Friday, March 18, 2022
HomeFinancial PlanningThe Wirehouse Model Rebuilt As An Employee-Owned Partnership

The Wirehouse Model Rebuilt As An Employee-Owned Partnership


Executive Summary

Welcome back to the 266th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Jim Gold. Jim is the CEO and Co-founder of Steward Partners Global Advisory, an independent advisory firm that supports nearly 180 financial advisors managing more than $16B of assets under management and serving close to 10,000 client households in multiple locations around the country.

What’s unique about Jim, though, is how he and his firm are attempting to re-create the wirehouse model of old, by offering locally-managed ‘large firm’ infrastructure to financial advisors but utilizing an employee-owner partnership model to provide all the benefits of independence.

In this episode, we talk in depth about how Jim and Steward Partners offer financial advisors the wirehouse framework of access to proprietary investment products, research, and technology, but without the constraints of large firm compliance and the conflicts of a parent firm trying to manage its own risk over its clients, how the firm leverages its partnership equity plan to give a wide base of employees a stake in the company and its culture, and how the firm’s foundation is built to grant flexibility to advisors, allowing them to affiliate as W2 or 1099 employees and to still take their book of business with them if they ever decide to leave.

We also talk about how Jim’s firsthand experience as a complex manager of a major wirehouse helped him realize how the national wirehouses were evolving from a connection-focused support system into more impersonal and overly systematized corporation, how the benefits advisors gained from associating with the wirehouse were becoming increasingly outweighed by a lack of growth opportunities and an excess of damage control from corporate scandals, and how these realizations inspired Jim to build his own firm based on a partnership model akin to the true Wall Street and Big-8 accounting firm partnerships of old.

And be certain to listen to the end, where Jim shares how he has found delight in creating a business model that gives advisors opportunities to go beyond large firm red tape, the challenges that Jim faced in spending down his personal assets and mortgaging his house to build the firm he dreamt of, and how Jim believes having a clear vision, confidence, and motivation to push past unforeseen challenges is what leads to better, more fulfilling accomplishments.

So whether you’re interested in learning about how Jim and Steward Partners built an advisory firm with the benefits of a wirehouse without intrusive large firm compliance and risk management, how Jim has created a true partnership culture for financial advisors, or how he follows inspiration to create the opportunities he wants to see in the world, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jim Gold.

Michael Kitces

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Full Transcript:

Michael: Welcome, Jim Gold, to the “Financial Advisor Success” podcast.

Jim: Thank you, Michael. Excited to be here.

Michael: I’m looking forward to the discussion today, and this ongoing interesting dynamic between the wirehouses and the mega firms of the world, and an independent advisory firm. So, I would sort of broadly call that the independent channel. We have independents that go to the RIA model. We have independents that go to the broker-dealer model. We have some independents that are dually registered across both. But I feel like there’s been this long back and forth battle in the industry between, is the future of the industry wirehouses and mega firms? Is it the independent channel? I feel like the independents like to throw a lot of barbs at the wirehouses and point to the so-called breakaway brokerage trend of wirehouse brokers that are leaving.

But then I always pull out some of the numbers and look, and we usually measure the number of breakaway teams in the advisor world in however many dozens of teams that broke away, and often big teams sometimes these are billion-plus dollar teams. But we measure wirehouse assets in the trillions, we measure wirehouse brokers in the tens of thousands. So, having dozens of leave is basically like, so did 0.1% of wirehouse brokers leave or 0.2% of wirehouse brokers leave. It’s not really actually a torrential flood coming out, but I find these advisors on either side of that divide have some pretty strong feelings about which channel is better or where to operate. And I know you have lived this transition, you spent the first part of nearly 20 years of your career in the brokerage firm environment. You spent almost 10 years now outside building an independent firm, including bringing some people from wirehouses out to the independent world. So, I feel like you have uniquely lived the depth of this on both sides of the divide. And so just, I’m really curious to hear more from you as we go through discussion today of how you think about these differences between the wirehouse model and the independent channels, and how you choose between them, how any advisor chooses between them.

Jim: Yeah. I think at the end of the day, look, every model is different and every model has its appeals. So, the wirehouse firms have a huge offering, good technology, all the resources an advisor could use, but ultimately, the advisors, if you really think about it, at the wirehouses, you have really thousands of almost independent business owners aggregated in a wirehouse. And some of them make the conscious decision to say, “This isn’t the right model for my business. There’s things I need that I can’t do where I am. I’m feeling constrained by the model that I’m in.” So, I think the future…the wirehouse models will always be a very significant part of our industry. I’m sure you’ve seen this early data where the overall market share of revenue in the wirehouse is dropping pretty dramatically from even 15 years ago.

And I think that’s a trend that’s going to continue. And you’re exactly right there, Michael, what you said earlier, the flight out of the wirehouses to independence, it’s not 20% of their assets, right? It’s 0.2 basis points or one basis point or 1%. But I think the real difference in the trend is when you think back to say, 15 years ago, if a hundred advisors left call wirehouse A to go to wirehouse B, 99 of them are going to another wirehouse. Today, that trend is very different because you’re seeing a very large percentage or the vast preponderance of those folks are going to some form of independence. So, that is clearly the real differentiator from the flows of where they’re going. And that pie chart from 15 years ago, we used to sort of refer to it as a prisoner swap, right? Every Friday you’re hoping to bring a couple in, you might lose one. You’re sort of exchanging prisoners on Friday afternoons, but I think nowadays…

Michael: Always resign on Friday afternoon, 4:40 PM on Friday afternoon so you get a clean break on the weekend before the TRO comes on Monday morning.

Jim: That’s right. And as a branch manager, you walk around the office Friday morning looking for signs of who’s leaving. It’s a great way to start your weekend.

Michael: So I have to ask just because I know you live some of that branch manager world. Do you ever just get temptations of, I really feel like I’m just going to take Friday afternoon off? Why be in the office and do that to yourself?

Jim: No. Honestly, I didn’t. I think it’s important. Someone’s going to leave us, and people have the right to do what they want to do and that’s fine. But I just always felt like people are looking for the leader to be in place there to deal with the fallout. It may be very minor. It could be the biggest team in your office, and I’ve suffered both as a manager. But I think it’s important to be there onsite for that time of day.

How Jim And Steward Partners Offer Advisors Independence With A Wirehouse Infrastructure [7:22]

Michael: So, talk to us more about how you think about and compare across the channels then? As you’d said, traditionally, the positioning of the wirehouses was huge offerings, great technology, all these resources you can use. I feel like a lot of independents now make the case well. So much now is becoming available on the independent channel. We get more and more tools and offerings and resources every year as in part just as the RIA channel grows, and more providers are building solutions for RIAs. Technology certainly has proliferated in the independent channel from where it was 15 years ago or even 5 to 10 years ago. So, is that still the comparison of wirehouses have the depth of offering in the technology, and independence offer greater flexibility in the dynamics of independence? Is that still the comparison? Is that how you think about the differences between the channel offerings now, or is it different?

Jim: I think you’re exactly right where years ago the wirehouses had significantly better technology. They had a significantly better investment offering, and they also had a very unique offering, unique to themselves, which was research. And their research meant something. And advisors use that as the base to advise their clients. So, I think the trend, as you mentioned, is technology now…the platforms have converged, technology around the street is as good as it’s ever been. The platform offering, I think the move for advisors to run discretionary models on their own, it made them much less dependent on their firms. And I think that was a hindrance 15 years ago for advisors, especially the bigger ones, to say, “Hey, as much as I would like to be independent, which is good for me, I don’t feel that there’s a platform out there or technology that would be on par with what I have today.”

So, I think that everyone has gotten better. Everyone’s technology’s gotten better. So, I think there’s parity now between platform technology and offerings. And then, that allows now the advisor to make that decision that now it’s not a, hey, I’m doing my client a disservice to go independent. It’s really now is, what is the best longer term path for my business. And look, if it’s staying at your wirehouse, that’s terrific. There’s nothing wrong with that. But I think the majority of folks, as I said before, the big sea change is the number of advisors who are choosing independents versus going from wirehouse A to wirehouse B. I also think you see an interesting trend that the senior management of these firms, as they tend to leave now, many of them are winding up at some model of independents, which tells you from the top, they see the same thing we’re all seeing.

Michael: Right. So, help us understand a little bit more…I am curious this dynamic of investment research you said was one of the things that historically bound folks into the wirehouse model, which I feel like on the independent side, most of us really have no concept of what wirehouse investment research, just what that looks like, what that means. We’re doing our research in Morningstar, or YCharts, or FactSet, or Bloomberg, or one of the other research services platforms that you can buy as an independent advisor. So, can you just give a little more kind of what was the investment research that came in the wirehouse world? How was that different than advisors that have subscriptions to tools like Morningstar that made that such a binding value proposition in the wirehouse world?

Jim: Yeah, I think there is no difference today, which is why, again, you’re seeing the flight to independence. I think if you go back and I started in the industry in 1995, back then it meant something if Merrill Lynch put a buy rating on the stock or Smith Barney put a buy rating on the stock. And so, that would drive the markets. They all have terrific research departments then. They have terrific research departments now. But the difference now is back then it was proprietary. The advisors would get on the phone and be on the morning call and listen to what the firm is going to say, and then be calling their clients and saying, “Hey, we’re coming out with a buy today on X or whatever the company is.” So, I think that dynamic has shifted to, as you said, there are so many sources of information now, and I find it a little bit ironic because it’s not dissimilar to what their clients are facing. Thirty years ago, you didn’t have things like Yahoo Finance and all the various websites, CNBC, and all the various tools that..

Michael: If you wanted to know how you were doing, you literally pulled out “The Wall Street Journal,” you went to the stock pages and you looked up the closing prices on the stocks or the mutual funds.

Jim: In my office, I came into literally still had a ticker tape, and clients would come sit there and watch it all day.

Michael: Nice.

Jim: Yeah. So, and that’s within the last 25 years, so this isn’t a 100 years ago. But I think that’s the difference is that the tools, the platform, the technology, all parts being equal, and that you could have subtleties here or there that are slightly better, but overall, it’s all the same now. And when you have that ability to say, “Hey, the tools and technology and resources are now the same. Now, the only decision I have as an advisor is am I at the best place to serve my clients on a go-forward basis?” And that’s a very, very different mindset for the advisor to go through versus thinking, “Hey, is independence even functional for what I do?” That question’s now been asked and answered clearly.

