Advisors – was one of those broker dealers that was acquired, right?

Mettelman: Yes, we were. And I had a front row seat at how those kinds of acquisitions were faring – not only at the insurance company that bought us, but also from my relationships and conversations with advisors at other acquired firms. When it was announced that we were going to be acquired, I knew there would be tremendous disruptions from the financial advisor’s perspective, but I was committed to give it a try – to see if I could help make it work. Suffice to say that my worst fears were realized, especially concerning the ‘heavy lift’ imposed upon the advisors themselves – they were asked to go through a tumultuous, disruptive set of changes, with little benefit to them in return.

“The new model essentially gave independent financial advisors the freedom to choose what products they sold clients and whether a fee or commission-based structure was best to meet their individual needs. It's a model that often makes more sense for advisors with high net worth clients.”

HCOB: Can you tell us a little more about the changes imposed upon the financial advisors, and why you felt they were so onerous?

Mettelman: To begin with, the broker dealers own the relationship with their clients, and those relationships are the most important asset an acquiring company is purchasing when the buy a firm. Typically, a client who is being well-served will go with their advisor wherever that advisor goes – provided the cost of making that transition is minimal. The problem with most of these acquisitions, however, is that the acquiring firm doesn’t look at it that way. Their focus is on getting access to the advisor’s clients, folding that revenue stream into their own and expanding that revenue stream via the additional products the acquired advisor can now offer. Little attention is paid to the additional work imposed upon the advisor or the impact of the requirement that they sell the company’s products.

For example, the process of moving a portfolio of accounts from one firm to another is complicated and time-consuming – for both the advisor and the client. There’s a lot of legal representation paperwork that both sides need to walk through, sign off on – it isn’t a trivial matter. On top of that, the financial advisor is typically facing an entirely new and different internal operational landscape. They are moving from a familiar, relatively seamless process in which they control what they do and how they do it to one dictated by the mothership – and that mothership’s processes were not designed with the advisor in mind.

HCOB: How long did it take for you to decide this wasn’t going to work out?

Mettelman: I lasted 15 months, and I’d have to say those were the worst 15 months of my entire career. I couldn’t even buy staples without getting approval from somebody in New York or California. That sort of thing. But what was worse, I couldn’t answer questions my advisors had with any level of certainty. I tried to solve their issues, but I couldn’t. I simply didn’t have the authority. That was probably the most disheartening thing – I’d recruited most of these advisors, they were my colleagues, some of them had become my close friends.

HCOB: So, what was the breaking point, when you knew you had to make a change?

Mettelman: I remember it well – I’ll never forget it. It was late 1997 – before most people used cell phones – and my home phone rang one night. It was one of our advisors telling me “I don’t think I’m going to stick with this, I’m going to look somewhere else.” I started speaking with other advisors and it turned out a lot of them were also unhappy and considering leaving. I said to myself, “There’s a lot of money here, a lot of opportunity.” And that’s when I and two partners – one a silent partner and the other an actual producing advisor – decided to try to recreate and improve the old firm we had, but under a different structure.

“This is a relationship business on virtually every other level as well, and our advisor-centric business model relied even more heavily on strong relationships than traditional firms."”

HCOB: What was that structure – how was it different?

Mettelman: We wanted to pioneer what’s now known as the "Hybrid RIA (Registered Investment Advisor) Model." In the simplest terms, the new model essentially gave independent financial advisors the freedom to choose what products they sold clients and whether a fee or commission-based structure was best to meet their individual needs. It's a model that often makes more sense for advisors with high net worth clients. And that’s who we envisioned would join the new firm – seasoned financial advisors who had a solid book of business consisting of high net worth clients, the best producers in the business.

HCOB: So, what was your process? I assume you had to first resign from your position and then go about setting up what is, I assume, a difficult business entity to create. You couldn’t just hang out your shingle and get to work, right?

Mettelman: No, it’s not that easy. With government regulations the way they are, it probably would have taken us about six months to get all the regulatory requirements completed, so we took a different route. We looked around and found a small shell of a broker dealer for sale in Florida. And that's how we got our third-party partner – he was the principal and the owner of that little firm and he had about 10 advisors. We still had to work through several regulatory hurdles, but that move got us moving much quicker. Before we knew it, we were working away out of our guest bedroom, with my wife, Dana – who has an accounting degree from Auburn – paying the bills, handling the insurance issues, keeping the trains running on time.

HCOB: So now you’ve got few advisors in Atlanta and a handful or two of other advisors in Florida – how did you go about growing the business, finding new advisors to join you?

Mettelman: First of all, I knew a lot of them – as I said, I’d recruited many of the best producers at the firm I was running, and I had kept in touch with those I’d worked with in various capacities over the years. And as I mentioned earlier with regards to the broker/client relationship being the most valuable asset – this is a relationship business on virtually every other level as well, and our advisor-centric business model relied even more heavily on strong relationships than traditional firms.

So, we hit the road, meeting with the very best, most productive advisors in the business. We laid out our Hybrid RIA model and our initial broker dealer engagement model, which was also unique. We didn’t simply offer to hire them, nor did we offer them an equity state as an incentive. What we were asking was for them to commit their own capital to the venture as a condition for coming aboard. We wanted only those high producers willing to put some scratch into the game, to be truly committed. That’s how we got our first 16 partners – really big hitters – who formed the core team in the early days.

Triad Advisors generated enough business to survive the first year and grew steadily for the next several years. Then Triad really took off, growing to $30 million in revenue and around 200 financial advisors within five years. But the best was yet to come. In Part Two of this interview, Mark will explain how he and his team grew Triad’s team to more than 650 financial advisors today and offer some valuable insight for aspiring entrepreneurs.