PE push
Hightower is already one of the country’s 10 largest RIAs, with approximately $326 billion in assets under management. And, just as CD&R is pushing Focus to centralize, there’s little doubt in the industry that private equity firm Thomas H Lee Partners, Hightower’s majority owner since 2017, gave Restieri similar marching orders to implement the 18-year old firm’s latest iteration.

Hightower’s PE owners explored selling its stake in the firm last year, but found no takers, according to industry executives. Centralization, they add, is critical for the PE firm to be able to cash out for top dollar.

“This is the direction in which the industry is moving,” said Corey Kupfer, an attorney specializing in RIA deals. “PE investors are going to continue to push firms in this direction as single-brand more integrated models create more efficiencies, ease of scale and enterprise value.”

Private equity prefers to invest in platforms over holding companies, said David DeVoe, CEO of his eponymous RIA M&A strategic consulting firm. 

“It is not surprising to see organizations like Focus and Hightower evolve their business models from decentralized baskets of companies toward a more centralized structure,” DeVoe said. “Investing in a single business entity provides the opportunity to implement classic business management techniques. Doing so provides the potential path to increase profits and growth on a more accelerated basis. Driving up profits and growth drives up the value of a firm.”

Based on a multiple of invested capital , TH Lee is aiming to at least double its investment, but ideally drive the multiple up to four times MOIC, according to industry insiders.

Behind the new strategy
Hightower’s new strategy isn’t being implemented “explicitly” for monetization, but rather to drive growth and make the giant RIA “a better operator,” Restieri said. If achieved, both objectives will, of course, make the firm more valuable.

How might Signature make that happen?
At a press briefing, Restieri noted the key role centralization has played in the success of rivals Creative Planning and WEG. Similarly, Signature will feature common branding and a centralized investment platform, as well as a new tech stack, revamped infrastructure and upgraded operational support.

The new investment platform is being built out by fintech veteran Randy Bullard and overseen by Stephanie Link, Hightower’s chief investment strategist and regular CNBC commentator, with help from NEPC, the investment consultant and OCIO firm acquired by Hightower last year. All current Hightower advisors will be able to access the new platform, even if they don’t move over to the Signature brand, Restieri said.

Private markets
Access to private markets will be a key feature of the platform and Bullard said he expects a private markets exchange to be up and running on Signature by next year’s first quarter.

While alternatives have certainly been one of the biggest – and most heavily promoted – market trends of the past year, questions have also been raised about the asset classes’ risk suitability for individual investors.

“I’m a believer in private markets appropriately sized in a portfolio,” Restieri said, acknowledging that he had a “natural bias” towards private markets given his background at Goldman Sachs. Private markets are “a big part of the economy,” he noted, that have delivered “positive returns over time.” 

Who’s on board?
All current Hightower advisors will be able to access the new investment platform, even if they don’t move over to the Signature brand, Restieri said. 

Will current advisors be “encouraged” to become part of Signature? 

“I have less of a view on them joining Signature Wealth, more of a view that I want them to adopt central back and middle office functions, because that will give the whole organization scale,” Restieri said. “So I definitely will encourage all practices to adopt whatever central services make sense for them.”

A number of Hightower firms have built great brands, he added, “so there definitely are firms within our ecosystem that I would never expect to become part of Hightower Signature Wealth, and I would never ask them to be.”

Dallas-based Frontier Investment Management, which joined Hightower in 2020, will make the leap to Signature, a move managing partner Brian Hattendorf called a “natural next step” that would amplify the firm’s reach.

Frontier, like many of the firms Hightower has acquired majority stakes in, will remain under a partnered, K-1 tax structure after moving to Signature, but new firms joining the channel will be W-2 employees.

What’s the deal?
Hightower – and TH Lee – are betting that offering centralized services under a common brand marketed directly to consumers, as well as cash and equity from a well-capitalized RIA that is likely to be one of a handful of national mega-firms will attract advisory firms which may not have fit Hightower’s previous model.

“We can partner with almost any size firm,” Restieri said. “It widens the aperture for firms we can acquire.”

Launching Signature “gets Hightower in front of a number of opportunities where a target is looking to join a single firm rather than running their own practice and P&L,” said recruiter Louis Diamond. “I wouldn’t be surprised if there’s an element of  Hightower looking at Focus’ strategy with Focus Partners Wealth and seeing the benefits of a single large cohesive firm.”

Although newly-acquired firms do not have to join Signature and can remain semi-autonomous with their own branding, they may have to use new vendors. “There might be a middle or back office vendor that you use that we may say you have to migrate from,” Restieri explained. “I’m not saying it has to be the one that Hightower Signature Wealth uses, but we are not going to have unlimited choice.”

Identity issues
But doesn’t maintaining a two-track structure for advisors leave Hightower with a confusing split identity?

Having that “flexibility” is an advantage for the firm, Restieri responded. “I know that’s not where some of our peer firms have gone,” he said. “I think we can have independent brands, and I actually think it’s a better model.”

As an example, he cited Volkswagen, whose extensive direct-to-consumer marketing supports distinct and successful brands including Lamborghini, Porsche and Audi.

“Branding is expensive”
Is Hightower planning its own direct-to-consumer marketing support for Signature?

Restieri said he didn’t yet know what form it will take, but that initially Hightower will “leverage” Stephanie Link as the face of the channel, and begin rolling out digital marketing and events. By 2026 “we will definitely amp up the marketing budget,” he said.

Hightower has to identify who they are branding this new business line for, said Mark Tibergien, the former CEO of Pershing Advisor Solutions who is now an industry consultant. 

“Is it advisors, recruits, institutional clients, or to the market generally?” Tibergien asked. “This will dictate how much they have to spend on building a meaningful brand that will result in increased business value. There are a lot of firms in this industry that are launching subsidiary brands, but there is rarely any meaningful market presence or movement as a result. That’s because branding is expensive. And without being clear who you are targeting with that brand, the resource allocation to it loses its impact.”

Moreover, a centralized investment platform is hardly what every advisor is looking for. “What they’re doing is a thinly-veiled effort to create a Wall Street-style asset management platform,” said one former executive. “How is it better for the client?”

Evolving business model
The new infrastructure will create a “feedback loop,” that actually spurs innovation and best practices, Restieri said. Signature will account for around 10 per cent to 20 per cent of Hightower’s assets next year and will be “foundational” for the RIAs’ long-term growth, he said. 

If successful, that means an enhanced market valuation, which could result in a blockbuster sale to a sovereign wealth fund, a mega-merger with another top-tier RIA, additional private equity, some combination of the above or even a sale to a large wirehouse or asset manager, say industry insiders.

Hightower’s pivot may also mark the end of the aggregator model. 

“This feels like an evolution of that business model,” said Chip Roame, managing partner, Tiburon Strategic Advisors. “First we saw Focus consolidate its affiliates, now Hightower,” said merchant banker Peter Nesvold, managing partner of Nesvold Capital Partners. “Both were savvy, early acquirers and now that the models have achieved critical mass, it makes sense to integrate and start to benefit more tangibly from the scale economies that are embedded in their respective businesses.”