Michael: I’m struck by just that framing that, as you said like we can go back not all that long ago to a world where a lot more investing was individual stocks, major Wall Street firms putting out a buy rating on the stock, had meaning, had impact, could move the market, could move investors. And so, just being at that firm and knowing that the firm was issuing that call and being able to go out to call your clients, who by then might not have heard it anywhere else yet because CNBC is not a big thing. There is no internet yet. They’re not going to read it in the newspaper until tomorrow or the day after. And so, being able to call them that day and say, “Hey, Merrill just put out a buy or Morgan just put out a buy on this stock. You’ll see it in the papers tomorrow, but it’s public now. And I can get you the thing today. Do you want to buy some shares?” That was a unique value proposition. You had a faster access to information than the average retail investor.

Jim: Yeah. I think what I hear mostly from advisors we talked to is back in the day, being at my firm, fill in the blank of the name, was additive to my business, helped me grow my business. Nowadays, with all the scandals and things that go on at these companies, I’m lucky if it’s neutral at best. And usually, it hurts me. And I find myself in a position where I’m defending something that happened at the corporate level, had nothing to do with what we do out here in the branches. But it’s on the cover of the journal that firm X had a mortgage scandal or a currency scandal or a treasury bid-rigging scandal. And you’re now basically cleaning up the mess of something that you had nothing to do with creating.

Michael: Yeah. Well, I know a lot of advisors at Wells over the past couple of years that I think really struggled with that. Just to go from having a very high-profile national name on your business card that was an asset to suddenly having all of the scandals that were in the media around the account openings and all the other stuff that happened to Wells. And suddenly, that name on the top of your business card went from being an asset to a liability, seemingly overnight. And now you’re defending a parent firm you didn’t really particularly want to defend. It wasn’t supposed to be a thing you defended, it was supposed to be a thing that helped you get business. And then it changed, and it changed outside of the control of any one advisor who was building their business there.

Jim: And I think the other phenomenon which we’ve seen…listen, this is not a new phenomenon in our industry, but so many of the advisors at Wells Fargo would say, “I never went to work for Wells Fargo. I worked at AG Edwards. I worked at Wachovia. I worked at Prudential. I wound up one day with a Wells Fargo business card, but it wasn’t my decision. It was a decision the firm made.” So, I think that’s also another dynamic is, is the firm you join the firm you work for today. And that’s another topic I hear a lot from advisors is, “Hey, I joined firm X back on the day and it was terrific place, and I got trained, and they took good care of me, but I kind of woke up one day and said, ‘I can’t find any semblance of what used to be the firm I joined. It’s gone now.'”

Michael: Well, and I know I’m certainly hearing a lot of that these days around the changing dynamics of Merrill as well, just as Bank of America continues to, I guess, to do what Bank of America is doing for some advisors that like the bank environment and the bank style that’s welcome. But for a lot that kind of grew up in the entrepreneurial thundering herd days feels very, very different at Merrill these days.

Jim: I think the core problem there is, and listen, I was at Smith Barney and became Citi-Smith Barney, and Citibank’s a fine organization. But I think at the end of the day, people asked me this question, I said, “Listen, here’s the problem with banks. Banks love investment wealth management revenue, and they hate the risk.” So what they do is they just keep homogenizing it down to nothing. So, you start out with a glass of milk and you wind up with fat-free, water, soy latte. And you’re like, “How did I get this? Where’s my milk?

Michael: A wholesome glass of milk. Can you get back to my milk?

Jim: Right. So, I think that’s part of the problem is that they’re always looking for ways to de-risk wealth management. Listen, it’s a risk business. If it was risk-free, Citi gives you the lowest yield, because it’s risk-free, it’s FDIC insured. So you get what you pay for.

Michael: So, how do we think about the differences in technology between the wirehouse world and the independent world? Because I know you have lived both sides now. I feel like the wirehouse world still seems to make the case, at least in the ways that I hear it, of, yeah, there’s a bunch of that independent technology out there, but you still got to cobble all that stuff together. And who wants to go through all that work? The independent channel tends to say, yeah, but we’ve got all these just best of breed solutions and all these different categories you can weave together exactly what you want. In the wirehouse world, you’re just stuck with whatever the home office builds and whatever the home office updates for you. And I am sure to some extent that’s every side always likes to take swings at the other side because that’s part of the competitive dynamic. But you’ve lived both sides. How do you think about the strengths and the weaknesses of this actual comparative technology environment between being in a large firm wirehouse world and being in the independent channel?

Jim: Here’s how I would explain, I think all the wirehouse firms have great technology and tools. And again, it depends on how you want to run your business. I think, again, the opportunity is where does the line of compliance and technology meet? So a very simple, almost insane example. I won’t name any names, but at certain wirehouses, an advisor is not allowed to hit the Like button on anything that they see on LinkedIn. Because that then basically is implying that their firm likes this event as well. So, we have an advisor that joined us because their final straw was they get a pop up on their website and it’s, “Congratulate,” let’s say, “Jane Doe on her one year anniversary in her new job at XYZ.” The advisor hits Like because that’s her daughter. The next morning, they had compliance in their office saying, “Log in immediately and Unlike that.”

So, it’s wonderful to say you have social media. It’s wonderful to say you have tools, but how much can I use them? How nimble are you? So, I think all of the technological innovation is happening on the independent side. And I have seen that from the inside where things that we could do 8 or 10 years ago, really weren’t available at the wirehouses. If you want to build an advisor webpage, it’s pretty, again, watered down, right? It’s like your picture goes here and you could say this, and you could say that. We have advisors doing podcasts. We have advisors writing books about financial services. We have advisors recording video and sending out video blasts to their clients. Things that at most of these traditional firms are either impossible or a tool that’s given to very, very limited audience.

So, I think that’s the key is the technology, as I said, fully loaded, is on par. But I think the unique tools and the innovation is really happening on the independent side. And again, these bigger firms and to be fair, they’re dealing with tens of thousands of advisors like you said, so the risk profile is different. They’re much less nimble. There’s an advisor I spoke to recently that used the term, “They’re trying to turn a battleship in a bathtub.” And I think that’s a very fair comparison. I think that’s where tools that we have that we’ve adopted. And I think it’s also the freedom of our advisors to say, “Hey, this is a tool that we don’t offer, but I think we should.” And we say, “You know what, you’re right. Help us innovate, help us learn what’s new out there.” So, I think that’s the key difference is the tools may be the same, but your ability to utilize them is still very different in a negative way, I think, at the bigger firms.

How Jim’s Business Model Differs from Traditional Wirehouse Environments [20:12]

Michael: So, I guess I am wondering just if you can go a little bit further on that, that…so at the end of the day, we’re all subject to the same compliance rules. We’ve all got the same regulators, they’re all working off the same legislative statutes. So, how do I think about this world where you’ve got advisors running podcasts and writing books and the average advisor in a wirehouse is like, “That ain’t happening.” Same regs, same rules, same regulators, completely different outcomes. Why is it so different?

Jim: It goes back, Michael, to what I said earlier, it’s an effort to completely de-risk the trade. And then, it’s also, listen, if you allow it for one, you have to allow it for all. So, if they allow an advisor to write a book about financial services, that’s going to become a known event. And then, you’re going to have a thousand more advisors saying, “Hey, you let John Doe write a book. Why can’t I?” And now they have to have a whole department to sit there and audit people writing books. But you’re right. It’s guidance from the regulators and we all want to follow the rules and make sure we’re running a clean business, absolutely. But it’s things like revenue sharing, right? So revenue sharing, there are regulations around it and certain requirements for getting registered or what have you, every state’s a little bit different. But at the wirehouses for the vast preponderance of people, what they’ve said is you are only allowed to share revenue with CPAs, and here is the formula that we give you. So, okay.

So what about a great estate attorney? What about a divorce attorney? These are people who are knowledgeable, who are ethical, who are in front of monetization events that their clients need as much help as the clients of a CPA. And, oh, by the way, I’d like to customize how I share revenue with them. I don’t think a cookie-cutter is the right way to do that. So I think it always comes back to that, which is how do we get the value of wealth management and strip out as much risk as possible, put in more regulations and more blocks on our folks. In that way, it limits our downside.

Michael: So, we talked about the technology starting to equalize some of the investment research kinds of support, starting to equalize…talk to us a little bit about just the offering, the investment offerings, the other offerings. So you had said, historically, that was a big part of the wirehouse differentiator as well. It was access to private offerings. It was access to alts. It was access to unique products that got built by the investment bank. I know sometimes it was all on the lending side. It was actually being able to do a loan for a client for 50 million for their business. Oh, in Europe, by the way, that loan has to be written in euros. Is that stuff still a meaningful differentiator in the wirehouse world? Is that also becoming available in independent channels? Or just that stuff’s not actually used by a lot of folks, so the ones who use it stay and the ones who don’t, don’t. So, how does the wealth management offerings, that could be asset side or debt side, compare in wirehouse world versus what you see in the independent world today?

Jim: I think what happened is, and I always say every action causes a reaction, and anyone who’s been in this industry for the last 30 years has seen just a remarkable time of change. Unfortunately, also a remarkable time of scandal. So, the research scandal of the late ’90s, early 2000s really turned people off on using their firm’s research because all their clients saw in the press was, “I heard your firm’s research is fake. And that I saw the email of the analyst saying this stock is junk, and no one should buy this, but yet you’re telling me to buy it.”

So, that I think drove people away from that, the great market meltdown of the NASDAQ, and then in the financial crisis of early 2000s. Advisors were getting a hard time from clients and saying, “Hey, you put me into this money manager X, Y, Z, and the money managers underperformed, and I’ve lost money as a result of it. That really caused a sea change of advisors saying, “You know what? I’m done farming out the asset management to someone else because what I’ve learned the hard way is ultimately my clients are always got to hold me responsible.” And that’s when you started seeing this real shift towards advisors running their own models with discretion. So again, those two steps make me the advisor far less dependent on a wirehouse firm.

I think the same thing with alts. There’s a history of alts. And I think alternatives are terrific. They’re obviously complicated. They’re obviously not for every client. And I think for a much smaller universe of clients, but unfortunately, many advisors have lived through this firm package alt that was…we back-tested it every which way to Sunday and every scenario that’s ever happened, and the clients could never lose money. The problem with that process is, you didn’t test it for the one thing that’s never happened. Like no one predicted COVID two years ago.

