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Bob Oros lately celebrated his five-year anniversary as chief government 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 business is headed and whether or not there’s any reality to latest rumors a couple of sale.
“I’ve been just a little internally centered,” he informed WealthManagement.com. “We figured it will be a great time to remind folks I’m nonetheless on the market.”
Since taking on 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 progress. At this time, 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 if you began?
Bob Oros: It was fascinating taking on for a founder as a result of to begin an organization from a clean sheet of paper and persuade the primary advisor to affix and actually construct one thing is a novel talent set. I’ve by no means achieved that, and I’ve lots of respect for our founders.
They’d constructed this good, rising agency, however it was additionally at an inflection level the place it had gotten to a sure dimension 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 once I joined. We’re now at $130.8 billion in AUM, so whole shopper property are greater than that. We’ve roughly nearly tripled in dimension.
WM: Printed stories 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 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 seeking to promote. THL has little interest in exiting Hightower. They’ve been right here since 2018 once they made their unique funding. We’ve already recapitalized as soon as with them and introduced in some further fairness traders. Will we herald future fairness traders? In all probability, however it’s not going to be within the type of a sale.
I believe folks took a kernel of reality and created a hypothesis that was largely inaccurate. That’s the hazard. You’ve got 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 adjustments 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 folks in advertising reporting to the top of operations. Now, we have now a chief advertising officer and a advertising group 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 group as a result of many advisors simply aren’t skilled sufficient to do subtle property planning, and we wished to have actual depth of experience.
We simply acquired a CPA agency final Might. Can we need to be CPAs? No. Can 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 achieved lots of M&A, however our No. 1 technique helps our advisors drive natural progress. We’ve usually been at or above common business progress charges. At our dimension, that’s an enormous quantity.
We’ve additionally achieved over 50 acquisitions in my 5 years, and we now personal about 97% of the revenues, up from 23% in 2018. After we first got here out, lots of advisors have been utilizing us as a platform. We nonetheless have just a little 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 quite a few causes.
First, proudly owning the enterprise means there’s actual worth behind it you can rely upon, versus any individual on a three-year contract who can stand up and depart on the finish of that contract. So, it creates a pleasant moat across the enterprise.
We additionally like the very fact we are able to assess an RIA we’re wanting to buy, and we are able to take a look at the way it’s been run. We will take a look at the management, we are able to take a look at the expansion, and we will be selective. Our natural progress can be the results of that self-selection. We take a look at 400-500 alternatives a yr, and we received’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 are 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 group, they will. In the event that they don’t, they don’t should. All we count on is that they handle cash in the perfect curiosity of the shopper and in line with our compliance requirements.
We’ve got had good progress in advisors outsourcing funding to us. We hit $1 billion {dollars} on April 5, 2021, and as we speak it’s at $4.7 billion.
WM: What sort of companies are you interested by shopping for?
Oros: We’re on the lookout for nice leaders who’ve run productive, rising companies. Dimension and geography are secondary concerns.
Presently, 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 cope with. However we’re not married to that.
I’m not exaggerating once I say we take a look at 400-500 offers a given yr, however I truthfully don’t care what number of we get achieved. If those we do are high quality companies with nice leaders driving progress, I’m pleased.
WM: How does Hightower take a look at inside succession?
Oros: We choose it. One of many issues we search for in doing a deal is whether or not they’ve already shared the fairness with key folks. We expect it’s necessary as a result of it creates a special tradition and dynamic. That doesn’t imply we received’t cope with somebody who owns all of it, however that will trigger us to should 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 expect we will help additional. The way in which we facilitate inside succession doesn’t all the time create a necessity for the following era to put in writing an enormous verify.
Numerous 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 are able to create the chance to take part within the revenue stream with out an enormous buy-in, which is form 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 era of leaders as a result of we’d fairly these items transition internally and since going exterior to get succession is extra advanced and fewer predictable. We’ve got our third cohort going by way of it proper now.
WM: You’ve got a wholesome menu of sources accessible 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 are able to provide our advisors round centralized funding operations, and we’d probably want to accumulate 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 out to be a lender. However lending is necessary, so we’ll 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 we have now a really robust market proper now. These companies are closely listed to the S&P, so you possibly can watch that and have a reasonably good concept of the profitability of an RIA agency. It’s a time of excessive worth in these companies, which I believe will deliver extra of them to market.
And I do consider there can be a trillion-dollar RIA. None of us are near it as we speak, however we’re shut sufficient mathematically that in case you begin to see mixtures, you would 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 a much bigger one or two greater ones that do numerous complementary issues coming collectively to create huge scale or one thing transformative.
Convergence continues to be a theme—folks eager to look extra like one another. The IBDs want to unravel for the RIA. If you concentrate on the large IBDs, they’ve all of the succession points and have to create a mannequin to unravel 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 business has actually come of age. We’ve got skilled capital there; we have now actual establishments being created. Twenty years in the past, it was a really cottage business. If you happen to noticed a $300 million RIA, it was like, ‘That is giant.’ 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.
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