HighTower Takes Multichannel Route to Expansion
HighTower, a Chicago-based brokerage and RIA with offices around the country, is expanding on three fronts in an approach reflecting the economic constraints on growth, according to one expert.
As its mainstay, the eight-year-old firm targets unhappy wirehouse brokers who become HighTower employees and shareholders. Since 2013, it has offered custody-neutral investment and back-office support — in white-label and co-brand versions — to independents. And late last year it started buying smaller wealth firms, which it rebrands as HighTower practices and integrates with its service and operations platform.
HighTower’s three-prong attack comes down to economic efficiency, according to Kapin Vora, who leads consulting firm Capco’s wealth-management practice.
“They have extra capacity in their system, so it doesn’t cost them much to extend it” to other firms, Vora says of HighTower’s service offering. In addition by getting more RIAs in their stable — either through acquisition or outsourcing — they’re tapping into an advice channel that’s in a better light with consumers than big-name brokerages and, as it’s already subject to the fiduciary standard, more ready to handle the Department of Labor’s new retirement-account rule.
And the service business lets HighTower participate in other firms’ growth without diluting the shares its employee-track advisors view as a major part of their compensation.
“HighTower can reduce its cost base because its services are scalable,” says Vora.
But excess scale only attracts buyers when it solves problems, says William VanDresser of Legacy Wealth Advisors in Fort Lauderdale, Fla.
And, as it happens, HighTower solved a problem for VanDresser.
It started when the advisor’s biggest client, a man whose financial life had suddenly grown more complicated, asked him to leave Gibraltar Private Bank & Trust and set up a multifamily office to better manage his growing wealth.
“I said I’d look into it,” says VanDresser.
He started this process with three advantages.
First, he had loyal clients – not just the one urging him to break away. Second, he was in Florida, a state with nice weather and favorable tax laws that attracts money from around the globe. That makes it prime expansion territory for growth-minded wealth firms. And third, as a former employee of Lydian Wealth Management — a firm that spawned multifamily office Convergent Wealth Advisors (now part of RBC) and investment-platform provider Fortigent (now part of LPL Financial) — he says he “knew a lot of RIAs throughout the country.”
But when VanDresser talked to firms about joining forces, he garnered plenty of interest but couldn’t find the cultural fit he wanted.
Then he looked into starting his own RIA, only to back away in view of all the unfamiliar work involved. In addition to registering the practice and setting up a physical office, the RIA option would've called for “building out our own relationships with custodians and technology providers,” he says. “It takes capital upfront and it’s time consuming.”
Worse, it leaves the startup with little pricing power to wield on its clients’ behalf. “We have $500 million and wanted to find a way to leverage a bigger organization’s scale,” he explains.
That’s when VanDresser started thinking about HighTower, which manages about $30 billion. “I got very good reports about it from people I knew there,” he says.
But he didn’t want to join HighTower as an employee. “I wanted to be independent for my clients and because we like the idea of owning our own business and controlling our destiny,” he says.
The advisor says engaging HighTower as his brokerage and RIA as an independent advisor last year saved him the headaches of setting up on his own and gave him the economies of scale, personal freedom and cultural fit he was looking for.
“It’s very important to be surrounded by people you enjoy working with,” says VanDresser of his workplace philosophy. “HighTower people know how to work hard but they’re also nice and fun.”
Meanwhile Michael Parker, head of enterprise development at HighTower, says there’s “no material difference” between practices that operate from the firm’s platform, whether captive or independent.
“There are structural differences, sure, but the core values and the quality of the business are the same,” he says. “We have a fiduciary culture and we look at all sides of the client’s financial life, both sides of the balance sheet.”
Adds Parker: “Advisors come here for operational efficiency and to be part of a community of like-minded advisors we’ve built, and for everyone the same cultural criteria applies.”
That’s all good, says Capco’s Vora, but to make a multichannel offering work for the long run it can’t be too ready to bend — especially if it includes an outsourcing component.
“Things get messy and expensive if you start customizing the platform for individual advisors,” says Vora. “It only works when you stay true to the model.”