· 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.
· Kurt MacAlpine
You're not collaborating and problem-solving together across the firm. That's limited based upon the silo that you ultimately work in. So, when I step back and look at those three things, tremendous amount of tailwinds, an industry with a barbell-like structure that's ripe for disruption, and an operating model, call it, which I believe to be fundamentally flawed. It just creates an opportunity, in my opinion, for somebody to come in and disrupt that, with the goal of doing more things for clients.
· David Senra
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· David Senra, Kurt MacAlpine
So, before we get back to going into this existing structure with these ideas and this understanding, where did this flawed... Like, the difference between you're not building a company, so you have a platform. What is the history of this, then? Where did this come from? Why was it set up that way to begin with? [00:00:00] S1: It's a great question, and I don't know the answer to why it was set up that way to begin with. But it's the business model that all large wealth managers seemingly have taken. And when I look at that, and if I step back for a second and say- Put aside the structure of wealth management, but what are wealth advisors ultimately doing for clients, and what service are you providing? And I think about the role that wealth advisors play as kind of the ultimate human capital business, right? In order to be good at the job, you need a tremendous amount of EQ, a tremendous amount of IQ. How those advisors pair that together to work with clients is ultimately what defines success. So, if I park the structure that the industry has chosen and look at, well, how are other human capital businesses structured? They all kind of have the same underlying structure. So, as I mentioned, I was a partner at McKinsey & Company. Every single management consulting firm's a partnership, every law firm's a partnership, every accounting firm. Many of the most successful investment businesses, advisory businesses, operating companies are partnerships. [00:00:00] S0: But wait, the wealth managers weren't.
· David Senra, Kurt MacAlpine
[00:00:00] S0: But wait, the wealth managers weren't. [00:00:00] S1: Weren't. So effectively, to wildly overly simplify the Corient structure, we created the first true professional services partnership and applied it to the wealth management industry. And the goal was to use that structure to create a fundamentally different experience for clients, and ideally, a much more attractive collaborative environment for colleagues, and given it's a partnership, ultimately owners of the business as well. [00:00:00] S0: Okay, so let's go back. You have this idea. You're like, "I'll take the job, but I have a super aggressive plan." [00:00:00] S1: Yep. [00:00:00] S0: What's the response of the company? [00:00:00] S1: So, that was part of my pitch as part of the interview process to the board, was they had asked my opinions, obviously, as part of that, on the future, how I saw the future direction of the company. I outlined a strategy. Probably one of the core pillars of the strategy was to effectively launch the business that's Corient today. Fortunately for me, I had a phenomenal board. The board was comprised of significant owners of the business who had a tremendous amount of vested interest in the company, but were also great at delegating, but also collaborating and providing advice. So, it was very welcomed. And because we had such a transparent conversation around what the strategy will look like as part of my interview process, we were able to hit the ground running from the day that I started.