The News
News hit this week that upstart financial advisory firm and independent broker-dealer, HighTower, landed star broker, Richard Saperstein as a partner.
According to an article by InvestmentNews, Saperstein manages a book worth about $10 billion in assets.
Nabbing Mr. Saperstein is a financial coup for HighTower.
If he charges clients in his bond and cash portfolio a fee of 0.35% to 0.4%, standard for the industry, that means he alone could generate about $35 million to $40 million in revenue for HighTower, an astonishing sum for a firm to land in one fell swoop.
Clearly, this was a huge coup for the young firm started by well-weathered Wall Street veterans Philip Purcell and David Pottruck.
Franchise players as double-edged swords
As in sports, franchise players have the ability to make or break a squad. If I had to choose a few characteristics that go into landing and signing a player of Saperstein’s caliber, I’ll turn again to the sports analogy.
- franchise players sign multi-year, lucrative contracts: We don’t know all the details of Saperstein’s package, but we have to assume it was really tasty. HighTower was said to have set aside about 25% of equity to help lure players of Saperstein’s caliber. I’d expect a big chunck of this equity to be allocated on this deal.
- veto-power on trades: Many franchise football players have no-trade clauses worked into their contracts, allowing them to veto any horse trading concerning them. As an equity partner and the driver of immediate revenues, Saperstein liked the product so much, he just became part-owner.
- Top recruits are double-edged swords: HighTower has made no bones about its strategy to attract and recruit top talent from around the industry. From the website:
HighTower offers elite advisors with high net-worth practices at traditional firms a unique chance to realize the full value of their achievements. We offer both an attractive initial compensation package and a long-term equity stake.
At HighTower, you have the opportunity to be compensated for the value of your business multiple times. First, at the inception of your relationship, and then again over time through your ownership interest in HighTower.
As in sports, top players attract other players looking to be part of a winning, or at least, exciting team. The problem with franchise players is that they have essentially assured themselves of playing time. This has a perverse effect of scaring off others who believe they are of the same caliber or may be competing for the same position. Other top brokers may decide against joining HighTower because of such a high-profile hire.
- media recognition as face of the franchise: Many professional athletes actually become the team they play for, at least in the public arena. With wide recognition as one of the tops in his trade, Saperstein brings immediate credibility to the fledgling firm.
Broad Implications
The exodus out of traditional wirehouse brokerages to independent firms is continuing. Barriers to entry are falling and independents are rising to the challenge to create firms with equivalent resources to service both high profile brokers and their clients. Assuming that independent RIAs have institutional-grade platforms and services to compete against the Big Boys, why wouldn’t more elite brokers choose more lucrative packages to monetize their books?
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