When Steward Partners was launched in 2013, the firm’s executives aimed to build a full-service independent firm, attractive to advisors from the wirehouses who would affiliate as W2 employees and receive an equity stake in the company. The firm had a clearing and custody relationship with Raymond James.
While that original model is still intact, the firm has evolved in the past 12 months. It now has a 1099 affiliation model for independent advisors. In April, the firm completed its acquisition of Umpqua Bank’s wealth management business, giving Steward its own broker/dealer. And in June, the firm announced it was moving toward a multicustodial model and would become Goldman Sachs’ first RIA custody client.
That same month, the Pritzker Organization, the private investment firm for one of the wealthiest families in the U.S. and heirs to the Hyatt Hotel fortune, took a minority stake in Steward.
The firm now has about 180 advisors and a little over $25 billion in assets. It’s on track to do about $160 million in revenue for 2021.
With the fresh capital from Pritzker, CEO Jim Gold says the firm is considering a foray into RIA acquisitions or investments. In a recent conversation with WealthManagement.com, Gold expanded on his firm’s future M&A strategy, the multicustodial model, the attraction to Goldman Sachs, and the benefits of family office ownership.
(The following interview was edited for length and clarity.)
WealthManagement.com: What’s Steward’s model?
Jim Gold: When the firm was founded about eight years ago, we saw the opportunity to do what together we call “full-service independence.” And I think the idea of independence, while very intriguing to, say, breakaways, can also be very daunting and the idea of having to suddenly be responsible for everything from payroll, to benefits, to ordering coffee, and dealing with the landlord, and all the other things that go along with that. So we built the structure that, I think, replicated what they were used to. And we talk about a best-of-both worlds offering, which is you're going to get the infrastructure that you're used to at a major firm coupled with the benefits of independence.
I think a second part of our model, which is very different, is we wanted to build a true old school Wall Street partnership. So every single person that says, "I'm at Steward Partners" has equity in this company. And that's from the part-time receptionist, to the ops managers, to the advisors, to their staff. So truly, everyone here is an owner. We've taken away that “me against the company” dynamic, and it's amazing to see the culture and collaboration that fosters.
Something else very different about Steward is, as far as anyone I've ever spoken to, there's never been a firm built to our size in the history of wealth management that didn't take in tens or hundreds of millions of dollars in private equity to launch that firm. So we are, from what I've been told, the only one. And while having done two family office investments over the last 26 months or so, over 70% of the firm is still in the hands of all the folks that work here every day.
We started out as a W2 only. We pivoted about 18 months ago and started offering a 1099 option. And that's really for the advisor or a team that says, "I want all the benefits of Steward, but actually, I want to have my own office. I want to run my own P&L." And up to about 18 months ago, we just didn't have a channel to facilitate that, so we thought it was important to evolve and accommodate that.
The last thing I'd say is we look at the opportunity for strategic M&A. That ultimately led to the acquisition of Umpqua Wealth Management, which really became a turning point for the firm. Because through the Umpqua acquisition, we were able to acquire its broker/dealer, which then led to us now becoming a multicustodial offering, and our new relationship with Goldman Sachs, and introduction to the Pritzker family.
WM: When an advisor affiliates with Steward, do they come under your RIA, and are they mostly hybrid advisors?
JG: So everyone joining us, regardless of 1099 or W2, everything is done through Steward. So Steward has a corporate RIA.
We also have a broker/dealer business, which we've done historically through Raymond James, which has been a terrific partner for us and continues to be a terrific partner to us. But going forward, we have our own broker/dealer, so we will be able to accommodate all the business that the advisors do.
Historically and structurally, about 75% of all of our revenue comes out of our corporate RIA. The vast preponderance of that is advisors running discretionary models that they've built. So it's a meaningful part of the business. And our folks are very heavily planning based.
WM: When you launched the firm, it seemed like Steward had a bit of a special relationship with Raymond James. What’s Steward’s current relationship with Raymond James?
JG: When we were putting together Steward, we went through a six- or seven-month due diligence process. We probably spoke to 25 different potential partners, and we chose Raymond James. What was important to us, though, was having control of the company, so the Raymond James independent channel, Raymond James Financial Services, was a perfect home for that because they have all the infrastructure, they have great technology, they have a terrific platform, very friendly, collaborative home office structure. And we had that perfect balance, we thought, of being able to leverage all of their resources while having control of the organization. How we compensate people, our vacation, whatever it might be, that's always our decision.
Aspirationally what we wanted to do had really never been done there before, in the sense of saying, "We're going to build an entire company eventually nationwide inside your independent channel." What they'd normally seen is, the Jim Gold team on Long Island breaks away, goes to Raymond James, and they have thousands of terrific advisors that do that. I don't think they had seen another group come in to say, "We're going to build a real company with a board of directors, and an HR department, and operations," and build literally the entire organization inside this channel.
We’re in the process of moving from the RJFS channel to the firm’s RIA & Custody Services (RCS) division. We want to make sure that there's a thoughtful process around that move, and Raymond James has been terrific and super supportive of that. So that move has not been consummated yet, but it is going to be happening in the next few months.
WM: Why did you launch a multicustodial model earlier this summer?
