Cantor Fitzgerald's ambitious foray into wealth management is hitting some serious speed bumps.
Two of the top executives of the giant Wall Street trading firm's 2-year-old Wealth Partners division have left in the last two months: former president and co-CEO Stan Gregor, who resigned, and director of advisor services Loren Morris, who left to go to MarketCounsel as head of strategic development.
Executives at the firm have repeatedly said it planned to have 250 to 300 advisors over the next several years -- but after a fast start signing up broker and advisor teams in its first year, Cantor has only signed up one team since last July, bringing its total to seven.
Indeed, according to its latest Form ADV -- filed with the SEC in March -- Cantor Wealth Partners currently only has 20 employees performing "investment advisory functions."
Meanwhile, the division has $700 million in assets under management, according to the ADV form -- not an insignificant number, but not enough to put it in the ranks of elite wealth managers serving the ultrahigh- and high-net-worth market.
Shawn Matthews, CEO of the parent company and co-CEO and acting head of Wealth Partners, declined to be interviewed.
In a statement welcoming Credit Union Asset Strategy Group, the Lansing, Mich.-based wirehouse team that joined Cantor Wealth Partners in late April, Matthews said the firm "is firmly committed to expanding our presence in the wealth management market and expect to bring in additional teams to help accelerate our growth."
Industry observers identify several possible reasons for the division's failure to gain traction: a highly competitive market for the UHNW client, lack of a distinct value proposition, an undistinguished service platform, daunting recruiting challenges and, finally, difficulty establishing a clear-cut wealth management culture within a Wall Street behemoth best known for its trading prowess.
"It's a really formidable challenge for firms to get into the high-end wealth management market and leverage off their name without a solid strategy," says Brian Hughes, president of Philadelphia consulting firm Hughes Growth Strategies. "Lazard tried it a few years ago and it didn't work. You have to have patience, capital and commitment.
"You can't just hire salespeople to go out and sell," he adds. "It may work in the institutional space, but not in private wealth."
Cantor also had a tough sell when recruiting experienced wealth managers, says Kathy Freeman, founder of an eponymous executive search firm in San Luis Obispo, Calif.
"Most of those executives are already making good money," Freeman explains. "They're not actively looking to move. They're interested in a vision, they interested in growth. How does your offering separate you from the competition? What are the good indicators you can show them?"
As an example, Freeman points to Peter Raimondi, who built up Banyan Partners to a $9 billion independent wealth management firm in just six years before selling to Boston Private Bank & Trust last year for $60 million.
"That's a pretty good story," she says. "That is a vision of what a first-class wealth management offering can be and how it can grow, and it's very appealing to the kind of executive everybody is looking for."
Part of Cantor's recruiting pitch was based around firm equity -- which may also have been a tough sell to top advisors, admits Gregor, the division's former president.
Cantor has been offering brokers and advisors equity in the firm as well as a cash payout based either on "trailing 12" payouts for brokers, or on EBITDA for fee-based advisors.
Equity in a smaller firm may be attractive because executives have an opportunity to become a bigger player, but equity in a much larger firm may be a harder sell because of dilution, say industry recruiters and consultants.
There were internal challenges as well, as the wealth division had to struggle for attention as a small part of a large company. It's only natural, says Gregor, who split his time between Cantor's New York headquarters and his home in Charlotte, N.C., that Cantor chairman and CEO Howard Lutnick would focus on his biggest revenue sources -- "and Wealth Partners is not it."
Gregor also cites the "extremely challenging environment" that Cantor Wealth Partners faced, including factors such as coming out of the financial crisis, record low interest rates, a "hiring frenzy" for advisors and the rapidly expanding independent market.
NEXT MOVES FOR GREGOR, CANTOR
Nonetheless, Gregor says he feels "very good" about his two-year tenure at Cantor and describes his relationship with the firm as "extremely amicable."
Now the prominent 30-year financial services veteran, who was president of Wachovia Wealth Markets and had a long career at Citigroup, says he wants to "pursue a different direction -- I want to be where the puck is going as opposed to where the puck is now."
"We were extremely successful for a new business," he says. "Cantor is a well-recognized global brand; we brought on some great teams and had over $3 billion in assets under advisement in the first 18 months." Cantor's assets under advisement are not listed on its Form ADV, and the firm did not respond to requests to confirm the current amount.
"I feel good about what we built and where I'm going," he adds.
While he declines to specify what his next step will be, he does say that the future for wealth management means "truly putting the client first, and empowering advisors with the best tools, resources and support."
As advisors age, Gregor says, serving the wave of retiring baby boomers and the digital needs of younger clients will require a business model that in five to 10 years "will look very different than it does today. I pride myself on being a futuristic strategic thinker and I want to be part of the solution for where the industry is going."
And the future for Cantor Wealth Partners?"They need to keep building while growing," Gregor says. "The platform has to continue to evolve and get broader and they have to deliver on what's promised.
"It's very challenging to become a major contender entering this late in the game," he adds. "It's all about flawless execution. And that's not just a Cantor problem -- it's the same for any firm coming into the space."