#FASuccess Ep 067: The Future Of The Broker-Dealer Model As Advisor Support Without FINRA Or Products with Elliot Weissbluth

What You’ll Learn In This Podcast Episode

• How HighTower’s structure differs from the typical support platforms for independent advisors. [3:36]
• The significant disadvantage that the RIA community faces. [3:36]
• Why it is important to find a balance between one-size-fits-all and customized software solutions. [13:28]
• The intangible benefits the company creates for clients. [23:10]
• How having its own broker-dealer is an advantage for HighTower. [23:10]
• The three main things financial advisors should focus on. [37:48]
• How HighTower structures its pricing. [44:07]
• Why Millennial skepticism will lead them towards fiduciaries. [1:09:24]
• Important questions people should be asking about their service providers. [1:09:24]
• The byproduct of Elliot’s dyslexia that he says gave him a tremendous advantage. [1:14:45]
• Where Elliot sees the industry headed. [1:37:43]

Resources Featured In This Episode:

• Elliot Weissbluth – HighTower Advisors 
• Nerd's Eye View: Complying with Broker Protocol when Changing Firms or Going Independent
• Black Diamond
• Envestnet
• FasterThanNormal Podcast w/ Elliot Weissbluth
• Orton Gillingham
• Sanebox

Full Transcript: The Future Of The Broker-Dealer Model As Advisor Support Without FINRA Or Products with Elliot Weissbluth

Michael: Welcome, everyone. Welcome to the 67th episode of the "Financial Advisor Success" podcast. My guest on today's podcast is Elliot Weissbluth. Elliot is the founder and CEO of HighTower Advisors, a back and middle-office support platform for independent advisory firms that now oversees more than $50 billion of assets under management with nearly 600 employees.

What's unique about HighTower, though, is the way that they built their own data platform that houses all the data of their advisors and clients, making it possible for them to build deeper integrations between popular independent advisor software programs than what virtually any other advisory firm can accomplish on its own, yet still be able to easily swap out for a newer best-in-class software solution in the future, should one come along.

In this episode, we talk in depth about how HighTower structures its service model, why platforms like HighTower have been successful by leveraging their size, scale, and sophistication to reduce costs for independent advisory firms while bringing new capabilities, and why even at a cost of as much as 15% to 20% of a firm's revenues, the HighTower model can ultimately produce a significant cost savings relative to the overhead expense of a typical large independent advisory firm.

We also talk about HighTower's unique structure with a subsidiary broker-dealer used not to implement new commissionable products like mutual funds and annuities, but instead for the original purpose of a broker-dealer, to help facilitate the implementation of trades, and the way that HighTower leverages the control it has through its broker-dealer subsidiary structure to pit RIA custodians and clearing firms against each other as a way to ensure the vendors compete for HighTower's business by offering better service and lower execution prices for advisors and their clients.

And be certain to listen to the end, where Elliot shares his own personal background as a child who was diagnosed with and struggled with severe dyslexia when he was young, yet was still able to find ways to not only cope with the challenge, but ultimately turn in the skills that have allowed him to excel in the business world.

And so with that introduction, I hope you enjoy this episode of the "Financial Advisor Success" podcast with Elliot Weissbluth.

Welcome, Elliot Weissbluth, to the "Financial Advisor Success" podcast.

Elliot: Hi, Michael. Nice to meet you. Nice to see you.

Michael: I'm excited to have you on the podcast. We've been doing a couple of episodes recently talking to some folks in leadership at some very, very large advisory firms. So we've had Adam Birenbaum on from Buckingham and BAM out of St. Louis, and we've had Peter Mallouk on from Creative Planning. And so I'm excited to have you on as well. You know, kind of normally you're founder and CEO of HighTower Advisors, this mega-firm of advisory firms with, if I'm wrong, now $35 billion of assets under management?

Elliot: North of $50 billion, north of $50 billion. We have a broker-dealer end and the RIA end. So the ADV obviously reflects the advisory businesses…

Michael: Okay. But the BD side rolls up as well. And so it's…

Elliot: Yeah, absolutely. Yeah.

Michael: …$50 billion in total. Okay.

Elliot: Exactly.

How HighTower's Structure Differs From The Typical Support Platform For Independent Advisors [3:36]

Michael: So you have, I think, a very unique view and perspective on the industry, having grown and built this and with I know a very different and unique model even than some of the other firms that I've just mentioned and some of the other big firms that sometimes get put in the category along with you. And so I think to start, I'd love to just let you tell us a little bit about HighTower Advisors as exists today. Like, how do you describe the model of what you guys do?

Elliot: So if you go back to 2007 when we were originally thinking about how to build the business and how to solve a problem, we didn't start with an existing model. What we started with was the problem, and we said, "All right, what's the problem in the industry that we want to solve?" And so the good news is we didn't realize just how hard it was going to be to actually solve what we set out to solve. Had we known that, maybe we would have thought twice. But back then…

Michael: That's the entrepreneur's blessing, right? Like, if anybody can actually do a business plan on these things, you would never start them. They're crazy and risky.

Elliot: Correct. I'm the first to admit that when we started this, we were very good at identifying the problems we wanted to solve, and we were very good at coming up with solutions that made sense on paper, but some of the work that was then required to actually connect the solution on paper with the problem on paper really became a tremendous amount of hard work and many, many years of frankly making mistakes and having to back up and fix things and keep pushing through the failures. But we eventually got it all worked out because obviously, you know, fast-forward to 10 years, we're sitting on a business that actually has solved the problem that we set out to solve.

But let me go back to 2007 and just give you a very candid answer to what we tried to solve for. Back in 2007, we were looking at the industry, and we were taking a look at it in a very clinical fashion, where we said, "Look, Wall Street has this amazing collection of businesses, these are the big, you know, integrated firms and they have amazing compensation, they're able to hire, you know, all of these fantastic people, pay them a lot of money. They can invest a ton of money in technology. They build these great brands. They have all these tremendously bright, interesting people talking about investment research, building hedge funds, doing private equity deals, investment banking, lending. And you have amazing amount of sophistication inside of these very large successful businesses."

The only problem there was that all of that sophistication really inured to the benefit of either the shareholders or the internal constituents. It didn't always flow to the client. And so the term "conflict of interest," right? Just to give it a label, was a pretty systemic issue, where time and time again, you'd have all the sophistication geared on making money, the problem is that the making money part was not always making money for the client, making money for the client, it was usually making money off of the client. And you could just pick any scandal you like, whether it was the dot-com scandal or the credit crisis, or more recently at, you know, Wells Fargo, where they opened up millions of fraudulent accounts, you have a lot of energy that ends up being put to a certain particular commercial activity. And because the way those businesses are designed, the clients often pay the price.

However, you can't take away, and again, this is 10 years ago, that there's a lot of sophistication there and a lot of resources and infrastructure to support financial advisors. On the other side of the industry, you have the RIA community. And these are very well-trained, very thoughtful practitioners, they're professionals. They've come up usually through a system where they believe in the fee-based style. They're fiduciaries, and it's part of their DNA. I mean, you couldn't convince a thoughtful, you know, RIA that's been in the business for several decades to put their interest in front of a client. That's just not who these people are. However, they're significantly disadvantaged only because they're typically a smaller subscale businesses. And this is no reflection on the practitioner, it's a reflection on the size and the scale.

And so the question was in 2007, "Can we build a business that's the best of both worlds? Could we put a business together that solves the asymmetry in sophistication and adopts a fiduciary duty without compromising the sophistication and capabilities of a full-service firm?" And so we set out to build that business. And so here we are today 10 years later, $50 billion-plus and north of 600 employees, with a national brand and big culture, profitable. We've proven that you can actually put those two concepts together and deliver on both a unvarnished and uncaveated fiduciary duty, to put the client's interests first, along with tremendous amounts of infrastructure, sophistication, brand, technologies, etc.

Michael: Yeah, I mean, to me, it's been an interesting shift just over, I guess the past 20 years of the industry in particular, right? If we go all the way back to the 1980s and 1990s, RIAs, you know, truly barely existed. They were a miniscule cottage industry. Technology lived in the realm of large firms. And generally, the larger the firm you were, the more technology that you had, the more you could invest into your proprietary technology, and the better your technology capabilities tended to be.

Elliot: Exactly.

Michael: And, you know, that was, I think, the heyday of wirehouse technology just absolutely trumping what was in the independent channels back then. And, you know, that maybe started to shift a little bit in the 2000s, "Hey, there's this thing called the internet, where you can get a bunch of independent advisors that all just access common software in the internet. It's kind of like rolling it up under a proprietary firm, but they're all independent advisors, and you can be an independent software company and kind of build that." And, you know, still today, like, many of our largest players in lots of different categories, you know, Orion and Black Diamond and eMoney and MoneyGuidePro and Redtail and Junxure, like, all of these companies got created in pretty much, like, very late 1990s to the early 2000s as the internet boom started and independent software companies started to come into existence.

And to me, like, the playing field, at least, started to swing back to something that was a little bit more even. But by 2007, like, I get it, you know, the independent software was still kind of a nascent industry. Custodians at least were doing some stuff, but not all of them frankly had great track records. Like Schwab had bought PortfolioCenter in late '90s but then wasn't iterating on it very much. And TD Ameritrade was just barely coming into what it is today. And, like, there just weren't a lot of options for independence. So I guess I'm curious like did you sort of see yourselves as like an overlay? I mean, was the idea like, "Hey, the custodians can do the custody business, but we'll bring the platform for the advisor and sit between the RIA custodian that can just do the custody part and the advisor who does the advising part?"

Elliot: Right. So we saw the trend data that everybody sees, and we took a close look at the venture funding coming out of Silicon Valley, where we noticed that there was a rise of interest into fintech and fin services. So at some point, exactly when you pointed out, you know, Silicon Valley said, "Hey, you know, financial services is probably ripe for disruption. You know, where are their points where we can put venture dollars to work and really create disruptive tools and technologies?"