So, that’s the promise and the advisor finds himself in that same spot, which is, “Hey, Mr. and Mrs. Client, I know I told you that this thing could never lose money. It actually did.” So, I think that’s part of the challenge. And I think on a wholesale basis, if you look at all the wirehouse firms, I would tell you my best guesstimate is that from the retail client perspective, the revenue being done in the branches, it’s definitely low single digits percentage of revenue. It is just not a significant part of most advisors’ conversation with their clients. Nothing wrong with it, I think it’s terrific, but it’s like running a 401k plan, right? Many advisors say, “You know what? I’m just not interested in that kind of business. I want to run my own models. I want to interact with my clients in a different way.”

Michael: Interesting. So, effectively, this phenomenon of the advisors increasingly are saying, if at the end of the day, clients are going to hold me accountable for their outcomes anyways, I may as well live and die by my own sword. So, I’m going to build my own models. I’m going to manage my own portfolios. I’m going to do my own thing. Hopefully, I’ll do that well. If I don’t, I’m still going to be accountable to my client, but at least I’ll be accountable for the thing I actually built for them and I was responsible for, instead of I gave them the thing that the firm had created for us to offer to them, and then it didn’t turn out well. And that ends out being on me, even though I didn’t make it in the first place, the firm did.

Jim: Right. But I think, again, this goes back to taking advisor A at a wirehouse who’s trying to do that and advisor B who’s in some form of independence. The advisor at the wirehouse. Oh, yes, you can run your own models, Michael, but here’s our rule, certain number of sectors, certain percentages. Oh, and by the way, you can only buy stocks that we tell you to buy. So, how much latitude do you really have in that model to work on your client’s behalf?

Michael: Well, and to me, it’s just…it is the reminder at the end of the day that just the legal, functional purpose of a broker-dealer or in wirehouse at the end of the day are just really, really big broker-dealers. Just the legal, functional purpose of a broker-dealer at the end of the day is it’s an intermediary for the distribution of securities products. That’s why it exists. It’s called a broker-dealer, because the original functional purpose was to broker and deal in initial offerings of securities and secondary trading of securities, that was the dealing and the brokering part. And when that’s your legal purpose, it’s hard to get away from that entirely because that’s literally your legal purpose.

And so, to me, a lot of what you’re describing at the end of the day is just when the entity’s legal purpose is to facilitate the distribution of investment products, at the end of the day, it always comes down to how much of the firm’s investment products did you move. That’s why we call it production. It’s why we measure its production. And that’s just fundamentally different when you’re an independent model, because you’re literally not…or at least on the RIA side in particular, like you’re literally not paid to distribute products. You’re paid by the clients to give them advice. They may end out with similar stuff. But when you change who pays, you kind of change your focus on what’s most important.

Jim: Well, that’s the thing and I do hear that a lot as well is that the conversation is always about the shareholder, the stock performance. But I think, again, what’s been lost in the last couple of decades is the most important. If we’re lining up who’s most important, who’s most important is the client. Who’s second most important is the advisor, because they are the conduit to that client. What’s least important is the firm, and most of these firms have that hourglass turned upside down.

Jim’s Journey In The Evolution Of Wirehouses [28:46]

Michael: So, talk to us now about your journey, because I know you’ve lived this. You’ve lived this journey from starting out in the wirehouse environment, moving to the independent channel. So, share with us your journey of how did you get started in the industry? Where did you get started originally? And how has that moved through and progressed for you over the past 25 odd years?

Jim: Yes. I guess I’ll keep it at a high-level sort of on the background. So, basically, my first job was selling custom printing in New York City, used to cold walk buildings and pitch live. So, you learn your sales skills pretty quickly on that. Spent a brief time in title insurance, was married, and we had one child and a home and bills to pay, and ultimately, found myself at a crossroads career-wise and spoke to a lot of people and said, “Hey, listen, I’m a salesperson. I’m looking for a new sales opportunity.” And all I kept hearing was, “Hey, salespeople make the most money are stockbrokers.” Now again, this is 1995. So, I interviewed with Merrill Lynch and Smith Barney, basically two firms I had heard of, with a person with no exposure to really financial services firms at that point.

Funny story, when I interviewed with my branch manager to be, it was actually Doug Kentfield, who is the president of Steward now. Doug said, “How much do you know about the market?” And I said, “Is the bull a good one or the bad one?” And that was genuinely a true question. And he said, “Listen, I can’t teach you how to sell, but I can teach you the market stuff.” And he’s like, “You’re hired.” Yeah, but that’s a true story. So, went in production in Smith Barney in 1995, and ultimately, was given an opportunity to go into branch management in 1999. I started out as a national training officer, which I’ve loved that job. We were in the national training center for Smith Barney at the time up in Hartford, Connecticut, was there from the summer of ’99 until early 2001, and was part of a group that trained over 2000 new hires. So, it’s sort of an interesting to me, full circle of, I sat in the same classroom four years before as a trainee and then to come back as the training officer was kind of cool.

My next stop was Boston, Massachusetts to work with a terrific mentor for four years, downtown Boston. Ultimately, became a branch manager New England, became the first complex director for Smith Barney in New England. And then, we were part of the takeover by Morgan Stanley, became a complex director from Morgan Stanley, moved around a little bit inside of that world, got another complex job. And that was during a time where they were going through this great reorg and constant reorgs of people and what have you. So, found myself thinking again about my future and saying, “Am I in the right spot?” And clearly, the answer to me was no.

And I think it goes back to just like the advisors that want to go independent is I said, “Listen, I want to be able to have the opportunity to work directly with advisors, and I’m not forced to tell them something that I don’t personally believe in because the firm’s making these say this.” Whatever, that’s a policy or pay cut or whatever it might be. So, I got together with a bunch of colleagues from Smith Barney. We spent the summer of ’13 really building a hundred-page business plan. We spoke to probably 30 different firms and, ultimately, chose Raymond James as our business partner in this venture. And they’ve been absolutely fantastic. So, Raymond James has been everything we hope for. And I think one of the many attractions for us at Raymond James was their culture.

It was a culture that people feel respected. They feel the advisor does come first. They feel like they got that hourglass turned the right way. We all thought that that was a great time to really focus on that and build something special. So, you launched Steward in the summer of ’13, I guess, officially. There are sort of two dates. So, the incorporation was July 3rd of 2013, which we always found a wonderful irony on the eve of Independence Day, our independent firm is now official. And our first advisor, Ted Schwab joined us in DC that September, September 20th. And we’ve just been building ever since, and it’s been amazing journey. It’s been wonderful to reunite with many of my colleagues from my old complex management team and advisors we work with formerly. And I think addressing a unique proposition in the market from a firm-offering perspective.

Michael: So, I want to come back in a moment to more questions around just the launch of Steward and the offering of Steward, and what your guys are trying to build. But I do understand a little bit more of just the…a little bit of the twists and turns in that journey along the way. So, you interviewed at multiple wirehouses and I know the environment’s different now than it was than then, to say the least. Why Smith Barney at the time over others that you interviewed at? What was it back then that made that the one to be at? Or just they were the one that made the offer?

Jim: No. I had offers from both firms. I would say ultimately for me, which is very common, I felt really comfortable with Doug. I felt that he was going to be someone I could partner with as a young trainee. And that I genuinely felt, which it turned out to be the case, that he would be someone who would support me in growing the business. Because, listen, it’s an incredibly difficult business. And that’s why the survival rate is not great. And the number of advisors getting to be million-dollar producers, which I think is every trainee’s goal, right? They say I’m going to be a million-dollar producer someday. I just felt most comfortable with Doug. I felt most comfortable with the culture and sort of everyone I talked to at Smith Barney that that came through.

And I always talk about, and we’re super proud that Charlie Johnston, who used to run Smith Barney, is on the board of Steward. And Charlie is just a great guy and a great leader. But what you felt thoughout that organization was Smith Barney was always based upon the premise of what is the right thing to do. Because, listen, every firm is not perfect, including Steward, everyone makes mistakes, things happen, but it’s how do you react to that? How do you deal with those mistakes? And at Smith Barney, if something was wrong, they never had a problem fixing it. And if it costs money to fix it, that’s okay. We got to do the right thing here. So, to me, that was a real attraction of Smith Barney. And I felt with Doug as the leader of the local office at that time that I was going to be at a good spot to grow my business. And ultimately, I was. I did very well as a trainee and used to dial the phone 500 times a day. And I was so broke at the time, I couldn’t afford a headset so I used to switch ears every hour because my ear would get sore from holding the phone to it.

Michael: Wow. So, how did that change as ownership changes came? Like not to try to pick on any companies in particular, but just what was it like as Smith Barney went Citi, Citi Smith went Morgan, how do those changes feel from the inside for you? Think from the inside of the organization.

Jim: Yeah. I think it goes back to the same theme. I think it’s loss of control, right? So, it’s Smith Barney as a standalone entity, Smith Barney could do what they wanted to do as a standalone entity. When you then bring in Citi, well, now there’s another voice in the room, right? Citi is a huge organization, and it’s amazing to think about it. As large as Smith Barney was, we were single digits of Citibank’s revenue. So, you have 94% of the firm is not Smith Barney. So your voice there is not a big voice. So, I think it’s that same dynamic.

And then, listen, every time two firms of that size merge, there’s a lot of pain, not everyone’s going to keep their spot, there’s changes. We all know people have alliances and people tend to pick people that they know and they’re comfortable with. That’s the norm. When we were looking for a leadership on our team, my first phone call was to Doug, because I knew Doug and I trust Doug and Doug’s an amazing talent, right? So that’s what ends up shaking out is that not everyone is going to get a seat when the musical chairs music stops.

How Branch Managers Differ From Complex Managers [36:18]

Michael: And for those who’ve never been in the wirehouse, large firm environment. Can you just explain branches and complexes, and what it means to be a branch manager versus a complex manager, just that whole system and hierarchy.

Jim: Yeah, and again, this is a big change. So, I go back to when I started in 1995, Doug ran the Jericho office of Smith Barney, right? So, there’s 50 something advisors, everyone in that branch reports to Doug. Doug has a management team. So everything is right there, all the services you need. And I think again and another change is that at that time, branch management had exponentially more power to take care of problems at the local level. Complexing started happening in sort of the early 2000s. I’m not sure which firm started it, but basically, again, it’s a cost-savings exercise. So it’s, Hey, instead of having, let’s say, 10 branches on Long Island with 10 separate managers all making this, we could have one person oversee the whole thing and give 9 other managers a pay cut. And now they all report to that manager who’s running the complex.

So, I think there’s been a clear watering down of the local experience. You see these massive musical chairs of management comes and goes. Twenty-five years ago, branch managers, you could have a branch manager that could hire you and host your retirement party. Those days are long gone. So, the average branch manager in a branch now is probably two or three years. It’s like being an NFL player. And so, you just don’t have that continuity and you’re always faced with, oh, so, and so’s now moved on. Oh, they left our firm to go to another firm. Oh, and now here’s the new manager. Now I have to get to know the new manager. They have to get to know me. So you break those bonds, you break those connections.

