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Written by : Eliane Chavagnon
Editor – Familly Wealth Report

Here is an interview with Russ Hill, chairman and chief executive of Halbert Hargrove Global Advisors in Long Beach, CA, about his contribution to Fidelity Institutional Wealth Services’ recently-published book, Be Greater: Why Being Good Enough is No Longer an Option. In Fidelity’s book, Hill shares the expertise he has applied to building a $4 billion-plus AuM firm.

First of all, could you please talk a little bit about the genesis of your firm, Halbert Hargrove: who are your target clients, what services do you provide and what is your philosophy?

We started as a broker-dealer in 1933 and began our transition into a registered investment advisory firm in 1990. Over the years, the growth of our business has been largely due to clients who are small non-profit institutions and—mostly—individuals and families.

We believe:

  • That today’s quietly wealthy are better informed, demanding that their providers be free of conflicts of interest (e.g., managing and marketing proprietary products) and transaction-driven compensation models. Our role as fiduciaries informs our corporate management, fee-only compensation model, operations, and staff development. This, we’ve come to realize, is what drives Halbert Hargrove’s low client attrition, ability to attract thoughtful clients, and staff retention.
  • That clients should take comfort in their advisor’s track record and not question whether they will be around next year. We’ve built a carefully considered and financed management track and succession plan.
  • That in investing our money, commitment, and credentials, it’s critical to live out our philosophy: We were the first large firm in the West to achieve the CEFEX designation and our advisors are all AIF™ certified.

We are fiduciary investment counselors and wealth advisors. We provide financial planning and investment management/consulting services in-house. Other services, such as tax and estate planning, life insurance, property and casualty insurance, and trust services, are provided through a network of best-available outside providers. Our objective is to avoid conflicts of interest and deal with professionals who, in our experience, tend to work in independent professional partnerships and organizations rather than as “staff.”

Can you please elaborate on what the book’s title – Be Greater: Why Being Good Enough is No Longer an Option – implies?

The early days, and the low-hanging fruit, of the RIA revolution, are behind us. It is no longer enough to say: “I am independent” or “employee-owned” or “objective.” Almost every competitor uses similar language—though not always true—and prospective clients often cannot tell the difference.

At the same time, clients demand more services and sophistication than a sole practitioner can provide. So advisors who wanted to be independent so that they did not have to manage associates are being left behind. The business owner must learn to excel in areas of personal interest and expertise, and then must associate with or hire others to provide the services demanded by clients.

Now, it’s a real business with real competitors. For us, “ being greater” involves: risk-taking a willingness to experiment; innovation; personal initiative; fast decision-making and execution; and spotting opportunities.

In the book, you explored three areas: strategic planning, integrating and harnessing technology, and attracting and retaining top talent. Could you please outline what each of these topics mean for the industry today and why they are so important?

While I cannot speak for the industry, for us, strategic planning is far more about providing context for high-performing associates and less about believing we can see the future. Of course, that doesn’t stop us from trying, as we try to stay on top of industry trends and forecasts. In any distributed organization—we have six offices in the US and two affiliated offices in London and Geneva—one of the biggest issues is internal communication and direction.

Our process is ongoing, formal and informal, measurable, and accountable. We start with a pyramid to represent the building blocks of success and to reinforce the idea that one cannot achieve the top of the pyramid without first attending to the enabling base. This idea translates to a graphic representation that carries forward from period to period, so that all associates can understand the structure of what we are trying to do. Naturally, the elements within each block are shifting regularly.

As we said in the book, there are three blocks in the base, two in the next level, and one at the apex. As the foundation, people and culture are first, both graphically and in importance; next is investment discipline/wealth advisory services to reflect continuing evolution. The third base block is financial resilience, which enables the next level.

Level two is the client experience, which is broadly defined. As well, leadership/structure focuses on management along with financial stability and continuity.

Finally, if we get all this reasonably “right,” our apex is market differentiation and growth. These are the elements that create the glue and long-term opportunity for developing associates as well as clients.

Because the process is continuous and transparent—and we all hold one another accountable for results—it allows us to tap into the best ideas of all and benefit from diversity of age, experience, backgrounds, ethnicity, and gender in the firm. While we normally kick off a major round of changes at the end of a calendar year, progress is reviewed and changes are made on at least a monthly basis.

