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It’s the fact that the firm is multi-custodian and multi-clearing. It’s the fact that its backers include some of the smartest people in the business. It’s the fact that there’s money upfront to move and an equity stake that should grow in value. It’s the fact that the management team and back office made the transition so easy and transparent to clients. It’s the fact that the big Wall Street brokerage houses have lost the cachet that once embraced brokers and enticed clients.

More than anything, though, it’s the concept and reality of joining a true partnership that has led some of the biggest advisors at the biggest Wall Street firms to join HighTower Advisors, a Chicago-based but multioffice RIA firm that is coming of age just as the wirehouse business model has suffered a terrible blow to its fortunes and reputation. People like Michael Bapis (ex-Morgan Stanley), Larry Gilbert (ex-Goldman Sachs), Curtis Lyman (ex-Lehman Brothers), and David Wisehaupt (ex-Merrill Lynch) are the kind of big ‘producers’ who are lusted after by everyone from those rump wirehouses to independent broker/dealers looking to boost their average rep’s production numbers to the big RIA custodian firms who want the assets they bring and are eager to play matchmaker between some of their bigger affiliated RIAs and these salespeople with big books of business that can increase those RIA firms’ scale at one fell swoop.

The problem with that scenario is that the men and women who have cast their lot with HighTower are more than top ‘producers’ with fat books looking for the biggest bonuses. These are true advisors who had already carved out independent niches in those wirehouses but who became disillusioned with not only being encouraged to push the investment flavor of the day or month but with the broader motivation of the wirehouses’ management. After all, while Merrill and Morgan and Goldman and SmithBarney all started life and came to prominence as partnerships, they also became public companies. And when it comes to delivering advice to individuals, as Philip Palaveev, president of Fusion Advisor Network and formerly of Moss Adams, argues, “the natural state of a true investment advisory firm is a privately owned partnership.”

This is a time of ferment in the advisory universe. It is a time when many advisors are rethinking their business models in light of the markets and economic crisis, and a time when many advisors are re-working the calculus that helps them determine how and with whom they affiliate.There are more and more models from which to choose, and those models are changing before our eyes, in both the RIA and broker/dealer space, while business and regulatory pressures are forcing the champions of those different models to rethink their approaches and restate what makes them unique.

In this environment, HighTower stands out. From May into July in multiple in-person and telephone interviews I spoke with five advisors at HighTower–four in a roundtable discussion in New York on July 6–and with HighTower CEO Elliot Weissbluth and President Drew Kornreich to understand the genesis of the unique HighTower approach, and why these coveted advisors left the wirehouses and took a chance with a relatively unknown firm. This is what we found.

Good for Clients, and for Success

As the powers on Wall Street have shuddered and in some cases fallen, clients of those firms are reevaluating their relationships, and “that’s why we have to be more on our game; we’re positioning ourselves to take advantage” of that reevaluation, says Michael Bapis.

HighTower advisor and Managing Director (a title shared by all the advisors in the firm) Bapis literally grew up in the financial services business. Now 34, he started working as a teenager in his father Nick’s brokerage office in Salt Lake City, in the early 1990s toiled at EF Hutton, came East in 1998 to be trained at Dean Witter, got his MBA from the University of Utah in 2004, then returned to New York, where he’s had his own clients now for five years. He credits his father for much of his success; in addition to the Bapis Group’s New York office, the Utah office includes Michael’s sister Alethia.

While he found success as a traditional broker at Morgan Stanley, over the past 18 months Bapis said he “kept his eyes open” as the winds swirled around Wall Street, and that with HighTower “it was nice to see a model set up as a hybrid.” He says his group “did a ton of due diligence” on the firm, and while he admits it was still risky to make the move, “this is the model I’ve chosen,” in large part because he believes “this would be the right model for clients, which would make us successful.”

