Executives at transition firms in job-changing frenzy

The game of musical chairs in transition management is on.

Nearly a dozen professionals have changed jobs so far this year, a sign to many industry executives that transition management is undergoing rapid change, with new firms entering the business and other firms restructuring or exiting entirely.

"We've seen a lot of new entrants into transition management," said Mark Keleher, president of Mellon Transition Management Services, San Francisco. "Certainly on the broker-dealer side, this is one of the few areas on Wall Street that's growing. Many firms have decided they'd like to enter the transition management space and they're hiring different teams and you're seeing entire teams move en masse to new firms."

Among the personnel changes during the last six months or so:

• Charles Shaffer and William Stush joined Merrill Lynch & Co. from Deutsche Bank, both in New York.

• Michael Gardner was hired by Institutional Direct Inc., a unit of Bear Stearns & Co. Inc., New York, from Russell Investment Group, Tacoma, Wash., to build a transition management business, and a team of three transition management officials joined Institutional Direct from Bank of New York.

• Jeff Blanchard joined JPMorgan Chase Bank, New York, to help build that firm's transition management business. He had left Northern Trust Corp., Chicago, in 2004.

• Sharon Egilinsky, global co-head of transition management at Citigroup, New York, left the firm to pursue "an entrepreneurial opportunity," according to a Citigroup memo. No additional details were available.

• Kristi Michem joined Barclays Global Investors, San Francisco, from Goldman Sachs & Co., New York, to run BGI's transition management business. The position had been open for two years.

Kevin Byrne, vice president at JPMorgan Chase, said firms committed to transition management are adding people, while firms not committed are not filling vacant positions.

But some transition management executives said broker-dealers are trying to take advantage of a window of opportunity as more plan sponsors use transition managers. "A lot of investment banks are trying to get a foothold in transition management," said Kevin Hardy, global director of transition management at Northern Trust. "They're seeing fantastic opportunity."

He said the transition management business is split into two groups: investment banks that cannot act as a fiduciary to the client, and firms that can, such as custodians like Northern Trust.

"There is a gray area (by plan sponsors as to which route to take) and while that exists, investment banks are saying ‘we'll seize this opportunity,'" Mr. Hardy said. "A lot of the hires have been on the sales side and, to me, that says they believe there's an opportunity."

For their part, broker-dealers claim that as registered investment advisers under the Investment Company Act of 1940, they can act as a fiduciary and charge that custodians doing transitions don't always disclose where their revenues are coming from or which firms they are trading with.

"Custodians don't strip out the alternative revenue sources" from a transition, said the head of a broker-dealer transition department, who asked not to be named. "What do they disclose?

"It's a single business between the investment banking broker-dealer and the investment arm," he added. "We're a 100% fiduciary when the client wants us to be" through the firm's investment management unit.

Regardless of these arguments, the issue of plan sponsors requiring transition managers to be fiduciaries is forcing major changes in the industry.

"One of the key issues that has evolved since 2003 is the concept of the fiduciary and the transition manager taking on a fiduciary role in the transition," explained Bo Abesamis, senior vice president at Callan Associates, San Francisco.

He said given this development, "there's pressure on broker-dealers to come up with a business model that will fit into this new reality" and that pressure is causing some people to change firms.

"I think the changes that we're seeing — aside from the natural progression of people jumping ship after five years in an organization — are people aligning their interest with entities that are moving or creating a business model adjusted to the new reality."

In addition, with a limited talent pool to choose from, some firms are offering sizable compensation packages to lure transition management experts, industry players said.

"There are very few experienced people in this business," said Ross McLellan, managing director of the global markets unit at State Street Corp., Boston. "Firms are really trying to find anyone they can get who has relationships and can get business. People are being overpaid to try and move over and start a business."