Ex-Prudential Brokerage Stars Aiming for Institutions, Other Big Clients
Here’s yet another case of a group of guys who say they’re flourishing since breaking away from the big company they used to work for.
Ten months after they left the Newport Beach office of Prudential Securities to start their own asset-management firm, the principals of Hollencrest Securities said they have hit a milestone: $1 billion in assets. And the group says it is netting about $50 million of additional assets each month.
Hollencrest started off with 10 employees. Since then it has grown to 18 and expects to reach 22 by the end of the year, said Rob Wolford, one of the firm’s founding partners.
“Word of mouth travels pretty quick,” Wolford said.
The other founders are Peter Pellizzon, Greg Pellizzon, Craig Frolich and Dale Sefarian.
They said that at Prudential they devised and promoted a computer investment model that produced impressive returns for their clients, and made them the envy of the Newport Beach office Sefarian was the office’s top producer in 1996, 1997 and 1998, and the other four of them all placed in the office’s top 10 each year.
According to Peter Pellizzon, in the four months after they left Prudential, clients with some $700 million in assets switched from Prudential to Hollencrest.
Prudential filed a complaint with the National Association of Securities Dealers shortly after the brokers’ defection to enjoin Hollencrest from contacting Prudential’s clients. The terms of the settlement were sealed and the parties agreed not to discuss the case. But there was no reward resulting from the arbitration, according to the NASD, and Hollencrest has gone on building its client base.
Officials with Prudential, Orange County’s fifth-largest stock brokerage with 180 employees according to last month’s Business Journal list, declined to discuss the situation.
A call to Newport Beach branch manager Mark Zielinski was not returned. Scott O’Brien, who was the branch manager overseeing the Newport Beach office when the team left, said only “We wish them well,” and hung up. Subsequent calls to him at Prudential’s Century City office, where he now works as a regional development manager, were not returned.
Small Chunks Equal Big Total
Hollencrest’s principals said they have reached $1 billion in assets in relatively small chunks, mostly from individuals, medium-size businesses and IRA rollovers. They claim an estimated 2,000 accounts, which works out to an average of about $500,000 per client, although they say they have one client for whom they manage more than $200 million and another of more than $100 million. The investment minimum is $250,000.
Now, said Peter Pellizzon, Hollencrest is aiming for bigger fish, holding talks to land business from trusts, universities, pension funds and big corporations.
Two current accounts of more than $50 million each, they said, are Menlo Park-based Pacific Specialty Insurance Company and Meridian Insurance of Glendale. They said other clients include Randy Dirth, CEO of GreaterGood.com in Seattle, Steve Henry, chief information officer of Trammel Crow and Larry Carter, president of J & L; Properties.
A fairly typical investor is Calvin Chang, a partner in an LA-based produce company who said he heard about Hollencrest through his accountant’s brother. Chang said he has just under $1 million, about half his net worth, invested with Hollencrest.
“That’s a scary thought sometimes, but I like the model,” Chang said.
Investment Model
While the details of the computer model are proprietary, its outline is straightforward enough. Peter Pellizzon said Hollencrest tracks about 1,700 stocks on a Value Line database, screening them for earnings and earnings growth (most dot-coms need not apply), revenue forecasts and four other factors. The mix changes monthly. Right now, the portfolio contains a lot of technology and over-the-counter stocks. Hollencrest also invests in fixed-income instruments.Peter Pellizzon manages the firm and handles regulatory matters. Regarding his partners he said, “Greg has the vision of how the business should run and how we should grow our franchise. Dale has the ability to gather assets and then put those assets to work. Craig is very intelligent and meticulous about investments and is part of the marketing team. Rob is the most articulate. A very good salesman, very bright.”
Greg Pellizzon and Frolich started working together in 1980 at Paine Webber. Frolich later left and went to Shearson Lehman Brothers. In 1985, Sefarian joined Greg Pellizzon at Paine Webber and Peter Pellizzon joined them two years later. In 1987 Sefarian and Greg Pellizzon moved over to Prudential. Three years later, Peter Pellizzon followed them to Prudential and in 1992 Frolich joined as well. In 1994 the Pellizzon-Frolich Group was formed. Sefarian joined that year and Wolford hopped aboard a year later.
Change of Focus
Hollencrest said that at Prudential all five principals were registered representatives, brokering stocks and generating revenue on a fee-income basis. They started running into clients with large assets, which caused them to shift their focus from brokering trades to managing portfolios.
Friction developed within the organization, the group said. Wolford said Prudential was requiring its brokers to cross-sell products like insurance, mutual funds, annuities and mortgages,a response to the industry-wide pressures caused by lower trading fees and increased competition.
“We didn’t want to do that,” Wolford said.
Besides, Wolford said, he and his associates began wondering why Prudential should get such a big cut of their growing portfolio. During the last year at Prudential, the team pulled in $5.5 million in commissions, with Prudential keeping 60%, Wolford said.
“It came time to get out on our own,” he said.
The whole process of leaving took about seven months, Wolford said. “We were operating with a certain degree of stress.”
The group said it declined an invitation to join Brookstreet Securities, a 45-employee brokerage in Irvine.
“They are very good people and have good clientele,” said Brookstreet president Stanley Brooks.
They set up a limited liability corporation and Peter Pellizzon took and passed a principal test, which is required by the NASD for new broker/dealer firms. In April, the group got the NASD approval and they resigned from Prudential a week later.
“We probably should have done it a few years ago,” said Greg Pellizzon.
Not for Sale
The principals said larger firms are always looking at acquiring asset bases, but Hollencrest is not looking to be bought. “That’s not why we did this,” Greg Pellizzon said.
Greg Pellizzon said he expects more firms such as Hollencrest to pop up, and he expects more integration of brokers with large client bases and asset management firms. Retail brokerage firms have historically been transaction-based but are starting to gravitate toward managing services, Wolford added.
After leaving Prudential, the group got congratulatory calls from other brokers saying, “I can’t believe you did it,” Greg Pellizzon said. “I would recommend everyone to do it.” n
