Speaker 1: This is Master's in Business with Barry rid Holds on
Speaker 1: Bloomberg Radio.
Speaker 2: This week on the podcast, I have an extra special guest.
Speaker 2: Brian Hamburger has been one of the leading authorities in
Speaker 2: the world of registered investment advisories, broker dealers, sec regulatory compliance.
Speaker 2: He is the founder of Market Council, which is one
Speaker 2: of the leading firms in that space, as well as
Speaker 2: the Hamburger Law firm. I know Brian for a dozen years,
Speaker 2: maybe longer, but I've really gotten to know him over
Speaker 2: the past couple of years. Really, there are a few
Speaker 2: people in the industry with a better perch on what's
Speaker 2: going on, a better position to see the industry, which,
Speaker 2: depending on which survey you read, is anywhere between thirty
Speaker 2: eight trillion and ninety seven trillion dollars. He just knows
Speaker 2: everything about how to stand up an ria, what's happening
Speaker 2: in the world of mergers and acquisitions in the space
Speaker 2: where the capital is flowing, how people change their employment
Speaker 2: in the industry, and how various groups get carved out
Speaker 2: or stood up or established on both the broker dealer
Speaker 2: side and the registered investment advisory side. He is highly
Speaker 2: sought after as a council in this space, and I'm
Speaker 2: glad we had the opportunity to finally sit down and
Speaker 2: talk about the industry. It's a little inside baseball if
Speaker 2: you're an RIA, if you're an attorney working in the space,
Speaker 2: if you're a broker dealer, if you're anybody within the
Speaker 2: financial services industry, or if you're somebody just curious as
Speaker 2: to how all these things actually happen. I think you're
Speaker 2: going to find this to be an absolutely fascinating conversation
Speaker 2: with no further ADO Market Councils. Brian Hamburger, Thanks Barry,
Speaker 2: it's so great to be here. It's great to have
Speaker 2: you now. Full disclosure. Ridult's Wealth Management has been around
Speaker 2: a decade. A couple of years before we launched, we
Speaker 2: were exploring merging with somebody. We retained your firm. You
Speaker 2: guys did a nice job and that was I don't know,
Speaker 2: twelve years ago. I always feel more comp more disclosures
Speaker 2: better than less As an attorney, I assume you wouldn't
Speaker 2: disagree with that.
Speaker 1: Persusse I wouldn't aagree. We also co invested in an
Speaker 1: investment recently where we should that's right, So I don't
Speaker 1: know if that closed yet has that clised closed last week?
Speaker 2: So there you go. So now I have to disclose
Speaker 2: that also. So Brian is not a stranger to me,
Speaker 2: and we have some shared financial interests. But the reason
Speaker 2: I wanted to bring him in here is there are
Speaker 2: a few people in the industry who have a better
Speaker 2: perch by which to look at the world of registered
Speaker 2: investment advisors, broker dealers, all of the changes that are
Speaker 2: taking place in the space. And before we delve into that,
Speaker 2: let's jump into your background. You turned out to be
Speaker 2: the first dual economics financial management major at Quinnipiac. What
Speaker 2: what led to the interest in finance?
Speaker 1: Quite frankly, the interest in finance started when I was young.
Speaker 1: My father was was an investment advisor, and he he
Speaker 1: made his way to be an investment advisor from being
Speaker 1: a manager with a textile factory to selling insurance to
Speaker 1: find his way out of that business. Went from insurance
Speaker 1: to financial planning, financial planning to the independent broker dealer
Speaker 1: world independent broker dealer to hybrid IBD slash Ria.
Speaker 2: And so really you're saying he couldn't keep a job,
Speaker 2: constantly looking for a new game.
Speaker 1: He made his way. He made his way into this space,
Speaker 1: and I was, I was captivated. You know. Keep in
Speaker 1: mind also that when I when I was going through
Speaker 1: school in the you know, mid to late nineties, you know,
Speaker 1: Wall Street was was pretty pretty appealing, bang and it
Speaker 1: was on fire. Yeah, pretty sexy. And so so why
Speaker 1: law school?
Speaker 2: You go to university in Miami, why not go for
Speaker 2: a business degree?
Speaker 1: So I did. I mean, at first I got out
Speaker 1: of undergrad and a degree in finance, coming out of
Speaker 1: coming out of a small college at the time, Quinnipiac College.
Speaker 1: The gigs I was offered were essentially customer service jobs
Speaker 1: at mutual funds, you know call service, you know, manning
Speaker 1: the phones, which I was no stranger to, you know,
Speaker 1: work my way through high school and college on the phones,
Speaker 1: but was uninspired by that work. I didn't see the
Speaker 1: real path ahead. I saw myself, if anything, maybe maybe
Speaker 1: doing product wholesaling, getting involved in you know, in financial
Speaker 1: you know, product structuring. But I didn't really see a
Speaker 1: clear path. And my grandmother sat me down and she said,
Speaker 1: maximize the opportunity. She said, you're still in learning mode.
Speaker 1: You're never going to go back to school if you're
Speaker 1: gonna if you're gonna do it go to law school.
Speaker 1: And actually, I'm going to tell you she she did
Speaker 1: something a little interesting. She she was an investor, she
Speaker 1: loved stocks. She had her broker at Mary lynch Uh
Speaker 1: and and she put in front of me a stack
Speaker 1: of annual reports. Remember these big gloss things used to
Speaker 1: come out all.
Speaker 2: The time with a little bit of information buried in
Speaker 2: the back, but the front was was the narrative, story
Speaker 2: was compelling. Yeah, and how could you not put money
Speaker 2: into this common right?
Speaker 1: So she she she puts these annual reports, and she said,
Speaker 1: I want you to look at the management in the
Speaker 1: and the board of directors, and I want you to
Speaker 1: tell me what they have in common. So we're at
Speaker 1: We're at dinner that night, and she said, did you
Speaker 1: look through them? I said yeah. I said, I'm good
Speaker 1: with my auntser, I'm ready. She goes, what are they
Speaker 1: have in common? I said, they're all white bald men.
Speaker 2: And one day I'll be a white bald man.
Speaker 1: And she said, that's not that's not what I wanted
Speaker 1: you to get out of it. But was tough.
Speaker 2: She she wasn't falling around.
Speaker 1: With I thought she wasn't falling around.
Speaker 2: She was looking for the answer they all went to
Speaker 2: law school.
Speaker 1: They all went to law school, and they and they
Speaker 1: didn't necessarily pursue a career purely in law, but her
Speaker 1: her understanding of it is they must know the rules
Speaker 1: of the game better than others. And so that really
Speaker 1: that really stuck with me. And they know the rules of.
Speaker 2: The road better than others. That's really insightful. What did
Speaker 2: grandma do that she had such market savvy back in
Speaker 2: the nineties.
Speaker 1: So my grandma Nan and Sophie, she lost She lost
Speaker 1: her husband at a young age before I was born,
Speaker 1: and her husband ran an autobody shop. They were first
Speaker 1: generation immigrants, and when faced with the typical widow dilemma,
Speaker 1: she stepped in and said, I'm not going to sell.
Speaker 1: I'm going to run this business. And so to this
Speaker 1: day I continue to meet some old school mechanics who
Speaker 1: knew my grandmother when and they said, man, she was
Speaker 1: a tough son of a.
Speaker 2: Really yeah, and I've been having a hard time chasing
Speaker 2: down an old nine to eleven turbo the charger. Can
Speaker 2: she can Grandma hook me up?
Speaker 1: So she's unfortunately passed away for many years now. But
Speaker 1: you know, I had some really, some really good strong
Speaker 1: women in my life. My other grandmother was another first
Speaker 1: generation immigrant from Germany, and she she took to selling
Speaker 1: beauty supplies on the side, and before you knew it,
Speaker 1: she was the number one salesperson for the uh you know,
Speaker 1: uh selling to professional salons in the whole country. So
Speaker 1: I learned a lot from from young ladies.
Speaker 2: That's quite quite interesting. So one of your grandmothers steers
Speaker 2: you towards law, when did you kind of realize, Hey,
Speaker 2: I can make law and finance work well together, and
Speaker 2: one plus one is three.
Speaker 1: Yeah. So I don't think there was that necessarily eureka moment,
Speaker 1: but I was definitely informed by my father's study groups.
Speaker 1: You know, I knew his network of friends and colleagues,
Speaker 1: and I would constantly hear them frustrated by the compliance department, right, right,
Speaker 1: they were just playing compliance for everything they couldn't do.
Speaker 2: The Bureau of Business Prevention is how the retail brokers
Speaker 2: used to describe compliance.
Speaker 1: I think many still do, right. They know that the
Speaker 1: answers know, but they don't know why, right, And they
Speaker 1: don't really don't care to know why. And it just
Speaker 1: struck me that it can't be all that complicated. And
Speaker 1: so when I would look into why certain of their
Speaker 1: marketing materials would get declined or certain of their business
Speaker 1: requests or authorizations would get declined, and I would share
Speaker 1: it with them. We would sit down and figure out
Speaker 1: a way around it, right, a way to deal with
Speaker 1: those issues, and they were really grateful. And I love
Speaker 1: solving things that other people think are unsolvable.
Speaker 2: I love the puzzle.
Speaker 1: Well more than the puzzle. I love coming up with
Speaker 1: a solution when they can't even formulate the question. Huh right,
Speaker 1: So it's like it's almost like pulling it out of
Speaker 1: them and asking what the problem is. And I've always
Speaker 1: been drawn to that, and so to me, you know,
Speaker 1: that really helped. And then early in my early in
Speaker 1: law school at a professor and adjunct professor. I think
Speaker 1: some of the best professors in college are adjunct professors.
Speaker 2: They're working actual career in the industry and teaching part time.
Speaker 1: Absolutely, And I was fortunate that this professor, Chuck Senator,
Speaker 1: was during the day the head of enforcement the in
Speaker 1: Miami's SEC Enforcement Division, and so I started to see,
Speaker 1: you know, what he's done with his with his law
Speaker 1: school education. Chuck went on to be general counsel for
Speaker 1: small firm like Fidelity Investments and Aim and I. Him
Speaker 1: and I are still in touch to this day. But
Speaker 1: it's people like that who who take the education and
Speaker 1: really make it their own that that really really inspired me.
Speaker 2: So let me throw a compliance question at you, because
Speaker 2: you're making my.
Speaker 1: You want free advice?
Speaker 2: No, no, no, I want to talk about the industry.
Speaker 2: So I always assumed the reason compliance departments always said
Speaker 2: no was simple game theory. There's zero upside for them
Speaker 2: saying yes. The best that can happen is nothing goes
Speaker 2: terribly wrong. The worst that can go happen is there's
Speaker 2: a big problem, and why did you approve this? So internally,
Speaker 2: there's no incentive for them to do business until they
Speaker 2: stop so much business that some senior person has to
Speaker 2: come in and say, hey, you got to loosen the
Speaker 2: reins a little bit. You're killing us.
Speaker 1: You are very correct, and I'm not going to tell
Speaker 1: you that that often. But the root of that is
Speaker 1: this big misnomer. It's this it's this word compliance that
Speaker 1: major firms have used because it's a good catch all. Right.
Speaker 1: Compliance at big firms is similar to saying wait till
Speaker 1: your mother gets home, right, Because they know that people
Speaker 1: are fearful of the regulators far more than their colleagues
Speaker 1: sitting at the cubicle right across the hall, and so
Speaker 1: they call things compliance when really probably about eighty percent
Speaker 1: of the issues are risk mitigation issues. And so as
Speaker 1: advisors look to leave these big enterprises and go independent,
Speaker 1: one of the biggest things that we need to train
Speaker 1: them on is the distinction between compliance, legal and.
Speaker 2: Risk, compliance, legal and risk. Those are three very very
Speaker 2: distinct issues that sometimes get lumped together as a lazy
Speaker 2: way to say no exactly really intriguing. So clearly you
Speaker 2: see the overlap between being an attorney understanding the intricacies
Speaker 2: of securities law. I'm going to use a dirty word now,
Speaker 2: how did you come across the synergy of combining a
Speaker 2: law firm with a consultancy that specialized in compliance and
Speaker 2: regulatory supervision?
Speaker 1: Has that become a dirty word?
Speaker 2: Now? Oh? In the M and A world, it's the
Speaker 2: worst word you can use, really, because it means we
Speaker 2: don't really know why we're slamming these two companies together
Speaker 2: other than the fees, the banking fees. So let's say
Speaker 2: there's synergies here, and we'll all go out for beer.
Speaker 2: I mean that's kind of how that word became a
Speaker 2: dirty word. It was a substitute for actually thinking about
Speaker 2: how do to disparare things? You know, how do you
Speaker 2: get to that one plus one equals three?
Speaker 1: So we'll just assume that that that's going to work
Speaker 1: out instead of doing the analysis. Got it?
Speaker 2: So yeah, I mean, I don't think that's that far
Speaker 2: from the truth.
Speaker 1: So what I realized is that people were intimidated by
Speaker 1: law firms. My first job out of law school was
Speaker 1: at a mid size law firm out of Prince in
Speaker 1: New Jersey, and I would have clients who wouldn't call
Speaker 1: when an issue arose.
Speaker 2: They're afraid of getting built.
Speaker 1: That was it, one hundred percent? That was it? Because
Speaker 1: I would ask them after the fact and they would say,
Speaker 1: you know, honestly, I didn't want to run the clock.
Speaker 1: I said, that would have cost fifty dollars. We would
Speaker 1: have been done with this.
Speaker 2: You know. I didn't want to tell you what you
Speaker 2: guys hit me for. Every time I met a phone call.
Speaker 2: I thought it was no, you guys were pretty fair.
Speaker 2: But that is a legitimate concern, especially for a small
Speaker 2: firm that has a modest budget.
Speaker 1: Absolutely, yeah, So in my mind, we had to do
Speaker 1: something democratize regulatory compliance without diminishing the quality of work.
Speaker 1: Because when I started Market Council and the Hamburger Law
Speaker 1: from back in two thousand, the only firms that were
Speaker 1: doing regulatory compliance work were registration services service bureaus. Right,
Speaker 1: it was a very much a next available operator. Former
Speaker 1: regulators were the best you would get. And a lot
Speaker 1: of the answers were, well, this is what we do right,
Speaker 1: this is our practice, this is what other firms do,
Speaker 1: And they couldn't go back to the source, They couldn't
Speaker 1: go back to the root, They couldn't rationalize why things
Speaker 1: were being done that way. And so I wanted to
Speaker 1: be able to bringing a higher degree of quality to
Speaker 1: regulatory compliance. At the same time, I didn't want to
Speaker 1: walk away from the things that we need to be
Speaker 1: lawyers to do right. And so there are certain things
Speaker 1: or drafting of contracts, negotiating deals, representing someone's interests right
Speaker 1: actually you know, working on their behalf, dealing with some
Speaker 1: complex issues where we're going beyond the law, beyond the
Speaker 1: rules and regulations. All of those have to be done
Speaker 1: by an attorney, and so I didn't want to skirt
Speaker 1: that or circumvent that, and so we set up two
Speaker 1: distinct firms.
