Other entrepreneurs in the financial business had similar ideas. None were identical, but the others were focused largely on the RIA space. United Capital’s Joe Duran looked to acquire dozens of mid-sized RIAs and put them together under one umbrella with a common platform. Focus Financial Partners’ Rudy Adolf sought to buy majority stakes in large RIAs but let them continue to run their businesses independently. Fiduciary Network’s Mark Hurley set out to acquire minority stakes in larger RIAs and provide transition financing so the next generation of young partners could buy out the founders. After the financial crisis, Dynasty Wealth Partners’ Shirl Penney began providing a major alternative for wirehouse brokers.
HighTower’s plan was to create an independent platform leveraging hundreds of RIAs and wirehouse brokers looking to migrate their businesses towards a fiduciary model. By pooling many advisors under one big organization, Weissbluth wanted to offer them the best infrastructure support of big Wall Street firms in areas like research and technology.
This would spur the clearing/custody houses like Schwab, Fidelity and Pershing to compete for its advisors’ business. “As a result of that competition, our clients would get the benefit of the big firms fighting,” Weissbluth says. “We also set out to do all the front-, middle- and the back-office services that an RIA would need.”
His other priorities were to create a culture of advisors for advisors, build a national brand and create an open architecture platform free from proprietary products. Today if a HighTower advisor and her clients are interested in investing in an asset class, the firm’s research department will conduct an analysis and present several options. The advisor can act upon the recommendations or pursue other options as she and her client choose.
Weissbluth says that the firm has never really deviated from the original plan. But when the financial crisis rocked the global economy in 2008, HighTower was perfectly positioned to capitalize on the upheaval. Its early success came from wirehouse broker acquisitions at a time when the names of storied Wall Street firms were suddenly tarnished. Brokers’ clients were watching the equity markets drop more than 50%, and firms like Merrill Lynch and Morgan Stanley were announcing billion-dollar writedowns of subprime mortgages on a monthly basis, exacerbating the crisis.
“We were growing in 2008 and 2009, [and] the credit crisis happened, and so you had a flurry of [wirehouse] advisors that really wanted to go independent, and because the ACAT system significantly streamlined the movement of assets, we could grow very rapidly and efficiently lifting out wirehouse teams,” Weissbluth explains.
Indeed, in the years immediately following the financial crisis HighTower became known as the go-to, lift-out specialist for corner-office brokerage teams who felt more frustrated than ever at national wirehouses with impaired reputations laboring under TARP restrictions. But the original blueprint always had the firm playing in both spaces, he says.
HighTower has since grown through acquisitions into a $55 billion AUM powerhouse with a voracious appetite. Weissbluth said the firm expanded the model somewhat in 2013, offering a partnering platform in which it could offer its back-office services for firms that didn’t want to sell outright or build their own internal platform.
Beyond sheer assets, HighTower has created an operation with 209 advisors on 92 teams with 76 offices in 33 states. It has about 600 employees. While many of the 209 advisors are employees, the ratio of employees to advisors says something about the investment the firm has made on various service offerings.
The costs associated with this high-service, high-touch business model are significant. Different advisors access services at various levels, but most pay more than 10% of their revenues to HighTower for services that would be expensive for mid-sized RIAs to replicate, sources say.