And that’s why, again, all these factors feed into why is there this flight to independence. Because 25 years ago at Jericho Smith Barney, the advisors would say, “Hey, listen, I’m not interested in joining your firm. Smith Barney’s a good firm, Doug, my manager takes great care of me. There’s no need for me to look around.” So, I think structurally that’s what’s changed, and now you have centralizing of operations, centralizing of compliance. So, where the rubber meets the road at the branch level, there’s this far less connectivity to the advisors. And I think you’re seeing a trend of sort of shoot first and ask questions later, as far as from the regulatory rules and how they’re enforced.

Michael: I’m struck just by how you frame that, that 25 years ago, it used to be, even if someone tried to recruit you, it was, well, my firm’s a great firm and my manager really takes care of me. And just contrasting that to today, and now it’s like, well, I’m pretty happy with most my firm does, but I’m really aggravated about the latest insert scandal here that was in the Journal. And I don’t really have much of a connection to my manager because I’ve been here through five of them in the past nine years. And so, just those two anchoring connection points are neither are the connection point that they once were.

Jim: Yeah. We do this thing with our board, which I think is terrific. So our board, we have, again, amazing board of directors. So, Charlie Johnston used to run Smith Barney, and then Morgan Smith Barney, and Bob Mullholland who ran the field for Merrill Lynch and then, ultimately, UBS are both on our board. So we do this thing called meet the board day before each board meeting, where we’ll spend a day with prospective recruits and have them actually sit with board members And they want to ask them questions and why are you here and so on.

Our board members always ask them, tell me about your local management. And they’re all struck by this comment. They said, the number one comment they get was, “Oh, my manager’s great. They never talk to me.” And the reason that’s a good thing is because the only time they talk to me is when they’re bringing me bad news. So they never talk to me, that’s a good manager. But that’s where we are. That’s what the average advisor says, “Hey, my manager’s great. They never talk to me. They leave me alone.”

Michael: And I think it’s a powerful point to make for, I guess, anybody that’s been in the system for, I don’t know, probably less than 10 or 15 years, that didn’t used to be a good thing. Like the, “My manager’s great. They never talked to me.” That didn’t used to be an asset. The asset used to be, “My manager’s great. We talk all the time, and he or she’s given me great ideas that’s really helping me grow and build my firm.”

Jim: Yeah. And they invited me to their house for a barbecue and they were at my son’s wedding. And so, again, the advisors should be treated like the client of the firm. And that’s where we loved Raymond James in the very beginning is they got that, and they look at it and say, “Hey, you are our client. The advisors are our client. Your clients are your client. You’re our client.” The firms have turned that around to, you are our employee and you’re going to do it our way. And it’s one of those CEOs famously said, “If you don’t like it here, then leave.” It’s our way or the highway. No ambiguity there.

Jim’s Aha Moment That Led To Launching His Own Firm [40:55]

Michael: So, given that journey, given that evolution now, talk to us a little bit more about what changed, what was the event or the thing, or the moment that made you ultimately say, “I’m almost 20 years in the system, but I just can’t do this in the system anymore. I need to change and go to the independent side and build my own thing.” Was there an event? Was there a moment? Was there, okay, this is it, right here, the thing that happens, I’m not dealing with this anymore? What led you after almost 20 years to make a change?

Jim: Yeah. I think it’s that common thought, which I shared earlier that I found my…I tell advisors this all the time that I speak to is I said, “Listen, I went through your journey. I found myself waking up one day and say, ‘I can’t find any semblance of the firm I joined.'” So ultimately, I considered all my options, I talked to the competitors and sort of other firms saying, “Hey, you can be a complex director over here.” But to me, that’s just…I’m still the hamster on a different-colored hamster wheel. And nothing else about that would be any different. And so, I looked at it and said, “Look, I think there’s an opportunity to build a firm.” I think what we looked at in the very beginning was saying, “Look, we want to build a partnership culture.” Many of the great firms of the past of Wall Street were truly partnerships. And that meant something to people and being an equity owner and genuinely caring about the success of your organization was important. So due to that, we built this equity structure at Steward that every single person here is a shareholder.

Also thought about the ability to say, okay, if the world you want to live in doesn’t exist, you have two choices, shut up and go to work or build your own. And there’s really no other door. And so, to me, that’s where I think the journey led to Steward and, ultimately, the right spot. Because I look at it now and I tell people all the time is, “Listen, I’m the CEO of Steward.” So one of my advisors calls me for something, I say, “Look, I have nowhere to hide because I’m it. I’m your decision committee right here. I don’t have to go to the region, the division, whatever for approval on things, how we do things at the firm.” So, I think we saw the opportunity. I think the real differentiator of Steward, which goes back to all the training, all the things we learned, is you can build an organization and run it the way you know advisors want to be treated. And what I love hearing from our advisors, they say to me, “My old firm, I thought my best days are behind me. Here, my best days are ahead of me again. And I’m so happy to be here.”

So, I think that was really it, was just seeing what was going to happen. And listen, we were lucky. I think our timing was great. I think the structure we put it out there is still very unique today between the partnership culture of equity ownership and what I call independence with infrastructure, because for all the flaws or complaints about wirehouses, it’s a wonderful model, right? Everything’s done for you. You walk in, the lights are on, the coffee’s hot, the TV works. You just come in, run your business, and come and go as you please. For many of those folks, the lead to full independence, run the office, you’re now HR, you’re now compliance, you’re now operations, you’re now payroll. The better producers don’t have any free time. So, I ask of them to do that on their own from any of them, it’s just a bridge too far. So, I think the success of our firm from the beginning was independence with infrastructure, which is a term that I think really expresses well what we do, but also that you’re going to be an owner here. And if we win, we win. It’s not the firm wins, you get nothing.

Michael: So, why the leap when you did though? Just you made the transition, I think you said in 2013, it could have been 2011, could have waited until 2016. Just was there something happening or some event that triggered to say 2013 is the year we got to do this?

Jim: I think, listen, there was a number of reorgs that we all went through with the merger. And it was just…that was somewhat on the heels of the most recent reorg. And at a certain point, again, you just realize to say, this is my reality. Either I accept it and deal with it, or I do something else. And I can remember so distinctly my brother Bill who’s at…was at UBS at the time and now works for Steward. He was trying to talk me out of doing Steward. And he said, “Listen, Jim, you have to accept the reality. You’re just a plow horse. So, shut your mouth and plow the fields.”

And I say, “Well, Bill, here’s how I look at it. If I go through the Steward thing, and let’s say in a year, it’s a miserable failure, and it winds up at the bottom of the ocean next to the Titanic. Am I any less qualified to be a plow horse?” I’m probably more qualified to be a plow horse at that point. So to me, it was just a window of time. And I think, again, a lot of the circumstances around Raymond James was an up-and-coming firm, I think the team we put together. So a lot of these sort of other factors came to be, and to me, it was just a trade that made a lot of sense to me to take that leap of faith at the time. And with the support of a family and friends, which is terrific.

Michael: I do like that framing that just, look, if you’ve been in an employee model world and you’re thinking about trying something, if you try it and it doesn’t work out, granted, I don’t know that the plow horse is the most aspirational analogy.

Jim: Well, he’s my older brother, Michael. They’re not always nice to the younger brother.

Michael: But that the point of it, if you’ve been an employee model and you’re thinking about trying something different, your worst-case scenario is you go back and get another employee job. You’re still marketable. There’s still a demand. That’s not changing. If anything, the demand for employee advisors just continues to rise because of the growth of the industry. I know a lot of firms that just, they actually like hiring people who went out and tried out something on their own, it didn’t work out because at least they know what it’s like. It gives them a new perspective. It makes them more grounded. There’s even positives for that from the hiring end that, at worst, it only makes you more marketable for your next job. It’s not as though it’s a career-ending decision. There’s not a shortage of jobs.

Jim: And I think it’s also, I remember getting asked this question from a recruit is they said, “Put this in a different perspective for me.” And I said, “Okay, think of Steward as Jason Bourne. You trained us for 20 years and then you decided that we weren’t that valuable to you. Now, we’re going to take all that training and tools and show you what we can really do.” And that’s pretty much what we’ve done.

How Jim And Steward Partners Challenges Old-School Workplace Culture [47:10]

Michael: So, talk to us a little bit more now about just the Steward Partners itself, the business, just who are you, what do you, who do you do it for? How does this actually work?

Jim: Yeah. So, I think what I’d say there is I’ll kind of talk about where we started and I think where we are today, which, in a great way, is dramatically different. So, we started out as, again, sort of recreating the legacy branch management system. We have a 30-person management team. We separate out into divisions. Each division has a local leader. Structurally, we have compliance and operations officers onsite going to the branches. So, again, that connectivity of the old days is back in place now. So, again, it’s all the benefits of being at a full-service firm with none of the detriments and all the benefits of being independent with none of the work, right? Because we’re setting up the offices, we take care of operations, compliance, HR. So, again, our advisors can truly come in, run their business, and do what they need to do.

One of the other things we did from the very beginning is, listen, lots of firms talk about culture, but culture is driven by every decision you make. And that’s how do you handle a problem to who are you willing to hire to sit in the office next to me? And we have been really strict on this. We’ve talked about the no-jerk policy. We don’t want to work with jerks, right? And I’ve been part of running 20 different offices in my career. And every time I got sent to a new office, the nice people would come in and introduce themselves. And then they say, “Hey, have you met so-and-so down the corner yet? You’re going to be spending a lot of time with them.” And that’s just…

Michael: Everybody knows who that one is in their office.

Jim: Oh, yeah. So the monster is down there, you’re just waiting for him to come out of the cave and tell you how they’re going to run the branch for you. So here, we don’t have that pressure, right? And I think we’ve made decisions on people to say, “Hey, it’s not a business fit.” Or, “Hey, this personality doesn’t feel like a personality that I want to spend any more time with.” So, I think what’s very indicative of that at Steward is, nowadays, the vast majority of our hires are referrals from our existing partners. So that tells me two things. The people who are here are very happy and they want to bring their friends over here. And if you’re bringing someone over and you’re a great person, they tend to be a great person as well. So I think structurally very different. The equity ownership is completely unique.