Speaker 2: So how many companies, and I'm actually literally researching as
Speaker 2: we speak, how many companies do what Market Council does
Speaker 2: or some partial approximation.
Speaker 1: So I don't think there's anyone that has the breadth
Speaker 1: of services that we do. Other firms have launched in
Speaker 1: the past as affiliates or related companies to law firms,
Speaker 1: but they really they've either sold off the compliance business
Speaker 1: so they're no longer affiliated, or they really do they
Speaker 1: do completely different different work. It's really just a referral relationship,
Speaker 1: you know. With us, the law firm is basically a
Speaker 1: customer of Market Council for a lot of our startup work.
Speaker 2: So when you say startup, it's a new firm that's
Speaker 2: stepping out to launch a new company, and they need
Speaker 2: to go through the whole SEC registration process unless they're
Speaker 2: small enough, in which case it's whatever states they're operating in.
Speaker 2: They need to set up their policies and procedures. It's
Speaker 2: just all those initial painful, tedious, difficult things. I mean,
Speaker 2: we're only not even a decade out from launching hours
Speaker 2: and I remember it was a pretty painful set of
Speaker 2: circumstances to get up and run.
Speaker 1: Well, yes and no, right, I mean so, so Market
Speaker 1: Council Mark Council Consulting will work with firms on really
Speaker 1: understanding their scope of services, taking inventory over their conflicts
Speaker 1: of interest, drafting out fee schedules, investment strategy. A lot
Speaker 1: of it is disclosure based, right, so we'll work on
Speaker 1: on creating all the disclosures, obviously handling all of the registrations,
Speaker 1: the regulatory reporting that needs to be done, drafting and
Speaker 1: installing a drafting a compliance manual, and installing an initial
Speaker 1: compliance program. All of that work is handled by Market
Speaker 1: Council for most of the clients that come to us
Speaker 1: for startup work right in that program we call it
Speaker 1: the ra incubator, right, which is a really I think
Speaker 1: describes you know what it does. But for almost all
Speaker 1: the clients that come to us, they're not coming from
Speaker 1: a very pure place where they can just engage in
Speaker 1: that activity, right, you know.
Speaker 2: For meaning coming from a broker dealer or another RIA.
Speaker 2: And that raises a question as to some of the
Speaker 2: technical legal employment issues around their exits.
Speaker 1: So yeah, there's definitely issues with their employment and employment transition, right,
Speaker 1: what canon they can't do while they are currently gainfully
Speaker 1: employed elsewhere. Right, That captive employment restricts them often far
Speaker 1: more than they know. But they can engage in an
Speaker 1: outside business activity, right, they can engage in selling away.
Speaker 1: The big one that they get hung up on is
Speaker 1: they can engage in a private securities transaction without getting
Speaker 1: the prior written consent of the firm. Now, you may say, Barry, well,
Speaker 1: how is this a private securities transactions?
Speaker 2: They're launching a new firm that's sec regulated.
Speaker 1: Doesn't even matter if it's sec regulated. The fact that
Speaker 1: they are, let's say, in preparation for launching this new firm,
Speaker 1: they are acquiring one hundred percent of the membership interests
Speaker 1: of an LLC or one hundred percent of the stock
Speaker 1: of corporation.
Speaker 2: Can't you disclose that at the last minute and.
Speaker 1: No prior written consent of the firm you're working? Oh,
Speaker 1: so you can.
Speaker 2: That's technical, isn't it.
Speaker 1: Well, and it's enforce right, and so you can decide
Speaker 1: that you want to sever your employment and then begin
Speaker 1: the startup work. But that's not tenable for the most.
Speaker 2: Six months, then, so how do you never? That seems
Speaker 2: kind of an absurd set of rules. That prevents people
Speaker 2: from leaving a firm if or, I guess you could
Speaker 2: always use a straw up man. You could use a
Speaker 2: third person to set this up and then hey, I
Speaker 2: didn't decide to do leave until the day I resigned,
Speaker 2: and my wife did all the work. It's on hard.
Speaker 2: Does that work?
Speaker 1: Unfortunately? No, But there are strategies that we do deploy
Speaker 1: in order to make that work. And it doesn't work
Speaker 1: for a whole variety of situations, depending upon how restrictive
Speaker 1: their current employment situation is. But when you say you know,
Speaker 1: that seems awfully restrictive, keep in mind these are rules
Speaker 1: written by a self regulatory organization comprised of broker dealers
Speaker 1: or looking to create a moat.
Speaker 2: So you launch both Hamburger Law Firm and Market Council
Speaker 2: in two thousand, that that's some timing. Everything's going to hell.
Speaker 2: The dot com implosion is happening, the Nasdaq falls. I
Speaker 2: think it was eighty one percent peak to troth. What
Speaker 2: was it like launching two firms into that mess?
Speaker 1: I was dumb and young, right, I mean.
Speaker 2: Well, that's the time to be dumb when you have
Speaker 2: you know, recovery period.
Speaker 1: Absolutely, you know I had and.
Speaker 2: Let's talk exactly how dumb you sold your house to
Speaker 2: fund this? Is that true?
Speaker 1: I did, I did, and I'm to this day, I'm
Speaker 1: grateful to my former wife for supporting that decision and
Speaker 1: actually coming up with the idea.
Speaker 2: It was her idea. You were both all in, let's
Speaker 2: let's sell the house and see what sticks against the wall.
Speaker 1: So I came up with this consulting concept, and I
Speaker 1: pitched it to the firm's partnership and I said, I said,
Speaker 1: I really think that we would be able to do
Speaker 1: a great job for our ria clients, for our wealth
Speaker 1: management clients by having this consulting firm. And they rejected
Speaker 1: the idea. And I would come home from work and
Speaker 1: crack open a beer, sit on the back porch, and
Speaker 1: I don't do that every every day, but I did
Speaker 1: it coming out of work there, and I would punch
Speaker 1: the pillow in the morning.
Speaker 2: I was just, why did they reject the idea? What
Speaker 2: was the explanation?
Speaker 1: Law firms don't do that now. Okay, two years later,
Speaker 1: twenty two years later, we see that law firms now
Speaker 1: do that. They just didn't do that in big numbers
Speaker 1: back then. And so so she said to me, she said, well,
Speaker 1: are you just going to keep doing this?
Speaker 2: And I said, well meaning punching the pillow.
Speaker 1: Yeah, meaning punching the pillow. And I said, it's probably
Speaker 1: my best option right now. And you know, we looked
Speaker 1: at our situation. She was pregnant with our first with
Speaker 1: our first child.
Speaker 2: And we were that's the time to quit your job
Speaker 2: and sell your house.
Speaker 1: That's the perfect So she said, well leave and I said,
Speaker 1: how are we gonna do that? We just bought this
Speaker 1: house and she said if not now, when?
Speaker 2: So not even like a second mortgage, sell the house
Speaker 2: and use that to fund the news.
Speaker 1: We had to sell the house. We had to do
Speaker 1: a for sale by owner because if we sold it
Speaker 1: using a broker, we would have been way underwater. So
Speaker 1: we literally printed up flyers, put them outside, put them
Speaker 1: all over town. We sold our house we have. When
Speaker 1: I went to launch this firm, my daughter was six
Speaker 1: months old and my wife was pregnant with our second.
Speaker 1: We had two large dogs. Well and behold, no one
Speaker 1: wanted to rent to us, so we ended up we
Speaker 1: ended up renting a log cabin on a vineyard in
Speaker 1: central New Jersey. I thought it was charming, My wife
Speaker 1: not so much.
Speaker 2: Wait they're a vineyard in New Jersey. That's the news
Speaker 2: New Jersey.
Speaker 1: Yeah, I can't read that many.
Speaker 2: I can't recall my last New Jersey bouchelet. When when
Speaker 2: is that harvest?
Speaker 1: It was it was a lovely place to live for
Speaker 1: a short period and yeah, we uh you know, we
Speaker 1: were all in. We literally sold the house to finance
Speaker 1: the bill.
Speaker 2: Wow, that's a crazy story.
Speaker 1: Yeah.
Speaker 2: Prior to twenty twenty two, when rates were cheap, when
Speaker 2: rates were zero, when capital was plentiful, it seemed like
Speaker 2: the entire industry went through this wild merger frenzy. I
Speaker 2: thought twenty twenty two would cool it off. I mean,
Speaker 2: it seems to have slowed a bit, but it's not
Speaker 2: like anybody through a bucket of ice water. What's going
Speaker 2: on in that space today?
Speaker 1: Listen. I think it has slowed, and I think interest
Speaker 1: rates are going to be probably the you know, the biggest,
Speaker 1: the biggest driver there because, as you know, right, the
Speaker 1: capitol becomes more expensive. But you know, what shocked me
Speaker 1: more more than the slowdown, the slowdown actually makes sense.
Speaker 1: What shocked me more than the slowdown was the intoxication
Speaker 1: of capital, right, and the fervor in which you know
Speaker 1: these these firms, private capital has been chasing investment advisors.
Speaker 2: So I have a theory as to why. I'm curious
Speaker 2: as to why you think that that fervor was there.
Speaker 1: You know, I think that I think that there is
Speaker 1: a strong investment thesis as to why to acquire these firms. Right,
Speaker 1: we joked around about synergies. Before they talk about synergies,
Speaker 1: they talk about economies of scale. There's this foregone belief
Speaker 1: where people just like to jump to the fact that
Speaker 1: that there is some type of scalable client experience out
Speaker 1: there that's really special. People don't necessarily describe how to
Speaker 1: get there, but they just say, with more resources, we
Speaker 1: can build a better client experience. Right. You could probably
Speaker 1: build better digital tools, you could probably build build a
Speaker 1: better communications strategy, probably insert some AI that you could
Speaker 1: do some sophisticated things. But I'm not quite sure it's
Speaker 1: just quantitatively or qualitatively better, right, because how do you
Speaker 1: how do you compete with the advisor who's got a
Speaker 1: couple hundred million dollars, who knows the names of all
Speaker 1: their clients and all their kids, knows all their needs,
Speaker 1: goals and objectives. Is sitting down at the kitchen table
Speaker 1: with them, you know, every quarter. I mean, this is
Speaker 1: the career that we started in, right, I mean this
Speaker 1: this was what it looked like. And and so I
Speaker 1: always ask, you know, better from what perspective? You know,
Speaker 1: is it going to be better from the client perspective
Speaker 1: or better in terms of just more profitable business? And
Speaker 1: I don't I don't quite know the answer to that.
Speaker 2: So let's take that apart. So, so there's really two
Speaker 2: issues there. The first is all the private money flowing in.
Speaker 2: I always looked at the private capital rushing into the
Speaker 2: RIA space, especially with so there are a couple of
Speaker 2: different types of firms. A small firm that you know,
Speaker 2: is a very nice little lifestyle practice. Then there's the
Speaker 2: medium firm that's been a decent chunk of capital but
Speaker 2: for forever. They've been around for twenty years. They're almost
Speaker 2: a billion dollars in ass of pioneers. Right, they're not growing,
Speaker 2: they're not losing clients, they're kind of holding steady. To
Speaker 2: private equity, which is a big source of the money
Speaker 2: that was flowing in here. Hey, this is a bond
Speaker 2: with a seven or an eight percent coupon, and theoretically
Speaker 2: a capital you know, an equity kicker if they're if
Speaker 2: they're acquired down the road. So we're getting two percent
Speaker 2: in the bond market, or at least they were before
Speaker 2: twenty twenty two. Let's get seven eight percent and maybe
Speaker 2: things work out and someone takes them out. That was
Speaker 2: the at least some of the interest when things were zero.
Speaker 1: It's better than that. Actually, oh really it's I think
Speaker 1: that private capital likens it to an equity indexed annuity
Speaker 1: right where there's no downside because they put in a pick,
Speaker 1: they put in a preferred income clause that gives them
Speaker 1: the ability to get paid first, So there's no market
Speaker 1: downturn risk, or I should say very low market downturn risk.
Speaker 1: When the when the minority investor or the you know,
Speaker 1: the capital partner paid first is getting paid first, there's
Speaker 1: a long way to go before before that investment is affected.
Speaker 1: So I think they look at it as having us
Speaker 1: insured upside potential with that ongoing annuity stream.
Speaker 2: Now, now you let's talk a little bit about the
Speaker 2: roll ups and the mergers and acquisitions that are going on.
Speaker 2: So for there's no doubt in my mind as having
Speaker 2: run affirm that was ninety million an assets, the one
Speaker 2: that is coming. We're three and eventually four when the
Speaker 2: last deal closes. Billion dollars is a lot of a
Speaker 2: lot of assets graduation. There are well a lot of
Speaker 2: work still to go, but there are clearly economies of
Speaker 2: scale and ik, You'll give full credit to my partners
Speaker 2: for seeing this before I did. And hey, we need
Speaker 2: to hire a CFO or promote someone and say, you know,
Speaker 2: you don't want Barry doing payroll and Josh doing the
Speaker 2: health care plan. But that's literally what was going on. Sure,
Speaker 2: so we promoted the CFO. Hey, we need a head
Speaker 2: of compliance, Like, really, we're not that big, you know what.
Speaker 2: Think of it as insurance. Okay. My best bet is
Speaker 2: my best trait is I let smarter people than me
Speaker 2: convince me of things that I'm hesitant about.
Speaker 1: It's a good call.
Speaker 2: Hey, hey, we need a head of HR because you know,
Speaker 2: we need to hire people. We're not hiring them fast enough.
Speaker 2: We need to make sure that nobody is saying or
Speaker 2: doing anything that doesn't comply with the rules. We're in
Speaker 2: twenty seven states. There's a different rule in every state.
Speaker 2: And I'm not even talking about the crazy this will
Speaker 2: get your canceled stuff. I mean just staying on the
Speaker 2: right side of regulator, and on and on and so, yes,
Speaker 2: there's no doubt scale helps, but it doesn't help you
Speaker 2: with the client experience. It doesn't help you with client acquisition,
Speaker 2: it doesn't help you with your investment performance. All those
Speaker 2: things have to be right before you start scaling up,
Speaker 2: or at least that's how I see the world.
Speaker 1: I see. I agree that scale helps, But what does
Speaker 1: scale help with? Scale helps with reducing the complexity that's
Speaker 1: largely come from growth, right, right, So it's it's a drug,
Speaker 1: right you. I mean, if you want to grow quickly,
Speaker 1: you need to capture that scale in order to combat
Speaker 1: the complexity that comes with that growth. But for the
Speaker 1: for the advisor with a few hundred million of assets
Speaker 1: under management, they don't need the scale. They're running a
Speaker 1: profitable business as it is, right, they're delivering outstanding service
Speaker 1: to you know, to their clients. If this is a
Speaker 1: lifestyle business, and I know that's kind of a dirty
Speaker 1: word because people want to say, oh, I'm not in
Speaker 1: a lifestyle business. Right, It's okay, Like you know, just
Speaker 1: where we always encourage people to do is start with
Speaker 1: their why. I know that sounds kind of corny, but.
Speaker 2: No, But it's a fair question, right, But why do
Speaker 2: you want to grow? If you're running a nice business,
Speaker 2: you're happy, your clients are happy.
