Weissbluth raiding Wall Street advisers for his Chicago firm
By Lynne Marek
May 03, 2010
With Wall Street under fire, Elliot Weissbluth is trying to build a new style of brokerage in Chicago — using talent snatched away from the titans of finance.
Mr. Weissbluth's HighTower Advisors LLC, less than two years old, already has $15 billion in assets under management and 24 financial advisers, most of them lured away from big Wall Street banks like Morgan Stanley & Co. and Goldman Sachs Group Inc. His talent raids have earned him the ire of Wall Street, but he has some powerful backers as well. He's raised $165 million in funding from investors like former Morgan Stanley CEO Philip Purcell and former Charles Schwab Inc. CEO David Pottruck.
Mr. Weissbluth isn't fazed by the flack, including a lawsuit by Morgan Stanley accusing HighTower hires of soliciting Morgan clients and pilfering confidential information. Indeed, it's part of his plan to set HighTower up as an anti-Wall Street firm with Midwestern sensibility and freedom from the conflicts that he says are driving clients away from big banks.
"It was a good idea before the credit crisis," Mr. Weissbluth says. "It's now a fabulous idea because the market around us has significantly deteriorated in terms of affording the end-client confidence that they can trust their advisers."
A former litigator, Mr. Weissbluth calls the Morgan Stanley lawsuit a "frivolous" intimidation tactic. The case is pending before a mediator. A Morgan Stanley spokeswoman declines to comment.
Mr. Weissbluth is gaining notoriety in the brokerage world, but his name is better known among parents of fussy babies than among wealth managers. His father, Chicago pediatrician Marc Weissbluth, is the author of several popular books advocating better sleep habits for children. The younger Mr. Weissbluth, 43, says he was the "original crybaby," whose poor sleep habits helped inspire his father's research.
The 1985 New Trier Township High School graduate lives in Wrigleyville but returns to the North Shore to satisfy his cycling habit. Trained as a lawyer at John Marshall Law School, Mr. Weissbluth worked at a personal injury firm before catching the entrepreneurial bug. In 1999, he co-founded Lightflow Inc., a Chicago software company he later shut down.
He first conceived of a new financial advisory firm in 2001, when he was director of marketing at CRA Rogerscasey, a Darien, Conn.-based investment services company. He went on to become the Chicago-based president of U.S. Fiduciary L.P., a Houston boutique financial services firm that failed last year, two years after Mr. Weissbluth moved on.
An early HighTower investor was former Morgan Stanley executive Douglas Brown, who gave Mr. Weissbluth entree to the circles Messrs. Purcell and Pottruck travel in.
CONFLICT-FREE
At HighTower, Mr. Weissbluth is managing 100 employees, 30 of them in the company's West Loop headquarters. By 2013, he aims to have as much as $50 billion under management for institutions and wealthy clients, typically those with $5 million to $25 million in assets. He also expects HighTower's headcount to double to 200 by then.
HighTower is counting on wealthy clients flocking to a firm with independent advisers who don't hawk in-house products and who give clients a choice of account custodians, fund brands and research services. The firm also lets clients choose their clearing, lending and trading services. HighTower advisers make money from fees paid by clients, not commissions from underwriters peddling stocks and bonds.
That independence helped Mr. Weissbluth raise money from a group of rich people who resemble the clients his advisers will pursue.
"I liked the idea that you could solve this problem of sort of having very talented people captive as to what they could offer their clients because they were sort of golden-handcuffed to the infrastructure," says Howard Tullman, a Chicago entrepreneur and CEO of Tribeca Flashpoint Media Arts Academy who made a multimillion-dollar investment in HighTower.
Still, it's not easy to lure advisers away from the powerful and well-paying investment houses. Mr. Weissbluth sweetened the deal by carving out a chunk of equity for the advisers. They own 25% of HighTower, other employees own another 25% and the investors own half.
Larry Gilbert, a financial adviser who left Goldman to join HighTower in Chicago, says he felt conflicts of interest intruding on his duty to clients at Goldman, making HighTower's independent model attractive. He also liked the idea of influencing the firm's direction as an owner. "Having that say is really important to me because that's how I guarantee that I am meeting my true fiduciary responsibility," Mr. Gilbert says.
HighTower does recommend some financial firms' services, but it isn't bound to them, Mr. Weissbluth says. For instance, his advisers prefer that their clients choose Charles Schwab & Co. or a couple of others as their account custodians, but HighTower will work with an account at, say, Northern Trust Corp., too. The pitch to clients: HighTower will help them pick the best in a crowded field.
"When you have Wall Street firms competing for the business, that can only be in the end-client's best interest," he says.
While some observers question whether HighTower's model is as groundbreaking as Mr. Weissbluth asserts, they say they're impressed by its success in attracting financing, advisers and endorsements from Messrs. Pottruck and Purcell.
"Other entrants have all failed over the past decade," says Tiburon Strategic Advisors managing principal Charles "Chip" Roame, an industry consultant in California. HighTower's "success thus far is either (due to) subtle details of their model, better execution and/or the perfect storm of more brokers wanting to leave."
HighTower is funneling all of its financing into acquisitions, reaching agreements with the advisers who migrate their practices to HighTower in exchange for a payment commensurate with the volume of business they're expected to bring in over time.
The firm has main offices in Chicago, New York and San Francisco, with the bulk of its advisers — 10 — in New York and two in Chicago. Still, Mr. Weissbluth plans to beef up the Chicago and West Coast ranks with the recent hiring of two new recruiters. He expects to add another six advisers in Chicago by yearend and open three more offices as he adds four to five more teams this year.