Lockshin's new advisor venture offers high payout but questions remain

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Here's a tempting pitch to advisors: a 70/30 payout and 100% ownership of clients.

That's the premise of a brand new platform, backed by a growth-minded RIA and one of the advisory business' biggest names.

The latest offering in a fiercely competitive marketplace comes from AdvicePeriod, a two-year old advisory firm specializing in high- and ultra-high-net worth clients co-founded by Steve Lockshin that has been quietly expanding for the past several months, adding partners and opening new offices around the country.

AdvicePeriod has just added its tenth partner, luring Todd Butler from Wescap Group, a Glendale, California RIA; last month Silicon Valley-based Katharine Simmonds, formerly with Stanford Investment Group, opted to join AdvicePeriod instead of going over to Aspiriant, which is set to close its purchase of Stanford Investment.

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The Los Angeles-based firm hopes to add one to two advisors a month, says Larry Miles, an AdvicePeriod principal and co-founder, along with Lockshin and Jonathan Straub. "We believe we can be one of the largest independent RIAs with this model," Miles says.

Advisors who want in must become W-2 employees; they earn 70% of the revenue they generate to run their business and pay themselves and staff. The remaining 30% goes to AdvicePeriod, which provides the new partner with operational resources, technology and compliance, administrative and back office support.

Partners work under a unified AdvicePeriod brand with marketing support but own their own book. "There is no non-solicit agreement," Miles says. "Partners own 100% of the value they create. If they want to leave, they can take clients with them, no questions asked."

When pitching to clients, financial planning and lifestyle goals are emphasized, not investment performance. Over 90% of the firm's fees are generated by a flat annual fee based on the complexity of the clients' needs, and not the standard percentage of assets under management, according to Lockshin.

"Commoditization of the investment side of the business is not ubiquitous — yet," says Lockshin. "But there is going to be a sea change in how consumers value their relationship with advisors. We think this approach helps advisors to cross the chasm from what they've been selling in the past to the kind of offering they need to present to clients now."

Matt Sonnen, a consultant who works with advisors looking to transition to an independent RIA, says he's impressed with what he's seen— with a caveat.

"Leading with financial planning and personal goals jumped out at me," says Sonnen, CEO of PFI Advisers and a former Focus Financial and Luminous Capital executive who specialized in setting up newly independent RIAs. "And saying that they 'believe in charging commodity prices for commodity services' really nails it in the age of the robo advisor. I was also impressed with their clear value proposition and transparent compensation structure.

"The big unknown is management's capacity for deals," he continues. "Will they be able to execute on their plan and can they integrate many advisors at one time?"

Jeff Spears, who offers advisors a la carte operational platform support via his San Francisco-based firm Sanctuary Wealth Services, gives AdvicePeriod better-than-even odds of success, albeit with some question marks.

"We've seen what people want — a tool kit to run the business and compliance and operations services — and AdvicePeriod has a credible hook," Spears says. "Their appeal to breakaways will be limited because those advisors aren't being compensated for their book of business. And, down the road, advisors who have joined them and have gotten their bearings may start questioning the cost of what they're paying for and the revenue they're giving up."

When asked to examine the AdvicePeriod offering, other industry executives characterized it as an independent broker-dealer model for fiduciary advisors instead of registered reps.

"It's the same basic support structure with a very high payout," says one senior executive who did not want to be identified.

Pushing back on the IBD comparison, Miles, who has worked at BNY Mellon Wealth Management and Convergent Wealth Advisers, replies: "AdvicePeriod is a firm built for advisors, by advisors. Many IBDs and other platforms were started to resell financial products to advisors. That's a vendor relationship. There's nothing wrong with it, but we partner with our advisors and run the business together. And we do not lock up our partners and make it hard for them to leave."

AdvicePeriod isn't shy about touting one of its biggest assets: Steve Lockshin.

Even the competition acknowledges his star power: "Lockshin is the linchpin of that company," says Spears.

Lockshin co-founded Lydian Adviser Services in 1996, which became Fortigent, the investment management platform for HNW advisors that was sold to LPL Financial in 2012. A few years earlier, he founded Convergent Wealth Advisers and was CEO for 17 years and chairman for nearly three before the firm was sold to City National Bank in 2007. During that time, he was ranked Barron's top independent advisor nationally in 2011, placing second the following year.

Lockshin was quick to embrace the digital revolution. He was an early investor in Betterment, a co-founder of Betterment Institutional (now Betterment for Advisors) and an investor in financial planning software firm Advizr and digital aggregation firm Quovo since 2015.

To be sure, Lockshin doesn't hit a home run every time. He co-founded Advizent, an ill-fated consortium of advisors that was meant to influence — and profit from — marketing to consumers about wealth management and he was non-executive chairman of Convergent when it was tarnished by a scandal involving a questionable private fund set up by CEO Dave Zeir, who committed suicide in 2014.

But there's no question Lockshin is a draw.

The company makes it clear he is available to help partners close deals with high-end prospects, a benefit that appealed to Butler. "Steve's name brought me in the door," he says. "Everyone, including me, took notice when he was named Barron's number one advisor. It's been a dream of mine to work with him."

Lockshin's appeal — and considerable sales skills — notwithstanding, AdvicePeriod faces plenty of competition from companies whose leaders have similar high profiles.

Few would underestimate the persuasive powers of Dynasty Financial Partners' Shirl Penney and Hightower Advisor's Elliot Weissbluth among platform providers or United Capital's Joe Duran and Focus Financial Partners' Rudy Adolf, among RIA aggregators.

Similarly, the top executives of aggressively acquisitive — and rapidly expanding — RIA firms such as Mariner Wealth Advisers (Marty Bicknell); Aspiriant (Rob Francais) and Savant (Brent Brodeski) are also boldface names in the advisory world.

Lockshin thinks Carson Institutional Alliance, run by Ron Carson, another brand name in the industry, may have the business model closest to AdvicePeriod's. But, he says, "[Our companies] have yet to run into each other," Lockshin says. "There's plenty of room for both of us out there."

Industry observers point out that the appeal of the different platform models are often geared to different stages of advisors' careers as well as how they want to do business.

Breakaway brokers who want to maximize the value of their book are prone to pick a provider like Dynasty, Hightower or Sanctuary, while older advisors who want to monetize the value of their business tend to sell to buyers like United or one of the RIAs with growing national footprints.

The sweet spot for AdvicePeriod, which is self-funded out of profits and by its principals, is probably advisors like Simmonds who have a sizable book of business and crave autonomy but don't want to hang out their own shingle.

After examining Aspiriant's equity-ownership model, Simmonds decided the firm's buy-in procedure, financial commitment and ownership structure wasn't for her, and instead chose AdvicePeriod's more straightforward payout deal.

"I wanted to focus on organic growth and own my clients, but get the help that I need," she says. "And the legal agreement was very clean."

Pershing Adviser Solutions CEO Mark Tibergien thinks the appeal of an AdvicePeriod-type platform model will be widespread.

“In my opinion there will be a number of firms in the RIA business who accomplish what many broker-dealers have done — build a brand around a client experience, a market positioning and a process that is compelling for both advisors interested in coming into the profession and clients who feel more comfortable working with a known company," Tibergien says.

"The retail businesses of Schwab, Fidelity and TD Ameritrade have a head start in building national brands to serve consumers," he adds, "but there is opportunity for innovators with enough savvy and enough capital to compete well.”

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