Speaker 1: If you're happy, if your partner in life is happy
Speaker 1: with you, and you've got time to spend with the
Speaker 1: people you love, If your clients love what's going on,
Speaker 1: if your employees are well cared for and they love
Speaker 1: working there, you know is growth and imperative. And if
Speaker 1: you read the trades, you would think everyone has to grow. Right,
Speaker 1: You're gonna grow or you're gonna die.
Speaker 2: Right, And now there are literally roll up shops that
Speaker 2: have I've sat in the I never sit in the audience.
Speaker 2: I'm usually in the green room. But if I'm sitting
Speaker 2: in the audience and someone comes out and says, grow
Speaker 2: or die, we're a roll up. And if you're not
Speaker 2: going to be part of the roll up strategy, you're
Speaker 2: gonna get steamrolled. How much of that is just self
Speaker 2: interest talking.
Speaker 1: My opinion is all self interest? Right? If someone listen,
Speaker 1: you always start I always start at bottom of the article.
Speaker 1: I always look at the italicized print, right, just like
Speaker 1: you started with the disclosures at the top of the
Speaker 1: sh show right, start with the atala sized print. If
Speaker 1: I'm here from a roll up or an aggregator, and
Speaker 1: I tell you, now's the time for you to sell
Speaker 1: to me because prices are at all time record highs. Right,
Speaker 1: I gotta like, you know, raise my eyebrows say well,
Speaker 1: why do you then want to buy my practice if
Speaker 1: you believe that this is an all time high? Right?
Speaker 1: So to me, you know, the truth is in the action,
Speaker 1: not the words. Right.
Speaker 2: I can't hear what you're saying because what you're doing
Speaker 2: is speaking so loudly.
Speaker 1: You are so much more eloquent.
Speaker 2: That's not me. I stole that. That's a Longfellow or
Speaker 2: Wadsworth or somebody.
Speaker 1: I know.
Speaker 2: I know I'm stealing that. My dad used to say
Speaker 2: that to me all the time. It's a great one,
Speaker 2: but really it's true, which raises the question how big
Speaker 2: is that? M and a market for ri as? Shoot,
Speaker 2: nobody has. Here's the crazy thing. So you take the
Speaker 2: five biggest rias you can think of, they're all two
Speaker 2: hundred billion Creative Planning, Edelman, ken Fisher. They're all giants.
Speaker 2: I'm sure there's a couple more there. Two hundred billion
Speaker 2: dollars is nothing in a thirty forty by some measures,
Speaker 2: ninety seven trillion dollar space. Is anyone ever going to
Speaker 2: have market share here?
Speaker 1: So you have you have a few questions, Yeah, you
Speaker 1: have two questions there. The first one is we're in
Speaker 1: the early innings, right, because even the giants of independent
Speaker 1: wealth management are small in comparison to the entire securities industry. Right,
Speaker 1: it's not. It wouldn't take much for one of these
Speaker 1: financial behemoths to become an aggregator themselves, and they've got
Speaker 1: far more financial might than any of these private capital
Speaker 1: providers out there.
Speaker 2: Note have gone public yet, right, they're all still mostly private,
Speaker 2: Is that right?
Speaker 1: Well, I mean you had focus financial, right, so you know,
Speaker 1: go public and.
Speaker 2: They're clearly a roll up there. How big are they
Speaker 2: They're like three four hundred five hundred billions?
Speaker 1: Yeah, I think, but they're they're actually going they're leaving
Speaker 1: the public markets, and you know, it looks like they're
Speaker 1: you know, they're heading back to private. So that's an
Speaker 1: interesting transaction, right. One of the few firms to make
Speaker 1: their way into the public markets is actually you know,
Speaker 1: some would say retreating, you know, others would say, you know,
Speaker 1: recapitalizing within the you know, the private markets, but you know,
Speaker 1: they're the ones that have made their way over. Arguably,
Speaker 1: other firms like NFP have gone public, but that's not
Speaker 1: really a pure national financial partners right, more in insurance focus.
Speaker 1: But I think we're in the early innings. I really do.
Speaker 1: I think that there is a whole world that you
Speaker 1: and I can't even sit here in fathom knowing where
Speaker 1: we've come from to imagine what this is going to
Speaker 1: become in the next ten or twenty years. I really,
Speaker 1: I really think we're in the early innings.
Speaker 2: Really, so let's let's that's surprising because when we launched
Speaker 2: our firm in twenty thirteen, I felt like we were
Speaker 2: a decade past the real launch of registered investment advisories.
Speaker 2: We were on the right side of pass if, we
Speaker 2: were the right side of fiduciary. It felt like, all right,
Speaker 2: this is the future. And that's why I was surprised
Speaker 2: the big shops hadn't bought on yet. But you're saying,
Speaker 2: and here it is almost a decade later, you're saying,
Speaker 2: this is still early days. The transition from transactional non
Speaker 2: fiduciary business is going to continue to ramp.
Speaker 1: I believe that's the case. Yeah, and then you said,
Speaker 1: you know, are there going to be dominant you know
Speaker 1: players in the space, And I don't believe there ever
Speaker 1: will be, really And the reason for that is because
Speaker 1: there's such a low barrier to entry. Right. Anyone you
Speaker 1: know who takes a nice, hot, long shower, you know,
Speaker 1: has an idea, right, and most of those people have
Speaker 1: the wherewithal the pull off.
Speaker 2: I told you that in confidence, most people.
Speaker 1: Have the where with all the pull it off. Within
Speaker 1: the independent wealth management space, right, there's not a high
Speaker 1: barrier to entry. There's not significant licensing, you know that
Speaker 1: that takes place and with the help of an objective advisor.
Speaker 1: I mean, this is not a very complex endeavor.
Speaker 2: So you mentioned Focus Financial. Let's talk about the platforms
Speaker 2: like Focus, like Dynasty. Schopenny was a guest of the
Speaker 2: show a couple of years ago, has a fascinating personal story.
Speaker 2: I think they're down in Saint Petersburg or Tampa. These
Speaker 2: platforms have developed. High Tower is another one that essentially
Speaker 2: exists to pull out these billion dollar teams from big
Speaker 2: firms and have been doing so very successfully. What is
Speaker 2: that sort of transaction like and how challenging is it
Speaker 2: for you as the attorney to deal with. I mean,
Speaker 2: nobody at a big firm is happy when a billion
Speaker 2: and a half dollars walks out the door.
Speaker 1: Well, the billion and a half walking out is happy,
Speaker 1: just to be clear.
Speaker 2: Nobody who's left behind is happy.
Speaker 1: So I think the three examples you gave are three
Speaker 1: really different examples that probably satisfy a similar utility, a
Speaker 1: similar need or demand in the marketplace. When you look
Speaker 1: at at firms like you know, like Dynasty, right, they're
Speaker 1: a single vendor platform provider, right. So for that entrepreneur
Speaker 1: who doesn't want to make so many of the decisions
Speaker 1: that go that naturally go with entrepreneurship, but they want
Speaker 1: all the features and the independence and autonomy of running
Speaker 1: their own business, right, those firms are a great option
Speaker 1: for them. Right. Suddenly within the independent space, you know,
Speaker 1: going out and being independent doesn't mean that you have
Speaker 1: to go it alone, right, Whereas there are other firms
Speaker 1: are joint opportunities where you're not going to have the
Speaker 1: autonomy of running your own firm. You're going to go
Speaker 1: and you're going to join these firms. You're going to
Speaker 1: be a quote unquote partner in the firm, or you're
Speaker 1: going to you know, run one of these satellite affiliates
Speaker 1: within the firm. But make no mistake about it, right,
Speaker 1: This is all about this concept of control, right, And
Speaker 1: I think entrepreneurs really want to hone in on this.
Speaker 1: I think that's going to be a theme over the
Speaker 1: next few years, is control because we have so many
Speaker 1: minority investments happening within the space. But even with a
Speaker 1: minority investment, these minority investors are demanding control provisions. Right.
Speaker 1: Control is like the big tug of war that's happening nowadays.
Speaker 1: And when you look at a and when you look
Speaker 1: at a firm like Charles from at Dynasty, you see
Speaker 1: a firm that helps enable folks to run their own independent,
Speaker 1: autonomous practice without having to give up that degree of control.
Speaker 2: I want to ask you about some of the deals
Speaker 2: you look at and review sometimes after the fact. One
Speaker 2: of the risks of being an attorney is people will
Speaker 2: always come up to you and ask you about a problem,
Speaker 2: and then two thirds of the way through the conversation
Speaker 2: you find they already signed that document. Oh I'm sorry,
Speaker 2: but I can't help you. You have a contractor how
Speaker 2: often do people will come to you and say, hey,
Speaker 2: what can you tell me about this deal and your
Speaker 2: answer is, oh, that's a terrible deal, don't sign that.
Speaker 2: And they say, well, I already did a letter of intent.
Speaker 2: What do I do now? Is this a legitimate issue
Speaker 2: that happens time and again.
Speaker 1: So you asked me before about the different practice areas
Speaker 1: we have, and that happens all the time within our
Speaker 1: Business Transactions group. Really personally, like, where I spend my
Speaker 1: time is really in two primary areas, and in my practice,
Speaker 1: one is having that ongoing relationship with CEOs within this
Speaker 1: wealth management space and talking to them about their objectives
Speaker 1: and helping them navigate a path so it doesn't happen
Speaker 1: in those circumstances. The other part of where I spend
Speaker 1: my time is fixing problems. Right, you know this is.
Speaker 2: A problem someone says, hey, I signed this, what do
Speaker 2: I do?
Speaker 1: This becomes a problem, right, And it's actually typically it's
Speaker 1: like an LOI, right, So it's not a legally binding document,
Speaker 1: but it's a good will problem, right because we worked
Speaker 1: with so many other of these firms within the space. Bye,
Speaker 1: by the advisor signing that l o I, it's it's
Speaker 1: really the equivalent of a handshake, right, right, And if
Speaker 1: you're going to be in business with this firm for
Speaker 1: the next few decades at least. You don't want to
Speaker 1: start off by your attorney calling saying, hey, I know
Speaker 1: they signed this, but what there really meant was that? Right?
Speaker 1: So I could tell you it just it limits the
Speaker 1: ability for us to meaningfully affect the deal. We of
Speaker 1: course can continue to negotiate around the fringes and help
Speaker 1: mitigate risk and optimize the transaction to you know, to fit.
Speaker 1: They can. Yeah, no, it can. And I mean, that's
Speaker 1: that's the typical right, blame the attorneys right right.
Speaker 2: Right under the bus.
Speaker 1: We get that all the time.
Speaker 2: And that's fine, Hamburger. It's his fault. We had a deal,
Speaker 2: we had a handshake until Brian came along and saved
Speaker 2: me from myself.
Speaker 1: Perfectly, perfectly fine. But usually my job is to call
Speaker 1: up the CEO with the counter with the contra firm
Speaker 1: and to say, hey, I know, you guys slipped one,
Speaker 1: you know, by the goalie on this one by Yeah,
Speaker 1: I said, you know. And and it's almost always met Barry,
Speaker 1: We laughed, they know, it's almost always met with Oh,
Speaker 1: we had no idea that you were working with them.
Speaker 1: Of course, it's not a problem.
Speaker 2: So that's hilarious. Yeah, because I can't tell you how
Speaker 2: often somebody will mention something and it's like, oh, I'm
Speaker 2: a car guy, Hey what do you think of this?
Speaker 1: Oh?
Speaker 2: You don't want I've learned not to say you don't
Speaker 2: want to buy that.
Speaker 1: You don't want to touch that.
Speaker 2: That's a poss bought it last week, right, and that's
Speaker 2: always the answer. Oh it was just delivered. Well, you know,
Speaker 2: send your mechanic a Christmas card because you're going to
Speaker 2: be spending a lot of time with him, you don't.
Speaker 2: I've learned not to stick my foot in my mouth
Speaker 2: after having done it a dozen times, so you can.
Speaker 2: You can work with people to erase a bad LOOI
Speaker 2: what happens if someone comes to you and said, hey,
Speaker 2: I got a phone call. All these people offered me
Speaker 2: a ton of money. All I had to do is
Speaker 2: sign this assigning all my aum to them, and they
Speaker 2: gave me ten percent of the value of the firm
Speaker 2: and I'll work out the rest. What do you do
Speaker 2: with that? That?
Speaker 1: Listen? That doesn't always, That doesn't often happen. You know
Speaker 1: what what often happens is they come to us with
Speaker 1: this deal, and my first call to them was I
Speaker 1: didn't even know you were in the market to sell, right, right,
Speaker 1: like we and and and by the way, the one
Speaker 1: firm that you're talking to seems to have none of
Speaker 1: the qualities that were important to you when you left
Speaker 1: your firm five years ago. Right, So you know, I'm
Speaker 1: I'm a big fan of really understanding what the objectives
Speaker 1: are before we set out to do anything.
Speaker 2: It's more than just dollars. There's there's a lot of
Speaker 2: other factors that make a big difference.
Speaker 1: Because most advisors don't think of the fact that they're
Speaker 1: going to have to be employed by this firm right afterwards,
Speaker 1: like this is not a one time transaction. I think
Speaker 1: the other big misnomer that's out there is people are
Speaker 1: fueled by these headline numbers, right They're they're looking at
Speaker 1: these headlines. This firm sold for you know, eighteen x.
Speaker 1: This firm just sold for twenty x, and they don't
Speaker 1: understand that deals are far more complicated than that. That
Speaker 1: there's there's a cash component, right, there are contingencies, there
Speaker 1: are retention components to any deal. And so when we
Speaker 1: look at those headline numbers, we're all we're often looking
Speaker 1: at the total cost of ownership. Right you going back
Speaker 1: to your you know, your your car model, like what
Speaker 1: did the what did the firm pay to successfully acquire
Speaker 1: and integrate this this firm, It's not how much of
Speaker 1: the original owner or founder put in their pocket, right, right,
Speaker 1: And then they don't look at the tax structure, right
Speaker 1: And for many of these transactions, the tax structure is
Speaker 1: the one thing that can dictate the success or failure
Speaker 1: of these deals right right, because it really makes it
Speaker 1: can make a thin deal work really well if structured
Speaker 1: in the right way.
Speaker 2: Right, If the LLC passed through, especially if you're in
Speaker 2: New York, a California based is a big advantage versus
Speaker 2: you know, traditional C corps or whoever else people are
Speaker 2: doing it in other states. I love hearing people say
Speaker 2: we are absolutely not for sale twenty x really, let
Speaker 2: me get back to you on that. It's It's funny
Speaker 2: how money is an issue until suddenly it becomes becomes
Speaker 2: an issue.
Speaker 1: See old Robert Redford quote. Right, everything's for.
Speaker 2: Sale at a indecent proposal. Very good, Demi Moore, I
Speaker 2: don't remember who her husband was, what Harrol's that's right,
Speaker 2: that's right. So let's let's talk a little bit about
Speaker 2: some of the fun terminology here. Teams, new launches carveouts
Speaker 2: what's going on in those spaces.
Speaker 1: So you know, the interesting thing with with teams these
Speaker 1: are these are people who are typically employed by a
Speaker 1: brokerage firm. They have worked together for many, many years.
