In June 2011, financial advisor Jeff Leventhal went to Chicago for a home office visit with HighTower Advisors' executives at the firm's headquarters. Leventhal was pondering a move from the wirehouse where he worked to a more entrepreneurial practice, but he thought any action was a few years off.
Instead, Leventhal brought his team of five to HighTower in Bethesda, Md., within three months. "The home-office visit was the number one thing that solidified my decision," he says.
Leventhal started his career in Merrill Lynch's training program in 1995 and stayed at the firm until 2003, when he moved to UBS. As he learned more about the industry beyond the wirehouses, Leventhal started to wonder whether he was in the best place to serve his clients. The meltdown of 2008 brought this idea into stark relief. Leventhal no longer wanted to be at a firm attached to an investment bank, and he found the
Leventhal's advisor team was one of eight that HighTower brought on in 2011, and in 2012 there were nine more teams. This year, HighTower expects to add even more advisors.
The firm's recruitment successes include the Pagnato-Karp Group in Reston, Va., led by the veteran Merrill Lynch advisors Paul A. Pagnato and David W. Karp, who had more than $1 billion in assets when they moved to HighTower in July 2011. Other major additions were the Lerner GroupEugene Lerner, Ann Rieder, Walter Gondeck Jr., and Mingdong Tanwhich oversaw $600 million in assets when it moved from Morgan Stanley in July 2012, and the Dillig Bowen Group, named for Matt Dillig and Ted Bowen, with $1 billion in client assets under management when it made an exit from Credit Suisse in August.
Relocation by financial advisors has always been common, particularly in the employee channel, and the industry was especially unsettled by the product failures and brand damage experienced by investment banks during the financial crisis. The ensuing talent hunt has been intense among wirehouses, regional firms, and even registered investment advisors. Nonetheless, many advisors are still loathe to give up the backing and prominence of the firms that for generations have been household names.
HighTower, a national company serving high-net-worth and institutional clients, has been a
Where the Courtship Begins
HighTower is a place for an advisor who wants freedom but
Danny Sarch, president of White Plains, N.Y.-based recruiting firm Leitner Sarch Consultants, says the HighTower visit is a two-sided encounter. On the one hand, HighTower, a relatively new firm, needs to establish its credibility. But the firm is also evaluating the prospective partner. "It's not for everyone, and they don't want to be for everyone," Sarch says.
The process starts with dinner the night before the visit to the office itself. "Culture is important, and dinner is a chance for us to see if it's good fit," says Mike Papedis, executive vice president of HighTower Experience Group. Dinner participants typically include HighTower's chief executive, Elliot Weissbluth; the president, Andrew Kornreich; Papedis; and the regional business development person responsible for the relationship.
For a simulated home office visit, On Wall Street sat down on a crisp Chicago day for one-on-one meetings with Papedis and six other HighTower department heads. This visit lasted two and a half hours; for an actual advisor thinking of coming over from a wirehouse, it probably would have taken five to seven hours.
First up: Kristin Love, managing director of Capital Markets. Love spent time as a municipal middle market maker before moving into wealth management at LaSalle's ABN Amro. The major question she gets from prospective advisors is about access. How extensive are the investment products offered at HighTower? In nearly every conversation, she says, advisors become more comfortable as she digs into the details about specific product sets or transactions.
HighTower does not act as a custodian for the advisors' assets, but instead has relationships with more than a dozen leading independent custodians, including Fidelity, Charles Schwab, and JPMorgan Chase Clearing Corp. HighTower's multi-custodian open-architecture platform offers advisors multiple points of entry into the market; this instantly creates competition and means advisors see product pricing and access to areas like alternative investments, including hedge funds, that they may not have before, she says.
Beyond access, transparency is a major attraction. "When we're able to provide the exact same security and they can see the full marketwhat is out there in the marketthat transparency instills trust in what the model is and how the desk is operating," Love says.
The firm also presents itself as conflict-free. Because the advisors do not sell proprietary products, HighTower says, it makes no difference to advisors what products they and their client choose.
Next up was Matthias Kuhlmey, managing director of Group Investment Solutions and an advisor partner, via video conferencing from HighTower's New York City office. Kuhlmey, who has nearly 20 years of experience working with ultra-high-net-worth international clients, was previously with UBS's Private Wealth Management Office in New York. After Julius Baer was acquired by UBS, he was thinking of starting his own business, but he decided to join HighTower after he was introduced to Weissbluth by a colleague. "I was looking for an entrepreneurial environment," he says.
Kuhlmey became a HighTower partner in 2009 and the head of GIS in 2011, helping to design and develop HighTower's investment, consulting, and research offerings from a myriad of third-party vendors.