At HighTower, which the Bapis Group joined last November 8, “the flexibility is tremendous,” Bapis says. That flexibility which benefits clients comes in the form of the multiple custodial and clearing relationships the firm enjoys, leading Bapis to say that “what makes HighTower work is our relationship with JP Morgan, Fidelity, Schwab.” When Bapis is looking for the best pricing on a given security for a client, he says, “I can go to Morgan Stanley or JP Morgan.” If he’s looking for a specific bond for a client, “I can go to all sorts of desks” to find the best deal. He contrasts that with being a broker who must use his own firm’s bond desk at whatever price that one desk offers, instead of using, for instance Fidelity’s “awesome” trading floor, or Morgan Stanley’s “great bond inventory.”

He likes the people behind the firm–”the fact that Dave [Pottruck] and Phil [Purcell] and Morris [Offit] shared the same vision”–while “Elliot [Weissbluth] and his group have dedicated lots of money and time to do what we couldn’t do as well ourselves.”

“The partners contributed the equity in their practices,” notes Weissbluth, “not capital,” though in addition to getting upfront equity in HighTower, each advisor also received payments to bring their business to HighTower.

While neither Weissbluth nor Bapis would divulge the upfront payment that any of the HighTower advisors received to join the firm, nor the AUM of each practice or the entire firm–”that sends the wrong message,” says Weissbluth–Bapis says he wouldn’t have moved if it wasn’t comparable to what he could have made to stay on the Street.

Once Lost, Now Found

For Todd Lyon, who spent 26 years at Morgan Stanley before joining HighTower’s San Francisco office, also in November 2008, the appeal of HighTower is that “it’s a true partnership” in which he is an owner. “Wall Street lost its way,” he believes, by eschewing the partnership model, but at HighTower where, like the other partners, he is an owner–25% of the equity of the firm is set aside for the advisor partners–he has the benefits of a fully independent RIA acting as a fiduciary who can put his clients first.

In addition to the advisors interviewed for this article, among the other recent high-visibility joiners of the firm is long-time Bear Stearns advisor Richard Saperstein, who joined HighTower at the end of April from JP Morgan. In a not-uncommon move that benefits all the advisor partners, at the time he joined HighTower, Saperstein said his clients’ assets would continue to be custodied at, and trades cleared through JP Morgan, and that other HighTower advisors could avail themselves of Morgan’s services.

Founded in 2007, “long before the credit meltdown began,” recalls CEO Weissbluth, HighTower Holdings has two subsidiaries–the broker/dealer, HighTower Securities LLC, and the RIA, HighTower Advisors–and eight offices around the country, concentrated in Chicago, New York, and San Francisco. As of early July, HighTower had 15 advisors as managing directors whose average age, says Weissbluth, is in the mid-40s and whose average experience in the business was 23 years. “These are sophisticated, well-trained” advisors, says Weissbluth.

The firm’s backing comes from institutions and individuals well known in the broker and advisor communities, including private equity fund M.D. Sass-Macquarie Financial Strategies Fund; Franklin Mutual Advisers; Envestnet (the SMA firm’s CEO, Jud Bergman, is an advisor to HighTower); Morris Offit’s Offit Capital; DLB Capital, run by Douglas Brown, former vice chair of investment banking at Morgan Stanley (Brown is non-executive chairman of HighTower’s board); Red Eagle Ventures, led by former Schwab CEO David Pottruck (also on the board); and Continental Investors, led by former Morgan Stanley Chairman and CEO Phil Purcell.

All the HighTower advisors interviewed agreed that that backing and those individuals played a role in their decisions to join HighTower, though each were just as enthusiastic in their praise for Weissbluth and the company’s management, in addition to the back office.

Best of Several Worlds

“You can’t unring the bell on what’s changed on WallStreet,” Weissbluth says. “There are advisors in motion, clients in motion, and new models are being created–that’s not going to change.” Weissbluth argues that the HighTower model embraces the benefits of independence for the advisor partners, “without the risks of owning your own business.” All of the advisors are W2 employees, he notes, who “have complete autonomy” over their individual businesses. Compensation comes in the form of a “partnership payout,” cash based on a percentage of profits, “plus additional equity” in the firm. The firm assumes the costs in transitioning client accounts, both advisory and brokerage, provides legal, HR, and accounting services, sets up offices and the furniture and technology within those offices, and in the longer run as a true partnership makes succession planning for the advisor easier as well.