Speaker 1: They are under this false belief that they're partners, right,
Speaker 1: they're co employees, they're coworker. Yeah, they're colleagues that are
Speaker 1: often seated with, you know, next to one another. Often
Speaker 1: they have like some type of fee sharing arrangement among them, right,
Speaker 1: But there's this misnomer among them. They think they're partners.
Speaker 1: And I'm not here to burst anyone's bubble, but it
Speaker 1: comes out, you know. I force it out when we
Speaker 1: have some of our initial consults on the business startup,
Speaker 1: because I'll ask them, I'll say, you know, hey, Barry,
Speaker 1: do you know do you know John's you know, time
Speaker 1: horizon until he wants to retire. No clue, no, no
Speaker 1: no idea.
Speaker 2: So, in other words, until there's a partnership agreement, nobody's
Speaker 2: a partner.
Speaker 1: No one's really a partner, right, right, And so what
Speaker 1: we try to force them to do is really get
Speaker 1: to know one another because within this team are a
Speaker 1: whole bunch of different dynamics. Right. Someone needs to come
Speaker 1: clean that they're on the precipice of getting a divorce. Right.
Speaker 1: Someone needs to come clean that their financial affairs are
Speaker 1: just in complete disarray, right, Which when your colleagues in
Speaker 1: an office doesn't really matter, right. But if that's your
Speaker 1: business partners, damn well better know that they're going to
Speaker 1: be declaring bankruptcy within the next few you know, a
Speaker 1: few months, right. And so these are the surprises that
Speaker 1: legitimately there's legitimately launch.
Speaker 2: A business and there's a oh, I got this back depending,
Speaker 2: but don't worry, it won't affect what we do.
Speaker 1: What makes the hair go up on the in the
Speaker 1: back of my neck is when we get off we're
Speaker 1: about to close a call like that and one of
Speaker 1: the people that are on the call will say, hey, Brian,
Speaker 1: can you hang on the line for a minute. Uh uh,
Speaker 1: I know what's coming. Every single time it's a it's
Speaker 1: a prior felony conviction that they haven't disclosed, or sometimes.
Speaker 2: Matter if it's out of the United States, like a
Speaker 2: felony in South America asking for a friend, Yeah, yeah,
Speaker 2: just asking for a friend.
Speaker 1: The Uh, you know they want to talk about marital
Speaker 1: issues and uh, is that any way one? But yeah, yeah,
Speaker 1: is there any way to own this without you know,
Speaker 1: while protecting it? Uh? They want to talk about the
Speaker 1: state issues. So anytime that there's that type of divide
Speaker 1: between would be partners, big red flag. We have a
Speaker 1: whole service protocol to try and make sure that we
Speaker 1: can diffuse that. And you know that's not our information
Speaker 1: to share, but it needs to be shared.
Speaker 2: How often did someone come to you with a proposal
Speaker 2: and you look at it and say, I just can't
Speaker 2: let you sign this. This is not this is not
Speaker 2: a good deal.
Speaker 1: You know, I'm from Jersey, right, so we we can't
Speaker 1: not share our opinion. It's part of our it's part
Speaker 1: of who we are, It's how we're brought up. But
Speaker 1: I won't say that. What I'm going to say is
Speaker 1: I'll say, in a polite way, I'll say what are
Speaker 1: you thinking? Right, because I'll say, like, what were your objectives?
Speaker 1: You know, what do you think that this are?
Speaker 2: You're going to finest your way around getting to this
Speaker 2: is a bad deal?
Speaker 1: I mean, come on, you know our colleagues in this industry, right,
Speaker 1: they're very prideful group. Right. Some may say that there's
Speaker 1: a big ego about them, and they're you know, they're
Speaker 1: used to being the smartest folks in the room. And
Speaker 1: what shocks me more than anything else that we've talked
Speaker 1: about today, what shocks me is how great investment advisors
Speaker 1: lose their when it comes to the securities analysis of
Speaker 1: their own security, right.
Speaker 2: Because there's no objectivity, they can't separate themselves.
Speaker 1: Right, So you know this, I mean, really, at the
Speaker 1: end of the day, what do you own? You have
Speaker 1: a concentrated securities position, right, right, You better than me
Speaker 1: as the investment advisor, can analyze the value of that security, right.
Speaker 1: You have all sorts of methods for doing that, and
Speaker 1: so my job is to is to redirect your skills
Speaker 1: to be able to do that. And most of the
Speaker 1: time they see that.
Speaker 2: So so let me ask you this question because I'm
Speaker 2: genuinely aghast. We talked earlier about people not making the
Speaker 2: phone call because they don't want to run up the
Speaker 2: legal bill every now and then. I'm horrified to see
Speaker 2: people not have attorneys, not have accountants sign documents like
Speaker 2: how much are you saving? You're talking about millions of
Speaker 2: dollars in revenue, tens of millions of dollars in revenue,
Speaker 2: millions of dollars in salary. How can you sign a
Speaker 2: document without having a lawyer review it? Oh, save ten
Speaker 2: thousand dollars. It's gonna cost you three million dollars over
Speaker 2: the next decade. I'm apoplectic here. I see this all
Speaker 2: the time. I'm genuinely aghast.
Speaker 1: I too share your sentiments. I mean, you know, of
Speaker 1: course I'm biased. I think that I think you should
Speaker 1: never go into a novel financial transaction, particularly one that
Speaker 1: capitalizes the decades of goodwill and trust that you have
Speaker 1: developed throughout the course of your career without number one,
Speaker 1: an objective party, right, even if that's a knowledgeable friend
Speaker 1: of yours to say, what the heck are you thinking?
Speaker 1: And an experienced party, right, someone who's been there before
Speaker 1: and knows what's important. You know what needs to be
Speaker 1: handled urgently, and what's everything else? Right? You know, what's
Speaker 1: the noise that we can kind of set to the side.
Speaker 1: But it amazes me the transactions that people enter into
Speaker 1: without the benefit of objective, experienced counsel. It really does.
Speaker 2: And you know, and this isn't just self interest speaking
Speaker 2: because the odds are they going to go to a
Speaker 2: different attorney than you. Sure, just statistically, But if you're
Speaker 2: signing a contract that's worth millions and millions of dollars,
Speaker 2: isn't it just common sense to have an attorney look
Speaker 2: it over. I mean, I'm genuinely aghast when I see
Speaker 2: and hear about these things, and it happens more often
Speaker 2: than one would imagine. And it's not like you're a minor.
Speaker 2: It's not like you're going to be able to get
Speaker 2: that you know. Oh no, they didn't know what they
Speaker 2: were doing. Let's just decay that.
Speaker 1: So here, here's the distinction that I've been able to
Speaker 1: call together over the years is that people that think
Speaker 1: of this as an investment, people that think of this
Speaker 1: as a business, are apt to spend that money. Sure right,
Speaker 1: they say, Hey, there's a transaction cost, and it's making
Speaker 1: sure I have good counsel to help optimize the transaction,
Speaker 1: mitigate risk, et cetera, et cetera. Think about brokers, even
Speaker 1: the most successful among them, who have been sitting in
Speaker 1: a wire house throughout, you know, for decades, throughout their
Speaker 1: whole career, they've never written a check for any business endeavor. Right, right.
Speaker 1: The only attorneys they've ever hired is, you know, is
Speaker 1: probably to buy a house and maybe get divorced.
Speaker 2: But but you would hire an attorney to buy a house, right,
Speaker 2: You wouldn't just go in and do the closing. Yeah,
Speaker 2: I could figure it out.
Speaker 1: But that's only because your realtor sent you to someone
Speaker 1: who's charging one thousand dollars to do the closing for you, right,
Speaker 1: It's not really because you would have found them on
Speaker 1: your own. Here right, when you're saying this is what
Speaker 1: objective counsel is going to cost, that's a tough check
Speaker 1: to stroke, so less you're thinking about the brighter right right.
Speaker 2: I guess if you're sitting in a place where you're
Speaker 2: not paying for legal, you're not paying for compliance, you're
Speaker 2: not playing for marketing, you're not paying for trading, you're
Speaker 2: not trade execution, you're not paying for any of that.
Speaker 2: It comes out of out of your gross revenue on
Speaker 2: a grid, So you don't really recognize that these are
Speaker 2: actual costs. I mean, giving up half of your comp
Speaker 2: or more to pay for that. I would think that's intuitive,
Speaker 2: but I guess not so. The last question about M
Speaker 2: and A that that I have to ask is I
Speaker 2: keep seeing these headlines? Is this the end of the
Speaker 2: small ria again? It seems a little you know, self interested,
Speaker 2: But what do we think about whether you want to
Speaker 2: call it a lifestyle practice or a small local practice.
Speaker 2: These are people everybody in the town knows and when
Speaker 2: they have a financial question go to Am I wrong
Speaker 2: in thinking those aren't going away? They're going to be
Speaker 2: here for a while.
Speaker 1: Those small RaaS will be here throughout the duration of
Speaker 1: our lives. And the reason for that is probably not
Speaker 1: what you think. The reason for that is technology. Is technology, okay, yeah,
Speaker 1: because what you could do as a as a solo
Speaker 1: practitioner or two or three people working in an office
Speaker 1: today is just so much more expansive than what you
Speaker 1: could do to years ago. That but I think even
Speaker 1: more compelling is the scalability of that technology, right, the
Speaker 1: fact that everything is a cloud based application and you
Speaker 1: can scale it down to a single user license. Think
Speaker 1: of the CRMs, right, I mean everyone knows the CRM.
Speaker 2: Salesforce is a big giant company. There's a dozen of
Speaker 2: them for rias.
Speaker 1: But to stand up a CRM twenty years ago, to
Speaker 1: stand up a CRM like a salesforce, right, you would
Speaker 1: have to buy a dedicated server, right posted in a
Speaker 1: cooled office, right.
Speaker 2: Have have replicate the data, manage it.
Speaker 1: Right. Yeah, you have backups all over the place, right,
Speaker 1: you know, backup tapes and all this, you know, crazy stuff.
Speaker 1: Now you buy a license and that's it. You buy
Speaker 1: a single license and you log in and you start
Speaker 1: to configure it. And so the scalability of technology, the
Speaker 1: scalability of telecommunications is the game changer, right. And I
Speaker 1: don't think too many people plot out the acceleration of
Speaker 1: the independent, fragmented wealth management business with the prominence of
Speaker 1: scalable technology solutions in the place, in the space. But
Speaker 1: I would say that they've developed in lockstep with one another.
Speaker 2: Huh really quite fascinating. Tell us about your practice. What
Speaker 2: is the thing that keeps you most busy? What are
Speaker 2: what are the other areas of practice that someone who says, hey,
Speaker 2: I want to set up a registered investment advisory, I
Speaker 2: have half a billion dollars in assets. What what is
Speaker 2: the thing that keeps you most active?
Speaker 1: So you know, we talked earlier about the work we
Speaker 1: do within Market Council Consulting, our consulting firm, But most
Speaker 1: of the time I'm spending is personally is Within our
Speaker 1: law firm we have we have three distinct practice areas.
Speaker 1: One is regulatory, where not only do we uh do
Speaker 1: we work a lot with with advisors on various legal matters,
Speaker 1: but also regulatory interactions right working with state and federal
Speaker 1: regulators on anything that rises beyond a simple examination. The
Speaker 1: second is business transactions. Right in our business transactions practice
Speaker 1: spans from startup all the way to interesting permutations of
Speaker 1: the business, whether it's business compliance, it's succession planning or implementation,
Speaker 1: it's selling off equity, M and A and everything in between.
Speaker 1: And then the third area, and probably the area that
Speaker 1: people know us most for, is employment transition work, where
Speaker 1: we help folks go from wherever they are to wherever
Speaker 1: they want to be and everywhere and help them navigate
Speaker 1: everything in between.
Speaker 2: So, if I'm in a right to work state, how
Speaker 2: challenging is it for me in the finance industry, either
Speaker 2: as a broker or a trader or a fund manager
Speaker 2: or an RIA to say, Hey, I want to switch
Speaker 2: and go somewhere else.
Speaker 1: You know, it's funny when I describe the employment arrangements
Speaker 1: or restrictions to people outside of this industry shocked. They
Speaker 1: think I'm making it up. They think it's a story,
Speaker 1: and I don't know. I think there's more interesting stories
Speaker 1: to tell than that. But it is beyond comprehension for
Speaker 1: those that don't spend time in this space. Right, everything
Speaker 1: from restrictive covenants such as the inability to solicit uh,
Speaker 1: you know, former customers, to no higher provisions, the inability
Speaker 1: to you know, to hire former colleagues, to non competes
Speaker 1: which everyone knows about, to garden leave provisions which require
Speaker 1: people to maybe provide some type of extended notice or
Speaker 1: to sit out for a period of time.
Speaker 2: Right.
Speaker 1: These restrictions are.
Speaker 2: Real, right, and they're being found to be legal.
Speaker 1: And they're found in varying degrees found to be enforceable, right,
Speaker 1: depending upon the reasonableness of the restrictions, the states that
Speaker 1: we're going to be dealing with these restrictions in and
Speaker 1: you know, and that's how enforceable they are. But we
Speaker 1: also have to look at the firms that they're leaving.
Speaker 1: You know, what's the reputation of the firm for actually
Speaker 1: enforcing the terms of those of those contracts.
Speaker 2: So we hired some ones from a major wirehouse and
Speaker 2: I got this like sieving email from general counsel. I
Speaker 2: picked the phone and go, dude, what's up. We're a
Speaker 2: member of protocol. He's like, oh, sorry, I don't worry
Speaker 2: about it, just deleted. Can you send me an email
Speaker 2: confirming here? Yeah, yeah, no problem. I mean, it was
Speaker 2: savage to h no worries mod It was just like
Speaker 2: a crazy transition. Explain to people who are not in
Speaker 2: the industry what protocol is and how that works and
Speaker 2: why people are just so, you know, Jacqueline Hyde, if
Speaker 2: you're not a member.
Speaker 1: So the Broker Protocol, I mean we should first probably
Speaker 1: say that before the Broker Protocol, the industry was a
Speaker 1: bit of a Wild West, right, free for all. It
Speaker 1: was a bit of the free for all, right. People
Speaker 1: were leaving to go to firms. In fact, I was
Speaker 1: in I was in court in the Southern District of
Speaker 1: New York, federal court, right because all these are handled
Speaker 1: in federal court. And I watched a firm go in
Speaker 1: front of a judge and say this broker should not
Speaker 1: be able to leave and solicit its clients, and here's
Speaker 1: our trade secrets and all of these things. And the
Speaker 1: next case that was called, this attorney was on the
Speaker 1: other side explaining why they had a right to recruit
Speaker 1: this broker. So the hypocrisy was not lost on federal judges,
Speaker 1: who quite frankly, have better things to do.
Speaker 2: Right. My partner Josh calls this a prisoner exchange, like
Speaker 2: guys from UBS go to Morgan, from Morgan to Merrill,
Speaker 2: from Meryll to JPM Chase and then and then back
Speaker 2: to UBS. It's literally everybody is chasing a signing bonus, which,
Speaker 2: if you have a decent amount of assets under management,
Speaker 2: can be millions of dollars.
