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From Courtroom to Boardroom: Bridging Law and Business with Scott Matasar · RIA Collective

• 0:16
  Charlie Van Derven: Thank you for tuning in to another episode of RIA Collective. As always, I'm your host, Charlie Van Derven. I got a good guest today. I'm pretty excited to have a conversation with my new friend, Scott Matasar. Scott is a breakaway attorney out of Cleveland, Ohio, and part of the firm Matasar Jacobs. Now, I learned of Scott pretty recently, so we are pretty new friends. Scott, you did an awesome job helping a guy that I've known for four, five, six years switch firms. And so my buddy Brandon's going to be a guest on the show here soon as well. And as soon as he brought you up and told me about the work you guys did together, I was like, I got to meet Scott, got to interview Scott. So, Scott, Matasar, thank you so much for taking some time out of your day and joining me on RIA Collective today.
• 1:07
  Scott Matasar: Oh, my pleasure to do it. Happy to chat.
• 1:09
  Charlie Van Derven: Yeah. Cool. So you mentioned Scott, we chatted pretty good a few weeks ago. You said you do 250-275 transitions every year.
• 1:21
  Scott Matasar: That's right. Most of whom are one off advisors, but sometimes I'll get smaller teams of two or three advisors, and then occasionally I'll get really large teams with 30 or 40 advisors moving at once, but those are a little more rare.
• 1:36
  Charlie Van Derven: We've got one of those big ones, and I won't bring names into it because I don't know how flexible they are with me doing that. Right. But one of those big ones are mutual clients of ours, actually. So what a fun story. I've known that firm for at least ten years in different iterations of roles I've played in the industry, and now I know the man behind it.
• 1:57
  Scott Matasar: How cool. I was just the midwife.
• 2:02
  Charlie Van Derven: Well, listen, it's an important role, and the more we work with RIAs now, the more that your position becomes incredibly important. I'll tell you kind of a horror story. Not even a horror story because nothing's happened yet. And it's an introduction that I made via email. Again, we'll keep names out of it. So a guy that I introduced to a couple of weeks ago has two partners. They're with a big firm. They're with an independent side of a big firm. The older of the partner has been doing this for 35 years. They're ready for compliance reasons and payout reasons. They're ready to make a leap. And when I talk to my contact on the team, a guy who I know well has been my client for a handful of years, I said, so who's the attorney who's representing you guys, who's reviewing contracts? And he's like, no one's even brought that up.
• 2:53
  Charlie Van Derven: They're so enamored by the money. They're so enamored by the money they're being offered for ten minute for a ten year commitment of their life. And that's when I made the introduction, was like, literally no one's even talking.
• 3:05
  Scott Matasar: About an attorney that seems like malpractice on the acquiring firm's side. I mean, doesn't do you any good to recruit a team over if they get slapped with a TRO and can't do their work.
• 3:16
  Charlie Van Derven: That's exactly it. That's exactly it. Scott, I think that leads us to the first question I've got for you. Let's start in kind of a general sense. What are some of the common hurdles that you see when you move an individual or a smaller team over that they've got know whether it's their contract and their agreement? Talk through some of those small hurdles.
• 3:40
  Scott Matasar: If you well, so I view my role when I'm advising clients, Charlie. I always think about it as helping the clients to maximize their customer retention while minimizing risk. And it's that balance between what's that red line and making sure you don't cross it, but not being so timid that you wind up leaving clients behind because you pulled your punch. And so in general, I would say three big hurdles and they're not even hurdles, but just considerations that need to be addressed in any consultation. The first is what documents, files, information the advisors are or not allowed to retain about their customers at their departure. And every firm is different. There are some baseline legal and regulatory considerations, but there are some firms that are very laissez faire and allow advisors to keep their customers data or most of it, and other firms that you have to walk out with nothing more than the shirt on your back.
• 4:50
  Scott Matasar: And even there, though, there are some workarounds and tips and tricks that I use to avoid that there's almost no contract in the industry that I can't find a way to defeat, frankly. The second thing is addressing any post employment restrictive covenants, whether it's a non solicit, a non compete, or what I would call a non accept, where some contracts even go so far as to purport to prevent the advisor from even passively accepting clients who come running after them and want to work with them. Wow. Whether or not those are enforceable, again varies state to state and setting to setting. It's a nuanced analysis, but a lot of those clauses are not enforceable. But you have to know which ones are and which ones aren't and why. The third hurdle is interference where you're not moving the entire team. It's one advisor leaving a bad marriage, interference from the other advisors or from firm management and dealing with that.