Just going back and quickly in a timeline, we launched an RIA about four years ago now, just because of this significant portion of our business that was done in advisory. According to the most recent Barron’s rankings, we’re the 20th largest RIA in the world now. So about 16.5 billion, 17 billion there, which is the current number. I think, really something we take a ton of pride in is we are the only firm that I’ve ever heard of, and I’ve asked hundreds of people this question, no one else has ever pointed to another firm built to our size without taking in outside capital to launch the firm. We are the only one. And why is that important? Because we retained control of the company. So, leaving a wirehouse who’s only focused on earnings and the shareholder to go to a independent firm that’s owned by a single significant shareholder. You haven’t really changed anything, right?

So we take a lot of pride in that, that we were able to do that. We took in capital for the first time in 2019 through a family office based out West, it’s called Cynosure. And I think the family office structure for us was absolutely the right structure. And I think it’s two things. One is they are founded by an entrepreneur, so they understand the challenges we face. And the second thing is it’s not coming out of a fund, right? So there’s no artificial timeline. Private equity firms are great and they serve a real purpose, but we all know a private equity fund has a shelf life. And depending on when you hit that cycle, they’re going to have to monetize their investment in you, which could potentially be the worst time to ever do that, but they have to do what they have to do. So the family office structure is much more aligned. There’s not this, we have a put clause, we’re going to cash out. We decide we can cash out.

We also then started getting into sort of strategic M&A. We acquired the wealth management division of a West Coast-based bank called Umpqua Wealth Management. Terrific people out there. Ironically, many of the advisors were also legacy Smith Barney from back in 10 or 15 years ago. Through that acquisition though, we acquired their broker-dealer. So, that was agreed to in principle last year, about this time last year, and then consummated in May of this year. So, that became another really important moment for us because now all of a sudden, you say, you go from in the independent channel at Raymond James, which is terrific, to now we have a broker-dealer, we have an RIA. And listen, as wonderful as any company is, that is not the perfect offering for every opportunity.

And I think for Steward, we’ve always said, hey, we want to give people as few opportunities to tell us no. And when it’s structural, there’s nothing you can do about it. So that led to this journey of saying, okay, the next evolution of Steward is to become multi-custodial. So we began a process last fall, engage with all the custodians. We have intent to be working with all of them eventually. It is going to take a little bit of time as we work through the pieces and parts there. But through that journey, we’re introduced to the folks at Goldman Sachs who are launching a custody and clearing division, really proud of the fact that we were named as their first institutional client. Goldman’s building something really, really special. Obviously, an amazing brand name, terrific, terrific resources. So we’re really, really excited about that opportunity as well.

So, I think eventually that led to another family office joining Steward in the Pritzker Organization, which is based out of Chicago. The Pritzkers founded the Hyatt hotel chain, and we work with the family office representing Tom Pritzker, who is the current chairman of Hyatt hotels. And again, I think a real good sign for Steward and a sign of what we’re doing, the original investors in Cynosure rolled a 100% of their investment alongside of the Pritzker organization, which again is really an anomaly. Very typical investor A is almost always cashed out by investor B. That is the norm. This was really an anomaly in a very positive way, where the Cynosure folks say, “No, no, no. We’re rolling our investment here. This thing is going to only get better from here.”

So I look at 2021, as I tell our firm, is it’s a foundational year firm for us, which is probably ironic to say for a firm that’s now eight and a half years old. But I think about where we were a year ago and to come out of this year and say, broker-dealers in place, multi-custodials in place, we’ve built our own tech stack, and now we’re ready for the next leg of the journey. But I think the people here talk about most importantly to them, the advisors and the staff and the teams, it’s being an equity owner, truly feeling like you’re valued by the company, truly having a voice. We have an advisor council, we have an administrative colleagues council. They meet monthly. I’m on both of those calls every month. And I want to hear what’s on their mind. I want to hear what we can do better. They want to hear from me what’s going on or what they should be thinking about as well.

So, when you take the step of saying, “Listen, you have to opt-in to being a partner, but it’s not for everyone and that’s okay. We don’t want to hire everyone.” But when you opt-in to being a partner and you opt-in to being…saying, “Hey, I want something that’s bigger than me. And I want to be able to draw from the well of that. And then, also contribute on the other side.” That’s what I think makes the place special. But the culture of an organization is how they treat people every single day. It’s not this great thing or we have a culture committee or whatever, that’s all fine. But it’s, how are people treated every day? Would their comments on culture mirror what the firm says the culture is? And I think in many cases, it’s not true. I’m pleased to say that in probably 98% of Steward’s would say the culture is as good as you hear. You can’t please everyone, unfortunately

How Jim Approaches Compensation And Equity In His Reimagined Wirehouse Model [54:46]

Michael: Understood. Yes. So, help us understand a little bit more about how this works for an individual advisor in the Steward environment. Just, who does what? What do you do? What do I still do? What do you hire? Why do I still hire? Just, how does that work?

Jim: Yeah. That’s actually a good heads up because I forgot to mention our 1099 channel. So, let’s just take a hypothetical. Let’s say you work wherever you work today and you are in the State of Massachusetts, let’s say. So in that market, we have a local market leader, as I said, has a dedicated operations compliance team. So, if you want to join our W2 channel, we’re going to let you know where the offices are. So we have two offices in Massachusetts currently and more to come. Let’s just take, downtown Boston, right? You’re at downtown Boston at a wirehouse. You want to join Steward. Well, guess what? We have a terrific office in downtown Boston as well. So, that part of it feels very similar to what they’re used to at a wirehouse, but we go through a whole transition process. We’re going to vet their entire business, and our whole process is built around the foundation of what I say is no surprises, right?

You don’t want to be surprised and negative, neither do we, neither do your clients. So, we go way down the rabbit hole with looking at every asset, looking at how does the revenue get paid? How does this asset get moved over? Are there unique challenges to moving it? Whether it be titling or it’s a trust account, or what have you. So, all of that’s done for them. We build their website, their team brochures, their stationary, their social media. So this is all done by Steward, right? We prep them for join day. We prep them and follow all the regulations, whether they’re non-protocol or protocol. There’s obviously sort of two different playbooks you use there. So, it’s a really, again, supported process to go through to really get to launch day.

On the 1099 channel, we do the same exact thing. The difference there is going to be, we say, “Hey, listen,” let’s say Michael you’re the recruit we say, “Hey, Michael, look, you’re setting up your own office.” Let’s say down and hang them by Cape Cod. We have a real estate search firm. We’ll have them do a search for you. You found space, that’s great. Hey, we have an architectural design firm we work with. We could have them do design work for you. The difference in the 1099 is simply a P&L. So that advisor is saying, “Hey, look, I want to run my own office. I want to build my own little franchise, but I’m opting-in to the partnership of Steward. I want the compliance support. I want the operational support. I want the sales and marketing coaching for me and my team. I want the equity. I want the profit sharing and the partnership, but I want to have my own office.”

And that’s something we built a couple of years ago. We’re seeing a huge amount of interest in that. And I think if I look at this year, revenue-wise, it’s probably close to 50/50 of advisors joining us W2 or 1099. Literally, there’s two things there I tell people is, number one is one thing we can’t do for you is HR, because you’re not our employee, right? You’re an employee of your own firm now. But I think the other thing that’s really unique about the 1099, and I’ve asked again, hundreds of people, this question, we’re the only firm that I know of, that we say, “Hey, Michael, you own your own franchise now. You’re starting your own LLC, which will help you do that. But you’re also now an equity owner in Steward as part of your transition package to join us. So, I don’t know of another 1099 in the industry that offers people equity in the parent company as part of their transition. But to us, that’s critical because it goes back to every single person here is a shareholder. So whether you’re an ops manager, you’re an assistant, you’re an advisor, you’re HR, everyone at Steward has equity and it’s the same equity.

Michael: So, how does this work from, I guess, a comp and payouts perspective? Because it feels to me just in what you’re describing, you are recreating a lot of that wirehouse style environment, I’ll say of old, but I mean that in the fun, positive ways without the mergers and acquisitions and the recent baggage of the past 20 or 30 years, local offices, local support, local teams, local management in that old school style partnership structure where everybody has a stake in it, which for those who aren’t familiar, that’s how wirehouses ran a hundred years ago. It was Merrill Lynch and Morgan Stanley because it was Mr. Merrill and Mr. Lynch in partnership, and Mr. Morgan and Mr. Stanley in partnership, and big 4 accounting firms, which were big 8 and larger 20, 30 years ago. Similarly, we’re all giant partnership structures.

So, when I think about the wirehouse environment, obviously, just that level of infrastructure and support has a cost, right? So that’s why, at the end of the day, you often see wirehouses with payouts of starts at, whatever it is, 35% to 38% as a trainee. Most folks at mid 40s, good producers might get to 50, maybe mid 50s with units deferred comp, whatever the backend tied up stuff is that you get if you stay. So, how do I think about compensation and payouts in Steward? Is it a similar kind of grid structure with the similar kinds of payout rates? Because at the end of the day, you also have to do similar overhead and support, or does it work differently? Or the percentage is just different? How is that arranged for you guys?

Jim: Yeah. So, I think, thankfully, it’s very different. So, I’ll start with the W2. And I think what’s interesting to me is I’ve never met an advisor at a wirehouse firm that actually knows their real payout. What they’ll genuinely quote to you is the grid. So I do a million five, I’m at 44% payout. And I always say, “Well, that’s the grid, but what do you really get?” Right after discount sharing and this product doesn’t qualify and this household is under our minimum, and all the moving parts there, what is your real number? And everyone’s like, “I don’t know. I would guess more like 41, 42.” So, what we built here is the most simple comp plan in the world. It used to be one sentence. Literally, our comp plan was one sentence, which is on the W2 channel. The advisor receives 50% payout on the revenue they generate.

There’s no discounts, there’s no haircuts, there’s no ticket charges. There’s no revenue sharing. There’s no small household policy. So, if you generate a million dollars at Steward, you’re going to see a W2 for $500,000. So, it is totally demystified and it’s just a flat number. And we like simple. People like that because they say, “Hey, I know what that looks like here. I know if I do 50,000 for the month, I made 25,000.” I don’t have to worry about why is my net lower? Oh, there’s a scrape on this or that. So, none of that happens here. And that’s across the firm, right? So there’s not tiered payout, there’s tiered support, which I think makes sense as far as resources locally, and admin coverage, and things like that.

On the 1099, we work off of a starting pay out of about 80%. And that’s going to have some movement left or right of that number, depending on the size of the team and the complexion of the business and what have you. And that’s really in this new model of this sort of multi-custodial broker-dealer model of Steward. I think at the end of the day, the interest in the 1099 is going to really depend on are you willing to run a company on top of running your business, right? And if that’s your decision, that’s great, nothing wrong with it at all.

