Cantor Fitzgerald's foray into the wealth management business is nothing if not ambitious.
The New York-based financial services powerhouse, best known as an institutional bond trader and for its remarkable recovery after being devastated in the 9/11 attack on the World Trade Center, is damning the torpedoes and going full speed ahead as it attempts to carve out share in an exceedingly competitive market for high and ultra-high-net-worth clients.
In less than a year, Cantor's new Wealth Partners division has signed on three high-profile advisory teams (two from Mariner Wealth Advisors and one from Neuberger Berman), acquired Pittsburgh-based First Commonwealth Financial Advisors, and just last week poached Scott Hotham, a 24-year Merrill Lynch executive to head its sales team.
Stan Gregor, president and co-chief executive of the new wealth division, says he's aiming to bring on 250 to 350 advisors within three to six years, and is prepared to be "extremely competitive" in his pursuit of wealth managers and teams. Gregor is offering candidates a package of equity and cash.
Can Gregor and Cantor pull it off?
PROS AND CONS
The firm's brand, capital and Gregor himself, a well-known industry executive who was the president of Wachovia Wealth Markets, and also had a long career at Citigroup, are its biggest advantages, says industry consultant Jamie McLaughlin, who specializes in the high and ultra-high-net worth markets.
"Cantor enjoys some name recognition, particularly within the domain of Wall Street, but also within the context of the reach of their increasingly diversified parent," McLaughlin says. "They also have the benefit of a deep-pocketed, entrepreneurial owner. And Stan has had a number of 'at bats' in wealth management on a variety of platforms, and understands both the client milieu and how to attract and retain professional talent. This is a perfect match for his talents."
Former Silver Bridge Advisors chief executive Steve Prostano, now heading his own consulting firm, also cites Cantor Fitzgerald "stellar reputation" and the abundant capital available to "build an incredible wealth management capability for the high-net worth and ultra-high-net worth market."
But competitors say Cantor's brand cuts both ways.
"Cantor Fitzgerald is known for being traders," says a wealth management executive at a large firm who did not want to be quoted, and is also competing for the $5 million-plus clients. "Traders cut and run! If I'm a wealthy client I'm looking for stability. How do I know they're going to be in that business in five, ten or 20 years? I'm happy to compete with Cantor any day."
Other industry observers caution that patience, not speed, is a virtue in the wealth management business.
"You can't buy your way into this business," says Robert Casey, senior managing director for research at Family Wealth Alliance. "It's a business that's built on referrals, and it takes a lot of time."
The difficulty of succeeding in the ultra-high-net worth market can't be understated, argues Brian Hughes, president and founder of Philadelphia-based Hughes Growth Strategies.
"Firms must be long in both patience and capital, and not expect any real results for at least 36 months," Hughes argues, "Even then; they should only be measuring leading indicators, like qualified prospects in the pipeline, the number of client referral meetings or centers-of influence partner meetings."
While Gregor points out that Cantor's status as a privately held firm allows it to proceed at its own pace without shareholder pressure, he also makes it clear that Wealth Partners aims to make its mark sooner than later.
The dozen advisors currently on board will soon be joined by four new teams with whom Cantor is currently closing deals, Gregor says. Cantor is also talking to a combination of two dozen more teams and firms it hopes to acquire, he adds.
In addition to cash based either on "trailing twelve" payouts for brokers, or earnings before interest, taxes, depreciation and amortization for fee-based asset managers, the equity portion of deals for new advisors will be based on an "evaluation" of what value they bring to the firm, Gregor says.
Those who make the cut will be immediately vested and "treated as partners from day one," he maintains. As for a potentially lucrative IPO, which some Wall Street observers say would be analogous to Goldman Sach's public offering in 1999, Gregor says there is "no timeline," but it is an event that partners are, "looking forward to on the horizon."
Cantor's institutional services and platform, including access to hedge funds and alternative strategies, will be available to private clients at a lower price than standard minimums of $25 million to $50 million per investment, according to Gregor.
"Advisors are asking for the ability to manage a broader array of their solutions," Gregor says. Offering a platform that is "more instructional than retail" differentiates Cantor in the cutthroat battle to win over breakaway brokers, and independent advisors considering partnering with roll-up firms or platform providers, Gregor argues.
"We have capabilities that none of those firms (have)," he claims.
As for Wall Street competitors that have a similar broad range of services, Gregor's pitch is that the "unlimited autonomy" Cantor cedes to its wealth division gives it a boutique feel within a corporate structure, "like a private Merrill Lynch."
Some industry observers say a more apt comparison is to Evercore Wealth Management, the now five-year old wealth management division of Evercore Partners, a prominent investment banking firm like Cantor Fitzgerald.
"The idea of bringing on teams and buying books of business can be a dangerous strategy from a profitability, cultural, consistency and client experience perspective," says one veteran wealth management executive who asked not to be quoted. "Evercore at least was able to bring in multiple teams from one firm, U.S. Trust. Cantor may grow significantly in the short term, but will they be a leader and be sustainable for the long term?"
McLaughlin thinks wealth management may ultimately be more of a role player on Cantor's large stage than a star.
"Cantor will learn that wealth management will provide a diversifying and stabilizing revenue stream," he predicts, "but with much lower IRRs [internal rates of return] than their other businesses."
Additional reporting by Maddy Perkins