• 5:57
  Scott Matasar: And also I would say I'm just dealing with a situation right now where I had to send a very strongly worded letter to the regional manager for a large metropolitan area where he's just blatantly lying about the circumstances. Of my clients transition from his firm to another one and lying to clients in an effort to scare them into, you know, having to send this guy a letter and tell him that if it continues, I'm going to report him to FINRA, and he better knock it off immediately. So dealing with those kinds of things or where you're in a team agreement and everybody thinks they own the entire book, and there's a dispute with your colleagues about who's getting what clients on departure. So those are the three really big things that I'm looking for when I'm analyzing an advisor's agreement and also sort of their overall work structure in counseling them on how to move cleanly.
• 6:56
  Charlie Van Derven: Yeah, that's awesome. And like I say, our mutual friend Brandon actually told me scott, I know I can put my own disclaimer in here. Disclosure, past results are not right. He said he moved everybody like, he moved 100% of assets, and you were a large part of that. And he mentioned to me and the move was probably six months or a year ago, and you do a lot of them. So you had said that. Yeah, brandon's was just kind of run of the mill. There wasn't anything that really stood out about it. But I'll tell you, in talking to advisors who have made moves, lots of them, I've never heard somebody retain all their assets. He even complained about it just to share with you. He was like, you know what? Now that I look back on it, you're fearful, right? Because you don't know what the future holds.
• 7:42
  Charlie Van Derven: You're making a big change. So held onto that book really closely, and he's like, gosh, I wish I'd have given some away. So he actually retained assets he didn't want. After everything had kind of settled out a little bit, let's talk about compliance a little bit. That's always hot button item. It's a reason that people move. It's a reason that people kind of get stuck. How do you help? What are your services as they apply to compliance? Moving into a new environment, maybe you can speak to that topic a bit.
• 8:14
  Scott Matasar: Sure. So the biggest issues are there. First of all, it's understanding there's a difference between a lift out from a broker dealer and a lift out from an RIA. There are different regulatory considerations there in terms of data management and restrictive covenants and whatnot. And also, depending on where you're so and then sort of as a corollary to know if you're a Bank Channel advisor either employed by directly a fifth, third, a Huntington, a PNC, what have you, or if you're working for, let's say, the Bank Channel at securities America or Ray J or whatnot, but you're actually employed by First Credit Bank of Nowhere in the middle of Nebraska. There are special considerations for those employees, in part depending on whether or not they're actually who their contract is with, is the contract with the bank, is the contract with the broker dealer subsidiary, and those kinds of things.
• 9:17
  Scott Matasar: So that's the first thing, is understanding the regulatory regime, that the move is happening under the Investment Advisors Act or under FINRA regs. So that's the first thing. The second thing is, and this is a constant issue, is addressing with advisors what data and documents of their customers are they allowed to retain upon departure and getting into the deep in the weeds there. You're dealing with issues having to do with reg SP. You're having to do with the firm's own data management policies. You have to look at the firm's customer privacy, notice it issues to its customers, telling customers how their data will be handled, and also the states in which the customers live, because there are some states that have their own individual state laws on protecting customer information that have an even higher bar. So there are a handful of states that if you've got customers in those states, there are extra things you have to do in order to obtain permission to retain those customers files when you leave.
• 10:31
  Scott Matasar: Dealing with that. And then the third thing is dealing with improper client contact and explaining to people very clearly I get this question all the time, what can I tell my clients before I quit? Can I say this, can I say that? And they run different scripts and scenarios by me, and explaining to them again, sort of where that line is that you're okay here, you're not okay there, and those kinds of things. So those are the major regulatory issues. In addition, if you're doing a move from a warehouse to a brand new RA that you're setting up, you have other issues to deal with in terms of I don't do the actual RIA setup. It's cheaper, faster, easier for you to use RIA in a box or one of these other vendors. And I have a whole list of preferred firms that I will refer clients to that I know do a good job, but making sure that is kept under wraps so that the firm doesn't inadvertently find out that you've set up an RIA under their noses and show you the door before you're ready to leave.
