· David Senra, Kurt MacAlpine
[00:00:00] S0: Correct? So, can we start the story from you're 39, you're getting recruited to be the CEO of this Canadian company, and then bring us up to where you are today? [00:00:00] S1: Sure. So, CI was a publicly traded Canadian asset manager, trading on the Toronto Stock Exchange, had been public for about 25 years at that point in time. The primary business was Canadian asset management, and essentially economically... And there was a small wealth management business in Canada, or small relative to the size of the asset manager. But economically, the entire profitability of the firm was derived effectively from the Canadian mutual fund business. [00:00:00] S0: And they were making how much at the time? [00:00:00] S1: Several hundred million dollars a year of EBITDA. [00:00:00] S0: Okay. And so why did they need a new CEO? [00:00:00] S1: The mutual fund industry, like all industries, kind of go through ebbs and flows. And I think that the go-forward growth prospects for mutual funds as a structure in particular, rise of ETFs, increasing importance of alternatives, just the expected growth or the growth, kind of the trends around growth that we were seeing in mutual funds started to taper off relative to other areas. So, the company was looking for a new strategic direction for the business at that point in time, decided to do an executive search. I was fortunate enough to be the candidate they had selected as part of that search process. [00:00:00] S0: But you come in with a rather aggressive plan. Where did that aggressive plan come from?
· David Senra, Kurt MacAlpine
[00:00:00] S0: But you come in with a rather aggressive plan. Where did that aggressive plan come from? [00:00:00] S1: A couple of different things. One, I had an opportunity to spend... I spent my entire career in the industry through a couple of different lenses. So, I spent 10 years in an advisory capacity working as a management consultant. Spent about four and a half years, post that, four to four and a half years as an operator inside of an asset management business. And through that, you kind of build points of view and perspectives. You see things that work really well, you see things that you think are ripe for improvement. And in the case of this particular business, I saw tremendous benefits towards globalizing and diversifying the company, and I had a very strong point of view that I wanted to do that by launching an ultra-high-net-worth wealth management business first in the US, hopefully generating enough success to be able to globalize that business. [00:00:00] S0: Why was that the most interesting idea to you?
· David Senra, Kurt MacAlpine
[00:00:00] S0: Why was that the most interesting idea to you? [00:00:00] S1: It was interesting for a few different reasons. So, I think that there were really kind of three things that stood out to me. The first one was in wealth management, in ultra-high-net-worth wealth management in particular, industries have headwinds or tailwinds. Obviously, I believe wealth management has a tremendous amount of tailwinds. There's more wealth being created today than ever. That wealth is more concentrated than ever. There's more complexity tied to that wealth than ever. It's transitioning generations faster than ever, and it's more global than ever. All of those things support the underlying need for advice. So, that was kind of the first piece. Second piece was, I felt like it was an industry that was ripe for disruption along a couple of different dimensions. So, the first one is around the industry structure. So, think of it as our industry as a giant barbell. So, on one end of that barbell, you have large banks that theoretically can do everything for clients or certainly have the resources to do so. But whether it's governance, bureaucracy, internal conflicts, in my opinion, they give back a lot of the scale benefits that clients should ultimately be benefiting from. [00:00:00] S0: Wait, what does that mean?
· Kurt MacAlpine
[00:00:00] S1: From a size perspective, they have access to capital, they have access to resources, they can theoretically make strategic investments. It's challenging sometimes to align and mobilize all of those things where clients ultimately benefit. So, companies over time, whether it's the governance, whether it's internal policies, whether it's bureaucracy, just prevent clients from getting the full underlying benefits of the firm. That could be as a result of how the business is structured, how compensation plans work, which I'll come back to, or just how information flows or how teams are ultimately constructed. On the other end of that barbell, though, you have small local firms that exist all throughout the country, literally all around the world. Many of those firms are doing exceptional things for clients. The challenge is scale becomes a challenge, because that may limit your ability to get access to world-class managers that have capacity constraints. It may limit your ability to negotiate purchasing power on behalf of your clients, and it may limit the services that you're ultimately able to provide to them. So, you start to run into limitations around what you can do for clients as a result of the scale. In between kind of these two ends of the barbell, there's a tremendous amount of white space that just creates opportunities for disruptive new entrants. So, that was the second piece. And then the third piece is, I felt very, very strongly that the industry was built on a flawed structure. And I'll explain to you what I mean by that. So, effectively, regardless of the firm, regardless of the market, almost all advisory businesses are built the same way, wealth advisory businesses. Advisors are independent contractors sharing somebody's brand, somebody's technology, and somebody's office space. Those advisors not only compete with one another for next new clients, but they can literally take clients from one another inside of the same firm, which creates a tremendous amount of isolation, not collaboration.
· David Senra, Kurt MacAlpine
[00:00:00] S0: So, if I'm a customer of JP, or I'm just using example, JP Morgan Wealth Management- I'm tied to one person, right? But I'm actually a customer of that person, not JP, because they're not working as a team, correct? [00:00:00] S1: Correct, in the sense that depending upon the firm, the client's experience is tied to the advisor that originates the relationship with them. So, think of it as most wealth businesses are built to serve advisors. We wanted to build a wealth business that was built to serve clients, and the advisors and the firm and the resources support the underlying clients. [00:00:00] S0: Yeah, and there's all this incentive misalignment. When we were talking in Miami, you were saying, let's say you need an expert to come to a meeting. [00:00:00] S1: Yeah. [00:00:00] S0: And that expert, one hour of that expert's time is $10,000. Can you tell that story?
· Kurt MacAlpine
[00:00:00] S1: Yeah. So, the first piece is you have this advisor-to-advisor tension, which creates silos or isolation. So, that starts to limit the expertise that can be delivered to the end client just due to the structure of the business. The second piece is the advisors and how the other front office capabilities or services work with those advisors. That could be tax professionals, it could be financial planning, it can be wealth transfer, it can be family office. And in most instances, those services act as a cost center to the advisor. So, where ideally the client would benefit from the full expertise, there's a limitation around the advisor sitting there saying, "Do I need to bring this person? Because it's going to have a negative impact on me personally to bring them to the conversation, or can I work around that conversation?" Right? So, there's tension, in my opinion, between the advisors and the front office staff that ultimately supports them. And then the third area of tension is effectively you have advisors who are paid effectively for doing two things: generating as much revenue as they can or commissions as they can from clients. That's the first step. The second step then is how much of that you can hoard and not share with other people. Because when you're paid under those structures, you're incented to not only aggregate, but the more that you share, the less that you ultimately earn. So, that creates obviously the tension, as I mentioned, between advisors. But everybody that supports the advisors typically gets paid on the financial success of the business, and often those two things don't converge, and it creates a lot of underlying tension. So, my whole view was if you step back and say, "Your advisors have tension, your advisors in front office have tension, and your advisors in middle and back office have tension," the big loser is the client. Because the client doesn't get access to the full benefits of the firm. The client is marginalized down to the individual person or team that originated the relationship with them. The second big loser, in my opinion, is actually the firm, because these businesses don't end up becoming companies. They become platforms where individuals plug into the businesses for some sort of period of time. But you're not really building a team, a culture.