· David Senra, Kurt MacAlpine
[00:00:00] S0: ... that you can deploy, and then your idea is like, "We're going to essentially empty the tank. We're going to take all that money and lever up." Day one on the job, what are you doing? [00:00:00] S1: There's a couple things that I guess you're doing. So, as it relates to building the Corient business, so I had this point of view around both the opportunity set in ultra-high-net-worth wealth management, and then call it the disruptive structure that we wanted to put in place from an industry perspective. So, really, the first thing, I guess like any idea or business that you're trying to get off the ground is- ... is what you're proposing going to resonate? Does this structure... It is fundamentally different how we operate the business from other wealth managers. Is this going to resonate with great entrepreneurs in wealth management who see and align with this vision? So really kind of the first objective is, is this really filling a void in the marketplace, both for clients and wealth advisory professionals, that is going to resonate where this business is ultimately going to generate success? And then, on the back of that, as the concept starts to take off, then you start to think about capital prioritization trade-offs and things like that. [00:00:00] S0: Actually, you know what? Let's talk about the way your business is structured around, and then we'll talk about how you did it. [00:00:00] S1: Sure. [00:00:00] S0: Because this is what I was like, "Well, why..." You were explaining- [00:00:00] S1: Yeah
· Kurt MacAlpine, David Senra
[00:00:00] S1: Yeah [00:00:00] S0: ... all these little, the barbell strategy to me before, and I was like, "Well, why are all these..." Because you're growing by acquisition. It's like, "Why would they sell anyways?" [00:00:00] S1: Right. [00:00:00] S0: And you were explaining the benefits and then- [00:00:00] S1: Yeah [00:00:00] S0: ... what you do. So if you just want to lay out, like, you had a disruptive idea. What is that disruptive idea? [00:00:00] S1: Yeah. [00:00:00] S0: And you can explain that.
· Kurt MacAlpine
[00:00:00] S1: Yeah. So again, I thought there was a tremendous opportunity for somebody to come in and disrupt the ultra-high-net-worth wealth management industry. And the way that we sought out to achieve that was, effectively, we wanted to get the structure right. Again, I've said, I felt like the industry was built on a fundamentally flawed structure that does not facilitate the best outcomes for clients, nor does it facilitate collaboration internally. So I felt like if you could get the structure right, then you could actually start to optimize the business in a way that starts to make sense for clients and ultimately employees. The way that we want to position ourselves to be the best is we want to be the most comprehensive provider of wealth management services to ultra-high-net-worth families globally. So, shortly after launching the business, as we were kind of trying to prove out the structure and the concept around the partnership model relative to the industry norm, we were thinking about, what does this business look like as we ultimately start to scale? And, you set a high bar for yourself around, we want to be able to do more. And anyone who's joining Corient, I have this conversation with them. By you joining, you should make us better, we should make you better, and we should collectively be able to do more for clients than both of us running on our independent paths. So the way that we kind of set out to build that was we wanted to build this more comprehensive service offering for ultra-high-net-worth families. And so, just very quickly what we've ultimately built out. So we have a wealth advisory component, or function, which is the individuals that oversee and manage the client relationships, so think of those as the relationship quarterbacks. They are supported by the following capabilities. We have global financial planning capabilities. Think about planning for everything associated with your lifetime. We have a global wealth transfer capability, so think of that as everything that extends beyond your natural life. We have 175 people in our investment team, split about 70% on traditional investments, 30% on alternative investments. We own and operate several trust companies. We use South Dakota here in the US, but lots of different jurisdictions around the world. We have a tax practice.
· Kurt MacAlpine, David Senra
We have over 100 full-time accountants working at Corient that not only do tax advice for clients and tax implementation, but we literally embed those experts on the wealth advisory teams. So they're working on everything from the financial plan, the wealth transfer conversations, the trust structuring. They're actively involved in the investment conversations around harvesting losses. And it really starts to show how when you mobilize these resources, you can ultimately do more for clients. We have a full family office. We pay people's bills. We do outsource CFO. We do customized reporting, concierge lending. We manage complex residential real estate projects. We have an aviation business. We have an art management business. And really, the goal was, how do we do more for clients across the firm, given that we have no limitations to collaboration internally? And I think it's a huge competitive advantage for us. [00:00:00] S0: Say more about the aviation business. We were talking about this before we started recording.
· David Senra, Kurt MacAlpine
[00:00:00] S0: Say more about the aviation business. We were talking about this before we started recording. [00:00:00] S1: As I mentioned, we're serving ultra-high-net-worth clients across a variety of different markets around the world. So we have tremendous scale in terms of the size of the business, but also the relationships and the families that we ultimately have access to. And we thought that there was an opportunity for us to provide a service to them, or multiple different services, aviation being one example, where through just the size and scale and the relationships that we have at Corient, through perhaps taking a different approach, we could provide them a relatively unique service. So we effectively have an aviation business where we own aircraft on behalf of our clients for their collective use. So think of it as we take the balance sheet risk from buying the asset, we take the risk associated with the monthly manager fee, and then clients effectively pay for the use of the aircraft, depending upon how they use it. So it's really given us a unique opportunity. [00:00:00] S0: But this is not a profit center for you. [00:00:00] S1: Correct. [00:00:00] S0: This is the most interesting thing, because I was trying to wrap my head around all this the last time we met, and the model I had in my mind was like, you have this Costco shared economy scaled to what you're doing. [00:00:00] S1: Yeah. [00:00:00] S0: So if you can go into that a little bit.
· Kurt MacAlpine
[00:00:00] S1: The way that I like to position the business is, I think that we've built what I deem to be the only truly conflict-free business in wealth management. But let me define that. I think businesses get conflicted two different ways. The first way that they get conflicted is based upon the structure of the business or how they ultimately govern themselves. So think of it as two different standards of care. Fiduciary standard of care, you're operating in the client's best interest at all times. You are obligated to do so because of that standard. Or a suitability standard, which is effectively, is the product or the service that you're offering good enough to extend ultimately to the client? We have built the entire business to be a fee-only fiduciary business, so operating essentially at the highest standard of care. We're the largest business in the world that operates under that standard of care. So anyone larger than us has the ability to operate at a lower standard of care. So that's the first piece. Second piece is- ... in terms of the business model that you ultimately put in place, and this ties to how we ultimately serve clients and how we work together. And so, the goal when we launched the business was I wanted to make sure that there were no structural impediments to collaboration from the onset. So, if you think about every possible decision that you could make that would prevent something from collaborating, we've effectively, in my opinion, removed it at the launch of the business. So, I'll give you two examples. So, we have about, give or take, 3,000 people inside of the Corient business today. We have one compensation plan. We have no exceptions to the compensation plan. And the reason for that is once you start to put exceptions in place, let's say you and I work together, you're paid one way, I'm paid another way, it is very, very hard for us to objectively serve a client with different outcomes or different objectives. And that is kind of true across the different elements of the business. The second example I'll give is, I run one P&L across the firm, and I don't do any form of chargebacks. So again, you think about getting great experts in front of clients as quickly as possible with relevant expertise.