I don't know if we were the largest, we certainly were one of the largest early clients on Black Diamond. We made the decision on day one that we were not going to use Advent, and we were going to lean into the new crop of technologies. And have been with Advent from when they were Advent, and they were by then…I mean, Black Diamond when they were a solo sort of startup, younger company, all the way through today, where with their software company parent or owner today, you know, it's a fantastic tool and technology, and it's evolving. But one of the things that we were committed to on day one is to never become beholden to any particular application, right? So we're also a client of Tamarac, and obviously, you know, we're keeping an eye on the crop of other companies that are coming behind them trying to unseat the current leaders, you know, inside that space.

So the key thing for us philosophically was we were never going to become an application development shop, but we were going to become an integrator and have strong development capabilities on integration. So we actually use and have a whole outsourced integration department in Argentina. And so we do a lot of proprietary integration between the different applications so that as Silicon Valley funds interesting new startup disruptive pieces of technology, we're in a position to avail ourselves of the newest and more interesting ideas, recognizing that any one of these companies only has a shelf life as long as they can continue to remain, you know, current and attractive. And that's a diametrically opposed view to some of the bigger firms that, you know, had to build everything internally, and once they did that, the cost of making material changes becomes, you know, a significant deterrent to bringing tools and technologies current.

Why It Is Important To Find Balance Between One-Size-Fits-All and Customized Software Solutions [13:28]

Michael: Yeah, I mean, it's an interesting debate that I think has gone back and forth in our industry for decades now. This sort of, do you try to build the all-in-one solution that just does everything together tightly and deeply integrated or do you buy, you know, best-in-class solutions in each of the categories, but then you're responsible for integrating them all together? For which the integrations are getting better and custodians are playing some role, but I think most advisors that pick their best-in-class software category by category would still agree that the integrations leave a lot to be desired from what maybe the idea would look like. And most of us, you know, as individual advisors, like, we don't have the depth and resources to build on and improve those integrations ourselves.

Elliot: Right. Well, I think there are some firms that have said, "If you want tight integration, we can offer you a pretty good package." Like Envestnet, for example, you know, one of their hallmarks is the integration of the different applications as they handoff inside of a workflow, right? And I think they've done a very fine job of integrating different applications. The question is, you know, will every advisor find a one-size-fits-all to be the right solution for them, right? And as I'm sure you and I have had these conversations with many people over the decades, some people are happy with the one-size-fits-all, others want more flexibility and the option to put in their own CRM system or their own performance reporting system.

And so at HighTower, what we've tried to do is find that balance where we always have some choice, but at the same time, we made a decision, again, very early on that we were going to own all the data that we collected from the custodians and the different vendors. So unlike other businesses where they have the data housed out at a custodian or they have the data housed at a firm like Salesforce, we've invested significantly in our own proprietary data warehouse. And we did this from day one. We didn't do it successfully on day one. We actually failed the first two times, but the third time we got it right. And as a result, we now own and control all the data that comes in from all the various providers.

So to take that data and feed a business intelligence system to give business analytics, to use that data to provide inputs into a CRM, inputs into another application, we have invested and are now leveraging the asset that gives us that nimbleness and flexibility to not be beholden to any particular application, whether it's internal for me and the management team or whether it's for a financial advisor or whether it faces off through eMoney on the portal for our clients.

Michael: So ultimately, I mean, it's like you are actually in a position to fire pretty much any of your vendors at any time because all you have to do, I realize that's a higher stakes thing with your depth and integrations, like, all you have to do is bring in another technology as an alternative and then start powering your data into that one instead.

Elliot: Exactly right.

Michael: You don't actually have to migrate your data out of their old stuff.

Elliot: Exactly right.

Michael: You just have to reconnect yourself to something new.

Elliot: Exactly right. And remember, because we are, I believe, the only truly multi-clearing, multi-custodial firm in the industry, we collect data from Schwab, Fidelity IWS, National Financial and Clearing, Pershing LLC and Clearing. And so all that data comes to us.

And so if you think about generating a report for a client or feeding a mobile app, or feeding a client or an advisor tool, if they have accounts that are spread across the industry and there's a need to then collect all that data, process all that data, make sure that data is accurate and clean, we have that capability inside the firm. We're not relying on another third party to deliver that for us. We've built the infrastructure in-house that allows us to take that data and then use it to the benefit of either the client or the advisor or an internal servicing group. And that gives us again, a tremendous amount of leverage when it comes to using different types of applications that might be created by the next group of application entrepreneurs.

Michael: So you said in there you're one of the only firms that is truly multi-clearing and multi-custodial, so I feel like a lot of independent advisors say like, "Yeah, we're multi-custodial. You know, I use Orion or Black Diamond. I've got assets at Schwab and Fidelity and TD Ameritrade." Like, how do you distinguish what you guys are doing from firms that say like, "Yeah, I'm multi-custodial, I've got assets at three custodians?"

Elliot: Sure. Right. So most RIAs that have decided to move away from a sole custodian are technically multi-custodial, right? They have a principal custodial relationship and they'll have another group of accounts at another custodian. That actually is fairly common.

A percentage of RIAs also own their own broker-dealer, and they'll have a broker-dealer in-house, and they'll use that broker-dealer for various selected activities. But typically, that broker-dealer has a exclusive arrangement with whatever the clearing firm is that they work with. They're plugged into National Financial or they're plugged into Pershing or some other clearing firm, and they're obligated to run their broker-dealer to that clearing firm, and to the best of my knowledge, and exclusive fashion, right? Typically these contracts are exclusive. If somebody is listening to this podcast and they actually have broken that contract then I won't say that we're the only one, but we're one of, as far as I know, very small number, where we are truly ambidextrous in our ability to interact with National Financial and Pershing on the broker-dealer inside of HighTower.

The other piece that makes that truly indistinguishable from the market perspective is that, because we run a fiduciary practice, we're not actually running a broker-dealer business, where the broker-dealer is acting like a broker-dealer out in the marketplace, where it's capturing spreads and it's doing all sorts of things for the house, we don't we don't engage in those commercial activities. So we have a broker-dealer and an RIA that operationally is fully homogenized into our operating core, and then each of those regulatory entities faces off to multiple clearing and custodial firms so that those businesses know that they're competing for our business. So we don't have an obligation to do any particular business with any particular clearing or custodial firm.

And then because of the way we've organized our data, we say to the financial advisor, "You can go open up your next account at Schwab or Fidelity. If you need to have a brokerage component to it, we can open up the brokerage account. But we will make those big firms largely working for the clients, and they'll compete against each other so that we know on any given day we're getting a very fair commercial transaction because Fidelity, Schwab, and Pershing know they have to compete for our business, and so do the clearing firms, as we flow business across the broker-dealer.

So our original hypothesis was, "We'll never be big enough to go toe-to-toe with any of these firms," right? "We'll never be scaled up to actually get any pricing advantage. So the only way that we can get a good fair price for our clients is if we create a business model where those big firms know they have to compete with each other to get access to our clients." And that's what we've perfected over the past 10 years.

Michael: Because in essence, you know, you can't compete with the clearing business as a $50 billion firm when they have, I mean, some of those guys have literally trillions on their platform.

Elliot: Exactly.

Michael: But $50 billion is more than a big enough slice for them to want to bid and compete for your business. And so you made the cage where they can fight, and then you put them in the cage and let them fight.

Elliot: Correct. And we're very transparent that if they win the fight fairly, they get the business. In other words, we don't get into any sort of commercial entanglement where if there's a financial advisor say leaving a large wirehouse and that person has a half a billion-dollar book of business, it's our job to make sure that there's a fair competitive process, and that to the extent that custodians are able to convince that financial advisor that they're the custodial home for that advisor, we don't interfere with it, we support it.

And so we say, "Look, we want to be a good customer to Schwab, to Fidelity, to Pershing. We want to do business with all of you, but we also want you to know that you have to compete with your competitive set when you're doing business with us so that we can turn around to our clients, because that's at the end of the day all we really care about, and say to our client, and say, "Look, the pricing that you're getting is the result of these big firms competing for your business, and it's our job structurally just to make sure that that competition stays lively, keep them all honest, and then we can then look you in the eye and say, "We're getting you a very fair price. And whatever the ticket charge is or whatever, you know, the account or the particular piece of commercial activity, our job is to make sure that we keep the big firms competing and working hard to earn our client's business without any, you know, economic entanglement from HighTower."

The Intangible Benefits HighTower Creates For Clients [23:10]

Michael: So can you maybe break this down a tiny bit further us and just…like, you're building your data warehouse and you're making all these integrations and you're trying to house all your data so that you can pit them against each other. And there's a part of me that's just thinking like, "Okay, but we're already down to like $4.95 a trade from Schwab and Fidelity right now." Like, is this because you pit them against each other with $50 billion and like, "Wait, wait, we'll go to $3.95 for you?" Like, is it that stuff that we're competing or like what actual end result improvement do you get because you've created this?

Elliot: Right. There's a couple things. You know, again, over the course of a decade, you know, when originally we started as a very sort of modestly-sized firm, that changes in price during the earlier years was more dramatic, right? Because we were paying, you know, retail pricing early. And even though there was competition, as we evolved to a more of an institutional-type firm, you know, we started to get institutional-type pricing. And to your point, which I agree with 100%, you sort of lose…you know, you get to an institutional level and that sort of optimizes, you know, out of the equation, okay?

However, there's another more subtle, I think, advantage that we've created for our clients, and that's the quality of service and the way we work with these firms. Because so much of what happens between an advisor and the clients and the custodians can be impacted by a service level and how well the firms respond and triage and care for their clients. So when we face off with a service issue and we reach out to a Fidelity or a Schwab or a Pershing, they recognize us as a $50 billion counterparty. And because we have dedicated service people that are reaching out on behalf of our clients on a daily basis, we think that we can deliver a higher quality of service because they're going to care, we believe, a little bit more about what we need and our size and our clients, rather than facing off with a much smaller, you know, independent RIA that doesn't deal with a dedicated group and maybe isn't at scale.

