Fraunces' Tavern is so steeped in history, it has a museum attached to it. Founded in 1762, it played an important role in the Revolution and the Revolutionary War. Actually, the number you call to make a reservation ends in 1776.
It may be an appropriate place to visit just ahead of the Fourth of July, but is it a good choice to interview the CEO and president of Private Wealth Management, one of the newest companies on the block? Mark Goldberg certainly thinks so: "I'm actually deeply steeped in tradition," he says.
Indeed, Goldberg is no novice in the industry; in his previous job he headed Royal Alliance, the biggest of four broker-dealers in the AIG network. He started at the firm in 1987 as a due diligence analyst, eventually making his way all the way to the top.
However, though a consummate insider, he promises nothing short of a revolution in the financial advisory field. PWM, which has been in operation since February, may not be bringing about this revolution single-handedly, but Goldberg expects it to play a prominent role in — and benefit from — the coming changes.
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Who: Mark M. Goldberg, CEO and President, Private Wealth Management
Where: Fraunces' Tavern, 54 Pearl St. New York, July 3, 2007
On the Menu: Fish and chips, mixed berry cobbler a la mode and the Spirit of '76.
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The change starts with the fundamentals.
"When I look at the valuations the market assigns to investment management companies, custodians and, ultimately, broker-dealers, I realize that these are proxies. The real, intrinsic value in this industry lies in the relationship between the financial advisor and the client."
While the services provided by a custodian or a BD are becoming commodities, and accounts can be shifted from one to another in a matter of hours without much change in the quality of service, the relationship between the FA and the client remains the crux of the industry. It is an extremely stable relationship, lasting in some cases for decades, and the quality of earnings at the level of the FA is extremely high. While BDs operate on a 5 percent to 10 percent margin, at the advisor level earnings can be as high as 25 percent to 50 percent.
PWM's mission as a private banking institution is to unlock the market value of this relationship, by valuing and capitalizing private wealth management firms. It will provide capital solutions for a wide range of uses — expansion, M&A, purchase of new office space, succession management, etc. — but ultimately it will shift the financial muscle to where Goldberg has always felt it belongs, i.e., at the advisor level.
Rewarding the WarriorsGoldberg recounts something he heard from a financial advisor, a former Marine. Among Marines, there are warriors and there are staffers. Warriors do all the fighting, but over the long haul, as far as promotions and metals are concerned, staffers tend to do better.
He observes a similar analogy in the financial advisory industry. When a broker-dealer is sold, its owners and managers get rewarded, but not the FAs who, essentially, add 99 percent of the value in the industry.
"What we're trying to do," says Goldberg, "is reward the warriors. We are doing so by introducing market pricing into wealth management and by allowing wealth managers to take capital stakes in their own businesses."
Private Wealth Management is not the only firm doing this. Wealth management firms are highly investable businesses that have achieved average growth rates of around 20 percent a year by financing themselves, without the use of outside capital.
