* CEO Weissbluth says exodus from big brokers to continue
* Sees HighTower assets soaring to $50 bln in next few yrs
* Firm added Smith Barney's Strata Group, $500 mln assets
By Joseph A. Giannone
NEW YORK, Feb 16 Private wealth advisers,
driven by concerns about conflicts of interest, will continue
fleeing big brokerages even as the panic of the financial
One beneficiary is HighTower Advisors, a nascent Chicago
company that has attracted top investment managers from big
brokerages by employing an open business model that uses
multiple banks to provide clients with trading, custody and
HighTower seals the deal by offering new investment
managers equity stakes in HighTower, an approach that has
helped propel client assets to $16 billion since its October
"We're optimistic this growth will continue, especially in
today's market where each of the big firms continue to do
things catalytically that cause brokers to want to leave,"
HighTower Chief Executive Elliott Weissbluth told Reuters.
Earlier Tuesday, HighTower said it recruited an entire team
of Morgan Stanley Smith Barney (MS.N) (C.N), advisers in
Purchase, New York -- a stone's throw from Morgan Stanley's
brokerage headquarters. The team of Smith Barney veterans,
which does business as the Strata Group, manages $500 million
HighTower expects the trend to continue as advisers seek to
break away from traditional firms, where the pressure to boost
fees and generate business for other parts of the company can
fuel conflicts of interest.
Last month, senior Morgan Stanley and Merrill Lynch
executives played down the talk of a broker exodus and
predicted the pace of movement would slow now that banks have
recovered from the credit crisis. Weissbluth said the flight of
brokers has a ways to go.
"We have no shortage in our pipeline of high quality
advisers at all of the major firms that have basically had it.
They're done with business as usual," Weissbluth said.
Weissbluth said worries about financial strength, though
real, are not the primary motivation behind the movement.
"Just as many advisers said they wouldn't move during
depths of the crisis. Some teams postponed their departures,"
he said. "It absolutely was a double-edged sword. We had some
deals that were put on ice."
During its first 15 months in business, HighTower "lifted
out" 10 teams of financial advisers from Merrill Lynch (BAC.N),
UBS UBSN.VX, Goldman Sachs (GS.N) and other firms. Beyond
Strata Group, Weissbluth expects to complete two more lift-outs
in the next month.
Within a couple of years, client assets could triple to $50
billion, he said. HighTower also expects to double its
employees this year from about 100 people.
HighTower is one of several businesses established to
acquire series of small, independent firms. The idea is to
combine the advantages of high-touch practices with the
benefits of big-company scale. National Financial Partners
NFP.N, LPL Financial, Focus Financial and United Capital
Financial have been pursuing a similar playbook for years.
Yet Weissbluth said his firm has a leg up on these rivals
thanks to its "open source" business model and its ownership
structure, which ensures financial advisers are on level
footing with private investors.
HighTower extends ownership stakes to financial adviser
teams that come on board. Investors own half of HighTower,
employees have a 25 percent stake and financial advisers
collectively control the rest.
Weissbluth said his firm goes beyond "open architecture," a
business model that lets clients buy investments from any fund
manager or provider. Weissbluth said his firm works with a
number of clearing, trading and custody banks and also buys
investment research from a number of Wall Street banks.
"You have Wall Street competing for your business, not a
broker captive at a firm who is selling you what he has to sell
you," he said.
A decade ago regulators cracked down on brokers selling
in-house mutual funds to retail investors, concerned that many
advisers were swayed by the fees they could earn and ignoring
better options in the marketplace.
Likewise, he said, clients can be hurt when a stock or bond
order is sent to the brokerage's in-house trading floor or if
an adviser recommends investments in hedge funds, derivatives
and other proprietary vehicles.
Despite its revolutionary notions, HighTower attracted
investments from some of the biggest names in retail brokerage,
including former Charles Schwab CEO David Pottruck and
ex-Morgan Stanley Dean Witter chief Philip Purcell.
The young company, which down the road may go public to
fuel its expansion, has also attracted investments from M.D.
Sass, Australia's Macquarie Group (MQG.AX) and Credit Suisse's
CSGN.VX Asset Management Finance unit.
"We feel strongly," Weissbluth said, "that HighTower is
doing something very different.
(Editing by Steve Orlofsky)