Until a few weeks ago, Todd Morgan was a top money manager at Goldman Sachs & Co. in Los Angeles. Along with his Goldman colleagues Reed Halladay and William Feiler, Morgan managed more than $1.5 billion for some of the richest people in town Marvin Davis, Lee Iacocca, Geraldo Rivera and Barbra Streisand, to name a few. That was then. Today, the three money managers, along with Todd Morgan’s brother, Thomas Morgan (who had been a manager at Lazard Freres & Co.), have set up their own shop, Bel Air Investment Advisors LLC, taking in excess of $1 billion in asset accounts, including those of the four moguls named above. It’s getting to be a familiar story. Investment professionals throughout L.A. money managers and securities brokers alike are bailing out of prestigious firms to set up their own shops. “Clearly more talented people are leaving to start up hedge funds, money managers and brokerages. Literally there have been hundreds,” said Ron Suber, managing director for clearing at Bear Stearns Co. Goldman Sachs would not comment on the departures or on what measures it has in place for preventing other fund managers from stealing away clients when they leave the company. But according to Roger Engemann, president of Pasadena-based fund management firm Roger Engemann & Associates Inc., an increasing number of bigger houses are asking employees to sign “no-competition” agreements. Such agreements typically require a departing fund manager to wait one year before approaching clients. “If you don’t (have such an agreement) it can be suicide. You spend years making your fund manager a star, then he can walk across the road and set up his own shop and take half your clients,” Engemann said. There is no definitive figure on the number of investment professionals who have jumped ship in recent years. But statewide, the number of registered investment advisors (3,900) is up almost 35 percent from 1993, according to the state Department of Corporations. That growth is being fueled at least partially by the record bull market and by the huge pool of capital in Los Angeles. Upper-income types who in years past left their money in the hands of a banker are now more financially savvy and demanding greater performance. That more-aggressive style of investing is more easily embraced by independent boutique firms than major Wall Streeet houses, industry sources said. “You are seeing high-net-worth individuals becoming more active in the management of their wealth, so you are seeing more aggressive investments being made,” said Stephen Rader, managing general partner at downtown L.A.-based investment fund Coldstream Capital LLC. Rader, a former Bear Stearns managing director, launched Coldstream in January 1997 and today the firm manages $125 million mostly from institutions and wealthy individuals. Several successive years of spectacular stock market gains have allowed Rader and others to go independent and take their clients with them. The trend is not all bad news for the bigger houses. To concentrate on the business of managing money, many of the independents pay big brokerages to handle much of their back-office functions. Bear Sterns, for example, is executing trades for L.A. independents, including Bel Air Investment Advisors. In fact, the ability to outsource not only when it comes to research or actual transactions, but for ancillary services like accounting is a big reason more financial professionals are choosing to go independent. After having set up shop, the key to success as an independent is finding a niche that other, larger institutions have overlooked. After stints with L.H. Friend Weinress Frankson & Presson Inc. and the now-defunct Dabney Resnick Inc., Bryant Riley set up an independent Westside brokerage, B. Riley & Co., about a year ago and now focuses on researching and investing in locally based small-cap firms that have been ignored by the big players. “There is an awesome opportunity in L.A.,” Riley said. “We can go out and kick the tires and find the cheap stocks. The big players only want the big deals; that’s why there is room for us.” Like Riley, professionals striking out on their own share a common desire to run their own company the way they see fit. Those who had worked for major institutions talked of the difficulty they had taking contrarian positions or investing in small-cap stocks in their former jobs. A money manager working for a big brokerage also tends to be limited to relying on in-house research, while an independent can seek advice from any analyst willing to make his or her research available. “Nobody has a monopoly on good ideas,” Morgan said. “Goldman Sachs restricted the good ideas we could listen to.” Independents also say they enjoy the benefit of not having potential conflicts of interest like those faced by money managers and brokers who work for large institutions. Such firms have been accused of urging clients to buy securities that they are underwriting. “I’ve got complete freedom,” said Leslie Vermut, president of Westside-based investment advisory Weinberger Asset Management Inc. “I’ve got a good relationship with my clients and I don’t have to report to anyone. It’s the best of both worlds.” But with such freedom comes a whole range of new responsibilities. “You walk into that office and see those computers and know that everything has to be paid for at the end of the month,” Riley said. Then there are managerial tasks that range from guiding employees to making sure SEC compliance regulations are met. “At the beginning you have to be able to do everything yourself, and then over time hire people to replace you,” said Kenneth B. Funsten, president of Funsten Asset Management Co. in Marina del Rey. Among the hardest tasks is getting name recognition. L.A. has a small financial community compared with San Franciso or New York. As a result, there is a smaller number of institutional investors willing to do business with a local brokerage. Even retail investors are often more willing to do business with a big New York-based firm than a relatively unknown local. “Your reputation does not spread by word of mouth the way it does in San Francisco and New York,” said Funsten, who invests in high-yield bonds. “L.A. is a very private city; people don’t talk about money. I get very few new customers referred by my Los Angeles clients.” The prevailing sentiment among money managers and brokers is that as long as the stock market continues to move higher, most of the small houses will have little problem staying in business. In fact, many smaller money managers who follow a narrowly defined investment strategy regularly outperform larger funds. The real test will come if the market heads into a prolonged downturn. Unlike the bigger houses, most independents do not have equity reserves to fall back on during hard times. At the same time, the loss of a single major client could destroy the viability of a smaller money management firm. A particular fear is that individual investors who have grown accustomed to double-digit returns during the stock market’s bull run might lose confidence in their independent money manager or broker during a downturn and seek solace at one of the big houses. Do these independents dream of growing up to be the next Fidelity? Most say no. “Our goal is not to be the largest, but the best,” said Todd Morgan, reflecting the views of many other independents. “We’re not looking to become a huge organization. We love being money managers, not administrators.”