JG: It happened that Umpqua became a catalyst for that, because in the process of that acquisition, we became aware that Umpqua, the bank, was obviously exiting wealth management. They were going to shut down the broker/dealer, so we ended up acquiring it. I think as important to us was the entire management team from Umpqua that had been running the broker/dealer are now part of Steward, whereas, we not only acquired the broker/dealer, we acquired the talent with it and then obviously, all the advisors and their teams.
So when we knew that was happening, we said, "This is our opportunity to think about becoming multicustodial and really look at Steward. We want to have unlimited ability to grow." And as wonderful as any one custodian would be, if you only have one custodian, you are somewhat limiting your ability to grow. Because sometimes people say, "I like the current custodian I have. I don't want to move to your custodian, as wonderful as they sound." So for us, that multicustodial offering really broadens our ability to grow, and I expect a significant increase in our recruiting and growth activity going forward.
WM: What was attractive about Goldman’s custody offering? How do you think it’s differentiated out there in the marketplace?
JG: I think the cachet of Goldman Sachs is certainly very attractive. They have, obviously, tremendous resources, and tools, and technology, and capabilities, their platform capabilities.
And I think what was appealing to us, and I can remember the first conversation when they had reached out to us because they were looking for the right partner to launch this division. And one of the gentlemen said, "Well, you know? We're building this from scratch. A lot of folks might find that daunting." And I said, "Well, we built our entire company from scratch, so you got the right people. We're happy to build something from scratch."
Because they're building it from scratch, they're not beholden to legacy platform or legacy technology. So I think getting in on the ground floor, helping them, as much as we can, craft the launch of this division. Goldman Sachs could've chosen anyone, and we take a lot of pride in the fact that they chose us to be their first institutional client.
WM: Are there certain types of advisors that were attracted to Steward following that announcement?
JG: I think we've seen a real shift in much larger teams having an interest. We have very productive advisors here; our average producer is over $1.1 million, and we have multiple teams that are multiple millions; we have individual producers doing $5 and $6 million. But what I've heard from folks at Steward, whether they're getting a referral or it's through an external recruiter, is "Hey, this big team heard about Goldman." It’s created a lot of interest, a lot of buzz. The percentage of significant teams we're talking to right now has never been higher.
WM: Who else might the firm add in terms of custodial relationships?
JG: We're in conversations with all of the well-known custodians, and I think it's important to broaden that, as well, but I think also you have to have some level of selectivity.
We're in front of a number of M&A transactions right now, and in almost every case, which is typical, these are RIA firms. They have assets custodied at multiple custodians. So I think it's important for us from an offensive perspective, and I think eventually from a defensive perspective, as well.
WM: What might your strategic M&A look like going forward? Do you plan on acquiring RIAs and folding them up into Steward, or do you plan to do subacquisitions for your advisor groups?
JG: I think absolutely both. So we've had a number of advisors that have joined Steward that said, "Hey, I know this team in your branch. I used to work with these folks where they came from. I'd like to join them, and retire out of Steward in five or six years, or whatever that might be." So we've had a healthy succession, acquisition process in place already.
But also we're seeing a ton of activity in the RIA acquisition space, and I think the next leg of the stool for us is, really, most of the transactions we're involved in, they want us to consider acquiring either a minority or majority stake of their business, which is really new for us because, obviously, up to this point, people were rolling into Steward, retaining ownership of their business, but being part of the Steward network.
And this is where we feel really fortunate to have both Cynosure and now the Pritzker Organization. We really have almost like our own in-house private equity shop now. The amount of resources, and knowledge, and how to structure deals, and tax ramifications, and so they've been super additive, and we're excited about getting their help.
WM: Have you done any of those types of transactions yet?
JG: Not yet, but we're in the middle of probably seven or eight right now. And obviously, no idea whether they're going to pan out, but we have a number that we're actively involved with as we speak.
WM: Can you tell us a bit more about the Pritzker Organization investment, and why you choose to partner with family offices?
JG: The Pritzker Organization, and the people there, two of them are now on our board, had never invested before, and then put $100 million into Steward.
I think for us, the family office structure is a perfect fit for what we're doing. The family offices that we have relationships with were built by people who built companies from scratch. So they understand the entrepreneurial concept. They understand the struggles of a new company. So I think that's an interesting trend in our industry, as we're all seeing massive amounts of M&A going on. What do these look like in three to five years? And what about the people that took in capital and regret that trade, or the buyer regrets investing in that company? I think there's a lot of shakeout to happen there.
When you think about family office money, and this is critical, is that this is not coming out of a fund. There is no shelf life on this.
I think a traditional private equity–type of investment can create this forced time frame that may lead to worse outcomes. Unfortunately, they've got to exit their fund, so the transaction has to happen. Taking a longer term approach and saying you want alignment, which the Pritzker organization and the Cynosure group are. They are as committed to growing and building a great firm as we are. I think it's very telling that in the Pritzker deal, Cynosure retained 100% of its ownership stake, which is very uncommon. Normally, you see Investor B is taking out Investor A.
WM: I know you’re currently in litigation with the estate of Mike Maurer, Steward’s founder and first CEO. Can you comment on the arbitration and on any of the allegations against the leadership team and claims that Maurer was unlawfully expelled from the firm in 2017? (Maurer died in June 2020 due to complications from multiple heart attacks.)
JG: The litigation is ongoing with Michael's estate, so we, really, honestly, have no comment at this time.