Pershing’s former CEO came back to wealth management last week with the announcement that he was joining family office Pathstone’s board as an independent member. Mark Tibergien had only been retired from the industry for just a summer when news broke of his new role.
The 68-year-old last spoke to WealthManagement.com just before the pandemic to announce his retirement from BNY Mellon Pershing Advisor Solutions, a custodian business that caters to RIAs. He told of his plans to transition away from his 9-to-5 and what he prophesized for the custodians.
Now, that he’s back to consulting in the finance space and looking to take on more roles, he has a lot to say about his criteria for board invitations, the state of registered investment advisors and his thoughts on advisors who took Payment Protection loans.
WealthManagement.com: How is retirement going? I hear that you moved from New York to Seattle?
Mark Tibergien: We have always had a home in both places for at least the last 13 years. So, we just kept our place here when I took on the Pershing job and we decided to return in the middle of the pandemic because the weather is great, and the views are wonderful. So, life is good.
WM: I think people might have expected you to take more time off. Are you feeling a little restless?
MT: I'm enjoying the time that I have. You know, I'm really glad that we moved back to Seattle. My wife [Arlene] and I met here. We've always enjoyed the community. And in spite of what you read or hear on TV, this is not a city consumed by riots. It's actually quite a peaceful place, and housing prices continue to go up.
I joined a golf club. I have picked up the game again after a layoff of many years. My stepmother is 91 years old, plays golf four days a week. So, I aspired to achieve the same status, hopefully at the same age.
On the other side, because of the pandemic, we're not allowed to really socialize closely like we used to; there isn't an opportunity sit inside restaurants. It’s a combination of just sorting through things. But I don't really intend to be spending full-time in corporate life, at all. My quest is to find balance since this retirement gig is a whole new experience.
WM: The last time you talked to us. You said you were interested in joining a few boards. Pathstone announced last week that you are one of its independent board members. What about that RIA made you choose it?
MT: I was frankly surprised by the number of enquiries received when I retired from Pershing about advisory roles or board rules. And so, I started vetting them a little bit earlier than I had intended.
It was difficult because there's some extraordinary firms in the market. I think what ultimately led me to pick Pathstone first among several that I might ultimately do is that I've known them for a long time. They've been a client of Pershing for a long time and I was there when they started the business. I like the rapid growth they've had in the 10 years they have been around. I know the leadership well and I appreciate their values and their culture.
I think that their general philosophy about what they want to create as a business is just compelling to me. So, when you check all the boxes, they had all of the elements that I was looking for in a board role. And that's what kind of got me there.
WM: Can you be a little bit more detailed about the boxes that it checked?
MT: The first filters I had to use were my own personal ones. I created a matrix that basically asked the questions; first, what's the vision and mission; second, who are their people in leadership; third, what are the economics of the relationship; and four, what's their reputation as a business and as an organization. All of those are important to me as I think of this stage of my career.
The people in leadership part was relatively easy in this case because I have a history with the individuals. They're just people of integrity. They've been working hard to create diversity among the next generation of leaders. They have a philosophy about succession that has been a passion of mine for a long time. And I think that their focus on treating people with respect, is pretty compelling. It's not always easy to find in the business of financial services.
I’ve often worked off of the saying, the greatest indignity one person can commit against another is to underestimate them. They tend not to underestimate people, but rather embrace them and all their capabilities.
Then the economics are really just a personal one. I don't want to go into details of it, but is it going to be worth my time to do something like this and are their own economics impressive enough to know that they are a sustaining business that makes a difference. I have this fundamental belief that you can't be extrapolated in the past. You have to be thinking about what does the future look like. Do you have an enduring business model or are you working towards creating it? That will inform the economics for the long-term.
The reputation issue is easy enough to validate. Do you have low client turnover? Do they have regulatory problems? Do they have fines and behavior that causes scrutiny? In the case of Pathstone, the answer is, honestly, no. So that made it easier to deal with that, too.
WM: What other firms or organizations are you considering?
MT: In this conversation, I'm not going to name any other firms. It wouldn't be appropriate. But I would say that the areas that I'm considering would be a financial technology business. I'd be open to a service provider to the industry. I'd be interested in a fund, a fund board or an asset management board.
I should emphasize that financial services is not my only interest. Before I got into this industry, I dealt with many different types of industries from funeral homes to auto dealerships to Hallmark card-type companies. I think that I have something to add in terms of value from a strategy structure, people process approach. So, I'm not wedded to the idea that it has to be financial services. It just happens to be where I'm receiving a lot of enquiries.
WM: Have you been doing anything else in the industry?
MT: I'm still active with the CFP Board Center for Financial Planning. The mission of that organization is to promote diversity and inclusion within the profession and to attract more people into the business. And so, we're in the process of a second white paper this time geared towards people considering either a career change or a focus when they graduate from university. I'm a part of that.
I have been serving on the SEC asset management committee. Though, I probably will transition off of that sooner rather than later because I think that it might be better to have somebody who is still active with the custodian be part of it.
Beyond that, it's just been me time. It's been time with my wife, Arlene.
There's so many lessons I'm learning about retirement and recommitting to relationships. Advisors have often talked that these moments of transition are not as financial as they are emotional. I think there's a lot of truth in that.