Speaker 1: Right. And so from a distance, right, this looks like
Speaker 1: indentured servitude, right, or this looks like that we're trading
Speaker 1: human chattel. Right. Both things that are you know, completely
Speaker 1: illegal and way outdated. You know, not only in this
Speaker 1: country but in the world, but in the securities industry.
Speaker 1: There were still shades of that up until the Broker
Speaker 1: Protocol and maybe still in some pockets.
Speaker 2: When did the protocol first come out?
Speaker 1: So protocol has been existing since the mid two thousands, right,
Speaker 1: And it's a limited forbearance agreement that that effectively says
Speaker 1: if if a firm is a member of the protocol,
Speaker 1: they agree not to enforce certain terms restrictive covenants that
Speaker 1: might be contained in an employment agreement. If the broker
Speaker 1: that's leaving goes to another protocol firm and agrees to
Speaker 1: abide by the quote unquote protocol right taking of limited information,
Speaker 1: furnishing certain notice, and you know, there's a few other provisions.
Speaker 2: And somehow this escapes anty trust provisions somehow. I mean,
Speaker 2: shouldn't it be like, hey, you guys are creating a
Speaker 2: little oligopoly here.
Speaker 1: Somehow this deal that was concocted, you know, on the
Speaker 1: back of a cocktail napkin, you know, seemingly amongst four
Speaker 1: global titans you know of there's.
Speaker 2: No price fixing, So I guess it it escapes that way.
Speaker 1: The so so it was actually our first argument. So
Speaker 1: we were the first firm to add an r I
Speaker 1: A to the broker protocol. Oh really, And the administrator
Speaker 1: at the time said, uh, he called me up, sir Brian,
Speaker 1: you can't do this. It is not is not for RA.
Speaker 2: As which administrator it was of which the which government agency?
Speaker 1: No, No, no government agency. They just appointed a voluntary
Speaker 1: administrator within Yeah, there's no FINRA, there's no sec oversight this.
Speaker 2: This well, let's see what the judge has to say
Speaker 2: speaking of anti trust.
Speaker 1: So these four founders, right that you know that concocted this,
Speaker 1: uh you know, this this three page agreement. They say,
Speaker 1: this is not this was not meant for arias. And
Speaker 1: I say, well, you know, then it seems like we
Speaker 1: have a legal problem because it seems like you guys
Speaker 1: are creating a moat and this seems to be an agreement.
Speaker 2: To restrict competition in the space of providing financially.
Speaker 1: Absolutely, and so I said, so, I guess we're gonna
Speaker 1: have to you know, we're gonna have to then deal
Speaker 1: deal with that. They thought again about it, and they said,
Speaker 1: you know, on second thought, we're okay with the RAA joints.
Speaker 2: As opposed to a judge thrown the whole.
Speaker 1: Thing out right because they never they never defined the term, right, broker, right, like,
Speaker 1: I mean, we know what a broker is, but they
Speaker 1: never defined the term. I mean, arguably a car wash
Speaker 1: can join the broker protocol, right because it is like
Speaker 1: a prisoner exchange, right, It's it is, you know, it's
Speaker 1: it's very much a protocol. And so coming off of that,
Speaker 1: you know, thousands of RaaS have joined the broker protocol,
Speaker 1: and they are beneficiaries. Since they're often the RaaS often
Speaker 1: have a less restrictive environment. Their beneficiaries of this broker protocol,
Speaker 1: they're able to freely extrapolate talent from these otherwise restrictive
Speaker 1: scenarios and bring them to their firm.
Speaker 2: And I suspect capitalism supports that that you want competition
Speaker 2: in the marketplace for talent, you want the ability to
Speaker 2: become more efficient, more productive, move around, go where there's
Speaker 2: the best deal. It's almost you know, any other industry,
Speaker 2: it wouldn't even be a question.
Speaker 1: It wouldn't be a question. And I'm smirking here. I
Speaker 1: can't see that on radio. But because there's a running
Speaker 1: joke within the space, there's a gathering each year that
Speaker 1: is assembled by a leading labor employment firm in the space,
Speaker 1: and they bring together probably about one hundred practitioners who
Speaker 1: focus on employment law within the securities industry. And for
Speaker 1: many years, I was the only independent representative that was
Speaker 1: coming that worked with RaaS that would come to these meetings.
Speaker 1: And and it's a big Q and a session, right.
Speaker 1: We work on case studies, and there wasn't a case
Speaker 1: study that passed where I wasn't the butt of one
Speaker 1: of the jokes, you know, and like unless Brian decides
Speaker 1: to unravel this, you know. And so you know, for
Speaker 1: many years we were the troublemakers, and you know with
Speaker 1: the Broker Protocol. When the Broker Protocol UH experienced what
Speaker 1: we alleged was was some gamesmanship when Morgan Stanley about
Speaker 1: out of the protocol. UH, we actually forced a change
Speaker 1: in the administrator because lo and behold, the law firm
Speaker 1: that was representing Morgan Stanley UH forgot to send a
Speaker 1: timely notification of Morgan Stanley's withdrawal, and.
Speaker 2: So there was still members by accident.
Speaker 1: Well, the the the they announced, oh, you know, our
Speaker 1: o mission. But they're suddenly, you know, withdrawing from the
Speaker 1: protocol without the requisite notice. And so yeah, you know,
Speaker 1: we've been we've been advocates of of not only having
Speaker 1: the protocol UH, but making sure that the terms of
Speaker 1: the protocol are enforced, that there's no gamesmanship within the protocol.
Speaker 2: And what's the what's the game theory for one big
Speaker 2: firm with drawing from protocol? They that confident that because
Speaker 2: I know one of the provisions is no rating. You
Speaker 2: could take a couple of people, But you can't decimate
Speaker 2: an office. Sure, now that they're no longer involved, Hey,
Speaker 2: you're back to the wild West, let's go, you know,
Speaker 2: pillage Morgan Stanley.
Speaker 1: Well, there's still no rating, right, So the limitation on
Speaker 1: rating doesn't em any from the protocol. The protocol just
Speaker 1: doesn't protect you from rating.
Speaker 2: Oh okay.
Speaker 1: So I honestly think that some of the larger firms
Speaker 1: that are in the protocol are there as a matter
Speaker 1: of pride. I think that if they were to withdraw,
Speaker 1: I think that their advisors would see that as a
Speaker 1: sign of defeat. Really, I do believe that. I think
Speaker 1: that's one of you know, that's one of the theories.
Speaker 1: And I've spoken to executives at some of these large
Speaker 1: firms and they said that the optics around withdrawing would
Speaker 1: be would be terrible. They also believe that there's a
Speaker 1: brighter future for them. They believe that they can innovate
Speaker 1: their way out of this and have have brokers stay
Speaker 1: at these firms for all the right reasons. History indicates otherwise,
Speaker 1: because by all measures, they're losing the game to independent
Speaker 1: wealth management. But there's still a lot of really smart,
Speaker 1: talented people there. As we talked about the sport.
Speaker 2: So let's stay with this. I'll circle back to m
Speaker 2: and A later. So first, full disclosure, I've been wrong
Speaker 2: about the brokers industry for thirty years. I've been saying
Speaker 2: I don't see how they don't collapse under the weight
Speaker 2: of their own fees, churning underperformance, and the lack of
Speaker 2: a fiduciary standard. To me, it just makes more sense
Speaker 2: that your financial planner should be more like your attorney
Speaker 2: than a used car salesman. But that's starting to change.
Speaker 2: So I've been wrong for twenty five years and it's
Speaker 2: beginning to change.
Speaker 1: What's changing, So what is changing.
Speaker 2: Is the big broker dealers kind of figured out that
Speaker 2: the compliance nightmare and the legal nightmare of transactional business
Speaker 2: is so much harder than Wait, we could just charge
Speaker 2: a fee for managing their money, not sell them bs
Speaker 2: syndicate or not sell them IPOs that maybe they work,
Speaker 2: maybe they don't. The good ones all get sucked up
Speaker 2: by the institution, so the junk that's left will stick
Speaker 2: in MoMA. Those are all ticking time bombs. Let's just
Speaker 2: kind of go semi passive, keep it low key, and
Speaker 2: eliminate ninety nine percent of our compliance headaches. Like some
Speaker 2: of the bigger firms have gotten that message and either
Speaker 2: their hybrid you know, half RIA half bds or really
Speaker 2: have aggressively moved into VRIA space. So whereas I thought
Speaker 2: they would collapse under their own weight, they kind of said, oh,
Speaker 2: we want to eat from both sides of the table.
Speaker 1: So now that you're dealing with the reverse churn, right,
Speaker 1: you're dealing with you're dealing with clients who are paying
Speaker 1: a fee.
Speaker 2: Went from churn and burn to net and forget it.
Speaker 2: That's a good way to keep it, keep it running.
Speaker 2: Although that really to be fair, That really isn't isn't
Speaker 2: isn't fair because I know plenty of guys that are
Speaker 2: and men and women that are arias at big So
Speaker 2: I've been slagging everybody, so let me, you know, throw
Speaker 2: a compliment. Plenty of people at big farms do really
Speaker 2: nice work on behalf of their clients, mostly operating as arias.
Speaker 2: Every now and then they take off their RIA hat,
Speaker 2: they put on their broker dealer hat. Here's a secondary,
Speaker 2: here's some insurance product, here's this. So it's not really
Speaker 2: one hundred percent true fiduciary, but it looks so much
Speaker 2: more like it than it did in the nineteen nineties
Speaker 2: when it really was the wild West.
Speaker 1: So a couple of things on that. First of all,
Speaker 1: the way these sophisticated organizations do is they win a
Speaker 1: multiple fronts, right, because along with what you're saying here right,
Speaker 1: as they've evolved their product, they've they've mitigated risk, they've
Speaker 1: also engaged in some sleight of hint. Right. So where
Speaker 1: advisors are subject to a foot utree obligation, would you know, right,
Speaker 1: that means they have to act in the best interests
Speaker 1: of their clients.
Speaker 2: Which seems pretty instinctially how you want your financial advisors.
Speaker 1: You would think, right, But then then they get blessed
Speaker 1: and they get they get blessed by the SEC on
Speaker 1: this notion of a best interest standard, right, which is
Speaker 1: not a fiduciary not a fiduciary standard.
Speaker 2: You can call it what you want. It's it's black
Speaker 2: or white, either you're a fiduciary or you're something else entirely.
Speaker 1: But it just coincidentally has the two core words that
Speaker 1: define the fiduciarye standard. Right.
Speaker 2: I mean, this is where I go on a tirade
Speaker 2: as to hey, liars are going to lie and there
Speaker 2: ain't nothing you're going to do to change it. Like
Speaker 2: I want to give them the benefit of the data.
Speaker 2: I know you do, but I they just keep disappointing.
Speaker 1: But here's the distinction that I think will and it'll
Speaker 1: help you with your segue over to M and A
Speaker 1: as well, is that I think I think financial advisors,
Speaker 1: whether they are brokers or advisors, are largely an amazing
Speaker 1: crop of people. I think almost all of them are
Speaker 1: in it for the best of reasons. I think we
Speaker 1: have a high degree of success in the industry. People
Speaker 1: make a really fine living and they're doing good work.
Speaker 1: You can they're very well intentioned people. I think where
Speaker 1: you face this dichotomy is with the firms, right, because
Speaker 1: the firms, even if they push out a fee based.
Speaker 2: Program, they won't have it both ways.
Speaker 1: The question is the legal standard of care. The question
Speaker 1: is are the products and they're pure? Is there a
Speaker 1: cash threshold in there where they're scraping money off the top? Right,
Speaker 1: Because at the end of the day, this firm's management
Speaker 1: and their board have a fiduciary obligation to who the
Speaker 1: shareholder that's right, right, And that's the biggest distinction that
Speaker 1: we have between traditional brokerage industry and the wealth management industry,
Speaker 1: and that's changing.
Speaker 2: How is that changing?
Speaker 1: Well, I mean M and A has come upon the
Speaker 1: wealth management space. You know, there's there's hysteria right when
Speaker 1: when it comes to M and A, there's there's a
Speaker 1: real lack of logic that's out there in.
Speaker 2: Terms in terms of who's getting put together or the
Speaker 2: price is paid or what's the hysteria?
Speaker 1: Yes, all of it. Yes, I think that I think
Speaker 1: there's been an influxing capital into the space. Investors see
Speaker 1: this as a as a safe investment, right, but one
Speaker 1: with with significant upside, right like any other self regulatory.
Speaker 2: Oh so when you say these are these are finner rules,
Speaker 2: these are my attitude has always been they could go
Speaker 2: leap in a lake. They have no regulatory authority over me.
Speaker 2: Who gave up my seven? And every now and then
Speaker 2: I get a request from FINRA and I pick up
Speaker 2: the phone and my compliance people aren't happy, but I
Speaker 2: let them know what I really think. I've written what
Speaker 2: I really think. A whole decide that they were probably
Speaker 2: the single most corrupt organization in finance when it came
Speaker 2: to their arbitrations. It was just theft out and I
Speaker 2: will defend that in court if I have to. So,
Speaker 2: I am, but this is a nineties era perspective. I'm biased,
Speaker 2: And back then they weren't called Finnra. Back then they
Speaker 2: were called any SDR, which had such a harbor reputation
Speaker 2: they had to change their name. Tell me, am, I
Speaker 2: overstating a nineties era distaste for that self regulatory organization?
Speaker 2: Or is that you know how a lot of people felt.
Speaker 1: You are not overstating it. It is how a lot
Speaker 1: of people felt. The organization has evolved a little better,
Speaker 1: haven't that? But it hasn't gotten better on the whole.
Speaker 1: I mean there are areas where they have improved. The
Speaker 1: arbitration process has gotten better.
Speaker 2: By judicial decree because it was found to be third
Speaker 2: world corrupt. Again, am I exaggerating?
Speaker 1: You are not exaggerated, just like, oh.
Speaker 2: This is legalized theft and we're not going to allow
Speaker 2: this nonsense to go on. You can't do this anymore.
Speaker 2: You can't own the arbitration companies and mandai an arbitration
Speaker 2: go there.
Speaker 1: So you're absolutely correct with regards to the arbitration. But
Speaker 1: keep in mind you said, well, if I if I
Speaker 1: leave FINRA, right, if I no longer am a broker,
Speaker 1: and I decide to go fee only, they can go
Speaker 1: pound sand.
Speaker 2: But they're trying desperately to get in there.
Speaker 1: Well, but when you sign that U four, right, you
Speaker 1: gave them jurisdiction over you for two years.
Speaker 2: After I never signed the U four, I just walked back.
Speaker 1: No, no, not to you five. When you sign your registration,
Speaker 1: oh the original use, they have jurisdiction over you. That's so. Yeah.
Speaker 1: So so there's a two year period of time after
Speaker 1: you resign where they continue to retain.
Speaker 2: Oh no, I dropped the seven two years before I
Speaker 2: resigned because I didn't I wasn't doing any brokers.
Speaker 1: Work well and so and so a lot of these
Speaker 1: restrictions are tied to the fact that these folks are
Speaker 1: leaving broker dealers, right, and so, yeah, these are fin rules.