Now, we have, you know, a lot of little anecdotal evidence that that's true because when we take a small RIA and acquire that company and that advisor becomes a HighTower advisor, we hear all sorts of stories where they would say, "Well, I called into service, you know, desk or service bureau A," I'm not going to pick on any firm, it's ubiquitous, "And it would take three days to get a response. But at HighTower, because it's you guys and you do it full-time and we're now bigger, you know, I get a response within a couple of hours."

So I think there's some intangible benefits that as a service business we've created. Because, not only do we have dedicated full-time people that work with the custodians every day, but, you know, we're a larger, more sophisticated business just because of our size and scale, and so they pay attention to us a little bit more. And I think as any good service company does, they're aware that we're demanding of a higher level of service and that that benefit then flows down to the advisor and the client.

Michael: So I guess from the advisors and, like, for the rest of us, for many RIAs in particular, I know that the primary reason they go multi-custodial is they say like, you know, "I want assets in multiple firms so that, you know, the custodians feel like they're competing for my business, and, you know, it keeps them all a little bit more honest." And I think that's always been one of the challenges in the broker-dealer realm. That, like, you can't do that. You're completely captive to your broker-dealer.

But I guess…I feel like the point basically that you're making at the end of the day is, even for those of us who are multi-custodial, we're more captive than we think we are, and the custodians know we're more captive than we think we are. Is that kind of what it comes down to? Like, "Yeah, I can threaten to remove my assets from Schwab to Fidelity or vice versa, but I've got to transfer all the accounts, I've got to inconvenience my clients." And until that, they get all the business that's on their platform. Whereas when you've got your subsidiary broker-dealer that can handle order routing, you know, I mean, is this true? Like, you can literally get down to the point of like, "Yeah, the assets are at Fidelity, but we're not going to let you do the back-end of the transaction, we're routing it somewhere else because we don't think you're given the right execution right now."

Elliot: Well, and we're not obligated. If you have an account that is, I want to leave all the names off of it, but if you have an account at custodian A, you're not obligated to do any other business than be a good customer of that custodial provider. If you need to engage in some sort of brokerage activity, you can pick and choose which of the ways that you want to transact.

And you raised a very subtle point that I want to make. You know, most financial advisors are primarily focused on servicing their clients and growing their business, right? They don't have a lot of spare cycles, and they're usually not big enough to have a full-time, you know, chief operations officer that could actually spend an entire day arguing with the custodian to get certain change made under the threat they might shift businesses. We have, you know, 110 people sitting in a corporate office, and there's a whole bunch of them that do nothing but talk to their custodians all day long. And so if somebody says, "Look, you know, advisor X is not happy, mister custodian, and they're thinking about moving," well the advisor is not going to do the work, it's going to be a bunch of corporate operations folks supported by the advisor's team, and that threat has a little bit more teeth to it because it's what we do for a living every day.

And obviously we never want to get into that, we'd rather just say, "Hey, can you help us get the client what they want," right? We don't want to be protagonist about it. But because our business is built on delivering the service and because we're very candid that we want to be good customers of all of these different firms, and we are, we work hard at it, at the same time, we want them to compete because that's a value proposition that we deliver to the advisors and their clients that says, "Look, we're fiduciaries, so our intellectual and our philosophical and our legal obligation is with you. But on top of that, structurally, we're delivering you the benefits of a competitive marketplace. So you can sleep at night knowing that the big players out there really do care about competing to get access to your financial advisor and access to you. And it's our job to make sure that competition stays lively and fresh."

Michael: So I think it's an interesting phenomenon that isn't really discussed much in the industry, although I'm seeing it crop up more and more. This idea of RIAs that own their own broker-dealers, not because they're trying to do the hybrid thing where they do advisory business but then they also do some annuities or mutual fund commissions or 12b-1 fees or things like that, but to have a broker-dealer for, I guess what essentially was the original, original purpose of a broker-dealer 30 or 40 years ago before the independent movement, where it's just about how you handle the back-end execution and implementation of trades, and the ability by having your subsidiary broker-dealer to be able to craft different relationships with custody and clearing firms in order to do that.

Like I know one of the big things for Betterment was that it's an RIA as a robo-advisor that owns its own back-end broker-dealer. And one of the reasons they did it is, you know, most broker-dealers are in the business to make money on trades, their goal was to consolidate costs for clients when they're doing tens of thousands of clients or hundreds of thousands of clients at once. And so one of the big things for them having a broker-dealer was it let them take, you know, a trade across 100,000 clients and just net it down this 1 single trade. So rather than doing 100,000 trades for 100,000 clients, they do 1 trade for 100,000 clients, with all the buy/sells netted against each other, do a much smaller trade and allocate accordingly and just produce a huge execution cost savings in the process.

So do you see this world of like RIAs owning broker-dealers to try to regain some control or disaggregate out some of the custody and clearing model? Like, is that the future of the industry or is that just going to be a thing that a subset of large firms do because everybody else just doesn't have the economies of scale to even try?

Elliot: So I think there's a couple of questions in there. I think from our perspective, the broker-dealer has certain regulatory and commercial features to it. That given our initial growth plans, we had to have those in-house. And let me just…I'll back up and I'll explain to you why then I'll try and bridge that to answering your question directly. Remember originally, we were lifting out teams of wirehouses that had a whole potpourri of brokerage-related activities. And even though the advisor might have viewed themselves as a fee-based advisor, when you actually looked at the way the book was assembled, you might find 20% or 30% of the economics required a broker-dealer to actually transact the business.

So for example, 12b-1s, we decided early on that even if the advisor wanted to be 100% fee-based, having the conversation with the client about leaving a wirehouse and coming to HighTower, at the same time having the conversion conversation about coming out of a brokerage account into a fee-based account would create a lot of turbulence in transition.

So the reason why we launched a broker-dealer was not because we particularly wanted to be in the broker-dealer business, but we wanted to be able to meet the financial advisory teams exactly where we found them and say to them, "Look, come on over to HighTower. We can replicate your economics about any issue, and then you can finish transitioning to 100% fee-based over time." It also allowed us to not say to a financial advisor, "Look, you have three years left on an annuity trail, we're not going to leave it at the wirehouse. So we have a broker-dealer, we can capture that economic for you and let that run off while you transition your business to a fee-based business."

So strategically, it was launched with a very specific purpose of facilitating teams that while they may have emotionally committed and transferred their business practice to being fee-based, legally, regulatorily, practically speaking, they still needed a broker-dealer to transact the book as we would find it.

Michael: So it was kind of a halfway house transition point? Like, "Just move your stuff here, we'll house you. You will be under the umbrella. You can do the fee-based transition over time. But, you know, you don't have to literally say, "Okay, the day I break away from the broker-dealer is the day that my commissions unequivocally go straight to zero. And I don't have to just resell my clients on the transition, I have to resell my clients an entirely new business model. Instead, I can leave intact, I can move intact as though I was going to an independent…I guess as though I was going to an independent broker-dealer." But you're not built for them to stay independent broker-dealer, you're built for… "We'll have this halfway house structure for you while you finish the transition in the safe outside environment we've created."

Elliot: Exactly. To this day, only about 5% of our business is non-fee-based, right? So we are, even after 10 years, there's always some business in transition somewhere in the ecosystem, where somebody's come over, and they're still working their way from a hybridized practice to 100% fee-based practice.

Michael: And do you still have advisors that tend to do ongoing business on that BD platform and actually end out staying hybrid or, like, do you have a rule or a deal with them like, "Hey, we'll take your one-off business because you don't literally want to move your clients yet or you don't want to walk away from trails or break some old business, but, like, we're not writing new commission mutual funds for you, we'll just hold onto your 12b-1s while you run them off?'

Elliot: Right, right. And remember, well, HighTower, first of all, we exited, you know, all the shareholder services, all of that business we exited a couple of years ago. So that caused a lot of our folks that had a certain type of legacy business to migrate that away from brokerage into fees. However, there is a couple of situations where having the broker-dealer is actually an advantage, okay? So inside of the fixed-income world, there are some particularly unique aspects of what we do when we face off to the street because we're not trading, you know, our own inventory, we're not taking the sort of balance sheet risk of trying to generate margin on the desk. We can be a pure servicer. And that's an advantage to folks that specifically focused part of their business on fixed-income trading.

The other piece of it is there's still a demographic slice that doesn't want to pay fees to have somebody, you know, buy them a bond, right? They want to pay a commission. And that's a perfectly legitimate fiduciary thing to do. And there's nothing that says just because somebody wants to buy a bond and pay you a fee or a charge for that bond and doesn't want to pay you basis points annually, we have the capability to accommodate that client's desire.

And your last comment also picked up on another very credible but diminishing section of the business, which is people that have been in a brokerage model for a long time, maybe they have, you know, decades working with a financial advisor, and their financial advisor doesn't want to disrupt it and the client doesn't want to disrupt it. So, you know, as long as everybody understands that this is a type of business that's under, you know, a fiduciary model and there's no other fees being paid, which obviously has been ripped out of our economic structure, I think over time, those types of accounts will naturally just evolve into fee-based accounts. But we don't force the financial advisor to do that, especially if the client is happy with the arrangement.

The Three Main Things Financial Advisors Should Focus On [37:48]

Michael: So talk to us a little bit about, like, the nature of the HighTower platform, right? Like, I'm an advisor that's listening to this and thinking like, "Okay, maybe this is kind of neat. This has some capabilities. I couldn't have necessarily done on my own." Obviously, you've convinced a lot of people that with $50 billion between the 2 platforms. So, like, how do you describe HighTower? What you do and the value proposition for advisor who says like, "So I'm thinking about joining, like, tell me how this works."

Elliot: Simple answer is there are really only three things that a financial advisor should worry about, okay? Number one is obviously the clients, right? What are my clients thinking today? What are they concerned about? What are their expectations? And managing, you know, their peace of mind, vis-à-vis their investment portfolios.

Number two, the markets, right? Keeping yourself current in terms of all the current research and trends and events, and being able to be clear-headed that when an errant tweet comes out of the White House or some European country does something or the markets give everybody a bit of a scare, that you're able to act in a proactive fashion and be fully briefed on what's happening.