• 11:42
  Charlie Van Derven: Yeah. I can only imagine. Not every advisor is created equal. In fact, I think they're all created differently. What are some of the easier type position you brought up? Bank. I know departing a bank can be very difficult. Right. Are there certain advisors that are easier to transition than others? I guess is what I'm asking.
• 12:07
  Scott Matasar: It really depends on the firm. I mean, just to give you a sense, charlie right. So I do 250 to 275 transitions a year, and I've got a litigation rate in an average year of about one and a half percent. Right. So if I'm doing, let's say, 250 transitions a year, I might get three or four, maybe five situations where the departing firm runs to court to try to get a restraining order to shut the advisor down. Doesn't mean that they're going to succeed, but it means that they've gone to court, at least to try. So it's a very low actually a really low probability of having that sort of a restraining order put on you and a death sentence. Now, maybe that's because I'm very good at making sure that advisors paint inside the lines so that they don't give their old firm cause for a complaint.
• 13:01
  Scott Matasar: But whether or not it's easier or harder is purely a factor of the advisor's contract, whether or not they have been a nuisance inside the firm. There are some advisors who have just been a bull in a china shop, and they've infuriated their local and regional management so that when the advisor leaves, they're going to get sued just as retribution and also just assessing whether or not the firm itself is litigious. There are some firms out there that just have a very aggressive stance and sue advisors on a regular basis to try to shut them down in order to intimidate the rest of the sales force. I'll just say, sort of an aside, in my opinion, the two hardest contracts out there are not really bank channel advisors because I can usually find some loopholes in a bank contract. It's the two best contracts, and, frankly, the ones that I use myself as templates when I'm drafting up employment agreements for my institutional clients when they're hiring a new employee are the contract at Morgan, Chase and the one at Schwab.
• 14:13
  Scott Matasar: I think they've got very good lawyers. Those are very difficult contracts. Not to say that there's nothing but think of a contract as a straitjacket. Right. Those are the two tightest in the industry. There's still some wiggle room, just not a lot.
• 14:28
  Charlie Van Derven: Yeah. Interesting. I was waiting on some other names. I was waiting on a Merrill or a Morgan or something like that.
• 14:36
  Scott Matasar: I move a dozen Merrill advisors every year. It's not actually not that difficult to contract. Morgan also is not that difficult. They've become more difficult now that they're not part of the protocol anymore. But, again, as I say, there's not a contract out there that I can't defeat one way or the other.
• 14:58
  Charlie Van Derven: That's awesome in advance of a move. Scott I think that people think about this for a long time. Right. The timing is never right. Maybe as a dad, I know the timing was never right to have a kid until I had a kid on the way. Right. But it's always kind of in the background of mindset. Right. So oh, I want to move in six months. Oh. Maybe I'll move next year. How far in advance of someone planning on departing their current position should they engage you?
• 15:31
  Scott Matasar: Ideally, to get sort of the maximum benefit out of me, three or four months.
• 15:37
  Charlie Van Derven: Okay. Less than what I expected you to say.
• 15:41
  Scott Matasar: No, I can make use of most of my strategies and tactics if I've got 120 days lead time.
• 15:50
  Charlie Van Derven: Okay. Wonderful. Now, I know in the case of Brandon, you provided not only the legal service, but a lot of advice around the retention of assets. What does that look like? I almost expect that to come out of a consultant type role versus an attorney type role. You kind of play both sides of that, I think.
• 16:18
  Scott Matasar: I do, Charlie. Yes, I'm a lawyer, but I like to think that I offer my clients a lot of practical advice also. I mean, I've been working exclusively in the retail financial services space for close to 25 years now, and I've seen and the recruiting part of it is only one very small part of my practice. I handle litigation. I handle nasty practice breakups. I defend advisors in suitability cases brought by customers. I represent advisors who are under investigation by FINRA or the SEC or state regulators. I paper practice purchase agreements and practice sale agreements. So the recruiting part of it is really just one small part of my overall practice, and I think that helps inform my advice to my clients, because I've got just sort of a lot of practical on the job training about it. Let's be honest. I've seen how the sausage gets made in this industry, and I think I bring that to my engagements.