Speaker 2: Now listen that that seems like that is a class
Speaker 2: action lawsuit waiting to happen. Close. That whole setup is
Speaker 2: borderline employment restriction. You would think like a state like
Speaker 2: California would slam that stuff from going.
Speaker 1: On, except that states like California like the fact that
Speaker 1: broker dealers have that level of supervision and control. Right
Speaker 1: when it comes to protecting investors.
Speaker 2: Because again, the nasd R did such a great job
Speaker 2: protecting people from the worst brokers. Sarcasm alert. They you know,
Speaker 2: the voiceover is narrator. They didn't, right, I mean, they
Speaker 2: did a horrible job. What they did was protect And
Speaker 2: I don't want to make this a I have a
Speaker 2: lot of respect for shops like Morgan Stanley and Merrill
Speaker 2: Lynch that have been around for forever and help democratize investing,
Speaker 2: So I don't want to paint with too broad to brush. However,
Speaker 2: it seemed like the bigger member firms had, like Michael Jordan,
Speaker 2: a very different set of rules than what applied to
Speaker 2: the smaller firms. And meanwhile, the tiniest buck shops got
Speaker 2: away with murder for years and years and years. It
Speaker 2: seemed like a no win situation.
Speaker 1: Well, but that that's why, right, That's why they were
Speaker 1: able to justify a lot of these restrictive rules over
Speaker 1: the years, Right, because there were people out there doing
Speaker 1: bad things and.
Speaker 2: So that they failed to regulate.
Speaker 1: Right, And so when larger firms would push would advocate
Speaker 1: for these rules, right, no one thought about the law
Speaker 1: of unintended consequences. The big firms did right, there's really
Speaker 1: smart people at More Stanley and Merrilnch and Goldman Sachs.
Speaker 2: Right.
Speaker 1: I mean, these people are really smart and they have
Speaker 1: time to think about this stuff, right, whereas small firms,
Speaker 1: as you know, are just reacting to these rules on
Speaker 1: the most part right there, they don't have as many
Speaker 1: resources to participate in these meetings and the rulemaking and
Speaker 1: writing comment letters, and so as a result, large firms
Speaker 1: have an outsized influence over the rule making process. That's
Speaker 1: just the way it is.
Speaker 2: Really interesting. So let's talk about this space that I
Speaker 2: think has really gained traction in the past couple of years,
Speaker 2: the idea of the outsourced chief compliance officer. Tell us
Speaker 2: a little bit about that.
Speaker 1: You know, back in two thousand, we had two services
Speaker 1: at Market Council. One was the RAA Incubator, which we
Speaker 1: still have to this day. The other was called your
Speaker 1: Compliance Officer, and it was kind of a cheeky name.
Speaker 1: But keep in mind, this was like Windows two thousand era, right,
Speaker 1: where like everything was like my files and all that
Speaker 1: kind of stuff. The SEC promulgated compliance program role in
Speaker 1: the two thousands that, among other things, really clarified the
Speaker 1: role of a chief compliance officer, including what quality is
Speaker 1: a chief compliance officer need to have their autonomy, the
Speaker 1: level of control and authority that they had to have,
Speaker 1: and it made it clear to us that you cannot
Speaker 1: outsource the role of a C suite executive, specifically a
Speaker 1: chief compliance officer within an RAA. So for all the
Speaker 1: firms that we work with, their chief compliance officer is
Speaker 1: an employee of the firm, because that employee needs to
Speaker 1: have authority to manage and control other employees and monitor them.
Speaker 1: Tough to argue that that's possible when you have an
Speaker 1: outsourced vendor, that you could just sever their contract at
Speaker 1: any time. And so we built our services to help
Speaker 1: lead and direct the activities of the CEO, right to
Speaker 1: give them kind of an editorial calendar and an agenda,
Speaker 1: to give them information for which to do their job effectively,
Speaker 1: and then to layer on underneath them and help administer
Speaker 1: their work and you know, and do and carry out
Speaker 1: help carry out their responsibilities. So the chief compliance officer
Speaker 1: always has their finger on the trigger.
Speaker 2: So how many firms can out source chief compliance officer
Speaker 2: be an employee of and still stay true to that mandate?
Speaker 1: I don't know.
Speaker 2: You can't do ten thousand, but you could probably do
Speaker 2: twenty or forty.
Speaker 1: I don't know. I mean, the SEC hasn't been clear
Speaker 1: on it. We don't think it's possible at all. Like
Speaker 1: we don't really yeah, I mean, you know, our reading
Speaker 1: of the rule indicates that, you know, someone who is
Speaker 1: an outsourced service provider cannot serve in the role as
Speaker 1: chief compliance officer. But I know other firms do it right,
Speaker 1: They've made a business out of it. But before we
Speaker 1: hired a chief compliance officer, we were working with a
Speaker 1: regulatory compliance firm out in LA.
Speaker 2: They were very helpful. It wasn't that they were a
Speaker 2: chief compliance officer. But let's be honest, effectively when you're
Speaker 2: hiring a third party, and I got to think this
Speaker 2: is true for Market Council also, when you're saying to somebody, hey,
Speaker 2: we don't know what the policies and procedures should be.
Speaker 2: We don't know what we What do we need to
Speaker 2: do to make sure? Will we pass our next audit?
Speaker 2: What do we do to make sure? Like you want
Speaker 2: to be on the right side of the compliance rules,
Speaker 2: tell us what we can and can't do us give
Speaker 2: us a black line and we'll stay on the right side.
Speaker 1: Of it.
Speaker 2: Whether that person is a full time employee or an
Speaker 2: outside attorney that's giving you advice, how big a difference
Speaker 2: is there?
Speaker 1: To me, the distinction here is that we're helping run
Speaker 1: an outsource compliance department. Right, we should be all of
Speaker 1: the resources that a fully functional outsource compliance or compliance
Speaker 1: department should be on the other end of an email
Speaker 1: and the other end of a phone call, any type
Speaker 1: of communication. But to me, it's critical that that chief executive,
Speaker 1: the chief compliance officer, the c suite individual sits as
Speaker 1: an employee of the firm so that they have the
Speaker 1: proper authority. They're granted the proper authority within the corporate documents,
Speaker 1: that they have the authority to carry out their responsibilities,
Speaker 1: including the ability to hire and fire personnel. The SEC
Speaker 1: says that person needs that authority, And I've never seen
Speaker 1: in all my years of practicing law, I've never seen
Speaker 1: a vendor relationship where you give the vendor the authority
Speaker 1: to hire or fire an employee. It just doesn't happen. Right,
Speaker 1: So our reading of it doesn't allow a third party
Speaker 1: a vendor to actually serve as a CCO. We think
Speaker 1: we can as an outside provider, we can layer on
Speaker 1: the top end underneath the CECO and we can provide
Speaker 1: them with all of the support and guidance that they need.
Speaker 1: But it's really critical to me that someone within that
Speaker 1: management with a management role takes on the role of it.
Speaker 2: And it doesn't necessarily have to be a single, dedicated person.
Speaker 2: It could be someone wearing multiple hats and when they say, okay,
Speaker 2: now I'm chief compliance officer, you're working directly with them.
Speaker 1: Yeah. A lot of people have noted recently. You know
Speaker 1: what I think has been a longtime trend, which is
Speaker 1: that the chief operating officer often also serves as chief
Speaker 1: compliance officer. I don't think that's the wrong call, right
Speaker 1: when someone needs to wear more hats, because to me,
Speaker 1: regulatory compliance is simply an operational baseline standard. Right, that's
Speaker 1: your non negotiable line, right. It's like, we never dip
Speaker 1: below that standard. Right. Maybe we're striving for excellence, you know,
Speaker 1: we're trying to get you know, nine out of ten
Speaker 1: on these but regulatory compliance is that non negotiable line, right,
Speaker 1: And so it makes sense that if someone's going to
Speaker 1: serve dual role, that the chief operating officer steps in.
Speaker 2: Assuming you have a chief operator were especially you know,
Speaker 2: smaller firm five ten people, they may not have an
Speaker 2: operating offer.
Speaker 1: Then it's you know, who's signed the operating agreement last right.
Speaker 2: Right, or whoever's overseeing the advisors they're cfps, and it's
Speaker 2: not you know, on a broker side, that person is
Speaker 2: trying to encourage transactions with which generate revenue on the
Speaker 2: fiduciary side. On the ra side, hey, the revenue takes
Speaker 2: care of itself. Is a fee agreement. You just want
Speaker 2: to make sure the advisor's doing with what they're supposed
Speaker 2: to be doing and staying compliant. It shouldn't shouldn't be
Speaker 2: an interference in the actual business. But I'm really down
Speaker 2: down a rabbit hole and I'm projecting my own experience.
Speaker 1: Well, but within that experience, don't you think that it's
Speaker 1: as much a quality of service issue as anything else?
Speaker 2: Right?
Speaker 1: We talked earlier about the distinction between compliance, legal and risk.
Speaker 1: But much of what you know regulatory compliance is something
Speaker 1: that we can handle, right. We know it's a finite
Speaker 1: you know, set of rules, right, But what you're getting
Speaker 1: into is is moderating oversight, right, making sure that people
Speaker 1: are doing the right thing. And quite often when you
Speaker 1: when you find a dispute with a client, it comes
Speaker 1: down to poor communications.
Speaker 2: Almost almost always. So. So you mentioned earlier the SEC,
Speaker 2: and I think I brought up audits pre pandemic. The
Speaker 2: rule of thumb was, hey, expect an audit every three years,
Speaker 2: and then the pandemic happened and for three years, you know,
Speaker 2: everybody was sort of frozen. What do you I think
Speaker 2: is going to happen going forward in terms of what
Speaker 2: the audit procedures going to look like, what the frequency is,
Speaker 2: because I have to imagine the SEC is getting to
Speaker 2: the point where hey, let's go back to if not
Speaker 2: the old regime, well something that looks like it, and
Speaker 2: the world is normalizing again.
Speaker 1: I just don't think it matters really.
Speaker 2: Yeah, you know, I remember prepping for i know, first
Speaker 2: audit and it was like, you know, it was like
Speaker 2: the bar exam, going to the prom and the SATs
Speaker 2: all rolled into one.
Speaker 1: I think your perception is shaped by when you entered
Speaker 1: into this industry. Right, People used to market all the time,
Speaker 1: death taxes, regulatory exams. Right. The thing I can share
Speaker 1: is that there's a zero mortality rate, you know, attached
Speaker 1: to regulatory.
Speaker 2: But there are fines there are like, hey, you guys suck,
Speaker 2: You better get your act together. Just as a matter
Speaker 2: of pride, you never want to have something like that happened.
Speaker 1: There's there's no question that the SEC's regulatory exams have
Speaker 1: gotten better, and they've gotten better primarily because the SEC
Speaker 1: has more data and they're using that data. Right, So
Speaker 1: before the SEC even walks into an advisor's office, they
Speaker 1: often have a short list of deficiencies and I can
Speaker 1: find those that they're looking for or they already know about,
Speaker 1: really absolutely, because because it's as simple as this, they're
Speaker 1: pulling your your form adv disclosure statement, right, They're pulling
Speaker 1: your marketing collateral, they're pulling your client agreements right, and
Speaker 1: sometimes they're asking you for this in advance of the
Speaker 1: visitors just for this. Most of the time, for advisors
Speaker 1: that existing advisors that are on board with US, there
Speaker 1: are conflicts just within those agreements.
Speaker 2: Meaning that they they're in opposite each other and you
Speaker 2: can't actually fulfill all those.
Speaker 1: Obligations either that or one is so vague that it
Speaker 1: could be argued that it's misleading, right. I mean, when
Speaker 1: advisors talk about their fees, this is a really big
Speaker 1: area because.
Speaker 2: Isn't that on a form adv disclosure? Isn't that all man?
Speaker 2: We're really inside baseball today, I mean, isn't that all
Speaker 2: out there? How do you mess that up?
Speaker 1: It's so easy to mess that up. Really absolutely, I'd
Speaker 1: say more advisors mess up their fees and their conflicts
Speaker 1: of interest than anything else, right, because with their fees,
Speaker 1: advisors want to be aspirational in their disclosure. They want
Speaker 1: to say, our fee is one percent right. They don't
Speaker 1: want to get into all of the qualities they look
Speaker 1: at when they discount that fee. They don't want to
Speaker 1: disclose conflicts of interests that come along with the way
Speaker 1: in which they structured that fee. And we are definitely
Speaker 1: getting into inside baseball. But conflicts of interest are by
Speaker 1: and large the biggest area that the SEC can find
Speaker 1: without even stepping into the office or talking to an individual.
Speaker 1: And it's because they can see your business practices and
Speaker 1: they can see what you've disclosed. And most of the
Speaker 1: time when you talk to advisors, they say, well, that's
Speaker 1: not a conflict because we would never do that right.
Speaker 1: And that's just a real significant misunderstanding what a conflict is.
Speaker 1: And you need an objective party to step in and say, hey,
Speaker 1: I know you you know you guys are good people, right,
Speaker 1: but this is a conflict of interest. What we do
Speaker 1: to mitigate that conflict or eliminate that conflict is another issue.
Speaker 1: But we have to call out the conflict and disclosure.
Speaker 2: So I started out with a disclosure. Let's wrap up
Speaker 2: the last segment with a disclosure. Which is my rule
Speaker 2: of thumb is always even if there is a conflict,
Speaker 2: and we really work hard on the fiduciary side of
Speaker 2: the street. I don't mean just our WM, but the
Speaker 2: whole Ria industry tries to not have a conflict. Isn't
Speaker 2: all of this stuff satisfied by just disclosed? Disclosed? Disclose
Speaker 2: if you let the clients know, Hey, we set up
Speaker 2: a fintech venture fund because we feel we can push
Speaker 2: those companies out there and do really a benefit for them,
Speaker 2: and we want a PARTI in the upside. By the way,
Speaker 2: if you're interested in it, we we have upside. And
Speaker 2: here's the disclosure. If I disclose everything, how do you
Speaker 2: how do you get into trouble? Does that resolve? Does
Speaker 2: disclosure resolve all of And I'm not looking for free
Speaker 2: legal advice here, it's a legit question. Does disclosure resolve
Speaker 2: the conflict.
Speaker 1: Issue mostly mostly? So going back to mostly but I
Speaker 1: just want to I don't want to just have mostly
Speaker 1: hanging out there mostly, but it doesn't resolve at all. Right,
Speaker 1: And some conflicts are are simply improper, right, you simply
Speaker 1: can't can't disclose them away.
Speaker 2: Like like what sort of conflict?
Speaker 1: Well, so so use that example right where you disclose
Speaker 1: that you have this venture fund, right is your own fund.
Speaker 1: And as by.
Speaker 2: The way, one of the things we will not put
Speaker 2: into the venture funds is an ETF or or anything
Speaker 2: investing that then we're going to buy for the client
Speaker 2: because clearly you're on both sides the trade. There, that's
Speaker 2: a no no.