For us, technology is useful in two primary ways: It can enhance the client experience and it can enable productivity internally. Each of these only work if various systems are integrated, so that data become information and knowledge. These results can be transformed—if we embed sufficient wisdom in the workflow and process—into repeatable and systematic actions that benefit clients at a lower cost or greater speed than would otherwise be possible, absent the technology.

For us, that has meant trying to run as many processes and specialized applications as possible through a central hub: a client relations management or CRM system that can be accessed simply but which then can lead to either broad or deep data integration as is needed and appropriate.

Originally, we designed our own systems prior to their general availability in the marketplace. Now, we believe a better use of our resources is to help design integration with major outside vendors; the cost of “keeping up” for individual firms has risen dramatically along with the pace of change in the industry. In the near future, a focus on gamification of the process for clients and enhanced learning and investing tools are on the table.

Some time ago, we decided that recruiting experienced associates in both service and sales would be increasingly difficult. The result? We now, primarily, grow our own. We have invested more than a decade, including internal training, certification, and external training, in fully supporting three MBA enrollments (two graduates thus far), nine Certified Financial Planners™, 29 Accredited Investment Fiduciary™ designees, and a CFA™ Charterholder.

Six of our earlier hires, with an average tenure of more than eight years, have now become directors with substantial management and leadership responsibilities as well as equity ownership.

An interesting finding in the industry is that many college students are unaware of the opportunities in financial services or hold the view that only Type-A salespeople are involved. So we started an active intern program. We normally have four to six at any given time. They are enrolled in a local, large university program—generally in finance—and are typically juniors and seniors who work with us on flexible schedules year round.

At first, we tried one intern at a time, but that was not successful. Now, the interns have a manager tasked with organization, training, mentoring, and seeing that they have real work and real responsibilities. We get to see them in action and they get to see us. It has proven to be extremely useful to access their energy, technical skills, and generational views. And, we’ve taken on three interns so far as permanent associates.

How – indeed if at all – do you think perceptions of the above-mentioned have changed in recent years?

While a focus on the three areas discussed above was only discussed rather abstractly as recently as three to five years ago, the advice industry is rapidly evolving from “practices” to businesses. Consolidators have played a big role, but even more important to our minds have been the custodians, technology companies, and service providers who have made it so much easier to leave a big Wall Street firm and step into a functioning business model.

When the 2008 meltdown made the state of the emperor’s undress in Manhattan so abundantly clear, brokers looking to better serve their clients, or perhaps merely to protect their livelihoods, started to leave in droves. For better or worse, they were accustomed to a much more formal business structure than was common in the RIA space; that business opportunity has meant many, many firms trying to capture market share.

Early on, even a reasonable focus on the business was well rewarded; now, with an industry focus on best practices, execution is king.

Even a cursory view of the industry today has to include forecasts of continuing and increasing impacts of Dodd Frank and the increased transparency, and thus downward pressure, on pricing from the development of both robo advisors and various analytical services. Those who do not run an efficient and effective business will not survive—or, at least, they’ll make far less money.

What do you see as the most pressing challenges in the wealth management sector today? And what are the most compelling opportunities for a firm such as yours?
As usual, there is no dearth of challenges. The following are all important, though not rank ordered, as this seems to shift periodically:

  • Aging founders, perhaps not ready to retire but perhaps also retired in place ahead of ambitious associates. The necessity of using functional service teams to support client needs also means, as we’ve said before, that being in top management sort of feels like a lion tamer walking among the big cats with a bucket of innards: Will it be possible to feed them fast enough to keep them contented? In our view, sustainability of businesses is important to associates and is part of each firm’s fiduciary duty to clients. Industry surveys show that the majority of firms do not have formal succession plans—much less plans that are formalized, funded, and supported by effective management training and skills.
  • Generational shifts in preferences, along with rapid technological change and increased fee transparency, will create competitive pressures. These will be complicated by the fact that these generational differences will require both style and substance offerings that conflict deeply enough to affect branding. A very difficult proposition: social media, anyone?
  • The development of the robo advisors will force old-guard firms to have a much clearer and more persuasive value proposition to support current fee levels. At the same time, adopting technologies similar to the newer robo model should allow greater efficiencies. A good deal of intensive thought and effort will be required to get it right—maybe.

As usual, the risks come as the other side of opportunities. If we can manage to correctly identify and target core markets—the disciplined and successful savers in our world—and match them with technologically enhanced service offerings and highly trained and enabled service teams, we will be able to provide real, tangible value to generations of client families.