And the third, which gets sacrificed so often by smaller RIAs, is the ability to grow your business, right? To take that extra lunch, to go play golf, to go to a conference, and to grow your business. So those three things are the highest and best use of a financial advisor's time.

Unfortunately, there's an entire industry where every one of those individuals is also a business owner, right? They're a CEO. They're probably an ad hoc chief compliance officer. They're occasionally the ad hoc marketing officer, ad hoc technology officer. And whether it's the photocopier lease expiring or whether it's a bandwidth question, or whether they have to deal with DOL, Dodd-Frank, cyber terrorism, right? They get yanked into dozens and dozens and dozens of business operational questions that frankly, after many years, and, you know, I talk to RIAs all about this, it gets tiring. It's not that much fun. And frankly, they don't really enjoy it because it's not why they got into the business.

So HighTower's value proposition at its simplest level is we do all of that for the advisor. Whether it's the front-end, hosting your website and helping you with your physical plans, whether it's the middle-office, where it's the investment support and research capabilities, whether it's handling all the day-to-day processing of the business, or whether it's the back-office, heavy-duty technology, supporting, you know, portals and desktop and interfaces, and the facing off to the custodians, the clearing firms, the technology vendors. We add value in the front, the middle, and the back-office, and we do it in a completely service-oriented model where there's no HighTower ETF or mutual fund or money market account that, you know, we're trying to sneak into your portfolio to generate our earnings.

We provide all of those services for the financial advisors. It's on one platform. So whether you're, I guess, a customer of ours, even though we think of them as partners, where you're an independent firm and you pay us a percentage of your revenue and we provide all this for you and you run your own LLC and your own company, and we're just an omnibus provider of services, or whether we provide you a succession plan and you come on board in a permanent fashion and join HighTower and sort of join our…get inside the tent. We provide what is effectively the same types of services to those different types of advisors.

Michael: Okay. So we should think of you as like a middle layer of service provider that, you know, as you kind of said, like, handles a lot of our back-office and mid-office issues, that we can spend time on basically clients, prospects and knowing what's going on in their portfolios. And I guess like for my advisor's P&L perspective, like, basically you're taking a big chunk of my overhead and either giving me better things than I could have gotten with my overhead or maybe even ideally, you know, winnowing down the size of my overhead with your economies of scale.

Elliot: Sure. Right. So the three things that we add value, we can be helpful because we have size, right? So we're a bulk buyer of everything. So whether it's a Black Diamond cost or a Salesforce cost or a paper goods cost or bandwidth cost, right? We're big, and so we throw our heft around and we try to use that bulk buying capability to help lower the costs. So it shows up in all sorts of ways, not just vendors like that, but in asset management, you know, tearing of bps on AUM when one of your clients or a practice joins our firm and we're buying into any institutional manager someplace, right? There's a benefit to having the buying power of a lot of individual advisors. That obviously drives down the cost of the custodial firms as well.

The second area that we add value is scale, right? So a subscale financial advisor may not be able to buy a system like a Marketo and have that integrated into Salesforce, and have somebody that can give them support on say social media. So because we're a little bigger, we can afford to invest in those items and convey a scale benefit to a financial advisor.

And the third one is sophistication, right? We have full-time people doing things that many of the smaller RIAs, you know, the financial advisor has to pinch-hit into all these different areas of expertise that in many cases they've learned on the job and they've managed to do it well enough to build a successful business, but they may not be, you know, on the cutting edge, for example, of negotiating a healthcare package or understanding the vendors to help with cyber technology.

And so what we can bring to the table is, "Look, we have a department, and there's a person who does that for a living. They do it all day long. They have a staff, and they're going to be able to, you know, add some value because it's what they do for a living. They're not trying to squeeze it in in between servicing a client or trying to get a new piece of business. So size, scale, sophistication are the three hallmarks of where we can add value to an advisor's practice. And we do it front, middle and back-office.

HighTower's Price Structure [44:07]

Michael: Interesting ways to frame kind of size, scale, sophistication. So I'm going to imagine by now there's at least a few people that are listening to this and saying like, "Okay, all that sounds great and awesome, so what is this going to cost me?"

Elliot: So if you're on the platform, there's a graduated scale, and it runs anywhere from, you know, 15% to 20% of revenue. That's sort of this zip code. Obviously, the pricing is an evolving pricing paradigm, so there's some flexibility there. But, you know, it's a percentage off the top line. And as you point out, you can map that right to your P&L, and you can say, "Okay, what am I getting rid of, and am I picking up any value? Not only am I saving my time, because I'm no longer doing it, but is the service that I'm getting in return a premium to what I could do myself? And is that premium being baked in because there's an economy of scale here or am I actually paying up…you know, am I paying more than I would have paid in my own P&L?"

We have these kind of conversations with RIAs all the time. And look, our job is to try to be helpful and sell a commercial solution. And so we can pretty much, you know, look at advisor's P&L and say, "Okay, you're spending 2% of your revenue here, we could probably do it for a point inside of our model. Let's explain to you what we do and how we do it. And so that actually allows you to spend other aspects of your P&L getting other benefits that you otherwise wouldn't be able to do on your own."

Michael: Right. Well, and I'm sure there's some advisors that are listening to this and like, "Oh my God, 15% to 20% of my revenue is, like, that's a huge number," or like, "That feels like, you know, like I'm back in broker-dealer world. I was trying to get away from broker-dealer world charging percentage of revenue." But, you know, once you get to a business that's beyond yourself, you know, you get to… So, like, most advisors by numbers are solos. And so when we're solos, there's revenue that goes in my pocket, and there's expenses that don't go in my pocket. And, like, every dollar that isn't literally just spent on some kind of expense item comes to me directly. And we usually don't even run sort of standard P&Ls with direct expenses and overhead expenses. They're just kind of like my gross revenue minus the stuff I've got to pay for equals what I keep.

But once you get to firms that get a little bit more size, you know, I find like somewhere around $200 million or $300 million under management and up, you know, you start conforming to industry benchmarking studies, the numbers tend to get pretty consistent. You end out paying your advisors on staff somewhere around 30% to 40% of revenue, you end out with overhead that's 30% to 40% of revenue, and you end out netting 20% to 30%, depending on where you are in some of those ranges and windows.

And so when the classic advisor's P&L is usually 30% to 35% of overhead once they get a little bit of size and efficiency out of it after a couple hundred million dollars, yeah, I get it like, "Hey, look, at the end of the day, your P&L says you got 33% in overhead. HighTower is going to charge you 15% to 20%, depending on your size. Now, they probably won't cover every single possible thing in your overhead, but they're probably going to cover a whole bunch of it. So let's sit down and map it out. And, you know, here's what you pay for things, here's what they replace." I mean, is that actually how the sales process often goes for you with existing firms? Like, "Let's literally map your P&L onto our service model?"

Elliot: Absolutely. Yeah, we sit down and we say, "How much are you spending on…" Hey, I don't want to pick on Black Diamond so, "How much are you spending on vendor X? Okay, you're spending eight basis points on vendor X. Okay, we spend 0.5 basis points on vendor X. So let's look at the cost nominally to your business to drop it literally from eight basis points to 0.5 basis points. That's a lot of money, right? Okay, well, that's a savings to you. Now you can afford to allocate that dollars elsewhere." That thing gets put into a stack of math and says, "Okay, here's on a net-net basis what value we'll bring to you, and where are the pickups," okay? And so it's not all about lowering price. In some cases, it's about adding value that the advisor otherwise couldn't afford to do.

Michael: Sure. Like if at the end of the day I'm going to make the exact same money but I don't have to deal with being chief technology officer, chief compliance officer, chief marketing officer, chief operating officer, all the rest and, like, I could spend most of my time on clients, prospects, and markets and I make basically the same thing with less stress, like, heck, you know, I might even pay more than my overhead was. You know, I'll pay a few points more if you actually just make my life easier at some point, never mind if you actually…

Elliot: Correct, correct. Right. So you're hitting on there three different vectors of this conversation, right? The first is just the brass tacks, right? What do we do? What does it cost? What do you do? What does it cost? And on a sort of a sifting out of all of the cost structures, how does our fee on a net basis impact your P&L? Because it's not all incremental because we're going to get rid of some of the stuff that you're doing internally. It might be that you have to let somebody go, right? If you have your head of operations and you have 2 of them because you're multi-custodial and you're $350 million of assets and each person costs a certain amount, you may not need that second body coming over to HighTower because we do that work for you. If that's something culturally you're prepared to do, you may be able to save a pretty hefty full-time equivalent by letting that person go.

But the second vector is where the conversation gets interesting. And that's, "What are we adding that you otherwise couldn't afford," right? What are we adding that'll really help your business?

But it's the third vector, which you just touched on, which I always enjoy when the conversation gets there, is if I said to you, "How much time do you spend today running your business," right? "Let's say today you spent a half an hour. Okay, well, if you spend 30 minutes today running your business, that means you're spending 2 and a half hours a week, that's 10 hours a month, that's 120 hours a year. If I just gave you back half of that, if I gave you 60 hours of your life back, you put that into growing your business, would you put that into becoming a better parent? How about a better spouse? How about work out a little bit more? How about work on your handicap," okay?

So we'd have a conversation where I say, "Look, you're currently growing at X CAGR every year, and if you're at $300 million and you want to double, you're never going to get there at this rate because you don't have the time to go out and get new business. I can give you those 60 hours back, and I can help you get to $600 million because the most valuable thing I'll give you is your time back. And I'm not even sure all of that time is needed to grow, I'm going to give you some of that time to go lose 10 pounds or to be a more available parent, to go show up at your kid's school." And now we're talking about things that are priceless.

Michael: Yeah, I mean, you know, even just 30 minutes a day and I'll give you half of that back. I mean, 60 hours through the year, it's a big number. You know, normal full workdays. Like, that's a week or a week and a half. It's like, "Hey, you know, how would you feel if you made the same money but you got another week or two of vacation? Or, you know, you can take a half-day on Friday all year long just so you can do stuff with your kids or get to baseball games."