Speaker 1: So there you go, right, there's one of them. How
Speaker 1: about the other one being if these are if these
Speaker 1: are funds that you are recommending an allocation, you're not
Speaker 1: going to recommend your own fund get paid for the
Speaker 1: investment advice and that get paid out of fund express, right,
Speaker 1: that's right. So there are some conflicts that are just
Speaker 1: just too far. Right, the SEC is going to say
Speaker 1: you could disclose what you want. But in my second
Speaker 1: week working at the at the SEC and the Enforcement Division,
Speaker 1: after I took Chuck Senator's class that we talked about earlier.
Speaker 1: He assigned me to work for this powerhouse of a litigator,
Speaker 1: Sue Curtain. I don't know how I just remembered her name.
Speaker 1: I couldn't tell you what I had for breakfast, right,
Speaker 1: But I said to Sue my friends, clearly, my sense
Speaker 1: of like this raa thing is crazy. Like my sense
Speaker 1: is that so long as you disclose, that you are
Speaker 1: stealing ten thousand dollars a day from the client, right,
Speaker 1: that that so much of the recourse is precluded. Right.
Speaker 1: She just laughed at me and she said, you're a
Speaker 1: quick study. Right. And so clearly there are anti fraud provisions,
Speaker 1: but disclosure is a key component to the advisor's act
Speaker 1: and one that so many advisors have trouble with. They
Speaker 1: have a trouble really yeah, because I mean think of it, right,
Speaker 1: the last time, the last time you went to your doctor,
Speaker 1: would he say how you feeling? Right? I feel great? Really?
Speaker 1: Because I'm looking at your blood sugars, I'm looking at
Speaker 1: your weight, and the numbers are telling me a different story. Right.
Speaker 1: And so that's what happens with advisors. They are so
Speaker 1: blinded by their own good intentions and their purpose that
Speaker 1: they don't see the harm that they could do if
Speaker 1: they set out to do it. Got and so as
Speaker 1: an objective advisor, your job is to shine a mirror
Speaker 1: and say, just imagine for a moment there was a
Speaker 1: bad actor, right, could we do this? Which is listen,
Speaker 1: I don't want to get off on another tangent on
Speaker 1: your ear. But that's why cybersecurity and fraud. Cyber fraud
Speaker 1: is such a problem for advisors because they're running a
Speaker 1: business that's that has a foundation in familiarity. Right, they
Speaker 1: can't have you call and just say, what's your social
Speaker 1: Security number? Right? What's your what's your mother?
Speaker 2: And we've heard we've heard people, we've heard horrible stories
Speaker 2: about AI, especially somebody like you who's in the public
Speaker 2: or me in the public domain. You could use AI,
Speaker 2: pull a bunch of language out and create a phone
Speaker 2: call that sounds like a person you were telling a
Speaker 2: story about that. How dangerous is cybersecurity and this sort
Speaker 2: of AI generated impersonation to fraud protection?
Speaker 1: Yeah, I mean, let's let's just touch on cybersecurity. Cybersecurity
Speaker 1: is a people problem, right, It's just that the root
Speaker 1: of where they're getting the data is technology, and.
Speaker 2: The social engineer acting is is is the data.
Speaker 1: But it's almost all coming from people. Right. It's it's
Speaker 1: your unroot to a conference or I'm unrout to a
Speaker 1: conference and someone is specifically targeting your colleagues, right, I
Speaker 1: got I got an email from from one of my
Speaker 1: colleagues years ago. Uh, and he received an email before
Speaker 1: that that said, Hey, as you know, I'm flying out
Speaker 1: to this conference is a well known conference in our interspace.
Speaker 1: I'm not going to be available, but I need you
Speaker 1: to send me the following financial reports, to which he
Speaker 1: replied to me and he said, I don't have access
Speaker 1: to those financial reports. I replied to him, Well, that's
Speaker 1: exactly why you don't have access to these financial reports.
Speaker 1: They're you know, these cyber criminals are getting and I
Speaker 1: hate to call them that because people they're getting clever. Fantasy,
Speaker 1: they're getting clever, they're getting a depth, they're getting more nimble.
Speaker 1: You know, they're small advisors are not the primary subjects
Speaker 1: of a denial of service attack, right, I mean that's
Speaker 1: what big financial institutions are. After what they're they're going
Speaker 1: to get duped because of the feigned familiarity that they
Speaker 1: have to have with their clients. It's you know, it's
Speaker 1: it's the you know, South calling saying or emailing saying,
Speaker 1: as you know, I'm going on a cruise. How did
Speaker 1: the criminal know this because they went through Sally's emails
Speaker 1: and she's they see she's booked on a cruise, as
Speaker 1: you know, I'm on a cruise, put on Instagram or
Speaker 1: it's on on social media, right, And so these criminals
Speaker 1: are scaling down. It's a scalability issue. They're scaling down
Speaker 1: to the point that they can go after these individual
Speaker 1: crimes and they're succeeding unbelievable.
Speaker 2: Unbelievable. All right, So I have two curveball questions I
Speaker 2: got to ask you before we get to our favorite
Speaker 2: questions in our last five minutes. The first is you
Speaker 2: were a chef in the US Coast Guard Auxiliary. How
Speaker 2: the hell did that happen?
Speaker 1: You know? I uh, I'm an incredibly curious person. Some
Speaker 1: would say just you know, I'm just jumping. And anytime
Speaker 1: I'm interested in something, I want to know. I want
Speaker 1: to know how people do it, I want to know
Speaker 1: how things work. And so I joined the Coast Guard
Speaker 1: Auxiliary when I bought a boat back in two thousand.
Speaker 2: So we're not talking about JAG. We're talking about literally
Speaker 2: the Coast Guard Auxiliary.
Speaker 1: Yeah, the Coast Guard Auxiliary. Now it's you know, it's
Speaker 1: a group of largely retired servicemen and women who get
Speaker 1: together to help support the US Coast Guard. Right they
Speaker 1: call it, you know, they call the US Coast Guard
Speaker 1: the gold Side, And we were the silver Side. And
Speaker 1: so I joined to get free boating education. I joined
Speaker 1: to learn navigation, joined joined to learn weather.
Speaker 2: And they give a lot as a fellow voter, they
Speaker 2: give courses. Yeah, you could sign up. You can learn
Speaker 2: to sail, you can learn to navigate by the stars.
Speaker 2: You can do all of it with them.
Speaker 1: Yeah and so, and I love the camaraderie of the group.
Speaker 1: And one of the programs they had, they used to
Speaker 1: call the Chef program the Auxiliary Chef program. Now they
Speaker 1: call it Auxiliary Food Service. But the program is about
Speaker 1: augmenting the capabilities of the gold Side so that someone
Speaker 1: can take a few days leave or that's or that
Speaker 1: or when they run you know, when they run low,
Speaker 1: or when they're having a special event. And taught me
Speaker 1: about food safety, taught me about a food quantity, and
Speaker 1: I just I've always loved the I've always loved the
Speaker 1: gratitude of pulling off what people don't know. Right, you
Speaker 1: did it, and it's kind of an extension of what
Speaker 1: I do.
Speaker 2: That sounds fun. And then you almost had a career
Speaker 2: in radio. Tell us how you sidestep that and went
Speaker 2: into legal practice.
Speaker 1: I think what you meant to say is have a
Speaker 1: face for radio.
Speaker 2: I definitely same. Same. So you you were in your
Speaker 2: college radio station. Tell us a little bit about that.
Speaker 1: So I was convinced to do college radio early on
Speaker 1: our freshman year and we got a show. It was
Speaker 1: the worst time. It was during Monday night football, right.
Speaker 1: Who listens to radio during Monday night football at college? Nobody?
Speaker 1: But that was freeing, right, because we can kind of
Speaker 1: do whatever we wanted on the air and make mistakes
Speaker 1: and no one really noticed. And so over the years
Speaker 1: we got bumped up to the point that we got
Speaker 1: our slot Thursday night eight to eleven, which was like prime.
Speaker 1: Everyone listened to the radio.
Speaker 2: Sure, you're getting ready to go out for a Satursday
Speaker 2: night in college?
Speaker 1: Pree gaming? Right? And so we, uh, we were doing
Speaker 1: our thing. Unbeknownst to us, there were ratings. I didn't
Speaker 1: know anything about ratings. I knew you had to get
Speaker 1: an FCC license, but I didn't know anything about ratings.
Speaker 1: And unbeknownst to us, we hit the UH, you know
Speaker 1: as like the top program in that time slot in
Speaker 1: New Haven and got all all sorts of crazy recognition.
Speaker 1: But we were just you know, two roommates getting on
Speaker 1: and UH and doing an old school rap show.
Speaker 2: That's a let wait, old school rap show.
Speaker 1: Old school rap wait.
Speaker 2: So the two of you would drop and beats and
Speaker 2: lyrics on the radio. That sounds really embarrassed.
Speaker 1: I wasn't rapping, okay, but and I call it old school.
Speaker 1: It's only old school sitting here today, right, it wasn't
Speaker 1: old school back then.
Speaker 2: We've talked about this before. To me, old school is
Speaker 2: is Pol's boutique and Beastie Boys. That's about as far
Speaker 2: as my hip hop progressed.
Speaker 1: That's pretty good, Yeah, not too bad.
Speaker 2: So in the last few minutes I have you, let's
Speaker 2: jump to our favorite questions that we ask all our guests,
Speaker 2: starting with what have you been watching? What have you
Speaker 2: been streaming? And what's kept you entertained in the pandemic
Speaker 2: and post pandemic era.
Speaker 1: So I will tell you that I am. I am
Speaker 1: not a good streamer.
Speaker 2: Okay, it's not hard.
Speaker 1: I know it's not hard. But I'm one of these
Speaker 1: people that almost prefers there to be crap on TV right,
Speaker 1: so that I can do other stuff and have that
Speaker 1: on in the back. Okay, So I love I love
Speaker 1: putting on sports in the background that I'm marginally interested in. Right,
Speaker 1: Throw on a Yankee game. I could hear the announcer
Speaker 1: of the inflection and the voice. Throw on a soccer game.
Speaker 1: I love watching soccer, or actually I love having soccer
Speaker 1: on right.
Speaker 2: And there is a certain energy to World Cup, the
Speaker 2: back and forth. It's like waves and you can kind
Speaker 2: of half pay attention to it.
Speaker 1: It's awesome and and you know, undeniably anytime you get
Speaker 1: into March madness, it's one of the best times of year.
Speaker 1: So I don't really obsess over over much on TV.
Speaker 1: I will put on any anything on that Geo or
Speaker 1: History channel and kind of geek out over that stuff.
Speaker 1: But my deal is I use like one of these
Speaker 1: services where anything I find interesting, I just tag it
Speaker 1: as like a to watch watch it later, Yeah, like
Speaker 1: something like that, right, and then and then I have
Speaker 1: that on my TV. So if I'm watching with any
Speaker 1: of my kids or my girlfriend, they they can go
Speaker 1: into that treasure trove and be ensured that it's something
Speaker 1: I wanted to watch at some point in time. And
Speaker 1: so that's usually our deal.
Speaker 2: Let's let's talk about mentors who helped shape your career.
Speaker 1: You know, I think I think everyone that I came
Speaker 1: across did in some way, shape or form.
Speaker 2: You know.
Speaker 1: I used to I used to hate this question about
Speaker 1: like who's your idol, because I never I never thought
Speaker 1: that that was a fair assessment of anyone. But but
Speaker 1: in terms of mentors, you know, I had so many
Speaker 1: and continue to have so many that that came before
Speaker 1: me that I learned from. Some I strangely learned what
Speaker 1: I didn't want to be and the road I didn't
Speaker 1: want to take right. It was a lot of a
Speaker 1: lot of other people's mistakes that I would that I
Speaker 1: would learn from. But I mean, the list is just
Speaker 1: so plentiful of people that that literally would just give
Speaker 1: me a hand up. I had a very a very
Speaker 1: unique and special type of relationship with with the gentleman
Speaker 1: who was my boss as I interned at merri Lynch.
Speaker 1: One of my first jobs in the securities industry in
Speaker 1: undergrad many many years later, I had we continue to
Speaker 1: stay in touch and I had the uh, the privilege
Speaker 1: of helping him and his team leave merri Lynch. Oh yeah,
Speaker 1: and it was and it was fascinating. And then many
Speaker 1: years after that, when he went to exit his his firm,
Speaker 1: A had the privilege of helping him again. And so like,
Speaker 1: that's you know, to me, those are the relationships that
Speaker 1: that just make make this all worthwhile, right, continuing to
Speaker 1: not be involved in the individual transaction, but rather being
Speaker 1: a part of of someone's life.
Speaker 2: And that's interesting that that's a full arc from from
Speaker 2: employer to team leaving to retirement. That that's not usual.
Speaker 2: You don't usually get to see something like that.
Speaker 1: It's not usual. But I'm really really grateful for those
Speaker 1: types of experiences.
Speaker 2: Let's talk about books. What are some of your favorites?
Speaker 2: What are you reading currently?
Speaker 1: So you and I went to a conference and we.
Speaker 2: S Darren's Individual Advisor Conference in Independent, Independent, and we
Speaker 2: got to live through a tornado that turned the sky
Speaker 2: black and people standing in front of these giant plates
Speaker 2: of glass and hey, I'm not from Texas, but maybe
Speaker 2: those big windows are not where you want to be.
Speaker 2: Is this funnel comes ripping towards the hotel?
Speaker 1: Probably not, but that's where that's where I pulled my
Speaker 1: latest book from the speaker they had that night was
Speaker 1: Jeremy Siegel.
Speaker 2: The professor always great.
Speaker 1: It is always great, and so I jumped into his
Speaker 1: book stocks for the long run.
Speaker 2: Now in like the eighth edition or something six right now,
Speaker 2: sixth edition. But yeah, that sold a couple of million copies.
Speaker 2: It's one of the best sellers in the space.
Speaker 1: I found it. So here's my disclosure about books. Right.
Speaker 1: There are certain books I read when I was young
Speaker 1: that had such an impression on me, and nowadays, anytime
Speaker 1: someone tells me about an interesting book, I buy it
Speaker 1: first and I start reading it. So I've begun reading.
Speaker 1: I looked knowing that you're gonna ask me this question.
Speaker 1: I have one hundred and forty four books that I've
Speaker 1: started reading and I'm in progress as some.
Speaker 2: Are you going to read them?
Speaker 1: Because I will.
Speaker 2: By the way, some people seem to feel that books
Speaker 2: are like homework and once you start, you have to finish.
Speaker 2: There's nothing wrong with picking up a book and saying, oh,
Speaker 2: I'm not enjoying this and moving to a book that
Speaker 2: you'll actually like.
Speaker 1: I totally agree with you. I mean, there's too many
Speaker 1: books that I read the first chapter like nine times
Speaker 1: because I keep picking up and I'm like, all right,
Speaker 1: if I'm not into this, it's okay, Like just you know,
Speaker 1: toss it to the side. I also started reading book
Speaker 1: The Hard Thing About Hard Things. You know, it's a
Speaker 1: fascinating book.
Speaker 2: Who authored that? By Ben Horowitz of Andresen Harrowez. He's
Speaker 2: also a prior guest. He's a fascinating guy.
