HighTower Advisors gains traction in RIA market

The firm is most focused on RIAs that don't want to sell but will pay for its services

Jul 27, 2016 @ 12:01 am

By Christine Idzelis

HighTower Advisors added a record eight teams during the first half of the year, attracting $2.54 billion in assets by either buying advisory businesses or folding them into a platform where owners give up a portion of revenue for services in technology, investment research and compliance.

That growth extends the pace set last year, when HighTower added 14 teams and $5.1 billion in assets during all of 2015.

HighTower is most focused on registered investment advisers that will pay for middle office services on its so-called platform business without giving up any equity ownership, said CEO Elliot Weissbluth.

HighTower got started in 2008 by helping advisers break away from such big brokerage firms as Morgan Stanley and Bank of America Merrill Lynch. The Chicago-based firm, which now has offices in 23 states and more than $30 billion of client assets, is accelerating its business with RIAs to broaden its reach in wealth management.

HighTower's first acquisition of an RIA firm, RDM Financial Group in Westport, Conn., was announced in December. This year it completed the purchase of three more, bringing total client assets tied to RIA acquisitions to about $1.9 billion.

When HighTower buys a practice its advisers become employees. That's different from its platform business, where firms pay a portion of their revenue — typically in the range of 10% to 20% — for its services while maintaining their independence, according to Michael Parker, HighTower's chief development officer.

Mr. Parker expects HighTower will roughly double the number of firms joining its platform this year, from five in 2015. The forecast, he said, is partly based on its planned expansion into the RIA community as the firm now has the scale, culture and sophistication to appeal to it.

“They're well-positioned,” said Alois Pirker, a research director with the Aite Group. “They're in a sweet spot in that they're an RIA model and they have reached a critical mass to operate in a robust manner.”

About 95% of HighTower's revenue stems from a fee-based business in which advisers are legally bound as fiduciaries to act in their clients' best interests, according to Mr. Weissbluth. The wealth-management industry has been moving toward a fee-based model, which is typical of RIAs, and away from a commission-based one traditionally embraced by brokerage firms.

Independent RIAs were the fastest growing part of the wealth-management industry for a fourth straight year in 2015, increasing client assets 4.5% to $2.8 trillion, according to Aite Group. They more than doubled assets from the end of 2007 and they now oversee almost 15% of the industry's total.

While HighTower is looking to existing RIAs to help expand its platform business, two that have joined this year were established by advisers who made the leap from wirehouses. In March, Rand Group joined from Morgan Stanley, with $200 million of assets, in Newport Beach, Calif. and Maui, Hawaii. In April, Chris Ure and Al Martinez left UBS Group AG to set up HighTower Boca Raton, an independent advisory firm managing $125 million of assets, in Florida.

Many advisers who join HighTower's platform don't want the distractions of running a business, preferring to devote their time to clients. For example, they may prefer to lean on the firm for compliance demands such as changing accounting rules or steps that need to be taken to avoid litigation, according to Mr. Weissbluth.

“If you get it wrong it's very risky to your business,” he said. “An RIA can export that risk to us.”

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