Elliot: Yeah. Right. Now you're talking about real value, you know. And so the first sort of element there is growth, right? Our commitment to the advisors is, "Look, we de-risk it because we do it and we're size and scale. If we take it off your hand, we can add value or just do it, you know, for you at a reasonable price.

But more importantly, we're relieving you of all the operational headache and all the operational distraction. We're giving you relief. And how does that relief show up? You'll sleep a little bit better at night. You've got us handling things for you that might distract you. We'll give you back some time. We'll give you back some peace of mind. Let us worry about DOL. Let us worry about Dodd-Frank. Let us worry about X, Y & Z issue. We've got that covered. That's part of the service that we provide. You go to, you know, your kid's soccer game or go take two more business development meetings this week, and we're here to get you a little higher quality life and to help you grow your business."

Michael: So help me understand, like, my one other question about sort of this financial arrangement and structure is, you know, I know there was discussion for years that one of the things about the HighTower model was this aspect where everybody has equity in the business and, like, HighTower owns their firms. Then you've also got a more recent platform business where you affiliate but there's not an equity component. Like, can you just help us understand…I'm frankly both interested in just how those two models work and especially interested in, like, how did you evolve from one to the other? Like, what led to the shift to the second option?

Elliot: Sure. So advisors who joined us as we were growing the business received equity in the firm. The folks that they help build the business. Over time when we had enough operational sort of flexibility and we had operational capability to provide services to the marketplace as a platform provider, we then opened up the platform side of our business. A lot of financial advisors today are not ready for a succession plan. They're not ready for acquisition, but they see the value of affiliating with HighTower, right? And they'd like access to our platform, they would like access to our culture, and they'd like access to our brand.

And so we built a business that said, "Look, if you're not ready to enter into a succession plan or acquisition process with us today, great, we don't want to lose you as potential partners and friends in the industry, come on over, we'll help you grow your business. And then when the time is right, when you're thinking about beginning that monetization or succession planning activity, we will be there in a pole position as a service provider to you, able to enter into or negotiate with you a commercial transaction to begin, you know, that phase of your life cycle." But we thought it made a lot of sense to not lose part of the market that wanted to associate with us because of the value proposition just because we didn't have a way to offer them, you know, a commercial way to do business with us.

Michael: So for advisors that do the equity side, you said, you know, "Advisors who join HighTower receive equity in HighTower." So is this a like, "I own my RIA but I'm also taking an equity slice in my service provider because then I have a vested interest to see my service provider succeed," or is this literally a like, "No, no, I roll my firm into HighTower. I exchange my equity in my RIA for a slice of equity in HighTower. And this is like an equity transaction, and I don't independently own my firm anymore. I'm a partner in HighTower."

Elliot: It's the latter. So we have one ADV. We have one capital structure. Everybody who is in sort of the HighTower partnership model is employed by the company and works with the company. Even though they all maintain their own practice, and in many cases they've, you know, crafted brand constructs around their practice, we're all one big company, and we all have one big interest in the same legal entity. So it's one entity, one company. And then in a contrasting fashion, the independent RIAs that are on our platform, they own their entity, and their entity is their entity, which they own, and we're a service provider to those companies. So very clear distinction between whether it's the HighTower company or whether it's HighTower as the service provider to other companies.

Michael: Yeah. So in a world where you have the choices for both, who do you see choosing which and why at this point? Is it a like, if I need my, like, business exit or succession plan then I'll do an equity deal for you? If I'm still, you know, younger and growth-minded and I want to be in this longer then I just do the affiliate form, or there are other dynamics at play about who chooses what?

Elliot: You know, look, you've hit the nail on the head. It's really about where is the advisor in their particular life cycle, right? So there's no right or wrong answer here. If an advisor is at the stage of their life cycle where they're very eager to grow and they view themselves as having a very long horizon to their growth, then selling any portion, even if it's a smaller portion of their business to us today is just something that they're not particularly interested in doing because they see the growth opportunity in their own business. And so we wouldn't want to lose them. We wouldn't want to not have them affiliated with HighTower.

And so if they want to come onto our platform, and remember we don't draw a distinction culturally between financial advisors that we work with on the platform versus those that are part of the HighTower corporate entity. We view them all as part of a partnership culture. We welcome everybody to the big HighTower events. You know, we want everybody in the tent, so to speak. So those folks are growing their business, and we want to help them grow their business as fast as they can. And then down the road, we hope that when they think about monetization or succession, that they think obviously about us because we're standing there with the ability to transact with them.

For other advisors that, and there's statistically, you know, looked at the data I guess was 33% of the RIA community is planning on retiring in the next 10 years. I think that was the last data that I saw. Those folks are now beginning to think about a succession plan. And so we're there, not only as a capital provider that can monetize their business, but we're also there as a bit of a matchmaker, and we can help them if they haven't already identified a successor to work with both the market that they're in or our internal HighTower advisor community to build them, you know, a succession plan, and then provide the capital and the wherewithal to structure it for them and support them at that stage of their life cycle.

Michael: So if I'm doing these transactions where, you know, I join HighTower and become a partner and basically, like, I convert my independent equity into a slice of the HighTower equity, like, when I'm actually ready to retire, exit out, you know, you found me my succession, great, my clients got transitioned, like, how do I as now a HighTower partner actually get my exit check? I know how I get my exit check when I sell my independent RIA because, like, the buyer strokes me a check. But like, how do I then cash out when I'm in a HighTower model? Like, does HighTower buy my shares back? Is there some commitment around that that…

Elliot: Sure. Yes.

Michael: …I'm allowed to put my shares to the firm at some agreed upon pricing structure?

Elliot: Yeah, we don't have a formal sort of put-call-type dynamic, but we have the ability for an advisor who wishes to basically, you know, buy into the firm, monetize their business, we have the capability to do that.

Michael: And I guess the risk, I mean, it's the risk anytime you're in a business with partners, like, the risk is, it's at least conceivably possible that the point that they want to exit is not the point that you're ready to buy them out. So you may say like, "Hey, I need you to hold onto your shares a little bit longer. You know, we're not doing any more transactions this year, but we'll be doing some next year," or whatever that equivalent is?

Elliot: Yeah. There's a number of conversations that happen. And ironically, many advisors have different points of view in terms of how long they would like to continue and what their level of engagement is, right? So we try to be very thoughtful to an advisor who says, "Look, you know, I'd like to monetize over the next couple of years, here's what I intend on doing in the earlier parts of this transition, here's where I am with my succession plan. But even after I fully have transitioned, you know, I'd like to come to the office, and there are five clients that are my friends, that I still enjoy playing golf with and working with, and I don't want to fully retire, but I'd like to just work with a small group of clients and service them."

We sit down and we have a thoughtful commercial discussion about what that looks like, and what happens to their equity, and what does it look like to remunerate them for effectively selling their business to the next successors, and then what does a reasonable compensation look like for them to stay on and work with those clients? So there's a lot of flexibility to the different points in time where one, an advisor starts the conversation because some folks started earlier than others, and then where they are vis-à-vis their own sort of lifestyle desires about where they want to be in a couple of years. And we've got good corporate finance chops to be able to come up with solutions that match up to their desires.

Michael: So how did you come to this model of creating this thing in 2007 in the first place? Like, can you give a little bit of context for us? Like, what was your background? I mean, were you in advisory industry from the start? Is this what you always wanted to do or…

Elliot: No, I'm a recovering litigator. I started in Chicago, in the courtrooms, and left that career, found myself at Rogerscasey, which back then and still is a very fine boutique institutional consulting firm. And worked for some great people there, where I learned a lot about the business. And this is when hedge funds were just becoming very interesting to the institutional community. This was after, you know, hedge funds had penetrated the family office and the ultra-high-net-worth communities.

And I was talking to a friend of mine who worked for a large brokerage firm in Chicago, and we were comparing notes about, you know, sort of where the market was going and which hedge funds were particularly attractive. And I said to my friend, "Are you putting your clients into a number of these funds?" The firm that Rogerscasey at that time had done a lot of research and was supporting in the institutional space. And my friend said, "No, we're not allowed to sell those funds because we can't get paid." And I said, "What do you mean? I thought you were supposed to be servicing your clients." And he said, "No, no, we do service our clients, but we also get paid by the managers." And I said, "How does that work?"

And I realized, and this is, you know, going back a while, I realized that there was a pretty big misconception, which obviously I had at the time, where I thought the big firms were conducting themselves the way a lot of the institutional advisory firms were conducting themselves. And I asked my friend, I said, "Well, that doesn't sound very much like you're really supporting the client. Why are you at this firm if, you know, you're not happy there?" And my friend was looking for a new place to do his business. And he said, "Well, I need all these things. I need operations. I need a trading desk. I need compliance, I need technology. And I'd love to access, you know, products like you guys have access to on the institutional space."

And I said, "Well, how hard can all that stuff be?" I mean, because I didn't have a clue. I had no idea how hard it was. And he goes, "Well, I don't know. It sounds like it's hard, I mean, but if somebody built that business, I'd join them" I said, "Really?" I said, "If somebody put together, you know, the freedom of a fiduciary where you could pick and choose the best products, you could do what you wanted to support a client, but you had all the infrastructure of a large Wall Street firm, you would join that business?" And my friend said, "Absolutely, I would join that business."

So I then took that and started talking to people, and I found more and more people that said, "Yeah, if you showed me a business that had the best of those two worlds put together, I would join that firm." And because I was pretty ignorant about just how hard it would be, I said, "That sounds like a pretty good idea, let's go do it." And that's the genesis of HighTower. To this day, I'm thankful that I was as blissfully unaware as I was at the time early on as to some of the things that would pose challenges to us. But, you know, we put our head down and persevered.

Michael: So where do you see the business going from here? Because, you know, I'm fascinated by the whole way the industry is just kind of reorienting itself, and particularly around this phenomenon of companies like yours that provide sort of this middle service and support layer. Because, you know, I started out on the insurance side of the industry. I left that pretty quickly, because I was a horrible, horrible salesperson, and landed in an independent broker-dealer and spent some time there before I ultimately landed in the RIA channel. I mean, to me, like, so much of what you describe is sort of the classic broker-dealer model. Like, "We'll give you the tools, the technology. We'll give you the platform. We'll give you back-office support and service." Like, it's much of the stuff that's there, with the caveat that you don't actually do the products, and you don't have the FINRA, right?

