Bob Oros not too long ago celebrated his five-year anniversary as chief govt of the quickly rising RIA platform Hightower Advisors. He was in New York Metropolis this month to participate in an annual occasion that includes tv personalities with funding experience and chatted with WealthManagement.com about what he is completed at Hightower, the place the trade is headed and whether or not there’s any fact to latest rumors a couple of sale.
“I’ve been a bit of internally targeted,” he advised WealthManagement.com. “We figured it might be an excellent time to remind individuals I’m nonetheless on the market.”
Since taking up as CEO in 2019, he’s overseen the build-out of a complete service platform, a shift in M&A technique and greater than $80 billion in asset development. In the present day, Hightower contains 140 accomplice companies managing greater than $130 billion in property for near 144,000 shoppers.
The next dialog has been edited for readability and brevity.
WealthManagement.com: You’ve been with Hightower for 5 years now. What was it like once you began?
Bob Oros: It was attention-grabbing taking up for a founder as a result of to begin an organization from a clean sheet of paper and persuade the primary advisor to hitch and actually construct one thing is a novel ability set. I’ve by no means executed that, and I’ve a variety of respect for our founders.
They’d constructed this good, rising agency, nevertheless it was additionally at an inflection level the place it had gotten to a sure measurement and wanted to concentrate on a special set of issues round working the agency—round processes and constructing a scalable enterprise.
We have been in all probability at round $50 billion in property after I joined. We’re now at $130.8 billion in AUM, so complete shopper property are greater than that. We’ve roughly nearly tripled in measurement.
WM: Printed studies say that Thomas H. Lee, Hightower’s personal fairness backer, is pursuing a sale. Any response to these rumors?
Oros: The brief reply is we’re all the time taking a look at our capital construction. It’s uncommon that we’re not concerned in some dialogue round capital, whether or not that’s debt, financing or fairness.
However we’re not trying to promote. THL has no real interest in exiting Hightower. They’ve been right here since 2018 after they made their unique funding. We’ve already recapitalized as soon as with them and introduced in some further fairness buyers. Will we usher in future fairness buyers? In all probability, nevertheless it’s not going to be within the type of a sale.
I believe individuals took a kernel of fact and created a hypothesis that was largely inaccurate. That’s the hazard. You may have conversations, and issues don’t all the time keep confidential. However I’m sitting right here telling you there’s no one promoting this agency.
WM: What sort of modifications have you ever made during the last 5 years?
Oros: We’ve created extra sources during the last 5 years that advisors can leverage on behalf of their enterprise. Once I joined, we had three individuals in advertising and marketing reporting to the pinnacle of operations. Now, now we have a chief advertising and marketing officer and a advertising and marketing crew with over 20 people who find themselves serving to advisors with their distinctive worth proposition, serving to them outline their distinctive shopper niches and serving to them design their web site and run campaigns.
And we’ve constructed out a centralized property and monetary planning crew as a result of many advisors simply aren’t skilled sufficient to do subtle property planning, and we needed to have actual depth of experience.
We simply acquired a CPA agency final Could. Will we need to be CPAs? No. Will we need to be concerned in tax planning and tax prep? Sure, it provides worth and stickiness to the shopper relationship.
We additionally chartered a nationwide belief firm.
We’ve executed a variety of M&A, however our No. 1 technique helps our advisors drive natural development. We’ve sometimes been at or above common trade development charges. At our measurement, that’s a giant quantity.
We’ve additionally executed over 50 acquisitions in my 5 years, and we now personal about 97% of the revenues, up from 23% in 2018. Once we first got here out, a variety of advisors have been utilizing us as a platform. We nonetheless have a bit of little bit of platform enterprise, however we’re not including to it. We haven’t added any platform relationships throughout my time.
WM: What prompted the shift in technique?
Oros: I believe acquisitions have been preferable to us for plenty of causes.
First, proudly owning the enterprise means there’s actual worth behind it you can rely on, versus anyone on a three-year contract who can rise up and depart on the finish of that contract. So, it creates a pleasant moat across the enterprise.
We additionally like the actual fact we will assess an RIA we’re wanting to buy, and we will take a look at the way it’s been run. We are able to take a look at the management, we will take a look at the expansion, and we could be selective. Our natural development can be the results of that self-selection. We take a look at 400-500 alternatives a yr, and we gained’t purchase an RIA that doesn’t develop. That’s one of many key elements we assess.
