When UBS breakaways Doug John and Bryn Talkington formed Requisite Capital in 2017, they hadn’t imagined a time when their business would be impacted by a crisis as profound as the one caused by COVID-19.
For a team managing $1 billion at UBS, they could have gone anywhere—but chose to go independent because becoming a true fiduciary was their goal. As a registered investment advisor, they can surround their clients in what Doug calls “best-in-breed partners”—with access to a significantly broader universe of investments and technology, as well as the ability to put themselves on the same side of the table as their clients for any decision they make.
Throughout this crisis, it’s the ability to first and foremost do what’s best for their clients—unencumbered by a corporate agenda—that’s allowed them to efficiently navigate it, as Doug explains to Mindy Diamond and Louis Diamond in a recent interview.
Mindy Diamond: Tell us about Requisite Capital Management.
Doug John: We started Requisite in June 2017. We work with families with a typical net worth of $20-$100 million.
First and foremost, we are a wealth management firm with a great deal of estate and tax planning experience. Our passion is squarely focused on how we invest our clients’ assets. In the independent RIA space, the available investment options expand exponentially compared to the wirehouse world and we have a strong opinion on what investment options we ultimately use and don’t use.
The belief we share with our clients is that ‘Portfolios should not be 100% path dependent on stock prices moving higher and interest rates moving lower’—a philosophy that has served our clients well over the last few months.
Louis Diamond: A major focus of your business is on curating the vast universe of private investment opportunities. Can you explain more about your investment approach and how it has held up in this volatile market?
DJ: We are evidenced-based investors, and in public markets the data is clear; the best performing managers are the indices themselves. High-quality, low-cost, tax-efficient index strategies maximize the probability that clients will earn the long-term return of the indices.
In private markets, we believe there are managers that can capitalize on inefficiencies in niche markets and that there is an illiquidity premium that can offer investors the opportunity to earn above-market rates of return. Private investments also have some key characteristics that help make clients better investors: Capital calls are like dollar cost averaging with a longer-term time horizon. And private investments are not focused on daily or weekly volatility. In the RIA channel, we also have access to a much broader range of private investments that clients would not have had access to before.
LD: How much in assets are you currently managing?
DJ: Requisite oversees more than $1 billion in assets and has doubled our discretionary assets over the past year, and onboarded 20 new families since we launched. We feel we have a compelling proposition and it’s rewarding to see that being validated by the growth in our client base.
MD: What were some of the drivers to leave UBS?
DJ: Publicly traded firms are fiduciaries to the shareholders of their stock. We wanted to start a wealth management firm where we were fiduciaries to one constituency: Our clients.
The big wirehouses are created for scale: that is, the same investment options regardless of where you sit as an advisor. From an alternative investment perspective, wirehouse clients typically have access to more expensive, mega-cap private equity funds. In the private markets, asset size can be the killer of returns.
MD: How has your firm leveraged its independence to communicate with clients during the COVID-19 crisis?
DJ: One of the challenges of working for a large firm is that multiple divisions often have contradictory views—which we may or may not agree with. Our views are now 100% our own. As independents, we finally have our own voice and can express it in ways we could not have as employee advisors. For example, my partner, Bryn, is a frequent guest on CNBC’s "Halftime Report." And in response to the crisis, we increased the amount of communication with clients, including the addition of a special newsletter. It’s that freedom to communicate that has served us tremendously during this time.
LD: I would assume that many of your clients have the investable assets to establish their own family office. But they opted instead to tap your firm as their multi-family office. How has this model served your clients during the crisis?
DJ: There are many definitions of a family office. In our opinion, a true family office has in-house legal, tax and investment departments just for starters. That costs a lot of money and is only justifiable for a very wealthy family (>$300 million net worth). We feel we have created a family office offering for much less and with better tools—with incredible data aggregation technology from Addepar and strong relationships with asset managers and custodians.
In fact, this crisis helped amplify our value proposition. For instance, using Addepar allowed us to put clients’ equity exposure in the proper context of their full balance sheet. Having access to their complete financial picture and taking the focus off market returns helped us to have proactive rather than reactive conversations.
MD: Has being independent been a positive or are there times you wish you still had the support of UBS?
DJ: Quite frankly, there is nothing we miss about UBS. We worked with some great people there who were very supportive of our business. Although at the end of the day, we are an experienced team at Requisite Capital, and this is not our first crisis. If you are confident in what you are doing and have a process and platform in place, navigating tough investment markets is very manageable.
Our partners give us tremendous scaffolding and support. In fact, across our platform they delivered in spades. We received great insights from our private equity partners about what was happening across a spectrum of industries in the real economy compared to what is being reflected in the stock market. We work with some of the top asset management firms such as JPMorgan Asset Management, Neuberger Berman and Avenue Capital, which provided great insights into the capital markets and helped us form our opinions on how we could proactively capitalize on what was transpiring. Our prime custodian, Fidelity, gave us and our clients great comfort as they are the largest manager of money markets globally. The sell-off in March was so steep and so sudden that even the safest of markets were feeling stress. So we had many calls with our partners to make sure we weren’t missing anything.
MD: Many advisors considering independence share their concern about what clients will say about leaving the big firm brand behind. What was your conversation with clients like, and how did they respond?
DJ: We approached it in the same manner that we took when we were learning about how the independent side worked. The No. 1 thing we care about is the safety of our clients’ assets, so we educated them on the role custodians play. UBS is their own custodian, while Requisite uses multiple custodians. This offers our clients much greater choice.
Ultimately, we were overwhelmed with how excited our clients were that we started our own firm. Many of them are successful entrepreneurs, so they appreciated and understood why we would want to go out and do the same.
LD: You started as a hybrid RIA (keeping your brokerage license) and now are a fee-only firm. What’s changed since you dropped your licenses?
DJ: The only thing that’s changed is there is even more transparency in how we work with our clients. They only pay us for our advice and that has simplified our value proposition. The fiduciary hat we wear sits well with our clients. We want them to know we’re their partners, how we get compensated and that our advice also comes with their best interests first.
LD: What would you say is the single biggest difference about being independent vs. being an employee at UBS?
DJ: We like to say that we now get to make ‘adult decisions’ that impact just one constituent: Our clients. Whereas the big firms have to make decisions based on many constituents, such as various types of advisors, clients and, of course, the shareholders—the latter being their ultimate fiduciary responsibility.
Mindy Diamond is president and CEO of Diamond Consultants, a search and consulting firm in the financial services industry. Louis Diamond is executive vice president and senior consultant.