So, we felt like we wanted to have that offering to facilitate, again, people having more opportunity to join us, not less. Our first team that joined us in that was a big group from Royal Alliance out in the St. Louis market. And these guys or ladies were a billion and 3, and doing almost 7 million in revenue. And they said, “Hey, we’re so happy you built this 1099 model because we could never have joined you as a W2. We’ve been independent. We have our own space already etc., etc.

So that’s sort of generally where we wind up. And then in both cases, there’s a cash transition award, which is a forgivable loan. There’s an equity award as well. And those are all based upon your production coming in. We’ve put in…and this is where our comp plan went from one sentence to more than that. At the request of our advisor partners, we put in a growth award plan into our firm and it’s a very simple plan. So, basically, it says, hey, Michael, you joined us doing $2 million, let’s say. $2 million is your baseline. If in any calendar year, you grow 10% or more, and you’re above that hiring baseline, we’re going to give you additional equity to true you up to that new level.

And what this really says to an advisor is let’s say, if you come in doing 2 million and 5 years later, you’re doing 3 million, your equity ownership in the company should reflect that. So, this is the growth award is a very popular item here. Again, this is where the feedback from the field has been super helpful to build these things. We’ve also put in a growth award into our recruiting deals, which is a back-end award, which is you can opt into that versus the growth award and the comp plan. And that could add in the W2 as an example, up to a 100% more on the backend, which is half cash, half equity.

So, I think we give people the opportunity to grow. We want to take, again, the impediments their growth off of them. And I would say to people, and I will say this, I love my corny analogies, but I say, you listen, you’re qualifying for the Olympic team working at your wirehouse, but did you notice you’re wearing a pair of work boots and you’re running track and field. Imagine how fast you’ll go, and I put sneakers on you. And so, a good example is one of our biggest producers joined us in Florida in 2017 doing just south of $3 million in revenue, one advisor. He’s on target to do over 6 million this year. Didn’t buy a book, didn’t take over someone else’s practice. It’s truly growing the business by being unencumbered of the legacy wirehouse.

Michael: So, help me understand, at least on the W2 side. So, what am I still responsible for as the end advisor? Am I still hiring my own assistants? Am I still hiring my own associate advisors and such, and that comes out of my 50% as I grow my team under that umbrella. Does some of that still get covered by Steward as well? What’s still on me that has to come out of that 50% is as I try to create my growth going forward from here?

Jim: Yeah. Theoretically, so I think that they have no responsibility coming in financially. Let’s say, again, you’re doing $2 million and you say, “Hey, I have one assistant and they make, say $70,000,” we’re going to cover all of that expense. So you come in, you bring your assistant with you, we’re paying the assistant, we’re taking care of everything. We pay for all the registrations and E&O and everything else. So, you literally have zero out of pocket. If you decide, “Hey, I want to take my business to another level. I’d like to get a second assistant.” That would be a 100% on your dime, right? Because you’re going into a level of coverage that we think is beyond what the revenue justifies today. And that’s where we always say to people, “Put on your partner hat for a second.”

I know that you’d like us to pay for your second assistant, Michael, but guess what, if I do this for every advisor at the firm, we’re never going to make any money. And the profit-sharing is going to disappear real quickly, and the valuation of the firm is going to disappear real quickly. So, we give them a very generous allocation for administrative support, but advisors who choose to augment that by hiring more to build, we’re happy to support that. And we’re happy to cover more of that cost over time if they’re growing the business. So it’s a open conversation. It’s not a sword that we want to pull out all the time because we’re not going to sit here and go, “Oh, you were down 2% last year. We’re going to cut your support by 2%.” Conversely, you don’t come running in when you’re up 5% and ask for more. So that’s where, again, it starts with hiring good people that think like partners

Michael: And what is typical revenue for an advisor that joins the firm? Because it sounds like just folks that are going from 3 million of revenue to 6 million revenues a solo, that is by any standard industry, some very high, high revenue advisors. So, what’s a typical advisor that’s working with you guys?

Jim: Yeah. So the typical advisor here is a million-dollar producer plus. I think the actual average is closer to a million one, roughly a couple of hundred million in assets. And again, we don’t have a mandate for this, but we seem to attract folks that are overwhelmingly advisory. We have over 60% of our advisors have a CFP designation or higher. So planning-based, advisory-based, and again, advisors running money with discretion in their own models. So the RIA of Steward is about 75% of our revenue, 70 of that 75 is advisor’s running discretionary money. So that’s sort of the atypical advisor. And I think, again, it’s so important. It’s just super high-quality people because I always say, when you’re here, the no-jerk policy turns into the pick-your-neighbor policy. And imagine a local market and saying, “Wow, you can put together the all-star team in this branch, who would you draft into your all-star branch?”

So, that’s sort of the typical advisor here. And listen, we have advisors that do less than a million, and they’re either a junior partner on a significant team. We also have a number of folks who have joined us that said, “Hey, I’m 65. I want to join a team that’s in your branch. And I want to leave my clients behind, my legacy should be left at a company like Steward, not the company I work for today.” So we have a very healthy succession program where, again, we provide the equity and the cash capital for that advisor to acquire the book. It cost them nothing. So we’re going to support that as well. So, if you take those folks out, that’s where you get to that million one number. If you included every single advisor at the firm, it’s probably just sub a million, like 975 if I’d take a guess.

Michael: And you said, couple hundred million in assets. So just, classically, our industry likes to throw around the proverbial 1%. So, a million of revenue was a hundred million of assets. Though, obviously, we have more and less affluent clients that tend to hit break points in the schedule. So it just I’m presuming that as you’re saying, average production of a million but potentially a couple hundred million in assets. So, these tend to be advisors working with more affluent clients who are, I guess, further up the break point threshold. So, we’re not in the 1% of AUM business because of the affluence of the clients. Am I interpreting that, right?

Jim: Yep, absolutely. That’s spot on.

The Client & Partnership Structure At Steward Partners [1:09:01]

Michael: So, what’s a typical client then? Who are advisors serving?

Jim: Yeah, I think you said it, it’s the affluent and somewhat mass affluent. So, our average client has a million dollars plus at Steward, right? And that’s not clearly not all of their assets. And as you know, you have assets, so we have 75% in the RIA. There’s another say 10% that are laddered bonds that are done on a commission basis because they don’t want to charge the client a fee to hold on, especially at the current yield rates. So you get a drag on. So the RIA is probably just under 1% overall, and then the rest of it pulls that number down because you have assets that are on in the ladder bonds, as an example, or it’s a trail on annuity or something else that doesn’t have the same ROA.

So, I think that’s where you sort of pull that number down, and at Steward, we’re always in a good way. There’s always this lag effect, right? So you think about it, again, Michael, you’re the $2 million recruit, you joined Steward this Friday. And if you’re on target with Steward, you’re going to have close to a 100% of your assets here by say the end of January, and certainly the end of February. Of course, at that moment, your revenue is still zero. So, then you go three quarters out…

Michael: …continue to get to your first billing period and start getting going.

Jim: Yep. And then, so it takes the average advisor who’s done a terrific transition 14, 15 months to get back to their hiring T12. So, we always see this real lag effect of we’ve always continued to grow. Every single year at Steward has been a record year in recruiting over the prior. Every single year, every number’s a record, record head, count, record assets, record RIA assets, record profit sharing. So I think there’s always a lag effect there that we suffer from. So the ROA today to the assets looks much lower because again, there’s always assets, thankfully, in transition coming here.

Michael: So, now talk to us about just the partnership structure. How does this work? Just who owns what? How do they buy-in? How do they exit out? Who gets what? How do you determine who can they buy what? Just, how does this work for you guys?

Jim: And I’m going to preface this by saying I was an English major in college, so we’re not going to go too far into the legal explanations. So, we are an LLC, right? So an advisor joins us, they are given units of the LLC, which we’re using, basically, a one-year forward on our revenue and our EBITDA, more importantly. We use a one-year forward. So if you’re doing $2 million, we’re going to say, and you’re done say W2. We say, “Hey, Michael, you’re getting $2 million in cash. You’re getting $2 million in equity, right? So, it’s a 200% deal showing up here. This is for W2. This, again, back-end growth awards, what have you. But in the structure we have, you’re granted units in the LLC. Those units vest over a period of time.

So, the vesting for 2022 forward is going to be 50% of that vest in year 5, 25% of that vest in year 7, the last 25% vests in year 9. The other date that’s important as an equity shareholder, a unit holder is once you get back to your hiring T12, you become eligible to participate in the firm’s profit-sharing program. So the board mandate of Steward, and I always say, if you take myself and my business partner Hy off the board, the rest of the board is a Fortune 500 type of board, right? So, it’s a superstar talent on the board. But the board mandate through the operating agreement is we are going to distribute 70% of our earnings to the partnership, and that’s everyone, right? So profit sharing becomes a meaningful part of their compensation as well over time. If they file an 83B election when they get the equity, there’s a taxable event there. The 83B number is always significantly lower, because from an IRS perspective, there’s risk involved and it’s privately held company. It’s not liquid. It’s risk of if someone leaves or what have you, that they may not vest in time. So that is sort of the taxable event there, which again is a nominal amount versus the value.

I think the real difference in the equity grant today is seven or eight years ago, we would say to people, “Hey, if we do what we’re planning on doing, Michael, your equity is hopefully worth call it $10 a share in 8 to 10 years. But at that moment, which these people knew, the equity had zero in tangible value, right? There was nothing. There was no value that day. Today, with the capital raises we’ve done and where the firm is, the firm has real value today. And the delta between the grant value and the actual value, it used to be a 100%, right? Because it was worth zero. We’re telling you it’s going to be worth 10. Now it’s worth 75% of what we’re telling you it’s going to be worth in a year today.

So, from a liquidity perspective, both of these capital raises we did, the first one is Cynosure and the second one with the Pritzker Organization, we carved out a portion of the proceeds we took in and made a tender offer available to most of the partners at the firm in both cases. So, despite the fact that folks were not vested yet, we allowed them to tender and get the proceeds today if they chose to do that. So, again, I think very unique to what’s out there, and I think you’ve never seen that done before in our industry, especially twice in a two-year period of time.

Now that we’re at the point where people are vesting fully, right? Because now we’re into that eighth year and going into our ninth year, our board is working on finalizing for next year a couple of things. One is think of it as a share repurchase program, where we’ll carve out a portion of our earnings and buy back stock from vested partners, which is great for liquidity. And the second one, which we always get questions around, which is, “Hey, how do I get more equity? I want to buy more shares.” And what I always point out to people who ask the question is, keep in mind if I let everyone buy shares, even though you might buy, say 10,000 shares, and you say, “Hey, my share count has gone up.” You’ve actually been diluted by that event because 200 other people bought 10,000 shares too.

