“This is the last straw, I am quitting today.”
I was in Newport Beach at a PIMCO-sponsored event where I presented on what led to the great financial crisis. My book Bailout Nation had been out for a while, and I was still doing the circuit. I was signing copies, when I noticed a guy hanging back waiting for the crowd to dissipate.
Once we were alone, he approached me to ask, “Do you work with _____ at _____?” At the time I was running the firm’s proprietary quant tool that combined technicals and fundamentals.
“Yes, he’s one of the firm’s 2 partners but works on the brokerage side. I work on the research and RIA side; we don’t have a lot of interaction. Why do you ask?”
He tells me, “I’m a surgeon, my brother is a surgeon, my father’s a surgeon, his father’s a surgeon.” He proceeds to tell a story about his dad, who essentially invented and patented the stent used in so many cardiac surgeries today. He called to get some help with their investment portfolio, which had swelled to about $100 million. He reached out to speak to me about managing these assets, but somehow, he could never get through. The unnamed partner above intercepted his call, pitched him on some privates, and then flew out to California to meet with the group. I was never informed about a $100m prospective client reaching out to me – until now this chance encounter.
I was apoplectic. This was the worst type of Wall Street avarice. I am all in favor of being greedy, but it’s a long-term, get-rich s l o w l y approach, without any larceny involved.
“We have to get out of here, right now!” Infuriated, back in the hotel room, losing my shit on the phone with Josh. This was the final straw in a series of last straws.
JB had been through this before: “Just take a deep breath, speak to the lawyers, and as soon as we get near $100m, we can skate.”
Smart advice.
I met with attorneys in L.A. We had already spoken to TD Ameritrade: “You know you two guys are 110% of the firm’s growth?” They made the process of standing up our own RIA relatively painless.
I have never told the full story publicly before, but it gives you a sense of what leads a fast-growing group within a bigger firm to call it quits. We wanted to be fiduciaries, but the firm was slinging crappy private placements we wouldn’t touch. We took over the firm’s core portfolio, slowly replacing each expensive active mutual fund with a series of cheaper and often index funds from the likes of Vanguard, Blackrock, WisdomTree, and (eventually) Dimensional.
The four of us – me, Josh, Kris, and Michael – all disliked the way the industry operated (I hated it). We wanted to do something very, very different. Embrace the fiduciary RIA side; invert the way The Street did sales & marketing: GIVE AWAY OUR SMARTEST IDEAS TO THE PUBLIC FOR FREE. Hey, you can do this yourself if you want to – you just need some smarts, avoid the pricey crap, and most of all, stay disciplined. Oh, and if you prefer to hire someone to help you, we are here.
We were hopeful, but truth be told we had no idea where this was going to go.
I had made a few good calls leading up to the GFC, writing on the TBP about subprime mortgages and derivatives. The increased risk of a financial crisis appeared obvious but only if you were looking in the right places. I wasn’t shy with my opinions. My thestreet.com “Dow 6800” column was merely an exercise in 2006, but it was getting more play in 2007 as the housing markets wobbled. The DJIA ignored it, approaching 13,000.
Then it happened, and I was suddenly much less of an idiot than I was in 2006. Markets peaked in October 2007, then got much worse in 2008. By September, the wheels had come off the bus. 2009 came in even harder. I got back from vacation in early March, went on TV with Henry Blodget, and said “Cover your shorts and buy ‘em here, a Big Bear market rally is coming.”
That was it.
It gets picked up by the New York Times, WSJ, and others. I am the first one to admit catching the bottom was dumb luck. I certainly would not want to manage billions in client assets that way. But people began reaching out, asking us to help them with their financial situations. I honestly had no idea how to run a firm. I just wanted to do my research and manage the assets.
Josh said he would interface with clients and handle all the staff, and do the things I suck at. I eventually moved from CNBC to Bloomberg, and Josh stepped up huge there. When Kris came on board, he began building the infrastructure for dealing with incoming inquiries. It’s no exaggeration to say he created the unique systems that the firm runs on today. It’s been iterated 1000 times and just keeps getting better. Michael began as a free safety, doing a little bit of everything, from research to portfolio analytics. Now he is Managing Partner, where nothing escapes his keen eye and insights.
These guys were enormous upside surprises. I knew they were all smart and talented and full of potential, but I wouldn’t have described any of us as rock stars when we launched in 2013. Today, I cannot think of any other way to describe them.
We added Erika Mauro and Patrick Haley soon after. Erika literally taught the four of us how the business worked. No bullshit, she used to say “No, do THIS” and she was always right. Haley used to sit in the back of EC2 Hawkeyes, directing all of the live military air traffic over the Persian Gulf during Operation Desert Storm; turns out he is a wizard at setting up a trading desk. “It’s less stressful when no one is trying to blow you out of the sky” he once told me. (See Josh’s photo at top)
We added Bill Sweet as CFO, Ben Carlson at Institutional. Tony & Dina Isola came on with a focus on teachers and 403Bs. Joey Fishman signed on from Portland. The team from Chicago was a big milestone. Brian Rosen, Jonathan Novy, Anna Chaiken, and Colleen Parker all stepped up to leadership roles. More and more people came on from around the country.
This year, we grabbed Jay Tini from Vanguard to be President, to help us move to the next level. We went from a Firm to a Business and now we are an Enterprise. We did this as a self-financed, no outside PE capital, employee-owned firm; we now have 20+ employee partners.
RWM is where I spent a full third of my career in finance. It is my privilege and pleasure to work with the best group of 61 people in my life.
~~~
Here’s to the next 10 years and beyond…
See also:
Ten Years (Irrelevant Investor, September 14, 2023)
The Book of Joshua (Reformed Broker, September 16, 2023)
Previously:
Announcing: Ritholtz Wealth Management (September 16, 2013)
RWM: Upside Surprise (September 15, 2020)
10 Things I Have Learned Launching RWM (September 16, 2019)
5 Years On . . . (September 17, 2018)
Here We Go! (September 16, 2013)
