Bob Oros recently celebrated his five-year anniversary as CEO of fast-growing RIA platform Hightower Advisors. He was in New York City this month to attend an annual event featuring TV personalities with investment expertise and spoke with WealthManagement.com about what he's accomplished at Hightower, where the industry is headed, and whether there's any truth to the latest rumors of a sale.
“I was a little bit internally focused,” he said WealthManagement.com. “We thought it would be a good time to remind people that I'm still out there.”
Since the year taking over as CEO in 2019, he has overseen the building of a comprehensive service platform, a shift in M&A strategy and more than $80 billion in asset growth. Today, Hightower includes 140 partner firms that manage more than $130 billion in assets for nearly 144,000 clients.
The following conversation has been edited for clarity and brevity.
WealthManagement.com: You've been with Hightower for five years now. What was it like when you started?
Bob Oros: It was interesting to have a founder take over because starting a company from a blank sheet and convincing the first advisor to come on board and really build something is a unique skill set. I have never done that and I have a lot of respect for our founders.
They had built this nice, growing firm, but it was also at an inflection point where it had reached a certain size and needed to focus on a different set of things about operating the firm—about processes and building a scalable business. .
We were probably about $50 billion in assets when I joined. We're now at $130.8 billion in AUM, so total client assets are higher than that. We have almost tripled in size.
WM: Published reports say Thomas H. Lee, Hightower's private equity backer, is pursuing a sale. Any responses to those rumors?
Gold: The short answer is that we are always looking at our capital structure. It's rare that we don't engage in some discussion about capital, be it debt, financing or equity.
But we are not looking to sell. THL has no interest in exiting Hightower. They have been here since 2018 when they made their original investment. We've already recapitalized once with them and brought in some additional equity investors. Will we bring investors in the future? Maybe, but it won't be in the form of a sale.
I think people took a grain of truth and created a speculation that was largely incorrect. This is the danger. You have conversations and things don't always stay confidential. But I'm sitting here telling you that nobody is selling this firm.
WM: What changes have you made over the past five years?
Gold: We've created more resources over the past five years that advisors can use on behalf of their business. When I joined, we had three people in marketing reporting to the chief operating officer. Now, we have a chief marketing officer and a marketing team of over 20 people who are helping advisors with their unique value proposition, helping them define their unique customer points and helping them design their website. internet and run campaigns.
And we've created a centralized estate and financial planning team, because many advisors simply don't have enough experience to do sophisticated estate planning, and we wanted to have a real depth of expertise.
We just bought a CPA firm last May. Do we want to be a CPA? No. Do we want to get involved in tax planning and tax preparation? Yes, it adds value and sustainability to the customer relationship.
We also established a national trust company.
We have done a lot of M&A, but our strategy no. 1 is helping our advisors drive organic growth. We have typically been at or above industry average growth rates. At our size, that's a big number.
We've also made over 50 acquisitions in my five years and now own about 97% of revenue, up from 23% in 2018. When we first came out, a lot of advisors used us as a platform. We still have some platform business, but we're not adding to it. We haven't added any platform links during my time.
WM: What prompted the change in strategy?
Gold: I think shopping was a favorite for us for a number of reasons.
First, owning a business means that there is real value behind it that you can rely on, as opposed to someone on a three-year contract who can up and leave at the end of that contract. So it creates a nice moat around the business.
We also like the fact that we can evaluate an RIA we're looking at buying, and we can see how it's run. We can look at leadership, we can look at growth, and we can be selective. Our organic growth is also the result of that self-selection. We look at 400-500 opportunities a year and won't buy an RIA that isn't growing. This is one of the main factors that we value.
WM: Has it affected the way you look at things like investment strategy and philosophy?
Gold: We are a tale of two cities in some ways. Things that are handled centrally include HR, compliance, technology, finance and all that back office stuff.
But there's always a reason why the businesses we buy were successful, so we're extremely sensitive about not changing anything about the customer experience.
What we do is give them optionality. If they want to use our investment team, they can. If they don't, they shouldn't. All we expect is that they manage the money in the best interest of the client and according to our compliance standards.
We've had good growth in consultants giving us outside investment. We hit $1 billion on April 5, 2021, and today it's at $4.7 billion.
WM: What kind of firms are you interested in buying?
Gold: We are looking for excellent leaders who have run productive and growing businesses. Size and geography are secondary considerations.
Right now, our sweet spot tends to be $1 billion to $3 billion, mostly because those businesses have matured to a point where they have real value and there's added complexity to deal with. But we are not married to that.
I'm not exaggerating when I say we look at 400-500 deals in a given year, but I honestly don't care how many we close. If what we do is quality firms with great leaders driving growth, I'm happy.
WM: How does Hightower view the internal legacy?
Gold: We prefer it. One of the things we look for in doing a deal is if they've already shared capital with key people. We think it's important because it creates a different culture and dynamic. That doesn't mean we won't deal with someone who owns it all, but it would force us to look deeper.
We like to see management teams that have identified the next generation of talent and are starting to nurture them and give them more, and then we feel like we can help further. The way we facilitate internal continuity doesn't always create the need for the next generation to write a big check.
Many of the next generation leaders simply do not have the same appetite for risk as the founders. They do not want to mortgage the house to buy into the business. In our deal structure, we can create the opportunity to participate in the profit stream without a large purchase, which is somewhat unique. In other situations, we will facilitate a purchase and use a third-party bank to finance it.
We also launched something almost four years ago called the Hightower Center for Leadership. It's our way of helping develop the next generation of leaders because we'd rather these things go in-house and because going out to get the successor is more complex and less predictable. We have our third group going through it now.
WM: You have a healthy menu of resources available to your advisors. Where do you see room for improvement?
Gold: Further on the horizon, we are interested in the OCIO space. We think there's more we can offer our advisors about centralized investment operations, and we'll likely have to work our way through that.
There are other things we have seen that we will probably choose not to do. We will not become lenders. But credit is important, so we will ask partners for this.
WM: Any predictions for 2024? Will we see the first mega merger?
Gold: I think we're getting closer to seeing the first mega-merger.
What we do know is that we have a very strong market right now. These businesses are heavily indexed in the S&P, so you can look at that and get a pretty good idea of the profitability of an RIA firm. It's a high value time in these businesses, which I think will bring more of them to market.
And I believe there will be a trillion dollar RIA. None of us are close to it today, but we are close enough mathematically that if you start seeing combinations, you may see it in the next five years.
I think the merger of platforms with platforms is inevitable, whether it's a smaller platform merging with a larger one or two larger ones that do a lot of complementary things that come together to create massive scale or something transformative.
Convergence continues to be a theme – people wanting to look more like each other. IBDs should settle for RIAs. If you think about the big IBDs, they have all the legacy issues and they need to create a model to solve it. I think you're going to see IBDs taking a much harder look at how to do that.
The RIA industry has really come of age. There we have professional capital; we have real institutions that are being created. Twenty years ago, it was very much a cottage industry. If you saw a $300 million RIA, you'd be like, “That's huge.” And now we have customers on board with $300 million. Think about it: a single new customer relationship. I won't say every week, but we see them every year.