So you only want to sell shares when you’re not creating dilution. So, what we’ve working with the board is having a program of matching up buyers and sellers. So, think about the end of next year, and someone says, “Hey, I’m fully vested. Hey, maybe I’ll have a child going to college, or I want to buy a beach house, I need money for down payment,” whatever the reason may be. We’ll have an opportunity for them to tender a portion of that at the current valuation. And we work with an outside service to do that. It’s a highly known company. And then, we’ll also match up folks who say, “I’d like to buy more.”

So now advisor A is selling their shares to advisor B. The company started brokering the trade because we want to make sure that no one’s selling it at a steep discount, maybe out of desperation or something going on personally. And we protect the value of the company. So I think that’s a sort of internal market we’re looking at setting up as well. So I think you’ll have firm liquidity by the share repurchase program, you’ll have partner liquidity by being able to sell shares to partners who are looking to acquire more.

And then, ultimately, at retirement, and I always tell people, if you joined Steward, you really have four monetization events as a recruit coming in. So you have money upfront, you have monetization through profit-sharing when you qualify. You’re going to be able to sell your book to your successors. You pick your successors. Steward’s not looking to make a dollar off that trade. We’re going to advise you, we’re going to guide you. We’re going to tell you what the market in the market is for your business. But we’re not making a dollar off that trade. So that’s the third event. And then the fourth event is when you’re done being bought out of your business, the firm is going to buy back your equity at the fair market value at that time. And if you think about that, that creates a really unique model when you think about people say, “Why don’t I just go independent on my own?” And I say, “It’s real simple.” Put it to you this way…

Going independent on your own is like taking a thousand shares of Amazon and moving it from a retail account to a trust account, right? You’re re-titling the asset and there’s nothing wrong with that. But at the end of the day, you haven’t changed the value or the upside of that asset. You’ve just retitled it. Coming to Steward, you own your business in writing. We put in their employee agreement that they own their book and the right to sell it at any time. And if you choose to leave Steward, no one’s going to solicit your clients. So, at the end of the day here, you now have a completely separate asset, which is the equity in the company, which is going to pay you distributions, pay you cashflow while you’re holding it. And then, also create a real significant monetization event at the end of the day.

Michael: And so, I guess, as I think about it, even just on an ongoing basis, functionally my “payout” isn’t really 50%, it’s 50% plus my annual dividend distribution, which, I guess, depends on exactly how much equity you opted into and what margins of payout rates are. But I’m assuming adds a number of additional percentage points, like you might actually end up participating in 55% of your effective revenue because you got 50% as a payout in your revenue and a 5%…and a profit distribution for the company overall that comes out to be another couple percent of your revenue, although it’s calculated on company and not your revenue. Is that a fair way to think about it?

Jim: Absolutely. No, that’s a perfect way to think about it. And I think that’s where, again, as a shareholder here, people become conscious of that. They become conscious of saying, “Hey, you know what? Let’s not waste our money.” Because it’s truly their money. And they want the firm to be profitable. They want to see distributions, which the distributions have increased every single year we had the firm. And I think this year is going to be a record year for that as well, which we’re going to tell our partners about in a few weeks as we get the final numbers. But yeah, absolutely, Michael, that’s going to add at least a few percent there. And I think over time, that number only increases as the firm grows, because look, at the end of the day, wealth management is not a capital-intensive business. The biggest cost at any firm is recruiting.

Michael: It’s people. It’s all people.

Jim: It’s all people. And we don’t have a factory and machinery and all these. So I think it’s not a capital-intensive business if you solve for how do you finance the recruiting? And we’ve been fortunate that I think we’ve come up with some unique solutions at the firms we’ve partnered with. Historically, we’ve all benefited from it. So, I think it’s worked out really well that way.

Michael: So you had mentioned as well that you want everyone in the firm to have equities. Does that mean employee staff, like non-advisors also?

Jim: Everyone. Yeah.

Michael: So, how does that work in figuring out what non-advisors, I guess, either get or can participate in because just the formulas you were talking about earlier were revenue-based. So my non-advisors don’t have revenue to do that. So, how do I calculate what a non-advisor employee can get or can buy in or how much they get access to?

Jim: Yeah. And I would say it’s important for understanding is no one’s buying in, coming in. It’s truly a grant. It’s not a model where we’re saying, “Hey, we’ll sell you shares at this level.” You’re truly just getting a grant of equity into the company. So, our administrative colleagues, and again, we’re fortunate that if you think about it, if you’re coming here as an advisor and you’re not happy with your administrative colleague at your current firm, you’re not bringing him or her with you. You don’t want to bring them with you.

So, where we benefit from tremendously is the fact that people are bringing all-star administrative people with them. So, we give them an equity grant and the company, which is based on a formula we have. So we say, “Hey, Michael, you’re coming in, you’re getting this equity based on your production. Distinct and separate from that, no cost to you, Michael, we’re also going to grant equity to your administrative team.” So they could actually be coming in.

We have a formula we use as well for operations people, compliance people coming in, and we’re growing dramatically. We have a number of jobs open right now. We’re hiring like crazy across the firm and all these positions, just to really make sure we have the resources to serve our growth. Every position has its own model and formula that we use, but that’s really different part of this. And I was talking to one of my colleagues the other day, and they said, “When people coming here left their wirehouse firm,” fill in the name, “after 10, 20, 30 years, you literally walk out with nothing.” Here, you’re building real net worth. I’m making as much money as I made there, probably more. And I’m building real net worth through the equity, which, Hey, I took advantage of the capital raise and put a pool in for my kids or paid off my mortgage or whatever you did with that. And that’s just the value here is for all of us. And I think that’s just a really, really unique story, which people really like.

Michael: Yeah. Well, and I’m struck as well that just this fundamental difference for all the folks that have worked in large firms that here, well, we have to balance clients and advisors with the shareholders because we’re a publicly-traded firm, we have shareholders on the street has certain expectations, but just that dynamic looks very differently when you get paid for the work that you do and you are a shareholder, it’s your interest. At worst, if all the advisors take a lower comp payout at some point because they restructure their comp, they get most of that back in the profits anyways because their shareholders. The math gets different when it’s a closed system because it’s not advisor payouts versus shareholder earnings. You’re getting both either way. It’s just, where do you want to draw the line between the two to manage a business well?

Jim: Yeah. And it’s an interesting dynamic. And I always say to people because you’ll meet with a recruit, and they’ll say, “Forgive me for being paranoid.” And I said, “Listen, coming from where you’re coming from, you should be paranoid.” So, the question comes up sometimes of, well, “what’s going to stop you folks from cutting my payout?” And you just answer the question, Michael. I’ll say, “Well, think about it.” We’re taking it from pocket to right pocket because then it’s going to increase profit-sharing, which has paid out to everyone anyway. So what’s the point?

Michael: Yeah. Just be clear, if you cut your payout, you’ll just get it back in the profits because the firm’s more profitable with the lower payout. You’re still getting it.

Jim: Right. And by the way, if you don’t like that, you’re free to leave and you’re free to take your clients and no one’s going to go after your business. So yeah, interesting thing is we put ourselves in the same position our advisors are in, which is on paper, God forbid, all their clients can leave tomorrow. But the clients say, “Hey, I stay with Michael because Michael provides great service. He charged me a reasonable fee for what I need, and he has my best interest at heart.” So we have to have that obligation to our advisor partners and their teams is, if we should make this a great place to stay. If we didn’t and you want to leave, that’s okay. Maybe it’s shame on us. Maybe it’s just not the right fit for you. But either way, that’s our responsibility to the partnership is we want to take care of you. You are our client. And just like when I was an advisor, you want to be fair and reasonable. And at some point you say, “Hey, I can’t give you a 99% discount, Michael. That’s not what I charge my clients.”

Why Jim Chose Raymond James And Goldman Sachs As Custodial Partners [1:23:18]

Michael: So, and I’ve also got to ask, why Raymond James? I’m sure you didn’t lack for firms that were making offers and trying to win your business. Why Raymond James? What put them over the line or seal the deal?

Jim: It’s me. I always felt like, culturally, it just reminded me so much of Smith Barney, and just everyone you met with, it just emanated right from the top and got to spend some time with Paul Reilley at the time, and who’s absolutely terrific. And Scott Curtis and you just felt that culture. I always say, “What Raymond James had was like looking in a mirror of what we wanted to build and ours was aspirational. Theirs was actual at the time and they continue to deliver on that.” So, obviously, it was, okay, great technology, great platform, great people, and willing to take this journey with us. What else do you need? So, they really checked every box. And again, it’s been an amazing partnership with Raymond James from the very beginning for us. They’re not legally partnership, but we work with the independent channel of Raymond James, but they’ve been super supportive and we all knew that we were trying to do something different and something unique.

And listen, we knew that there’d be flashpoints and unexpected consequences. And I would tell you, every single time there was one, we’d all kind of pause and stop and say, “Okay, we didn’t expect this. None of us thought about this and put this thing together. What’s a fair and equitable way to deal with this?” And every time that that’s always been a conversation we’ve had. So we have an enormous relationship with Raymond James, that’s going to continue, that’s going to grow. We are going to the newly named or fairly recently named RCS channel, which is their RIA and custody clearing division had been merged. And the management team over there has been terrific for us. They’re excited about us coming over there. We’re ramping up to do some recruiting for that channel as well. So, I think what we’re doing at Raymond James is not going to change. Just doing it in a different side of the house, if you will.

Michael: And then, why the addition of Goldman? I get exploring multi-custodial with places like Schwab and Fidelity, because a lot of retail clients already have assets there and sometimes independents already have assets there. And so it’s just easier to recruit them there where they already are than asking them to repaper it to Ray J, but Goldman’s offering the RIA channel is new. So, it’s not like you’re recruiting advisors who already have assets at Goldman were, “Hey, you can join us without repapering because the dollars aren’t there now.” So, what led you to be a launch partner with Goldman’s custody unit? What are you seeing there as an opportunity for you guys?

Jim: You know it’s a funny story. The first time we spoke to the folks over there, it was Jeremy Eisenstein and Adam Sigler, and Adam had made a comment to say we’re building something new here. And for a lot of people, that’s an impediment to thinking about joining us as our first important partner. And I said, “Well, that doesn’t bother us at all. We built an entire company from scratch, so we’re not put off by that. So I think, look, to me, it’s a very unique time, right? And I think the Goldman name is obviously incredible in our industry. They have a unique platform, as well as the sort of atypical platform of, hey, they could do fixed income. They could do managed money. So all the capabilities are there.