• 17:22
  Charlie Van Derven: But I'll tell you, we've had a chance to get to know each other a little bit. Now, you're an easy guy to talk to. You're very forthcoming with the knowledge that you have. I want to leverage some of that, Scott, to give education, like, learn from me, not doing it the hard way. Right. So I want to give a little education to our listeners. Can you give me an example of an advisor that did really well and maybe one or two tactics that they use to help move more assets? I mean, that's always of the interest, right?
• 17:52
  Scott Matasar: Well, almost. I mean, I don't want to sound braggadocious, but almost all of my clients do well because they're planful about it, and if they follow the roadmap I give them, they're able to move most of their book or certainly most of the book that they want to move. Everyone's worried about, Are my clients really going to follow me? That's a fair concern. And I think for every advisor, what they need to ask themselves, look themselves in the mirror, is, do these customers identify more with me or more with the brand name of the firm that they're with? And some of that, it'll vary from client to client. Someone who's only been with you for a year or two and got referred in by their buddy at the country club because they want to be able to brag their financial advisors at Merrill Lynch. That person might be at risk of being allowed to be reassigned when you leave.
• 18:55
  Scott Matasar: But if it's a client that you've originated yourself, that you've worked with for five years and they came in because of their relationship with you, they're going to come with you because they identify more with you. Than the bragging rights of being able to tell all their friends that their advisors is some big name firm. Frankly, I don't think the service providing at those larger firms is good and I think it's gone down. I mean, just the amount of pressure advisors face to push proprietary product or whatever the flavor of the month is. There's no sales contest anymore. But there's no question that advisors in a warehouse do not have the same ability to provide truly objective, independent advice as people in an RIA or the IBD space.
• 19:46
  Charlie Van Derven: This is the sole purpose for this podcast. Even existing scott we don't make any money. I'm not looking for sponsors. It's cost me a little money on the production side of things to do this I probably shared with you when we chatted. I mean, literally, I had a conversation. I'll keep all the identifiers out of it. But a high profile advisor at a big firm who took on two households that were about 10% of that person's minimum because they got a 2% bonus for closing X households in whatever given time frame, right? Another big wirehouse type firm. Now not a sales competition, but your bonus is based on this and it's not based on the assets. He can't even manage these guys like he can't manage the households without losing money. He's not set up for it, but he took them on and he's a CFP.
• 20:35
  Charlie Van Derven: And when I chatted with him, he said, I got the 2% and I was like, dude, that's so dirty. It turned me off. I literally made a phone call with some podcast guys. I knew that we'd been talking about doing something together right after that phone call that I had with the advisor. What you say about the wirehouse is the exact reason that this podcast exists.
• 20:56
  Scott Matasar: And it goes the other way too. I mean, I've talked to a lot of Merrill advisors who are leaving because they are tired of being pressured to make a certain number of referrals over to the bank side for car loans and mortgages and consumer finance stuff. And they're like, my clients are here for financial advice, not to have me try to hawk them a car loan. But what I can do, I can certainly tell you about a couple of bad situations.
• 21:25
  Charlie Van Derven: Yeah, that was going to be my next question. Let's hear the horror story or two so that people avoid doing these things.
• 21:31
  Scott Matasar: Yeah. So about two months after I opened this law firm, I got retained by a well known RIA in the Toledo market. Has a good local reputation, pretty sizable firm, and they were recruiting over an advisor from 5th Third and I was serving as counsel to the RA and giving them advice about how to bring this guy over from 5th. 3rd cleanly and he joins the firm and two days later we get a cease and desist letter from 5th 3rd accusing Joe Broker of having retained all kinds of confidential information and violating his contract and all the rest of it. And Joe Broker tells me he swears I didn't do anything wrong. I'm as clean as a whistle. So I read a letter back to in house counsel at Fifth 3rd saying, you broke up the wrong tree. Take the tinfoil off your head. You guys are crazy.
• 22:27
  Scott Matasar: The guy's clean. Stop. And then I get a phone call, professional courtesy from the in house lawyer saying, scott, I don't know what you're being told, but we have video camera footage from our security cameras that the advisor was in the office two nights before he left. He was there at midnight and printed out four or five bankers boxes full of client statements that he wheeled out on a hand truck, not thinking that there were security cameras that would pick it up.
• 22:59
  Charlie Van Derven: Wow.
