Early into his career as a financial advisor, Eric R. Ervin was keen to observe how his biggest clients had built their wealth.
It quickly became clear to him, he says, that fortunes are made by building businesses, not through a paycheck. Ervin left his Morgan Stanley practice and a comfortable lifestyle to help launch Reality Shares, an ETF provider in San Diego.
Ervin explains how his experience working in wealth management helped him create a new business.
Where did your idea for the business come from?
I was with Morgan Stanley in the mid-'90s, as a young financial advisor. But I had a great mentor, and he said, "Eric, I know you're going to do fine. But your goal shouldn't be to build a big book of clients. Your goal should be to become a client." I always thought about that. As a financial advisor you have this beautiful perch to just look out and see how all these people created significant wealth. None of them did it with a paycheck. So I always had that in the back of my mind learn from them, do what they do.
A couple of people then came to me and they wanted to start an ETF shop. One of them was a very good friend of one of my clients. He was Mike Rosen and he had built Rochester Capital Advisors, the mutual fund firm. He had sold it to Oppenheimer and then came out to San Diego and started a convertible arbitrage hedge fund, grew that over a billion, and wanted to then get into the ETF business. But they really didn't have a concept. So they were coming to me at Morgan, asking for my help from a business standpoint. I had been noodling on this idea for 10 years, and my clients were so frustrated with the market. I just wanted to do something purely based on the reality of how companies were doing.
At that point, you were itching to get out of the wirehouses?
I was itching to see this concept come to life, to see the product hit the market; for 15 years, no one had created it. So at that point, these two people had come to me with the idea to start an ETF business. I suggested to them how I would do it. So they said, "You have to quit your job, this is going to be a phenomenal idea, because we don't want to be fighting with Morgan Stanley over whose idea it was."
I had a phenomenal business at Morgan Stanley, with a really good income and book of clients. So that was a hard thing to turn away.
Can you explain your decision process? How did you weigh this?
We used to tease (as advisors): For the first five years of your life, you're overworked and underpaid, and then for the rest of your life, you're underworked and overpaid. So I had arrived, everything was good to go, I could just about put it on autopilot and continue to gain new clients. But I still had that itch that's not wealth creation, that's income creation. That's a comfortable lifestyle, but there's no $100 million check at the end of the rainbow. And there was also the challenge, I was ready to do something and complicate my life, to go into battle again and make it tough again. And boy, I did it. Fortunately they decided to seed the company. They said, "We'll put in the first check but you have to go out and raise capital. You're the CEO, it's your company. We're here for you if you need us, but don't rely on us to write you checks, because it's not going to happen."
Were you in a management role of that scope before?
At Morgan they would lean on me quite a bit for the training program, so I was the mentor for all the new associates in the San Diego area. In any office I've ever been, I've always gravitated to those kinds of responsibilities. Our team was head alternative investments coordinator for the region. So I was in that role, but it was a small staff. Also, I was always curious, and I was involved in every client's business, in how they would grow and shrink their businesses. My advisor role was like an MBA, and I was essentially learning from all these great businesspeople as to how they did it.
How was it going from your position at Morgan to being an unknown, knocking on doors and pitching your idea?
Part of it was getting the audience. Once you had the audience, you were OK. If you could just get me on the phone with these people, then we could explain some of these things.
- Warning: Bond Funds That Act Like Stocks
- Which Sectors Are Best for Dividend Investors?
- Dividend Investing: Time to Consider Oil Stocks?