"If you think about our product shelf, it is very complex and very true to the slogan we have: 'Unobstructed,' " Kuhlmey says. The investment consulting arm of GIS provides advisors with analytical tools, market data, and financial planning software products from a multitude of vendors. Sales-side research is sourced from more than 50 capital market relationships, but HighTower has also spent a "considerable amount of our money to onboard non-sales-side research," Kuhlmey says.
In addition, HighTower plans to roll out proprietary research by tapping into its own advisor group. That includes the egg timer call, where advisors have three minutes to share an actionable idea or investment concept with the other partners.
Doug Besso, the chief information officer, seems palpably excited about HighTower's technology. After running Wachovia Securities' broker desktop development groups, he was drawn by the flexibility and choice that HighTower offers advisors.
Referring to his team, Besso says: "We came here because we can offer choice at almost every level. We can be nimble, and we can be fast to adopt these choices." By contrast, he claims, wirehouses are slow in adopting technological innovation, which can become frustrating for advisors.
From an array of vendors and services, HighTower advisors can choose client reporting tools, institutional grade trading tools, client relationship management systems, financial planning software, and more. By using numerous providers and making it easy for advisors to switch from one platform or service provider to another, HighTower forces competition among vendors. "We want our vendors to feel they always have to have the next best innovation," Besso says.
Making the Partnership Leap
When a team decides to join HighTower, the transition is supervised by Liza Tainton, managing director of the Operations Service Group. Before joining HighTower, Tainton was the senior vice president and regional risk officer for Morgan Stanley Smith Barney's Illinois region. "I came to HighTower to build," Tainton says, "and so far I have not been disappointed."
HighTower, a member of the Broker Protocol, works with Protocol lawyers so advisors understand what should and shouldn't be done. Her team also interacts with custodians on behalf of the new partner to make sure that he or she has been trained and that all accounts are properly synched.
Kuhlmey's team is also involved in transitioning the advisors' assets to HighTower. GIS will map out investment solutions in joining the partner's book to HighTower's providers, giving advisors options that are equivalent to current products or even better, he says. Fee structure is another area where GIS lends a hand, helping advisors to decide on how to charge clients for their services outside of the wirehouse, he adds.
Next, Larry Koehler, the chief financial officer, provides additional help with transition logistics. Koehler, who founded and later sold Everen Securities and also worked in private equity, was part of the initial effort to raise capital for HighTower. He was the third employee when the firm began in April 2008.
When he meets with advisors during home-office visits, he explains the financial side of the partnership equation. Unlike at a wirehouse, where advisors' pay is based on the top line before expenses are paid out, at HighTower partners keep their own profit and loss balance sheets and are compensated based on the bottom line, after expenses, he says. Partners split revenue 50/50 with HighTower and have equity ownership in the firm. "It's a much better model because our interests are aligned," Koehler says.
Once an advisor decides to take the leap, whether moving into an existing HighTower office or entering a new market with a temporary space, Koehler's team handles the facilities preparation.
HighTower's advisor recruits sign on to what the firm calls a partnership model. Those advisors become W-2 employees at the firm. HighTower, in turn, provides a full benefits package, human resources support, and assistance in recruiting and hiring.
"The notion of being an employee is different. While our advisors are W-2, more importantly they are partners," Papedis says. "Unlike a wirehouse, at HighTower the advisor's practice operates as a business, and the partners are empowered to make independent decisions about their revenue, expenses, and services provided. The partnership actively participates in the drive of our strategy."
Last September, HighTower unveiled two new options for affiliating with the firmHighTower Network and HighTower Allianceto attract more independent advisors who do not want to become partners. For those plans, advisors are considered 1099 employees.
Once advisors join HighTower, the chief marketing officer, Regina Lahsin, and her group help to build a marketing and public relations strategy for each team. Lahsin says her role at HighTower has been a natural fit after her previous role as the director of markets and accounts at KPMG.
Lahsin's team starts by helping advisors build a vision and mission and then continue with the execution, implementation, and analytics. When advisors come for the home-office visit, most want to know what kinds of marketing they will be able to do and how compliance will react. "They're amazed to see that a client communication letter can be approved in 30 minutes," Lahsin says.
HighTower provides ghostwritten market commentary and articles for advisors to share via print and email. It also provides public relations support and guidance on events and sponsorship. Lahsin's team helps with the advisors' digital presence as well, mapping out social media strategy plans and website development. This year, HighTower is rolling out new website templates, enabling each team of advisors to customize the look and feel to fit its individual brand.
According to Lahsin and Papedis, attaching their names to the HighTower brand is a major benefit for advisors because HighTower is already a recognized name in wealth management. "We've done it in the capital markets, advisors know who we are, and now we're working on household recognition," Lahsin says.
Papedis and his team are confident that the HighTower model fills an industry need. "Our real power is in fostering competition," he says at the end of the meeting. Finding advisors who fit HighTower's culture has a lot to do with this. "The consistent trend we see is a client-first point of view," Papedis says.
