HighTower Advisors

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HighTower Advisors Overview: HighTower Advisors is a new financial services firm targeting high net worth clients. Launched on December 10, 2008, HighTower is recruiting experienced financial advisors who would like to run their own firms, but who would prefer to have their infrastructure and support needs handled by a central organization. Part of their recruiting pitch to financial advisors is that they offer “the upside of independence without the headaches.”

One of the founding principles of HighTower is that it is client-focused, with “open architecture” (that is, no proprietary products that financial advisors are supposed to push) that aligns the interests of clients and financial advisors. HighTower seeks to drive down brokerage operations costs by having relationships with several established outside providers of custody and clearing services that compete for its financial advisors’ business.

In key respects, the business model of HighTower appears similar to that of Edward Jones. However, HighTower seeks financial advisors whose book of business exceeds $100 million in client assets.

HighTower is headquartered in Chicago, with other administrative offices in New York and San Francisco.

Size: The January 18, 2010 issue of Forbes magazine reports these key metrics for HighTower:

  • Client Assets = $16 billion
  • Offices = 8

Positives: HighTower is financed by major players in private equity, and its directors include a former CEO of Charles Schwab and a former senior executive at Morgan Stanley, both of whom are also investors in the firm.

Financial advisors at HighTower are promised an opportunity to earn much more than they would at other firms. An individual profit and loss statement is computed for each, including the net interest income earned by the firm on cash in client accounts, a potentially significant revenue source for which financial advisors in other firms are not compensated. Financial advisors pay their own expenses, and split their profits 50/50 with HighTower. Forbes reports that these profits are typically 70-80% of revenues, prior to the split. At other firms, financial advisor compensation normally is on a payout grid that yields them about 30-40% of a somewhat smaller revenue base which includes commissions but excludes net interest and many categories of account fees.

Additionally, financial advisors own a collective 25% stake in HighTower, with major influence upon the strategic direction of the firm. HighTower offers the highly speculative possibility that it may go public or be sold sometime in the future, making this stake potentially very lucrative.

Negatives: As a startup, HighTower is very much a work in progress, with numerous details to be filled in. An immediate issue is establishing credibility with potential financial advisors and clients alike.

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