Elliot: Right. Exactly.

Michael: It's like what you would have left with a broker-dealer if you removed all the actual products and FINRA, and you just kind of end out with advisor support and service, practice management, technology, tools, the stuff that's the back-office, that helps you to succeed. I mean, it's sort of, what would a fee-only broker-dealer look like? Like, it's sort of what you ended out building there. I don't know if that was the vision for it, but, like, that's…

Elliot: Yeah, that's a fair analogy. I think we sort of started with, "What are the areas of this business that are non-differentiating from the advisor and client perspective?" Right? And a lot of it is nitty-gritty operations, it's a nitty-gritty technology. It's not the particularly attractive part of technology. It's just the, you know, bandwidth and cyber security and antivirus protection on email, right? All the things that are largely commoditized, but each individual RIA has to deal with all that if they want to be in business.

And then we said, "All right, well there's all these other firms that are offering really interesting technologies and capabilities, and Schwab perfects this part of their business, and Fidelity perfects this part of their business, and Pershing does this interesting thing." And if you're sort of a soloist, you're sort of, as you pointed earlier, you have a de facto exclusive relationship because commercially, it's just too hard to move among and between those firms.

And we said, "Well, that doesn't make any sense. Why shouldn't there be a service bureau where the advisor gets the benefit of all of those firms because they're all great businesses and they're all doing great things, and why don't we just put a bunch of smart people in between all these businesses and help the advisor navigate? And our compensation will not be tied to doing business with the firms that we're evaluating, but it'll be tied to, you know, what's the need of the client? If the client is better served by a particular solution, we can in a very high-minded fashion say, "Hey, look, this custodial clearing firm actually has really nailed this solution. This account, this household should really be over there."

And that then led to, "Okay, well then how do you do billing on that? How do you do performance reporting? How do you do integrated advisor desktops? How do you do integrated client portals?" Right? So it sounds easy on paper to say, "Well, gee, Fred should be at Schwab, but Fred's wife should be at Fidelity, and Fred's kids can be at Pershing." That all sounds super easy on a piece of paper, but then sitting down with Fred and saying, "Here's your consolidated performance report across all custodians, and here's your consolidated billing, and let's talk about how to...you to see all that inside of eMoney on the website," then things start to get more complicated.

Michael: So I'm cognizant as well that, I don't know if it was a deliberate thought at the time you were founding or just kind of worked out fortuitously for the timing, but you had this platform, you created this platform that gave the capabilities of a large firm environment but with more independence associated with it, which was particularly appealing to a lot of wirehouse brokers who were used to large-firm environment, wanted to leave their wirehouses because within 12 months of when you created your business, the wirehouses all kind of embarrassed themselves in the Wall Street meltdown. And just a few years before you created the business, the wirehouses were so kind as to create a protocol that would make it easy for brokers to leave, because they thought they were just going to go to other wirehouses. And suddenly, like, they opened the door for wirehouse brokers to leave and then committed PR suicide in the financial crisis.

Elliot: You know, two things we had nothing to do with but took advantage of.

Why Millenial Skepticism Will Lead Them Towards Fiduciaries [1:09:24]

Michael: So, you know, as this has now played out for 10 years and you guys have grown $50 billion, I know much of which came from wirehouses, and maybe would have still been there if they hadn't made it easier for people to leave. So now we're starting to see the backlash against that with Morgan leaving the Protocol and UBS leaving the Protocol. And so I'm curious from your end, like, A, just, you know, how do you think this plays out for your business? Like, you don't care because you're growing with independent broker-dealer reps now and RIAs now, so, you know, wirehouses can do their thing, or like, do you think ultimately the Protocol is going to get opened up again or is the whole thing just collapsing? Like, how do you look at this landscape? As I have to believe a firm that like…your name probably came up in the room when they were talking about why and whether they would shut down the Protocol.

Elliot: Yeah, it would be immodest for me to even think that that actually happened. I think that we were a catalyst for that than I would feel very good about mission accomplished, that we actually got on their radar that there's a problem. I mean, I wonder sometimes if anybody actually does notice what we're trying to do here. And I hope that if they do, you know, it catalyzes behavior that helps clients. I mean, that's why we did this, okay? You know, we have to keep coming back to the simple why we put this business together. And so if it catalyzes a positive change, then I'm happy about it.

I think that what Morgan and UBS have done is really quite unfortunate, okay? Because what they've done is they've used their size and scale and the asymmetry of their legal departments to make it very, very difficult and intimidating to an individual to get up and leave. And again, I have not looked at this closely. You may be closer to the facts than I am, but from the little news clips that I've seen, Morgan Stanley appears to be taking a very aggressive approach towards the advisors that leave. And HighTower, when we launched through the combination of the Protocol and the combination of us being fairly confident about the Protocol's protections and the fact that, you know, as a former litigator, I was comfortable with the risk, so long as we played inside the rules, right? It was one of those classic cases where if you did color inside the lines and you followed the rules, then you could use the rules to help you and provide safe passage for an advisor leaving.

And, you know, all the firms tried to come at us very early, and we were pretty sort of direct in our position that we were following the rules. And if they wanted to engage in either litigation or a PR war, we would take it to them, even though we were, you know, pipsqueaks at the time.

Michael: Pipsqueaks with a JD. At some point, they've just got to decide like…

Elliot: Well, but still, we were still, from a size perspective, we still were fighting to build our business. And we said, "Hey, these are the rules. And we didn't create these rules, we signed onto them. You folks all decided to create this protocol, and we're going to follow it. And we appreciate you doing it. And we're going to take full commercial advantage of it in the marketplace, because this is capitalism, and we think that we have the right to build the business the way we want to build it."

But I think unfortunately, these firms have realized that it is a way for safe passage to happen, and they decided to close the doors and use intimidation. So as a result of that, I think the clients get compromised. Now, we expanded our market from the wirehouse community to the RIA community, and we have not shut down, you know, any activity out of the wirehouse. Obviously, we're very eager to help a wirehouse team leave.

Michael: There's some people that just…they're independent-minded. They're going to leave no matter what. It will be messier for them now but like...

Elliot: Of course. Right. And by the way, we are there as partners for them. You know, if a big team wanted to leave, we are eager to help liberate them from the big firms. However, the attractiveness from a commercial perspective, if you take a look at the RIA community, is these folks are running their own business and have run their own business for many, many years, and they're enthusiastic about having another company help them lift away all that burden. So both markets are attractive to us, and we're active in both of those markets.

But I don't think that the Protocol…the winding down of the Protocol I think is going to in the long run backfire because people, the end clients are asking all the right questions. They're asking about a fiduciary duty. They're asking how many ways the firm is getting paid. The skepticism is still there and rising. And the millennial generation I think will be a catalyst for that skepticism. I don't think the millennials will just mindlessly follow in the path of their parents and go to a big integrated firm where there's conflicts of interest. I think the millennials will rotate towards technology. They'll rotate towards fiduciary. They'll rotate toward transparency. And they'll ask a lot of questions that frankly, the generations in front of them, you know, have not asked with as much intensity as I think we'll see from the millennials. And I think all that is very healthy for the industry.

The Byproduct Of Elliot's Dyslexia That Gave Him A Tremendous Advantage [1:14:45]

Michael: So one other thing I'd love to ask you about before we wrap up the podcast here. So I listen to some other podcasts myself, and I've heard you on one or two other podcasts. And you did a particularly fascinating one a little ways back on a podcast called "Faster Than Normal," which is a podcast for folks with ADHD and some other, call them learning differences, which as someone who has ADHD myself has been a challenge for me for a long time.

And you did a fascinating interview there around your struggles all the way back to a child with dyslexia. And, you know, I mean, there are all sorts of biases and negative views around learning differences, learning disabilities, dyslexia. I think in particular a lot of views that, like, you know, if you're diagnosed with dyslexia or ADHD, you'll never be able to be successful in business. And, like, here you are in finance business, in a high leadership position. So I'm just curious for your perspective, like, how does a kid with dyslexia grow up into a CEO running a $50 billion advisor platform business?

Elliot: Well, I think the first and most important thing is not to look at the condition, whether it's dyslexia or ADHD or ADD or anything like that as a disability. I think that vernacular has to change. And I speak frequently and talk to parents, especially that have children who are informed that their children have either ADD, ADHD or dyslexia, and people mix and match these terms. And they're actually quite different. And I'm happy to sort of dig into that a little bit with you.

But the first thing is not to treat it as, you know, a diagnosis of an illness. I think that's where a lot of people get very worried and anxious. Especially with kids, you know, "Oh, my gosh, I've got this horrible thing. And this thing is going to, you know, wreck my life. And I'm forever going to be branded somebody that has disabilities or has some horrible deformity like a third limb coming out of your forehead." And I think that's just the wrong way to think about it. You know, I was diagnosed early with dyslexia. I was very fortunate to land in the hands of a very patient teacher who taught the Orton-Gillingham style of reading and how to read using that technique.

Michael: What is the Orton-Gillingham method of reading? I'm just curious. I haven't heard of that.

Elliot: It basically teaches you to understand how to create the phonetics and how to look at different constructs of the way letters and words are put together. Dyslexic kids and dyslexic adults, I mean, my emails and my writing, I have to have people read it just to double-check. I will look at something and I will think that I've written something that is perfectly suitable for dissemination, and I will have missed words and I'll have missed letters and I'll have misspelled things because there actually is a proper spelling of it. Like bog and dog, the spellcheckers don't pick up. And so dyslexia at its core is a coding and decoding challenge where the brain is just wired a certain way not to recognize certain patterns. And so as a kid, it was tremendously frustrating until I learned how to deploy a couple of compensatory tactics, which I've honed over the years.

But the benefit, and this is what I tell a lot of people that I talk to about this, is that you learn some compensatory skills that then can give you a tremendous advantage. I'll share one of them with you very simply. So I don't believe in multitasking. And maybe some people can do it. I personally can't. I've never been able to do it.

