Raiders of the Wirehouse Ark
By Jerry Gleeson | |
Penton Business Media |
Although it’s just a few blocks from raucous
A hybrid registered investment advisor and broker/dealer that reports
“The market can no longer dismiss us because of our rate of growth and who we’ve brought over,” says Weissbluth, who speaks energetically and has the lean physique of a cyclist. (Business travel keeps him from riding as much as he used to.) More than 90 percent of HighTower’s 67 advisors across the country hail from the wirehouse channel, a breed coveted by the RIA aggregators for the breadth of their experience and their deep-pocketed clientele. Weissbluth says HighTower is on track to mark its first profitable quarter at the end of 2011; year-over-year revenue was up 250 percent (he doesn’t offer financial data for the privately-held company’s performance.) He predicts HighTower’s AUM will double in the next 12 to 24 months. The number of meetings and conference calls that he and his business development staff run every week has jumped from about 40 a year ago to between 60 and 70 today, he says.
So what’s so sexy about HighTower? In some ways, it’s very much like home for wirehouse advisors. Some of the firm’s key investors and executives hail from
But the emergence of HighTower as a major player in the independent space also dovetails with the changes that have shaken the wirehouse industry since the 2008 financial crash.
For HighTower, “The view is pretty cheerful,” Weissbluth says. “We’re offering a solution inside a massive secular shift in the marketplace. Wirehouse advisors are leaving. They’re not leaving rapidly, but they’re leaving consistently. Clients, with ever increasing intensity, don’t want to be clients of these firms. Their confidence has been shattered.”
HighTower is in the market for advisors with about
Marketing, too. HighTower isn’t shy about its dealmaking; while some firms are discreet about which advisor teams they’ve taken on, each big advisor who signed up with HighTower last year was the subject of a separate press release to the financial media. Welsh calls such releases a top weapon for firms that want to add FAs. “Whenever the news gets picked up in the trade or business press, it shows momentum,” he says. “Advisors are very much toe-dippers and want to ensure that wherever they go they are not the first one. They want to know the firm is stable and successful, and nothing shows that better than an industry article or mention showing that a large team has left a legacy firm for HighTower.”
The higher profile could also help the firm become less of a stranger to the capital markets, although it’s done pretty well in that department so far. HighTower raised
HighTower determines a value for the advisor’s practice based on cash flow calculations it shares with the potential partner; once a deal is struck, the advisor receives roughly half the value in cash and the rest in HighTower equity. Once he’s in the partnership, the advisor gets the same payout deal as everyone else: he keeps half of revenue after subtracting expenses, while the rest counts as his ongoing equity in the company. Weissbluth says the system incents advisors to manage their expenses while driving “fair and reasonable” revenue. About 90 percent of the company’s revenue is fee-based, he says.
“From the beginning HighTower was designed to be the catcher of the corner-office wirehouse guys,” Welsh says. “They have the ability to cherry-pick the best. They don’t need to take 10 guys out of an office.” The wirehouse credibility of some of HighTower’s key investors is definitely part of the appeal, he says. These include former Morgan Stanley CEO Phil Purcell and
Of course, HighTower’s operating structure also bears some resemblance to the wirehouse model. “They’ve built and are evolving a wirehouse port infrastructure in an RIA wrapper” is how Furey describes it. HighTower lets its advisors choose their own custodians. (Fidelity and Schwab hold the lion’s share of assets, and “from a pricing perspective, they’re equivalent,” Weissbluth says.) In addition to providing the back-office support that so many newly-independent advisors need (including compliance reporting, technology services, and a full-time social media expert), HighTower maintains a trading desk that hunts down the best deals for its advisors on a range of products, often made by the wirehouses that once employed the advisors (HighTower recently broadened its access to hedge funds, at the behest of its advisors, Weissbluth says.) “It does kind of replicate the wirehouse experience in terms of what an advisor can and can’t do,” Cerulli analyst
But the firm’s partnership structure solves a problem that vexes many wirehouse advisors, says
Another way in which wirehouses and HighTower are distinctly separate, in Weissbluth’s view, is independence of investment product. It’s a subject on which he and at least one brokerage official sharply disagree. Weissbluth says that wirehouse advisors can’t go outside of their platform and get the best mutual funds and other investment products at the lowest prices. That poses a conflict of interest that serves investors badly and gives some advisors pause; they feel they can’t be truthful about client concerns, Weissbluth says.
“They have to say, ‘I’m doing the best I can,’ or, ‘Sorry that somebody in
His view was disputed by
Weissbluth called Pollak’s statement misleading. He said he’s not asserting that Morgan Stanley Smith Barney requires its advisors to buy its products, but it does require advisors to buy products through its trading desks, where the prices are inflated in an opaque manner. The difference between buying through the trading desk and buying directly on the street amounts to “tens of basis points of spread, which in today’s marketplace is massive,” he says.
“HighTower is not anti-
Advisors who joined HighTower this year strongly agree with its philosophy.
“To get things done, each business seemed to have its own silo, its own structure. It became annoying, it became frustrating,” Masterson said. “The wirehouse model, for a lot of reasons, is really dying. The public is tired of the conflicts of interest that litter the landscape.”
Dissatisfaction with the wirehouse model will continue to fuel growth in the independent channel, says
Weissbluth sees HighTower offering new services to its clients in the years ahead, depending on what their clients are demanding. “Would HighTower expand and work in the middle market M&A space on behalf of our clients? Probably,” he says. “We’re already seeing a demand for multigenerational tax planning…At the end of the day, we’re only making money if we’re delivering value to our clients. We’re not making money if we cook up some product and sell it to them. So if they need more sophisticated lending or more sophisticated insurance, that will guide our strategic development.”
One thing that’s not in the short term is a cashout by HighTower’s investors, he says. “They’re already very happy. There’s no pressure from our investors to grow any faster than we think is healthy,” Weissbluth says. “We’re delivering the results that we promised we’d deliver. And they’re also sophisticated enough to know this is a business about delivering a high quality experience to financial advisors.
“There’s always going to be a tension between the ability to grow quickly and making sure you’re doing all the things you’re supposed to,” Weissbluth says. With hundreds of billions of dollars expected to move out of the wirehouse channel in the next few years, “We could grow very rapidly and still never scratch the surface of this marketplace.”
Copyright: | © 2011 Penton Media |
Wordcount: | 2394 |
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