• 23:00
  Scott Matasar: We know he has this stuff. So, suffice it to say, made my job more difficult. Now, he wound up having a restraining order, but it was not nearly as long as it could have been. I won't get into the technical reasons, but there were reasons under his contract that the judge let him off very easy. He's lucky he could have wound up being restrained permanently. That judge could have not liked that and basically put this guy out of the business. I was lucky that didn't happen. The other one is a situation up in Detroit where the advisor was leaving a sizable RIA, but with a very insular and controlling set of senior executives who take every single departure as a personal insult.
• 23:54
  Charlie Van Derven: Sure.
• 23:56
  Scott Matasar: And this advisor just flat out disregarded this contract and was soliciting his clients before, during, and after the transition. There's not much I can do there when you don't follow the roadmap, so it's very challenging. So those are two really bad stories.
• 24:23
  Charlie Van Derven: Just be squeaky. It's hard for you to do a good job if people are messing you up on the front end.
• 24:27
  Scott Matasar: Scott right, exactly right. Avoid that happening. Right. I mean, I try to give my clients very I really pride myself in giving practical actionable advice. Anyone can just read a contract, right? Oh, the contract says this, but a matter of putting into practice based on how the industry really works about you can do this, you can't do that, you can say this, you can't say that, and giving people concrete, real advice.
• 25:00
  Charlie Van Derven: Yeah, that's awesome. Listen, I'll say it again because you're an easy guy to talk to. I've already referred one person to you. There'll be more coming, I'm sure. I've got a couple of other breakaway attorneys kind of in my network, so I try to share the wealth. But I enjoyed our first conversation so much. And geographically, you're located near someone that I know is considering that change. So I'm happy to make that referral. Scott for our listeners, people who are thinking about that move do you mind being a resource? Maybe 510 minutes of your time. If they got a question, just get to know you.
• 25:36
  Scott Matasar: Anytime, anytime. I'm always happy to talk to people off the clock to be a sounding board. And as far as the actual work itself, I handle advisors literally coast to coast. Really the only two states I don't do are California because the labor laws there are kind of funky, and Louisiana because it's a civil law states based on the Napoleonic code and they also have somewhat idiosyncratic laws there. But I will refer those people to there's a Scott Matasar or two in every decent sized city and we all know each other, so I'm happy to make referrals to those people in those cities and send them over to a friend of mine in my sort of informal network.
• 26:26
  Charlie Van Derven: Wonderful. What's the best way for someone to reach you?
• 26:28
  Scott Matasar: Email is, if you just google Matasar Jacobs LLC, we're the only one in the country. My contact information is on there. My phone number is 216-453-8180 and just I'm sure people will be wondering, well, jeez, is this guy expensive? My billing rate is 575 an hour, at least for now. And a typical engagement takes two or 3 hours of work. So we're really looking at $1000 to $1,500 to analyze contracts and have one or more phone calls with an advisor and hold their hand up through DDay.
• 27:12
  Charlie Van Derven: That's great, man. That's great. It happens quickly. Are you invoicing me for this?
• 27:17
  Scott Matasar: Maybe I should.
• 27:23
  Charlie Van Derven: I don't think you should. Scott Matasar, you're a hell of a guy. I want to thank you for sharing your knowledge with myself and the listeners of RIA Collective. Everybody who took a little bit of time out of your day, thank you for being here. Another episode of RIA Collective. I say this at the end of all these, and I said it earlier, right? I'm not looking for sponsorship. We grow because you share it with people who need the advice. And if you know an advisor who's getting ready to depart their position, turn this episode on to them. Scott's a great guy, got great advice, been doing it for a long time and I can vouch for that personally. We've got at least one friend that he's helped and did an immaculate job and hopefully another one soon here, if that referral follows up with you, Scott.
• 28:03
  Charlie Van Derven: I hope so.
• 28:04
  Scott Matasar: Well, thanks very much, Charlie. Always fun talking about this. You know, to me, I really enjoy this piece of my practice because I'm helping advisors self actualize, right? Instead of dealing with a practice breakup or somebody who's in trouble with FINRA for regulatory violation, I'm helping advisors be their best selves. So I find it really fulfilling and enjoyable to help people escape the yoke of the broker dealer side of things and go independent.
• 28:33
  Charlie Van Derven: We got a similar mission, my friend.