Speaker 1: Yeah, and I love his take on we're not talking
Speaker 1: about the herd issues, right, Like, I think through things
Speaker 1: that people call luck or things that people call happenstance,
Speaker 1: and I think I love to think through all of
Speaker 1: the permutations that led to that point in time, right,
Speaker 1: all the decision points and even lack thereof. And you know,
Speaker 1: he kind of starts to get to to some of
Speaker 1: that things.
Speaker 2: Just because somebody's lucky doesn't mean they weren't good or
Speaker 2: putting themselves in a position where a little luck and
Speaker 2: shoe on that.
Speaker 1: But where's that right balance?
Speaker 2: Right?
Speaker 1: Do you want to be you know, you don't want
Speaker 1: to be so pompous to say that there is no luck, right, right,
Speaker 1: But you also don't want to, you know, be you know,
Speaker 1: so soft as to say like, oh, it's all luck, right,
Speaker 1: It's it's not it's you know, it's some it's some logica.
Speaker 1: It's some logical confluence there, right, and setting yourself for luck.
Speaker 1: You know. I'm getting to to that point that you know,
Speaker 1: people recommend books about about how much time we have left.
Speaker 1: So someone recommended this book four thousand weeks.
Speaker 2: I love that title, by the way, it's awesome genius. Yeah, yeah,
Speaker 2: I started that, but I need better time management skills
Speaker 2: in order to finish it. But it's it's you know,
Speaker 2: it's one of those things you could just pick up
Speaker 2: a chapter at a time, so.
Speaker 1: You can, and and it's a I'd say it's a
Speaker 1: light read. It's probably not a light read, but it
Speaker 1: is more of a time management book, right than a
Speaker 1: book about our own mortality.
Speaker 2: Explain what four thousand weeks are?
Speaker 1: Yeah, it's it's how much time you have in your
Speaker 1: lifetime if.
Speaker 2: You're if you're lucky, you know, you and I have
Speaker 2: a thousand weeks left, yeah, and.
Speaker 1: So and so it it it puts some degree of
Speaker 1: impetus to get to the things that you're just saying,
Speaker 1: we'll do it later.
Speaker 2: Your bucket list, which most people don't don't tag.
Speaker 1: So so, like I I always love having a variety
Speaker 1: of books that that I'm reading that kind of checked
Speaker 1: the box. Whether it's it's hard finance books, or it's
Speaker 1: strategy books, or it's uh, it's it's empathy and uh,
Speaker 1: you know, emotional books. But the stuff that I read
Speaker 1: when I was younger kind of in my you know,
Speaker 1: I guess, early late teens, early twenties.
Speaker 2: Give us an example.
Speaker 1: I read The Millionaire next Door right when I was young, Yeah, right,
Speaker 1: and like I just it just stuck with me.
Speaker 2: Really. Yeah, there's just there's certain books that just sit
Speaker 2: with me aspects of that that are very valid. I
Speaker 2: shouldn't just have like an automatic Yeah. And I can't
Speaker 2: respond well.
Speaker 1: And I can't tell you anything about the book itself,
Speaker 1: but what I can tell you it left me with
Speaker 1: is that you always have control over what you spend, right,
Speaker 1: and less over what you what you make.
Speaker 2: Now, by the way, I'm gonna withdraw my I'm gonna
Speaker 2: I'm gonna say that respond to that again because I'm
Speaker 2: thinking of a different book, and it's not this one.
Speaker 2: So raspberry with Raspberry withdrawing, I'm thinking of, well, I
Speaker 2: didn't say that, but yeah, that's what I was. What
Speaker 2: makes Millionaire next Door so fascinating is that we tend
Speaker 2: to think, well, you you read it more recently than
Speaker 2: I probably did. No read so what I remember that is, Hey,
Speaker 2: the fancy car, the big house. That's not the average millionaire.
Speaker 2: The typical person who's accumulated a net worth north of
Speaker 2: a million dollars is living a fairly sedate life there.
Speaker 2: They they have a modest home, not a big, fancy home.
Speaker 2: They have a five year old car, They're not having
Speaker 2: a ferrari or a porch. They basically are are living
Speaker 2: lives of quiet success without that of feeling the need
Speaker 2: to show off. You see the indicitia of wealth. You
Speaker 2: don't see the liabilities on the other side of it.
Speaker 1: There's there's no doubt that if I could sum the
Speaker 1: book up in one word, it was moderation, right, is
Speaker 1: it enjoy just and don't enjoy the success? Right? And
Speaker 1: it was such an offset to popular culture at that time,
Speaker 1: which was celebrating excess. Right. It was athletes and entertainers
Speaker 1: just like that was the look of millionaires until I
Speaker 1: read that book also a little later on read where
Speaker 1: are all the customers Yachts?
Speaker 2: Not been a good speed? What's his name? I read
Speaker 2: that book a long time ago, and it's hilarious.
Speaker 1: It's hilarious, right, I mean, it's about this guy walking
Speaker 1: through Wall Street basically saying, hey, wait, I see I
Speaker 1: see all the yachts from the people who work here,
Speaker 1: But where where are all the customers yachts? And and
Speaker 1: I thought that was just a really good take.
Speaker 2: Fred Schwead, Yeah, I had a search for that because
Speaker 2: I couldn't access his.
Speaker 1: Name, and it's just, you know, it just it's very poignant.
Speaker 1: And to this day I think about that when we
Speaker 1: think about the inequity that exists between financial institutions and
Speaker 1: retail customers, right, and the good work that since that
Speaker 1: book was written, that advisors have really done to democratize investing.
Speaker 2: And that book was written seventy five years maybe even longer.
Speaker 1: I want to say it was in the forties if
Speaker 1: I recall like postwar period, yeah, forties, fifties, I'm thinking fifties,
Speaker 1: nineteen forty very good.
Speaker 2: I thought it was a little I thought it was
Speaker 2: a little later. So any other books before we get
Speaker 2: to our last two questions?
Speaker 1: You know there's other books that that stuck with me.
Speaker 1: Freakonomics is one. You know, how to make economics interesting
Speaker 1: to the masses. I just love the approach that those
Speaker 1: guys took. And I'm just a I'm just a heard
Speaker 1: when it comes to economics to technology and all that
Speaker 1: sort of thing and building a business. In two thousand,
Speaker 1: it was tough to avoid books like the e Myth
Speaker 1: write this concept that business process drives consistent results? Which did?
Speaker 1: It wasn't necessarily a foregone conclusion back in two thousand
Speaker 1: and so I thought it was really compelling.
Speaker 2: All right, And our final two questions, what sort of
Speaker 2: advice would you give to a recent college grad interested
Speaker 2: in a career similar to yours? Regulatory compliance, legal finance?
Speaker 2: How would you advise them?
Speaker 1: So, my oldest daughter just graduated from pitt last year.
Speaker 1: My middle that was Ella, my middle one, Jake, is
Speaker 1: graduating from Georgetown next month. And my youngest, Sidney, is
Speaker 1: a freshman at University of Miami. Both Jacob and Sidney
Speaker 1: are in our finance majors. And so I've had some
Speaker 1: I've had these are been real talks. These aren't just theoretical.
Speaker 1: What I would tell them that the finance industry can
Speaker 1: be a lot of things to a lot of people.
Speaker 1: That there's not a single career within the finance industry.
Speaker 1: There's there's an entire world. It's great to work for
Speaker 1: a sector that's on top, but remember that our entire
Speaker 1: economy is cyclical. Right, If you're picking a job today,
Speaker 1: I understand the hot jobs are in finance and pharmaceuticals,
Speaker 1: but you know, you have to think through the duration
Speaker 1: of your career, right, and.
Speaker 2: Was job five years ago, ten years ago?
Speaker 1: Exactly? So do you only want a job that exists
Speaker 1: in the finance sector or do you want to find
Speaker 1: a job that's transportable elsewhere? And so so, speaking to
Speaker 1: Jake about that, right, he had experience working working for US,
Speaker 1: he had experienced working within on the investment banking side,
Speaker 1: working for David Devaux, he had experienced working within with
Speaker 1: a venture capital firm. And when it came time to
Speaker 1: find a full time job, you know, my advice to
Speaker 1: him was, you want a flight to quality that's not
Speaker 1: in the finance space, but hones your skills in finance.
Speaker 1: So he he's going to do a CFO rotation at
Speaker 1: one of large pharmaceutical companies like that to me is
Speaker 1: a good, you know, first step out of college, right,
Speaker 1: fine stability. I know that all the hype is around
Speaker 1: startup and is around fundraising and private and public investors.
Speaker 1: I just don't think that that's where I don't think
Speaker 1: that's where you really make your your your foundation of knowledge.
Speaker 1: At those places.
Speaker 2: None of the kids want to go work for the
Speaker 2: old man in his business take it over.
Speaker 1: It's it's never it's we've never discussed it as an option.
Speaker 2: They've all worked with me. But I think and that
Speaker 2: was plenty.
Speaker 1: Well, no, it wasn't plenty. Actually, I still I still
Speaker 1: love my daughter and I still work together all the time.
Speaker 1: She's a salesforce consultant and she is one of the
Speaker 1: easiest people in the world that I can talk to
Speaker 1: because she knows where I'm going with things before is
Speaker 1: a shorthand that it's amazing and so I would never
Speaker 1: preclude that. But you know, part of what we do
Speaker 1: stems from a degree of confidence in your skills and capabilities.
Speaker 1: And in order for I think in order for any
Speaker 1: child to get that, they have to prove themselves in
Speaker 1: the in the open market. They have to go out
Speaker 1: there and do it for themselves so that when they
Speaker 1: come back, you know, their soul is fulfilled. Right then,
Speaker 1: I feel like they've worked for Dad their whole life. Right.
Speaker 2: No, that makes a whole lot of sense. And our
Speaker 2: final question, what do you know about the world of finance, investing,
Speaker 2: regulation compliance? Today? You wish you knew twenty five or
Speaker 2: so years ago when you were first getting started.
Speaker 1: That's so easy. I wish I knew not to listen
Speaker 1: to financial media when they would say markets are up
Speaker 1: today because or markets are down on fears of blank.
Speaker 1: I used to think, Barry, that I was missing something.
Speaker 1: I used to think that I was just you know, like,
Speaker 1: how do they know that all of the millions, billions
Speaker 1: of inputs and outputs in the market all came down
Speaker 1: to that. And the fact is they don't, Right, They're
Speaker 1: oversimplifying a very complex problem. And I wish I knew
Speaker 1: that back then.
Speaker 2: I also wish that's fascinating.
Speaker 1: Yeah, I also wish I knew that that I know
Speaker 1: more than I thought I knew. I wish I had
Speaker 1: a little more confidence. And you know now I'm confident,
Speaker 1: not because I know a lot. I'm confident in my
Speaker 1: ability to recover from failures quickly and to change course.
Speaker 1: And I think most business owners we find ourselves like
Speaker 1: fish in a tank. Right, you hit the glass, you
Speaker 1: just change direction, Whereas when you're earlier, you don't want
Speaker 1: to touch the glass. You know, you don't want to.
Speaker 1: You don't want to hit that glass. And so and
Speaker 1: probably the last thing I would I would wish I
Speaker 1: knew back then was just to start with the objectives
Speaker 1: in mind, because even with investing and work backwards, start
Speaker 1: with the why, what's my thesis? What am I trying
Speaker 1: to go after? I just want to tell you my
Speaker 1: best investing skills came out of a really bad habit,
Speaker 1: which is I would get the newspaper, typically the Sunday paper,
Speaker 1: but you know on Wednesdays there were a certain section Thursday,
Speaker 1: and I would grab them and I would pile them
Speaker 1: up in my office, right. And I used to have
Speaker 1: piles of newspapers everywhere, and I would read certain people's
Speaker 1: columns pretty religiously, but late, right, so I would only
Speaker 1: typically read them after they've been out for a month,
Speaker 1: two months, sometimes six or twelve months. Right. And the
Speaker 1: knowledge that I gained by how wrong people are with
Speaker 1: twenty twenty hindsight was absolutely amazing. So what started out
Speaker 1: as a really bad habit was so helpful to me
Speaker 1: in putting things in context because now naturally, when I
Speaker 1: read something every day, I say, well, they don't know that, right,
Speaker 1: they're asserting that, but they don't know that. And it's
Speaker 1: really so.
Speaker 2: One of my old time favorite publications, laslo Berni, puts
Speaker 2: out an annual media round up and it's presented without commentary,
Speaker 2: and it's just the most important media stories from the
Speaker 2: Wall Street Journal, the New York Times, the Washington Post,
Speaker 2: the La Times, and it's just xerox and bound, and
Speaker 2: it's by the time you get it, everything's a year
Speaker 2: old and exactly what you're describing as you go through it,
Speaker 2: the things that are the big scary headlines, they just
Speaker 2: look horrific a year later, like that's wrong, Oh my god,
Speaker 2: how did anybody think this guy knew what he's doing.
Speaker 2: You just go through page after page after page, and
Speaker 2: you realize nobody knows anything, and they're just faking it
Speaker 2: till they make it. When you have a little time
Speaker 2: and distance, it's just clear that, hey, people have there
Speaker 2: are hours of TV that need to be filled. There
Speaker 2: are pages of newspaper that need to be filled. There
Speaker 2: are just you know, pixels and pixels online that need
Speaker 2: to be filled, most of which doesn't stand the test
Speaker 2: of time.
Speaker 1: So when the day after Silicon Valley Bank blew up, right,
Speaker 1: I got a call from a reporter and they use
Speaker 1: the words in these unprecedented times, right, And I had
Speaker 1: to stop for a moment and I said, how old
Speaker 1: are you? Because these are precedented times? Like we know
Speaker 1: exactly you know what we're dealing with, and hopefully we
Speaker 1: don't go back to, you know, to to that again.
Speaker 1: But I think it just gives you a sense of place, right,
Speaker 1: And at the end of the day, isn't that what
Speaker 1: we all yearn for? You know, even as as a
Speaker 1: young person starting out their career, you want to find
Speaker 1: your tribe, You want a sense of place, and you
Speaker 1: want a purpose.
Speaker 2: I like that that that you could do a lot
Speaker 2: worse than that. We have been speaking with Brian Hamburger.
Speaker 2: He is the founder of the Hamburger Law Firm, as
Speaker 2: well as the leading regulatory compliance and consulting firm, Market Council.
Speaker 2: If you enjoy this conversation, well, feel free to check
Speaker 2: out any of our previous nearly five hundred discussions we've had.
Speaker 2: You can find those at YouTube, iTunes, Spotify, or wherever
Speaker 2: you find your favorite podcasts. Feel free to sign up
Speaker 2: to my daily reading list at Ridolts dot com, Follow
Speaker 2: me on Twitter at rid Holts, follow all of the
Speaker 2: Bloomberg Family of podcasts at podcast I would be remiss
Speaker 2: if I did not thank the crack team that helps
Speaker 2: put these conversations together each week. Paris Wald is my producer.
Speaker 2: Sean Russo is my head of research. Samantha Danzinger is
Speaker 2: my audio engineer. Attika of Albron is our project manager.
Speaker 2: I'm Barry Ridolts. You've been listening to Masters in Business
Speaker 2: on Bloomberg Radio.