Specialist
Former executive director at Hightower Advisors LLC
Agenda
- Operating environment for Hightower, noting advisor acquisition and retention costs
- M&A expectations in the near-to-long term, focusing on the current macro environment
- Competitive dynamics in the RIA (registered investment advisor) aggregator industry and advisor churn
- Outlook for Q4 2022 and beyond, including developing trends for advisors
Questions
1.
Could you give us your thoughts on the operating environment for Hightower, pulling out 2-3 key trends or drivers we should be paying attention to?
2.
Could you elaborate on how the inflationary environment might impact Hightower’s business, or the RIAs [registered investment advisors] under its umbrella?
3.
Do you expect the macro environment to slow down M&A deals, or do you think Hightower might find other ways to finance it, whether it’s paying higher rates or generating more cash?
4.
There have been a lot of deals in the low-rate environment. What type of volume do you expect for Hightower? Obviously, the cost is going up. Will this make the company focus more on the quality of the business, or will it continue buying RIAs and expand its AUM [assets under management]?
5.
How should we look at the multiples being paid for RIA acquisitions as M&A costs get higher? I think the smaller RIAs were around 9-10x EBITDA, and some of the larger ones got up to 20x EBITDA. Do you think these multiples are realistic to continue, or will they fall back due to the macro environment?
6.
What are your thoughts on the trend of advisors leaving wirehouses and going independent? Is this something that might continue, or are wirehouses able to shore up their advisor bases?
7.
Is there anything wirehouses could possibly do to reverse advisors going independent, or is it something that’s just going to happen, based on the wirehouse business model?
8.
How should we look at the ageing advisor population impacting RIA aggregators? Do you think it’s a headwind or a tailwind for companies such as Hightower?
9.
You mentioned an ageing US population. What are your thoughts on the transition of wealth from boomers to younger generations, millennials and gen Xs? Some people said they don’t need advisors. What are your thoughts on this?
10.
Is Hightower doing anything to become a one-stop shop, or is it kind of the way the wealth management industry is, ie people prefer having multiple advisors so they don’t have all their eggs in one basket?
11.
What are your thoughts on Hightower’s ability to retain advisors? Once an advisor is with Hightower, do they stick around, or is there a significant amount of advisor churn?
12.
How does Hightower generally charge for extra services, including stocks, bonds, insurance, mortgage and ancillary services? Is it a wrap fee, or does it up-charge the extra services?
13.
What makes Hightower attractive to an advisor vs players such as Dynasty and Mercer, or maybe even some of the IBDs [independent broker-dealers]?
14.
How much autonomy do the advisors have at Hightower over their investment decisions, or is there an investment team centrally located at the company that advises the advisors?
15.
We talked about advisor churn earlier. What type of non-compete agreements do advisors face in the industry? How enforceable are they, or how often are they enforced?
16.
Could you discuss the current health of net-new AUM flows into Hightower’s business? How might the volatile macro environment impact it? Do the flows remain strong? Do people pull back?
17.
What type of client flows has Hightower experienced in past macro environments similar to this period of equity volatility? Do clients usually churn and move to a different advisor because they’re frustrated with losing money, or is the company able to really keep its clients throughout all market cycles?
18.
During a bear market, other than advisor compensation, are there any expenses that can be reduced to help deal with lower valuations and possibly lower revenue for Hightower?
19.
How much does Hightower invest in technology and automation? This is also a potential area to cut costs.
20.
What’s your 2022-23 outlook for Hightower?
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