I've also been working on an outline for my fifth book. I don't know if that will ever come to realization, but I've often thought of drawing on some of the experiences I've had in this business. I sponsor my former school’s financial literacy program and one of the experiences that I've gotten from that is how individuals make such bad choices. I recognized that the income can be a factor, but so can the decisions that people make. I'm really tempted to write something about that.
WM: What do you think about the current environment for RIAs?
MT: All of wealth management is going through a transformation.
Every decade, it goes through a transformation, so this is not a unique episode. But I see four catalysts that are changing it.
The RIA segment of wealth management is only emerging from its first generation of existence. Even though the Securities Act of the 1940s really spawned what we know as RIAs, the retail-oriented RIA is only about 30 to 35 years old, so it's really a generation. What we're seeing now is the departure of the first generation through retirement or death, or other circumstances. And as a result, many of these founder-led firms are transitioning either to the next generation or they're being sold out to consolidators. I think that one of the things that we're seeing as a result of that is advising firms are becoming bigger.
There will always be a lot of small practices, but I think what we're going to see is many more large practices come into play. And the question is, who's going to emerge as the branded leaders within that business.
Second, there is a tendency to underestimate the movement of broker-dealers into the RIA business model. I don't think, overall, they're doing a good job yet, but I think that they will eventually catch on. One of the things that has to happen is they have to understand the nuance of the business. I think up until now, the tendency for the brokerage side is to think of RIAs only by the way they charge. In fact, they use the term fee-based. When in reality, there's so much more involved in being an RIA.
The third thing is the profession is still experiencing an acute talent shortage and the talent doesn't reflect the face of our country, of our communities. If there's any looming crisis, it's in the area of dealing with who's going to be working with these firms going forward.
Technology is always going to be a factor. I think that there will be a change towards more a digital client experience.
I think that we'll ultimately see five to 10 truly branded RIA firms on a regional or national scale that have some residence just like Merrill Lynch or JP Morgan or Goldman Sachs have today. Nobody’s quite close to that yet, but I kind of envision that happening.
WM: Are there certain RIAs you have in mind that might reach that scale?
MT: I think that it's a question of books, scale and strategy. Nobody is close yet. There are several firms that are contemplating it and thinking about how they can achieve that.
Look at the total assets of one of those firms mentioned. They're in the hundreds of billions of assets under management, as an example. The biggest RIA with the brand of identity might be Fisher [Investments], and they are roughly $100 billion.
So, there's a lot of work to do to get up to meaningful size.
The opportunity is there to have a fiduciary model represented in the marketplace as an alternative to the brokerage model.
WM: Do you also think that RIA revenue is suffering in this environment?
MT: Probably not. Because the vast majority of firms have their fees tied to the value of the assets. And for some strange reason, the market keeps going up or at least not going down much. I think that people have seen a material decline in portfolio values, and therefore, the economic engine has not been under a lot of strain. The way in which people charge and the way clients value their advisers could be under pressure going forward.
When you look at the food chain of the advice business, the funds, the products that people use have seen a huge price compression, whether it's the use of index funds or ETF or lower class mutual funds. Over the last decade, there’s been a massive drop in the cost of funds. Custodians, where they hold the assets, have seem a material decline in their revenues as they've had to lower prices in order to compete.
The only population left in the food chain that hasn’t experienced price compression is the advisor himself. Advisors are confronted with the challenge of either offering more value or reducing the fees. That's a very real possibility over the next decade.
Again, I tend to look at this in terms of the decades of change. I've been around this business since the early 1970s and each decade has seen the material transition.
WM: Do you think RIAs should have taken Paycheck Protection Program loans?
MT: Well, there's a fair bit of public shaming on the PPP loans.
When this first came out, I told a number of advisers that I thought it was a big mistake for them to take PPP loans because I felt that they would suffer from a reputational taint. And sure enough, that's what happened. Even though the taint may have come from other members of the profession, the reality is that if you're a financial adviser that has a consistent, predictable source of income and you take a PPP loan when other businesses in your community, like restaurants and small manufacturing companies really needed it, you crowded them out. That was not going to reflect well on you. That's the first point.
The second point is the nature of it is really just a short-term line of credit. It wasn't permanent capital. What it has sort of reflected was that a number of advisors really don't understand the concept of business finances as well they understand the concept of personal finance
There’s a theory in business financing that you match funding to the useful life of an asset. I saw this is as a mismatch in terms of its financing.
The third part is almost every RIA operates as a pass-through entity for tax purposes. Most owners of these firms took all profits and distributed to themselves. They didn't have equity in their business that they would draw from for future funding.
The first step should have been, digging into their own wealth that they distributed to themselves in order to fund the business. And I guess I found that a little bit of a disappointment that so many firms who talk about free markets and capitalism didn't go that direction. Rather, they sought a short-term emergency need from the government. I don’t mean to shame them, but I think that there's some thoughts about this. I know a lot of people that took the loan then gave the money back when they realized that if they have to reveal this on their ADV, they'd be embarrassed.
You know the TV show 60 Minutes? The anchor would be shoving a camera and a microphone in your face and asking you some difficult questions. I kind of felt like this is the 60 Minutes moment. When you have to reveal in your ADV that you took money, will you be able to defend it with a straight face? Or will you try to rationalize the decision because you feel uncomfortable with it? If you feel uncomfortable with it, you might just pause and say “maybe I shouldn't have done that.”