One of the things that I had to learn early on, and this was a byproduct of dyslexia, is that I could only do one thing at one time. So my desk in my office is completely clean. My laptop and my phone are on a little credenza behind my desk. So if I'm talking, like I'm talking to you and I'm talking through my laptop, I'm actually facing the wall. Behind me is my desk, and the desk is completely clear. And so if I were to have a meeting and I were talking to somebody, my laptop, my cell phone, my desktop phone are behind me. I don't look at it. I don't want to be distracted by it, and all I'm doing is talking to the person who's in front of me. And I've learned that I can only do one thing at one time, because if I try to do two things at once, it creates tremendous stress and discomfort for my brain, and I feel unnerved by it.

So as a result of having dyslexia, the strength that I picked up is that when I focus on one thing, I'm able to focus very deeply on that one thing. And I've learned to keep things from distracting me.

Michael: And ironically, in a world now where every week there's another article about how all of our technology and devices are distracting us then we would all be so much more productive if we could just focus in and do one thing, kind of like Elliot figured out 20 years ago.

Elliot: Yeah, or 40 years ago. I had to come back a little bit longer. So yeah. And it's not because I learned that as an adult, I learned that out of self-preservation. I learned that because if I didn't do that, as a kid, I would get very upset, and I would doubt my intelligence, I would feel like I was dumb or I was slow, right? And I luckily enough had parents and a good tutor that said, "No, no, just sit down, clear everything away, focus on the history book. Don't worry about the chemistry and don't worry about the other thing you have to do. Focus on one thing at a time, and don't try to do two things or multitask."

So when I'm sitting at a meeting, my phone is in my backpack, just to resist the temptation, right? Because I'm human and, you know, the texts and the emails, all that kind of stuff. But because I know that if I am remotely distracted by something, if I'm trying or something creeps into my sort of area of awareness, it's very disturbing to me. And so the byproduct of that is I'm able to focus on whatever it is I'm supposed to be focused on.

But anyway, to bring the point back to your original question, people that have ADD, ADHD, I'm sure your journey has been one where you have challenges and you feel like you can't succeed or as if you have an impairment or a disability. And then at some point, you realize that there are gifts buried in there, and there are tactics and skills that you can learn that actually can be tremendously helpful to you. And so I don't want to be dismissive of the cases where…and there are very serious cases where it's not an asset, right? Where a person has a significant medical condition and drugs can be very helpful in certain cases. It's not in a person's head. These are real conditions. You've experienced it, I've experienced it. But in many cases, you can learn tactics that can help you navigate life. That can actually inure to your benefit.

And in my case, I learned a couple different techniques early on as a kid. For example, one of them is I just stay away from certain things that I know will cause me to be unnerved and upset and distracted because I'm just not skilled at doing them and I ask other people to help me. And I think learning early on to ask for help as an adult, and especially as a father, can become a tremendous asset. Because it's not only humbling to ask somebody for help, but you engender goodwill, because then you ask somebody that has an expertise to complement you, and you end up focusing on the things where you can develop expertise. And that then forms the basis of good friendships and good partnerships.

Michael: And what about just the dynamic of flat-out writing? Like, you're in a leadership position that I have to imagine entails a lot of emails. Maybe I'm wrong and you've figured out how to boil them in the conversations, but, like, you have an email communication-intensive job with dyslexia. Like, you just kind of muscle through it? Like, how does that happen?

Elliot: Yeah. So I've got some pretty specific rules that I've built for myself on email. So I actually use my inbox as a to-do list. My inbox on any given day has maybe 10 to 20 emails in it. A big day for me would be 30 emails. And the way I get down to that number, I know some people might be saying, "Oh my gosh, how is that possible? I'm looking at an inbox with, you know, 1,600 emails in it." I am a ruthless unsubscriber. So I have a little system where I dump things into unsubscribe. I know there is a tool, I've seen it, that works called SaneBox, that friends of mine rave about, that can help.

But when I am dealing with email, if I'm one of many people on the email, I tend not to read it super carefully because I figure if a lot of people are on it and there's a lot of people looking at it, it probably doesn't mean somebody really wants my attention. They just want to include me on an email. And so I might not read it with a lot of attention.

Michael: If it's really important, someone will come back to you about it, right?

Elliot: Yeah. Well, I think that's…a lot of people are very liberal with who they want to include. And I appreciate that because I might get the sense this is like an FYI and people are saying, "Hey, we want you to be aware," and then I might scan it. But I also organize things into one or two basic folders, I don't have a complicated file system, where I say, "Okay, if something is personal that I need to deal with, maybe with a kid or with a family issue," I have a little folder that I'll maybe knock those off on a Friday morning or on a Saturday morning over a cup of coffee. And I'll just spend an hour and I'll triage personal things.

But the most important thing, and this is the change that I developed many years ago, is I don't engage in, like, robust dialogue. And some people love to just write emails where they have a conversation over email. And you can tell they've thought about crafting it. And I would just pick up the phone, and even if it's a bunch of people. And I'll see an email and my response will be a dial-in bridge number, right? My response is, you know, dial in, right? Let's just talk. So I try and stay away…trying to have a conversation over email to me always just struck me as being not the most optimal way to have a conversation.

And when I write, I write in shorthand. I don't abide…my old English teachers would probably roll in their grave if they saw some of the destruction to the English language that goes on. But I view email as a unique mode of communication where the rules don't apply, so I just write as few words with shorthand as I can to communicate back. I don't craft full-blown sentences in email.

Michael: Well, and I guess the whole typing domain of email kind of goes back for you a while. I know, like, your "Faster Than Normal" podcast interview, you were talking about, like, carrying your own typewriter to school in grade school so that you could, I guess, type things instead of writing?

Elliot: I couldn't read my own handwriting. I didn't have a choice. I would try and write in class, I couldn't write fast enough. I couldn't keep up. And even if I did manage to write down something, I'd get home and I couldn't read my own handwriting. And my mom bought me a Smith Corona typewriter, which at that time was very high-tech because you could pop out the black cartridge for a white cartridge. And after years of using liquid paper whiteout…and by the way, if people are listening to this and they don't know what that is, I think I just dated myself to a certain generation, but I could carry this thing, and I would type up my notes. I would remember the lecture from class. This is junior high and high school. And I would type up onto onion skin paper and type up my notes of that day. And I could read the typed word because I had typed it.

And the process of forcing myself to type the notes and what I could remember was a great way to study because if you heard something, and I could remember audibly what I captured in class, and then I would type it onto the paper. And by the time I got to college, I was a very fast, you know, amateur typist. And then this internet thing came along and next thing you know, being able to navigate a keyboard was this skill that I didn't have to learn because I was already very fast on a keyboard. And so today, I handwrite very, very little, and I'm sort of…my brain goes right onto the keyboard in a pretty fluid fashion. And for me, that's a saving grace because, but for the internet and for the evolution of computers, you know, I'd still be lugging around a typewriter to meetings to make sure that I could remember what I said to somebody.

Michael: You know, your story on the podcast, it connected so much to me because I actually had a somewhat similar journey. I'm not dyslexic, but I was diagnosed fairly early with ADHD. You know, as usual, these things kind of get diagnosed because you're a couple standard deviations off the norm. And I was quite a few standard deviations off the norm. But, you know, the challenge for me was, you know, it wasn't dyslexia, but I had some kind of, you know, brain translating to handwriting issue as well. And so I could learn a topic, I could talk about a topic, and if I tried to handwrite something about it, it came out like super basic English. So by my junior year in high school, you know, I was scoring very well on standardized tests. I had very good PSAT scores, including in the English category, and I was literally failing English class because…

Elliot: And people made you feel stupid.

Michael: Right.

Elliot: And you were like, "I'm not a stupid person."

Michael: Right. And, you know, I would learn my stuff, and they would ask me questions, and I clearly knew my stuff. And then I'd turn in my homework, and it was…when we finally tested it, like, I was a junior in high school who scored extremely well on my PSATs in English and had third grade writing equivalency by hand. For some weird thing, when my brain tries to translate things by hand, it just kind of breaks down and the words get jumbled and the sentences get shorter. And I would write like a third grader.

And ironically, for me, it actually got worse as I got older. So now, like, if I try to write a thank-you note, it literally makes me nauseous. Like, just my brain trying to process things to my hand actually gives me a feeling of nausea. Yet for whatever weird reason, when I type, it all disappears. So I'm the kid who failed high school English the first time because I couldn't write, who now writes ungodly amounts of high-volume information because it just happens to disappear when I do it on computer. If we weren't in the computer age, I'd be some kind of manual laborer.

Elliot: Right. But I read what you write. And not only do you write, but you write beautifully, right? So the idea that here you are as an adult writing beautiful, well-crafted, articulate, thoughtful, you know, articles and publications, and you produce a high volume of beautifully well-crafted, written material, and I've read, I mean, tons and tons of what you've written, how ironic is that that the English teacher that just didn't know how to assess you properly gave you a poor grade.

Michael: Yeah. Well, and I'll admit even now as a parent, it makes me, you know, hyper-cognizant of sort of watching for these issues with my own kids. A, because unfortunately, some of these things do tend to be hereditary, but also just, you know, the challenge for me was because I could speak articulately and learn stuff well, when my homework was always low-quality, I just got the underachiever stamp.

And well, to be fair, by the time I got to high school, I probably really didn't actually care anymore and really wasn't trying because, you know, I would try on my homework and then I would get a terrible grade and the teacher would say, "It looks like you didn't try. Because he clearly knows the stuff because when I asked him about it in class, he clearly knew the material." So eventually, I just stopped trying. And they literally didn't even test me for any of these issues until I was failing out of high school. And ultimately, I had to repeat my junior year in high school because I was too far behind by the time they figured it out.

