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Like many financial planners ensnared in Bank of America's pothole-filled acquisition of Merrill Lynch in 2008, Matt DePalma faced a stark choice soon after the merger.
DePalma could stay with Banc of America Investments, where he had been for nearly 15 years, going back to his first job at Barnett Bank. He could shift to another firm, like Morgan Stanley, which would likely include a fat signing bonus. DePalma could also follow the entrepreneurial dream and launch his own money management business.
The last choice, says DePalma, is what many money managers at the firm talked about doing during the chaotic transition, when gripes ran high. DePalma, though, actually turned the talk into action in 2010, when he and business partner Bill Marsh founded Sarasota-based Capstan Financial Consulting Group.
The first lesson came quickly: Gripes won't pay the bills after the cushion provided by a parent company evaporates. “When you finally get a chance to have a clean slate, you go 'wait a minute,'” says DePalma. “Now I had to come up with my own technology, policies and strategy.”
DePalma might have struggled early on, but his approach led Capstan to be one of the fastest-growing boutique financial planning firms in Sarasota. Annual revenues at the company, named for a nautical term that encapsulates teamwork, are up 191% over the last three years, from $553,641 in 2010 to $1.61 million in 2012. DePalma projects at least $2.3 million in 2013 revenues, and the firm, with 16 employees, has about 350 household clients.
Capstan's success, says DePalma, stems from two elements. Top-notch customer service is one factor. That's wrapped around the second element, what DePalma calls a conflict-of-interest-free zone, where brokers and money managers don't push products the firm will make extra money selling. “Conflicts of interest run rampant in our industry,” says DePalma. “We try to eliminate all of that.”
Capstan, which in addition to investment advice offers estate planning, retirement planning and education funding consultation, has one significant outside relationship. That's with the Wells Fargo Advisors Financial Network, which, for a fee, provides regulatory compliance and oversight of Capstan's trades.
The Capstan business model is fee based. The firm, with about $300 million in assets under management, earns a percentage for every $100,000 on which it invests or advises. Fees in some cases start at 1.5% but fluctuate based on several factors.
DePalma, 36, basically grew up in finance. His dad, also named Matthew DePalma, worked at SunTrust Bank for 26 years and now runs the Sarasota branch of Venice-based Florida Shores Bank. The younger DePalma says his father taught him a lot about finance, and one lesson stands out: Don't manage employees, the elder DePalma told his son, manage clients.
That's why DePalma seeks to add more money managers, so Capstan can build its client base. Capstan currently works out of a 3,400-square-foot office in downtown Sarasota, which it outgrew last year. DePalma aims to double the physical size of the office.
While conflict avoidance and customer service have helped build Capstan's client base, the recent market surge has also certainly helped fuel the firm's revenue growth. Yet a rising stock market, says DePalma, isn't all rosy. “When the market goes straight up, this (business) is harder,” says DePalma. “If there isn't uncertainty, then the need for advice goes away.”
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