Bob Oros recently celebrated his five-year anniversary as chief executive of the rapidly growing RIA platform Hightower Advisors. He was in New York City this month to take part in an annual event featuring television personalities with investment expertise and chatted with WealthManagement.com about what he's accomplished at Hightower, where the industry is headed and whether there’s any truth to recent rumors about a sale.
“I’ve been a little internally focused,” he told WealthManagement.com. “We figured it would be a good time to remind people I’m still out there.”
Since taking over as CEO in 2019, he’s overseen the build-out of a comprehensive service platform, a shift in M&A strategy and more than $80 billion in asset growth. Today, Hightower includes 140 partner firms managing more than $130 billion in assets for close to 144,000 clients.
The following conversation has been edited for clarity and brevity.
WealthManagement.com: You’ve been with Hightower for five years now. What was it like when you started?
Bob Oros: It was interesting taking over for a founder because to start a company from a blank sheet of paper and convince the first advisor to join and really build something is a unique skill set. I’ve never done that, and I have a lot of respect for our founders.
They had built this nice, growing firm, but it was also at an inflection point where it had gotten to a certain size and needed to focus on a different set of things around operating the firm—around processes and building a scalable business.
We were probably at around $50 billion in assets when I joined. We’re now at $130.8 billion in AUM, so total client assets are higher than that. We’ve roughly almost tripled in size.
WM: Published reports say that Thomas H. Lee, Hightower’s private equity backer, is pursuing a sale. Any response to those rumors?
Oros: The short answer is we are always looking at our capital structure. It’s rare that we’re not involved in some discussion around capital, whether that’s debt, financing or equity.
But we’re not looking to sell. THL has no interest in exiting Hightower. They’ve been here since 2018 when they made their original investment. We’ve already recapitalized once with them and brought in some additional equity investors. Will we bring in future equity investors? Probably, but it’s not going to be in the form of a sale.
I think people took a kernel of truth and created a speculation that was largely inaccurate. That’s the danger. You have conversations, and things don’t always stay confidential. But I am sitting here telling you there’s nobody selling this firm.
WM: What kind of changes have you made over the last five years?
Oros: We’ve created more resources over the last five years that advisors can leverage on behalf of their business. When I joined, we had three people in marketing reporting to the head of operations. Now, we have a chief marketing officer and a marketing team with over 20 people who are helping advisors with their unique value proposition, helping them define their unique client niches and helping them design their website and run campaigns.
And we’ve built out a centralized estate and financial planning team because many advisors just aren’t experienced enough to do sophisticated estate planning, and we wanted to have real depth of expertise.
We just acquired a CPA firm last May. Do we want to be CPAs? No. Do we want to be involved in tax planning and tax prep? Yes, it adds value and stickiness to the client relationship.
We also chartered a national trust company.
We’ve done a lot of M&A, but our No. 1 strategy is helping our advisors drive organic growth. We’ve typically been at or above average industry growth rates. At our size, that’s a big number.
We’ve also done over 50 acquisitions in my five years, and we now own about 97% of the revenues, up from 23% in 2018. When we first came out, a lot of advisors were using us as a platform. We still have a little bit of platform business, but we’re not adding to it. We haven’t added any platform relationships during my time.
WM: What prompted the shift in strategy?
Oros: I think acquisitions were preferable to us for a number of reasons.
First, owning the business means there’s real value behind it that you can depend on, as opposed to somebody on a three-year contract who can get up and leave at the end of that contract. So, it creates a nice moat around the business.
We also like the fact we can assess an RIA we’re looking at buying, and we can look at how it’s been run. We can look at the leadership, we can look at the growth, and we can be selective. Our organic growth is also the result of that self-selection. We look at 400-500 opportunities a year, and we won’t buy an RIA that doesn’t grow. That’s one of the key factors we assess.
WM: Has it affected how you look at things like investment strategy and philosophy?
Oros: We’re a tale of two cities in some ways. Things that are centrally handled include HR, compliance, technology, finance and all those back-office things.
But there’s always a reason the businesses we acquire were successful, so we’re extremely sensitive about not changing anything about the client experience.
What we do is give them optionality. If they want to use our investment team, they can. If they don’t, they don’t have to. All we expect is they manage money in the best interest of the client and according to our compliance standards.
We have had good growth in advisors outsourcing investment to us. We hit $1 billion dollars on April 5, 2021, and today it’s at $4.7 billion.
WM: What kind of firms are you interested in buying?
Oros: We’re looking for great leaders who have run productive, growing businesses. Size and geography are secondary considerations.
Currently, our sweet spot tends to be $1 billion to $3 billion mainly because those businesses have matured to a point where they have real value and there’s added complexity they need to deal with. But we're not married to that.
I’m not exaggerating when I say we look at 400-500 deals a given year, but I honestly don’t care how many we get done. If the ones we do are quality firms with great leaders driving growth, I’m happy.
WM: How does Hightower look at internal succession?
Oros: We prefer it. One of the things we look for in doing a deal is whether they’ve already shared the equity with key people. We think it’s important because it creates a different culture and dynamic. That doesn’t mean we won’t deal with someone who owns it all, but that would cause us to have to look deeper.
We love seeing leadership teams who have identified next-generation talent and started to nurture them and give them more, and then we think we can help further. The way we facilitate internal succession doesn’t always create a need for the next generation to write a big check.
A lot of the next-gen leaders just don’t have the same risk appetite as founders. They don’t want to mortgage the house to buy into the business. In our deal structure, we can create the opportunity to participate in the profit stream without a huge buy-in, which is kind of unique. In other situations, we’ll facilitate a buy-in and leverage a third-party bank to finance it.
We also launched something almost four years ago called the Hightower Center for Leadership. It’s our way of helping develop the next generation of leaders because we’d rather these things transition internally and because going outside to get succession is more complex and less predictable. We have our third cohort going through it right now.
WM: You have a healthy menu of resources available to your advisors. Where do you see room for improvement?
Oros: Further out on the horizon, we’re interested in the OCIO space. We think there’s more we can offer our advisors around centralized investment operations, and we would likely need to acquire our way into that.
There are other things we’ve looked at that we will probably choose not to do. We’re not going to become a lender. But lending is important, so we will look to partners for that.
WM: Any predictions for 2024? Are we going to see the first mega merger?
Oros: I do think we are getting closer to seeing the first mega-merger.
What we know is we have a very strong market right now. These businesses are heavily indexed to the S&P, so you can watch that and have a pretty good idea of the profitability of an RIA firm. It’s a time of high value in these businesses, which I think will bring more of them to market.
And I do believe there will be a trillion-dollar RIA. None of us are close to it today, but we’re close enough mathematically that if you start to see combinations, you could see it in the next five years.
I think platforms merging with platforms is inevitable, whether it’s a smaller platform merging with a bigger one or two bigger ones that do lots of complementary things coming together to create massive scale or something transformative.
Convergence continues to be a theme—people wanting to look more like each other. The IBDs need to solve for the RIA. If you think about the big IBDs, they have all the succession issues and need to create a model to solve for them. I think you’re going to see IBDs taking a much harder look at how to do that.
The RIA industry has really come of age. We have professional capital there; we have real institutions being created. Twenty years ago, it was a very cottage industry. If you saw a $300 million RIA, it was like, ‘That's large.’ And now we onboard clients with $300 million. Think about that: a single new client relationship. I'm not going to say every week, but we see those every year.