Elliot: So if people are listening to this, this is a conversation between two high-functioning, successful professionals, right? That have navigated all sorts of different challenges in life despite having a less-than-normal presentation somewhere in our brain. and yet we're able to talk about it in ways where we have a lot of historical, maybe early pain, where you realize you're a little bit different. Where you realize, "Oh my gosh, I don't think I'm stupid. Why do people think I'm stupid? Why am I being treated like I'm somebody who's stupid," right? Or in your case, "Why are you telling me I'm not trying hard when I tried my darndest and yet I'm still failing?" And obviously, as a kid, those messages can be terribly, you know, debilitating.

And I think the most important thing, you know, anybody who would hear this should take away is the most important thing is shoring up a person's confidence that these are not disabilities. These are not sort of fatal diagnosis. Where if you have a condition like what you have or what I have, that it's, life is over as you know it. And that if you can find the various ways to compensate for it, you can excel because of some of those compensations.

And I'm always very careful that that does not apply to every situation. And there are some cases, especially with ADHD, where you have very extreme cases, where it's impossible from just sort of a neuropharmacological point of view, you know, for a person to do it without the help of well-designed pharmaceuticals. So at all times I focus on, "Look at all the successful people that have become successful despite being told that they have some potential impairment. And how do you help that person, you know, navigate onto a path where they can be successful?"

Michael: So where does this go for you going forward from here? Like, what's next for HighTower as you're crossing a $50 billion threshold and, you know, still scaling up this platform model, and you've got the core partner model? Like, what comes next for you guys?

Elliot: Well, we have in front of us, I think, a growing problem, where more and more individuals are realizing that there's a deep connection between their overall health, health of their marriage, health of their relationship with their parents, with their children, physiological health, the risk that they have for heart attack, for diabetes, for cancers, for all sorts of things. All of those things are connected to your overall state of mind, and your body's ability to ward off many of these things are connected to a sense of wellness, okay? And I think as the science starts to catch up with some of these hypotheses, you're seeing, you know, greater intensity on the kind of foods you eat, obviously the importance of exercise, the value of meditation.

And somewhere in there, and this is where I've been doing research for the past couple of years, is the relationship between all of those things and how you think about money and the impact of money. And there's no doubt there's a connection, the question is just what does that connection look like? And what do I mean by there's no doubt that there's a connection? If you take a look at the incidence of calls into suicide hotlines and you graph it, it correlates tightly to precipitous fall-offs in the market. If you take a look at data that people claim are the causes of divorce or the causes of different sorts of other turmoil in their life, financial stress is inevitably one of the very high causes of those conditions.

Yet in our society, people that entrust the health of their portfolio to a professional don't associate the financial advisor in the same way that they would associate seeing either a doctor or a personal trainer or a dietitian or an accountant, right? So, people that care for certain parts of our overall wellness, we think of in one way, and we still think about financial advisors in a different category. We don't associate the work that they do with caring for any more than our portfolios. And so we're starting that conversation. That you have to connect those dots and that you have to look at a firm like HighTower, and if you look at financial advisors as really being part of your primary care team that's caring for a lot more than just your portfolio.

And so what I look forward to is, not only will HighTower continue commercially providing its platform or we will commercially help to provide succession planning capital to individual advisory practices, but we'd like to start to change the way our society looks at financial advisors, and frankly, look at them the way their clients do. The vast majority of HighTower clients are emotionally embedded with the HighTower advisor. And the HighTower advisor legitimately is caring for the HighTower client in a way that goes far beyond, you know, just the portfolio metrics or some risk-adjusted return calculation. They care deeply about the family, and they're embedded usually, you know, in the family's life and decisions and are usually there for them when there's something going on that's important.

So how do we change the conversation away from the "Wall Street broker," given all the abuses that have happened over the years, and really start to have a conversation about a financial advisor's role in helping people live, you know, healthier, more balanced lives? And that's the conversation I'd like to have, you know, with folks like you and the marketplace, and begin a real dialogue about the role of a truly skilled financial advisor.

Where Elliot Sees The Industry Headed [1:37:43]

Michael: So where do you ultimately see that go? Like, is that about just advisors who manage portfolios doing a more holistic service? Is that ultimately some world where we move away from, you know, investment in AUM-based models and, like, your whole business and revenue model has to get reinvented? Like, where do you…you're a visionary guy. You built HighTower, right? Where do you think this will go?

Elliot: Well, I think where this goes is people start to be more discerning, okay? And if you're an individual today and you are still a client of one of these large integrated firms, and you still don't have clarity into what the firm is charging you, and you still are not working with a fiduciary, right? That person should be asking themselves why are they settling for somebody who is in a product distribution business. And if they're okay with all the conflicts of interest, then they've made their peace that they're going to work with somebody who is really not interested necessarily in their overall well-being because they're working for a business that's designed to extract as many areas of margin and profit as they can from the relationship.

And at a certain point, people will start to realize that they get a lot of value from having a thoughtful service provider. And if they want that inside of their relationship with the financial advisor and they understand the importance of having a healthy, connective relationship with their money, which most people don't really realize is important, then they'll start to seek out a different type of financial advisor. So it's really not about us changing our business model or changing the way we make money, it's about how do we change the conversation and their perception of the importance of a skilled financial advisor?

Said another way, there are many, many, many percentage points of financial advisors out there running small businesses. They're not adding a lot of value, they're charging a lot of fees, but they're not really providing a lot of benefit to the family. And the question is whether those folks, you know, still should be in the business as practitioners or whether they should combine into larger practices or team up with firms like ours. But at the end of the day, the consumers, the investors, the people have to ask, "What value am I getting from my service provider?" And if they're comfortable that their value is, "Well, I get sold good product and I know that firm X is selling me product and I like that product," then that's good. Their eyes are open that they're being sold products, and they're happy with that.

But if they believe they're getting a service, the question is are they really getting high-quality, thoughtful services that will have a positive impact, you know, on them and their families and their lives? And I think HighTower is in a unique position to accentuate the conversation and say, "If you're looking for the type of sophisticated, thoughtful advice that can give you peace of mind, not just about your money today or the markets last week, but, you know, over the life cycle of you and your family, then you'll start to seek out a higher and higher caliber of financial advisor. And in that case, you know, the number of firms that offer that will grow because they're delivering high-quality service."

And so I see the industry shifting in the future to really rewarding the folks that provide high-quality service and the folks that sell, you know, high-quality product, and clearly differentiating between, you know, those two types of businesses. I think that's the biggest shift. If I were to put a prediction out there is that we see the industry start to separate and be very clear and proud, this is not a judgment call, proud of the folks that manufacture really high-quality investment products and proud of those firms that offer really high-quality investment advice. And the two of them really belong in two different businesses.

Michael: So as we come to the end here and kind of fitting into this theme about the nature of more holistic advice and what we work towards, you know, this is a show about success, and one of the themes that comes up regularly is that just the whole word success and kind of goals and what we're working towards is different for different people. All right, sometimes success is even different for us at different stages of our lives. So you've certainly built something that anyone would objectively call a very successful business, but I'm curious at the personal level, how do you define success for yourself?

Elliot: So I define success by taking a look at the end state, right? I take a point of view that says, "We're trying to solve a problem, and we're going to start with the problem and then walk backward," right? A lot of other approaches people will say, "Well, let's take the first step tomorrow, and then we'll sort of linearly walk forward in time, and then eventually we'll get to the solution." And I think what that approach does is it sort of sets you up for, "I'm having a lot of reasons not to take the next step forward." If you start with a solution in mind and you say, "Okay, we're going to solve this problem," and then you walk backward from that point of view, you realize, "Holy smokes, for me to get to that solution, I have to make these three decisions tomorrow and move forward."

And so with that mindset, you recognize there are two variables that are going to make that a little bit terrifying. One, you have to have a strategy, right? You have to have your mindset on how you want to get there. And that strategy has to be from the rearview mirror. It has to be, "When we are successful, we will have solved this problem." And in the rearview mirror, "Here's how we got here." And you have to free your mind that that has to skip over exactly how you're going to get there, right? Because if you had the roadmap and you knew exactly how you were going to get there, then anybody could do it. You just run the plan forward and you get there. So you have to say, "Well, we're not quite sure how steps three and eight are going to work, but we have pretty good clarity on steps one and two and steps five and six, and no clue about step nine. If we get to step nine we'll be lucky, and we'll figure it out then. But right now, our strategy is going to lead us in a strategic path to get there."

And then the second thing you have to recognize is that there's this new thing called chance and luck, right? That the world does not stay stable. Things are never exactly as you planned. And that there's going to be an inherent amount of uncertainty that either can kill you if you take too much risk or it can be an opportunity if you're nimble enough to take advantage of it. But you have to be aware that that uncertainty is going to be there.

So I view success through the lens of, you know, "Am I able to get the problem solved," right? Did I get to the point where the thing we set out to do we got done? And did we get there with our sort of eyes wide open and a little bit on the balls of our feet that we were able to take advantage of some opportunities that we didn't anticipate? And did we successfully navigate around some of the risks that we didn't see coming? And being able to look back in the rearview mirror and say, "Okay, we got from point A to point B, and we dodged a couple of risks, and we took advantage of a couple things that were just pure luck, but we capitalized them and were nimble enough to take advantage of them."

And I think that's…from my perspective, it's accomplishing what you set out to do is one of the ways I think about success. And it really has very little to do with a particular metric or KPI. It's really, did you solve the problem you set out to solve? And if you do so, what will flow from that is commercial success. Because if you solve a problem and the problem is big enough then people will reward that in a commercial fashion.

Michael: Well, and I think you've certainly shown that there's a lot of people willing to reward that in a commercial fashion after the first $50 billion or so.

Elliot: Yeah. Well, I think that's because we didn't set out to get $50 billion, we set out to solve a problem, and the problem was big enough that people appreciated the solution. And the economics and the business model and the financial forecast and the budgets, all of that flows from solving a real enough problem that enough people have.

Michael: Well, amen. Well, thank you for joining us and sharing that story and journey of what you guys have built. I'm kind of curious to see what happens in the coming years as you just kind of reset the goal posts on the next stage problem that you're clearly now formulating and see where it takes you next.

Elliot: Yeah, it's been a pleasure to chat with you, Michael. Thank you.