Some people ride a wave, and some people create a wave. Elliot Weissbluth of HighTower is a creator and has changed the conversation on and about Wall Street and the role of advisors. His backers from the beginning—and new ones on the way, he suggests—at the Chicago-based firm founded five years ago believed in his vision, and the many top wirehouse brokers who have bought into the HighTower approach have validated that vision.
It’s a simple approach: Clients of advisors can benefit from the intellectual capital of the biggest firms on the Street while being served under a strict fiduciary mantle. Those ex-wirehouse brokers (and their clients) benefit from HighTower’s growing scale and ability to force everyone from bond trading desks to RIA custodians to compete for their business. They also benefit from being part of an elite peer group that has input on who else can join the partnership, while retaining the independence to run their own specific practices in their own way.
“The old dialogue,” says Weissbluth, “which was ‘independent good; Wall Street bad,’ was never an intellectually honest discussion. There’s tremendous value and innovation on Wall Street.
“The optimal financial services firm leverages the competitive spirit of Wall Street, bringing the cream to the top, and does that inside an independent fiduciary service model, which is optimal to the individual investor,” he says.
At a time when much remains in flux when it comes to advisors—from regulation to finding alpha in slow-growth markets amid growing government debt overseen by a dysfunctional Congress—Weissbluth’s role as entrepreneur and growing status as a thought leader qualifies him to lead the 10th annual IA 25 list of the most influential people in and around the advisor industry.
While the SEC considers whether to extend a fiduciary duty to all advice givers, and the Department of Labor forges ahead on its revised definition of fiduciary, HighTower has moved ahead on its own, wrapping a strict fiduciary standard into a business model that meets client needs while giving top Wall Street brokers an innovative home from which to serve those clients while continuing to grow their individual businesses.
Lest you think Weissbluth’s words about the Street are all saccharine, he can also be its harshest critic. Yes, he says that “the most innovative, the most interesting investment thinking comes out of Wall Street,” but “it’s not the firms, but the ecosystem: the hedge fund trader who used to be at a proprietary trading desk, a boutique investment bank—the most competitive, interesting, innovative people are drawn to the Street, because that’s where the compensation is.”
However, Weissbluth says “the problem is that if you land as a client at one of the Wall Street firms, you only get access to that particular firm’s good ideas. Those firms are not set up to benefit the clients’ interests first, but to benefit the firm. The firms are more interested in their own profitability than in the benefits of the client.” He says, not by coincidence using the first person plural, “we recognized that was a growing sentiment eight years ago; we formed HighTower five years ago, because we knew a business could be formed that started with the client’s interests first without sacrificing” the benefits of Wall Street innovation.
Weissbluth argues that the industry must “educate and clarify what a fiduciary duty is and whether [clients are] receiving it; 90% of investors don’t understand what a fiduciary duty is, but they think they’re getting it from a broker while they’re not.” (His recent YouTube video comparing the broker’s job as akin to a butcher’s reflects that misunderstanding among investors in a clever way.) Weissbluth’s business-building focus—“We have 300 people in 20 offices, and we’re profitable” and his confident assertion that “We will do more business in the first quarter of this year than in all of 2011”—gives his fiduciary stand even greater gravitas.
HighTower, he says, “has taken as a focal point to educate investors and join the fiduciary duty discussion as a clear point of reason. [Investors are] entitled to an advisor who owes them a fiduciary duty: unambiguous, not watered down, who is duty-bound, legally obligated, to put the client’s interests in front of the advisor’s and the firm’s. Until that happens, there will be a lot of exploitation around the fiduciary issue.” But having such a clear fiduciary duty, educating investors about such a duty and who has it and who doesn’t, provides a side benefit to the client and the environment in which advisors work. He argues, “It’s the greatest opportunity to restore confidence.”
And who is his competition? “Large firms with multiple layers of fees and conflicts of interest should be concerned that our model will become the new normal.” Those firms that “enrich a firm at the expense of the client; they should feel threatened.”
Will those large firms on Wall Street change their business models? “They’lll have to change,” he says. “It changed in the 1950s with mutual funds that allowed individual investors access” to investment products and strategies that previously were just available for wealthier people, Weissbluth says. Then Internet changed the environement with its greatly improved, fast access to all sorts of information. “The industry will change; there will be improvements and adjustments and they will be forced to compete more honestly,” he suggests. “We do business with the major Wall Street firms,” Weissbluth says, but “the difference is that they have to compete for our clients’ business; that’s healthy.” But any time “you have a business where a company is making money but not adding value, that’s not healthy. Those who do add value will continue to make money, but that value is in the eyes of the people who work with them; not because they’re hiding fees.”
And what makes a good leader? ”I think the strongest leaders, the ones I admire, surround themselves with people they trust and people they believe have tremendous capacity for energy, good judgment and autonomy. You allow those people to blossom.”
Find out who was named on the 2012 IA 25 in Investment Advisor’s May issue.
View the 2012 IA 25 home page for additional reporting from this year and throughout the franchise’s 10 years.
For more on HighTower, see Investment Advisor’s August 2009 cover story.