Weissbluth claims, and the advisor partners concur, that HighTower has “extremely high rates of client retention” when advisors make the transition from their former employers.

Unlike in a wirehouse, where financial advisors have “no visibility on the revenue stream from their production, no idea on the true cost of compliance,” Weissbluth points out that at HighTower each partner sees where “every single dime” of revenue comes from, along with actual expenses.

HighTower doesn’t go out and recruit, by the way, though it has signed on to the broker protocol. When an advisor who fits the culture and sophistication level “makes the decision to leave, we want to be on the short list of choices.” The other partners get to weigh on prospective new advisors as well.

Why They Came; Why They Stay

Curtis Lyman, of Alpha Wealth Management in Palm Beach Gardens, Florida, and formerly of Lehman Brothers, says he joined HighTower because of “the investors in this firm and the board of directors: they’re unparalleled in terms of experience, fiscal strength, knowledge, and vision. Many of us have worked in models that were broken, so having that collective wisdom in one room is incredibly powerful.” HighTower, he says, “gives you the best of both worlds: you’re an owner with input into the day-to-day affairs not only of your own business, but of the firm.” HighTower’s multiple custodial choices and technology that aggregates client account data from those custodians and held-away assets gives Lyman what, “as an independent, I didn’t have the resources to do individually.” As fiduciaries, the advisors at HighTower “are already where the Street may have to go,” Lyman says, and when he tells clients that the firm uses multiple third-party custodians, “that’s a pattern interrupt–they recognize that’s different.”

Larry Gilbert, formerly of Goldman Sachs and now in HighTower’s Chicago office, takes up the fiduciary thread by explaining that from the last 10 years of his experience, “nowhere on Wall Street can you be a fiduciary. There’s a subset of investment options, you have no idea why they were placed in front of you, what the driving forces were behind them, so you do your best to act as a fiduciary under that model, but it’s a limited, scaled-back model.” What attracted him to the firm he says, “was the ability to go to a national advisor-owned firm where I knew I could be part of driving the strategy and driving the experience for the end client, versus having it handed down to me from New York for various firm revenue reasons.” What the last 18 months showed us, Gilbert says, “is that Wall Street’s incentives are aligned with themselves. They’re not aligned to the shareholders, they’re not aligned to clients, they’re not aligned with the country.” With HighTower’s partnership model, he says, “I can be an owner that drives strategy and make sure that my client’s interest are, for the first time, put first.”

Old Clients Stay, New Clients Come

David Wisehaupt spent 26 years with Merrill Lynch before he and his partner at Wisehaupt Bray Asset Management joined HighTower’s Palm Beach Gardens, Florida, office. What prompted the change was concern that as the wirehouses were taken over by banks their service models would change, so “if you are a client with $1 million, you’d get a mouse and Web site, and told to pick from a Chinese menu of choices, all of which are designed to feather the nest of the wirehouse, not the nest of the investor.” At Merrill itself, Wisehaupt reports his asset management group had had plenty of leeway, but that changed “dramatically” at the end, when “for the first time in my career, we were being directed how to invest clients’ money.” That was a very different “cultural situation than what we grew up with, and we were not comfortable doing what we thought was not in the best interests of our clients.” He admits to having offers to move from throughout the Street, “but control had changed at those wirehouses; they were very much unknowns.”

After examining the choices, Weishaupt figured it would take two years to put together a totally independent firm that could efficiently serve his clients, while HighTower had already put together that infrastructure, with the added benefit of working with “all these other very intelligent, hard-working people who are like-minded, and have the same set of goals for their clients and their careers.”

There was another business-building benefit to making the move. Wisehaupt recalls that one of his biggest surprises after starting at HighTower was discovering that “there were folks we didn’t know that knew us,” who were friends and relatives of current clients who specifically wouldn’t “deal with us because we were at the wirehouses. Once we moved to HighTower, they’ve reached out to us and have become clients.”

Bapis’s clients are excited about the Bapis Group’s move, he says, since they realize that “their interests are now aligned; most clients are more savvy than we give them credit for.”

After all, he says, with the HighTower model, “the better the client does, the better we do, the better the group does.”