© 2019 SourceMedia. All rights reserved.

The after-hours admission that sparked an industry juggernaut

Sometime this fall, one of the most memorable chief executive tenures in the history of the independent advisor business will come to an end.

Marked by great success, as well as some bruising stumbles, the 11-year reign of HighTower Advisors CEO Elliot Weissbluth serves as a roadmap for the evolution of the modern RIA industry.

HighTower's majority owners, the private equity firm Thomas H. Lee Partners, is currently searching for a new leader. When a new chief executive is named, Weissbluth will become the firm's chairman — his first new job in over a decade.

During that time, Weissbluth relentlessly promoted his vision of a wirehouse-like partnership business model for disgruntled high-performing brokers who were unhappy with the rules and restrictions of their big wirehouse employers. Some have described his model as “wirehouse light.”

Weissbluth_Elliot_HighTower_Feb2017

"Elliot was the first to truly gain traction with breakaway brokers," says Chip Roame, managing partner, Tiburon Strategic Advisors. "He defined a business model and executed upon it. He proved the business model of HighTower as most successful landing spot for breakaway brokers nearly 100 times."

Weissbluth began his career as an attorney in Chicago in 1994. He was introduced to a financial services executive several years later and found himself intrigued by the business. So much so, in fact, that he switched careers, becoming a managing director for the investment consulting firm RogersCasey in 2000.

"Why don't you leave?" Weissbluth asked the wirehouse broker.

Three years later, as president of asset management product provider US Fiduciary, Weissbluth increasingly came into contact with wirehouse brokers. One particular conversation changed his life.

After hours, a very successful broker told Weissbluth how much he disliked working for his massive New York-based broker.

"Why don't you leave?" Weissbluth asked.

He'd love to, the broker answered, but going out on his own as an independent would be a huge pain in the neck; he just didn't have the time, capital or resources to learn the ropes of the RIA business and set up his own shop.

Weissbluth had his epiphany: There was an untapped pool of brokers who needed a partner to make the leap to independence. The concept for HighTower Advisors was born.

Weissbluth and co-founders Larry Koehler and Drew Kornreich formulated the business model for the partnership-based RIA in 2007, but getting funding for the enterprise was the hard part.

Weissbluth went to work. He sold the idea to financial service luminaries like David Pottruck (former Charles Schwab CEO) and Doug Brown (former vice chair of investment banking at Morgan Stanley), who signed as investors.

With that financial backing — and, just as important, credibility — HighTower was able to launch in 2008. Funding flowed in from more big name investors, asset managers and banks willing to provide credit.

Weissbluth crisscrossed the country, persuading wirehouse brokers to leave the mothership and split a percentage of their revenues with HighTower in return for its centralized back office and compliance services. He was an indefatigable pitchman, and talking about the virtues of HighTower and the fiduciary model (before it was fashionable) to anybody in the media who would listen.

A number of high-profile partners split.

To be sure, there were missteps along the way.

Turnover among top executives was not unusual and one defection resulted in a bitter lawsuit with a leading competitor. A number of high-profile partners split, leaving not insubstantial amounts of money on the table because they were convinced they were better off on their own.

Although personable and persuasive, Weissbluth wasn't considered a green-eyeshade type of CEO, and raising capital in an increasingly competitive environment was a chronic issue.

One of those competitors, Dynasty Financial Partners, led by another energetic industry trailblazer, Shirl Penney, was also targeting breakaway wirehouse brokers. Unlike HighTower, Dynasty's pitch centered on total independence, offering the brokers not only a tempting outsourced services platform, but the ability to hang out their own shingle.

Indeed, going into business with HighTower was proving to be less attractive to breakaway brokers, and the partnership business model began to stall out in 2013. HighTower pivoted to its own outsourced platform business and began to buy RIAs outright.

But Weissbluth ran into formidable competition and forceful personalities in this arena as well. United Capital and Focus Financial Partners, led by respectively by Joe Duran and Rudy Adolf — who gave no quarter to Weissbluth in the salesmanship department — were well-established aggregators with much more experience in the arduous M&A game than HighTower.

What's more, private equity firms armed with capital reserves were coming into the business as buyers, pushing up prices and valuations.

HighTower needed new capital of its own more than ever to keep shareholders happy and to keep pace with the deep pockets of its competition.

Ten years after attracting Wall Street money to launch HighTower, Weissbluth now courted private equity checkbooks to stay in the game. And while his detractors whispered that the company was on shaky ground, Weissbluth came through again, striking a deal with Lee Partners in 2017 to buy a majority stake for $350 million.

The business model was changing, but Weissbluth's ability to "lift wirehouse teams out of their captive environments to pursue an independent, fiduciary model," remains his enduring legacy, says Mark Tibergien, chief executive officer of Pershing Advisor Solutions.

"That was a real catalyst for the breakaway movement we've seen this past decade," Tibergien points out. "Prior to that, many in the wirehouse world didn't really regard the RIA model as a place for high-end teams."

But the RIA business was evolving, and private equity firms have never been shy about exerting control. After putting in another $100 million to recapitalize HighTower, Lee Partners stepped off the sidelines in 2018. Pottruck was out as chairman by April, and Gurinder Ahluwalia, the new owners' man, was in. The next step was a revamp of the executive suite.

Whoever takes the reigns from Weissbluth will find HighTower "well positioned to capitalize on the consolidation trend," says M&A consultant David DeVoe.

It's not surprising that Lee Partners would have "a different perspective about the future" says United Capital's Joe Duran.

"RIA sellers are seeking scale and the company's comprehensive platform is music to their ears," DeVoe says. "Advisors are seeking a partner that can help them grow faster, provide better client service, offer more services and capabilities and the infrastructure that HighTower built for breakaways serves this market well."

Weissbluth says he plans to stick around — for a while anyway.

It's not unexpected that Lee Partners would have "a different perspective about the future" than HighTower's founder, says Joe Duran.

After all, he notes, "it's certainly a completely different environment now than a decade ago when we all got started. It's more competitive, the alternatives for sellers are better than they've ever been, and all of us need to keep evolving in order to stay relevant."

But he also expects to keep hearing from Weissbluth.

"I'm sure Elliot will continue to be a loud voice for advocating for clients and their advisors for decades to come," Duran says.

For reprint and licensing requests for this article, click here.