It’s a matter of sort of piping that over to this new custody clearing channel. And I think it’s unique opportunity. They have a amazing sales force in the PWM channel, but as we know, that’s hundreds of advisors, right? And at the end of the day, how do they get more scale? How do they get more access and assets on the platform? Their decisions clearly been the independent channel and future of that there. So what they’re building and I’m not going to share Goldman’s thought, that’s their business to do that. But what they’re building is going to be very quickly on par with the Street. And then, I think very quickly with the technology and some of the things we’re talking about, I think it’s going to be industry leading in many ways. No one’s industry leading in every way.

So I think with the brand name of Goldman, I think building something unique, and I think when you’re not encumbered by the legacy technology, legacy platforms, legacy… My least favorite quote is, “Oh, this is how it’s always been done.” And I’m like, “Well, maybe the way it’s been done is wrong now. Maybe that was great 10 years ago, but that’s outdated now. So, when you’re starting from scratch, it’s like the doctor trained today knows all the best technology, and I think that’s what Goldman’s building.

So it’s really exciting for us. I know a lot of our recruiting conversations that comes up, I know the external recruiters we’ve chatted with are excited about it as well. So, look, I think like anything else, when you’re in a sales-competitive industry, and there’s no industry more competitive than ours, you want to have something unique. So to be able to say, “Hey, we were chosen by Goldman as their first institutional client is clearly unique. And we’re super proud to represent them as well.

Growth, Revenue, And AUM For Steward Partners [1:28:03]

Michael: And so, what does all this add up to at the end of the day? Just how big is Steward by however you measure, by AUM or team head count or revenue?

Jim: Yeah. So, we’re knocking on call it $28 billion in assets right now. And I would say, if we stopped recruiting and just looked at all the assets that are coming and things in ACATS and recent joins, we’re probably closer to 30 billion today. I always remind people, I said, “Let’s keep in mind that January of 2014, we had a $100 million in assets.” Literally, so you’re talking 7 years from a $100 million to almost $30 billion. Revenue run rate is in the high 171, 180 range right now if you annualize where we are. So, I think, again, you’re seeing the firm grow in leaps and bounds. Our quarterly number for the third quarter was more revenue than we did for the entire year 2017.

Michael: Amazing how growth happens. And what’s the headcount?

Jim: About 180 advisors and then about 300 folks all in, which includes, again, all the administrative colleagues, our management team, everyone else that’s part of Steward.

Michael: And do you know, just what is that in terms of client base across the firm? Are you guys serving a 1000 clients, 10,000 clients?

Jim: Yeah. I think it’s right around the 10,000 number. Actually, probably more at this point. So I was backing into, I know the average is close to a million dollars here. But yeah, it’s a significant number. The average advisor coming in, as you would imagine has to 200, 300 households, if you will. So yeah, it’s a fairly significant number at this point.

The Surprises and Low Point Of Building An Advisory Business [1:29:37]

Michael: So as you look back over this journey of building, what surprised you the most about building your own advisory business?

Jim: Do we have another two hours of this podcast? I can cover it all. I always say it’s going to make a great movie someday, and there’s been so many surprises, both positive and negative. I think sort of all the cliches of starting a company apply. What I personally feel terrific about is just the support we get, the collaboration, and it’s wonderful to see great people put in the right environment and have them really become the best version of themselves. Not frustrated, tied down, red tape to death, and you sort of turn into this other version of yourself, which is not your best, right?

Michael: So, what was the low point for you on this journey?

Jim: Listen, financially, that you put a lot of risk on. So you max out your credit card, you liquidate all your assets, your mortgage, your houses to the roof. So there was number of years where failure was always a possibility. And I can remember saying to my wife, I said, “Listen, this is either going to be a huge success, or it’s going to be a failure. And either way, you and the children are fine.” And she said, “What does that mean?” I said, “I’m either going to drop dead of a heart attack, building this company, or I’m going to build it. And if I dropped out of a heart attack, you’ll have all the life insurance proceeds. You guys are going to be fine.”

Michael: So just stay well-insured. Entrepreneurship is a path of staying well-insured.

Jim: Well, you know what it is, Michael, at the end of the day, it’s just like going back to being a trainee at Smith Barney. They hire a thousand a year and it’s like, who’s going to make it right. And the same attributes for the people who are successful are always the same. They were usually the hardest working, and they’re usually the ones that didn’t give up. They had something unique or they were good salespeople. But yeah, so I think it’s a very similar journey. Instead of building a book as an advisor, you’re building a firm and the advisors are clients.

Advice Jim Would Give His Former Self [1:31:35]

Michael: So, what do you know now that you wish you could go back and tell you from seven years ago, as you were getting started on this?

Jim: It’s like that wonderful poem. It was the best of times. It was the worst of times. I think I would tell myself the reward personally will be much greater than you could ever imagine, but the challenges and the surprises will also be much greater than you’re envisioning right now. But don’t give up, stay in, stay on it because it will work. And that’s where you have to that individual belief in yourself and march forward accordingly. I would say, Hy and I, were the only ones, probably not surprised about where we are today. Right. This was always our vision. I look back and think about things we worried about in 2013, we didn’t have a single dollar of assets, like thinking about what does the retirement plan look like for an advisor here? You can be bankrupt by Christmas, so maybe you shouldn’t worry about that. But no, at the end of the day, it’s been an amazing journey. Our partners here at the firm are fantastic, and it really is my honor to be the leader of the organization.

Jim’s Advice For Younger, Newer Advisors [1:32:37]

Michael: So what would you tell younger, newer advisors coming in the business today and getting started?

Jim: I think what’s happening here is you see, because of the flight to independence. There’s much more interests in this channel or this world, if you will, of hiring, you’ll call them trainees if you will. Back in the day, if you wanted to get trained and need someone who’s willing to train you and financially support you, much more limited universe of options even 20 years ago, let’s say. So now with all these big teams coming independent, as they think about succession, as they think about saying, “Hey, we should hire an advisor who’s really good at planning, or who’s a CFP or whatever skill set they’re looking to bolt onto their practice. I think that the hiring there is much greater. You know this. All of the surveys you see, the under 40 generation, much more focused on independence, much more open to going independent and see that as a real future and wanting to get away from, I don’t want to work for the big firm anymore.

Michael: So, how do they make the decision? Because obviously there’s still a lot going into both.

Jim: Yeah. And I think, but, again, I think it depends on your local market. There’s only a limited number of openings for either channel. And many of them are saying, “Hey, I’m going to go work at wirehouse A and they have a great training program. I’m going to learn the industry, get fully licensed and I’ll kind of keep my eyes open down the road and see what comes.” So the good thing is there’s no bad choice? It really, they all can work. For talented, hardworking people of integrity, all these choices are good. It’s just a matter of, do you get there starting at a big firm and leaving eventually start your own firm? Or do you go to an independent firm or an independent RIA and start there?

What’s Next For Jim And Steward Partners [1:34:20]

Michael: So what comes next for you in the business where you guys going next?

Jim: We have a lot of M&A conversations going on right now, which is sort of a newer evolution for us. I think Steward is going to be a billion-dollar revenue organization. And I think that’s going to happen in the next 10 to 12 years. And again, if we can accomplish that, that puts us in very rarefied company. But I look at right now and say, if you think about saying you have a 1099 channel, you have a W2 channel, you have strategic M&A, you’re willing to buy ownership stakes and RIAs. These are all newer. Some of those are all newer in the last couple of years, and you’re going to have all the custodial choices in the world, unique opportunity with Goldman Sachs, terrific legacy of Raymond James.

And I think over time, as you look and say, “Hey, look at the board, look at these investors coming in.” And again, if you do things the right way every day, the rest takes care of itself. So I think we’re on our way to being a billion-dollar revenue organization. At our ROA, that’s 150 billion in assets. And as we talked about earlier, Michael, listen, that’s a fly on the windshield of wealth management. The U.S. market is about $30 trillion today. So building a $150 billion asset firm, no one’s going to notice that, no one’s going to feel that pain, but that’s a massive organization. And as far as I know from my world, I think only one or two firms ever gotten to those kinds of numbers, historically.

What Success Means To Jim [1:35:44]

Michael: So, as we wrap up, this is a podcast about success and just one of the theme is always about the word success means very different things to different people. And so you guys are an amazing path for business success, right? You’re crossing 170 million of revenue and eyeing a billion dollars of revenue, right? Not just assets, but like revenue of dollars. So the business is on an amazing success path, but how do you find a success for yourself at this point?

Jim: I’ve always looked at… For me, personally, I’ve always looked at legacy, right? Legacy, I think is critically important. And what you think as success, maybe the world around you doesn’t share as success. So, to me, it’s always about your legacy and it’s always…I looked at it from every branch I ever ran is my goal was at the people in that office would say, “Hey, Jim Gold was a great person to work with. He treated me with respect. I felt great about his as a leader, at being my business partner. And ultimately, I felt like we were a better place then.” So I take a lot of pride in Steward that again, people talk about this being the best place they’ve ever worked. People talking about Steward feels like a family. And our corporate slogan is “We’re not just partners, we’re family.”

And that’s not just a nice, cute, slogan, which by the way, my wife Elizabeth came up with that one, I’m going to have to get copyright from her. But at the end of the day, that’s truly how it feels. We have a national conference every year for Steward. We give out jerseys to welcome our new advisors and the jerseys are hung throughout the firm at the advisor’s discretion. And it’s kind of a fun thing. I was thinking about sort of the NFL draft. She bring up the draft pick on stage and they’re holding up their jersey and we sort of emulate that. But if you go through our offices, those jerseys are proudly displayed everywhere. And what that says is I am proud to be part of the Steward team. And that to me is what success is. Success is your legacy. And what does the world think of you when they don’t have to be nice to you? What do they really think? So I really feel great about that here, and listen, it’s an important responsibility that we have, and you can blow all that in one day. So you really have to manage that process and be true to treating people the right way.

Michael: Awesome. I love it. I love it. Well, thank you so much, Jim, for joining us on the “Financial Advisor Success” podcast.

Jim: No, it’s absolutely been my pleasure, Michael, and super proud of the firm so I’m always happy to share our story. The podcast’s great and I’m a listener, so I’m super proud to be part of it. Thank you for inviting me.

Michael: Absolutely. Thank you.

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