WM: Has it affected the way you take a look at issues like funding technique and philosophy?
Oros: We’re a story of two cities in some methods. Issues which can be centrally dealt with embody HR, compliance, know-how, finance and all these back-office issues.
However there’s all the time a cause the companies we purchase have been profitable, so we’re extraordinarily delicate about not altering something in regards to the shopper expertise.
What we do is give them optionality. In the event that they need to use our funding crew, they’ll. In the event that they don’t, they don’t must. All we count on is that they handle cash in one of the best curiosity of the shopper and in response to our compliance requirements.
We now have had good development in advisors outsourcing funding to us. We hit $1 billion {dollars} on April 5, 2021, and at present it’s at $4.7 billion.
WM: What sort of companies are you curious about shopping for?
Oros: We’re searching for nice leaders who’ve run productive, rising companies. Measurement and geography are secondary issues.
At present, our candy spot tends to be $1 billion to $3 billion primarily as a result of these companies have matured to some extent the place they’ve actual worth and there’s added complexity they should take care of. However we’re not married to that.
I’m not exaggerating after I say we take a look at 400-500 offers a given yr, however I truthfully don’t care what number of we get executed. If those we do are high quality companies with nice leaders driving development, I’m pleased.
WM: How does Hightower take a look at inside succession?
Oros: We desire it. One of many issues we search for in doing a deal is whether or not they’ve already shared the fairness with key individuals. We expect it’s vital as a result of it creates a special tradition and dynamic. That doesn’t imply we gained’t take care of somebody who owns all of it, however that will trigger us to must look deeper.
We love seeing management groups who’ve recognized next-generation expertise and began to nurture them and provides them extra, after which we predict we can assist additional. The best way we facilitate inside succession doesn’t all the time create a necessity for the following technology to jot down a giant test.
A variety of the next-gen leaders simply don’t have the identical danger urge for food as founders. They don’t need to mortgage the home to purchase into the enterprise. In our deal construction, we will create the chance to take part within the revenue stream with out an enormous buy-in, which is sort of distinctive. In different conditions, we’ll facilitate a buy-in and leverage a third-party financial institution to finance it.
We additionally launched one thing nearly 4 years in the past known as the Hightower Middle for Management. It’s our means of serving to develop the following technology of leaders as a result of we’d relatively these items transition internally and since going outdoors to get succession is extra complicated and fewer predictable. We now have our third cohort going by way of it proper now.
WM: You may have a wholesome menu of sources out there to your advisors. The place do you see room for enchancment?
Oros: Additional out on the horizon, we’re within the OCIO house. We expect there’s extra we will supply our advisors round centralized funding operations, and we might seemingly want to amass our means into that.
There are different issues we’ve checked out that we are going to in all probability select to not do. We’re not going to turn into a lender. However lending is vital, so we are going to look to companions for that.
WM: Any predictions for 2024? Are we going to see the primary mega merger?
Oros: I do suppose we’re getting nearer to seeing the primary mega-merger.
What we all know is now we have a really robust market proper now. These companies are closely listed to the S&P, so you’ll be able to watch that and have a reasonably good thought of the profitability of an RIA agency. It’s a time of excessive worth in these companies, which I believe will carry extra of them to market.
And I do consider there might be a trillion-dollar RIA. None of us are near it at present, however we’re shut sufficient mathematically that for those who begin to see mixtures, you possibly can see it within the subsequent 5 years.
I believe platforms merging with platforms is inevitable, whether or not it’s a smaller platform merging with an even bigger one or two larger ones that do a number of complementary issues coming collectively to create large scale or one thing transformative.
Convergence continues to be a theme—individuals desirous to look extra like one another. The IBDs want to resolve for the RIA. If you consider the large IBDs, they’ve all of the succession points and have to create a mannequin to resolve for them. I believe you’re going to see IBDs taking a a lot tougher take a look at how to try this.
The RIA trade has actually come of age. We now have skilled capital there; now we have actual establishments being created. Twenty years in the past, it was a really cottage trade. If you happen to noticed a $300 million RIA, it was like, ‘That is massive.’ And now we onboard shoppers with $300 million. Take into consideration that: a single new shopper relationship. I am not going to say each week, however we see these yearly.
