Triad Advisors lost the largest RIA using its broker-dealer services because the firm started its own hedge fund.
ACG Wealth, formerly known as Atlanta Capital Group, has moved to Arkadios Capital, a broker-dealer led by ACG founding partner David Millican. Triad, which is also based in Atlanta, had done business with ACG since it opened in 2009, according to Form ADV filings. The ugly split has led to legal filings by both sides.
ACG’s assets under management jumped 135% to $1.8 billion from $765 million only five years ago, according to the company. The firm's OGAo Fund, which focuses on private equity investments, became fully operational around the beginning of the year.
The hedge fund makes ACG, which unveiled its fund and BD this week, stand out from other hybrid RIAs, according to Millican. "There is a need and a void out there” for the firm’s three capabilities, he says.
CONFLICT OF INTEREST?
Both Arkadios and the hedge fund pose possible conflicts of interest, the firm’s filings note, but ACG says it serves its clients’ best interests as fiduciaries. Others expressed skepticism about the arrangement.
Millican and other members of the firm’s ownership team had received approval about three years ago from Triad to launch the fund, he says. Triad’s parent firm, Ladenburg Thalmann Financial Services, later vetoed it, according to Millican.
“That was after we spent a couple years and a bunch of capital doing it,” says Millican. “I think we’ve got a huge opportunity to attract a lot of people and take advantage of the disruption that’s happening in the broker-dealer market.”
Triad filed suit in Georgia state court against the company and its three founders in October, alleging a breach of promissory note. ACG has responded with its own FINRA arbitration claim against Triad.
A spokesman for Triad declined to comment, saying in an email that company policy prohibits discussing people and companies not affiliated with Triad.
Millican acts as CEO of Arkadios, which he says has received about 30 calls in the last two months from advisers and RIAs inquiring about joining the platform. ACG CIO Greg Silberman manages the fund, while Millican and fellow founding partners Jeffrey Shaver and Jody Young are passive owners.
“A potential conflict of interest could occur if [a representative] of ACG were to recommend an investment in the OGAo Fund instead of other investments available through ACG,” according to ACG’s Form ADV, which offers similar language with respect to the broker-dealer.
“As a fiduciary any recommendation must be in the best interest of the client and all recommendations to invest in the Fund will be reviewed with this in mind.”
HEDGE FUNDS QUESTIONED
Hedge funds have been under fire for underperforming in the markets in recent years. Warren Buffett bet an asset manager $1 million that 10-year returns on an S&P 500 fund would beat out a bundle of hedge funds, and he said in his latest letter to shareholders that it appears he will win.
Moreover, SEC disclosures do not remove the risk involved with an RIA operating both a BD and a hedge fund, according to Eric Johnson, an FPA member from Rocco & Associates in Fairfield, Connecticut. The firm may well take away from its “core competency” in doing all three, he says.
“It would seem to go against providing that unbridled financial information and support,” Johnson says. “I guess we’ve seen it, but is it a trend that we would partake in? No.”
DEMAND FROM CLIENTS
Young says the fund stemmed directly from client requests for such products. The fund provides ACG clients with more liquidity while injecting capital into “small- and mid-market deals” in the private equity space, he says.
“Our higher net-worth people are sophisticated clients, they were always asking for more opportunities for private equity and hedge fund products,” Young says.
ACG has roughly 1,200 clients, who are mostly HNW individuals, and 31 advisers, according to its SEC filing. The firm recently added a breakaway Merrill Lynch team with 35 affluent families as clients, according to Millican.
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