As Joe Piazza's 'Robertson Stephens' venture gears up for '$40 billion,' he adds Mercer, Addepar, Fidelity and Schwab and subtracts Fortigent

Brooke’s Note: If Joe Piazza can pull off his vision of reviving a Robertson Stephens brand left for dead, it will be a coup for the ages and for the RIA model. On top of that, Piazza would be doing it all at the age of 70, when most of his ilk have “emeritus” in their title and show up twice a year with a tan and fresh doughnuts. I joined Jim Welte for the initial interview in our office, a few miles from Piazza’s home in Tiburon. Joe is as warm, affable and brimming with a sense of energy as ever but his actions show that he’s also as willing, as ever to make decisions, take charge and get out there. It’s a heck of a story. See: With big LPL backing, the Robertson Stephens brand revives to roll up advisors to the suddenly wealthy.

Joe Piazza’s co-venture with LPL Financial to restart a defunct investment banking brand in RIA form is now downplaying LPL as vendor and investor as it aspires to $2 billion in assets by the middle of next year.

The founder of San Francisco-based Robertson Stephens Asset Management added Schwab Advisor Services and Fidelity Institutional Wealth Services to the custodian mix.

Piazza, 70, has also nixed LPL-owned Fortigent LLC as its manager selection service and performance reporting provider and has gone with Mercer for manager research and Addepar for performance reporting. See: Addepar slashes prices, opens up its architecture and shows RIA custodians some love as it confronts market realities.

What’s more, Piazza has de-emphasized LPL as a financial partner by raising more than three times the money LPL put in from a host of friends and partners, including some in the clean-energy industry. Piazza declined to say how much cash any of his investors put in but said that, if necessary, he is funded adequately to run for multiple years without revenue. See: Mercer finally makes its 25,000 investment strategies available to RIAs with HighTower as its first big client.

LPL Financial declined to comment for this article.

Zero to $2 billion

Besides showing a decided lack of sentimentality toward LPL, Piazza has wasted no time tweaking one of his closest competitors by hiring in September the Presidio Group’s Mike Tierney, an advisor whose book of business already accounts for the lion’s share of the just under $300 million in assets that Robertson Stephens has under management.

Presidio fits the client profile that the new Robertson Stephens seeks: those high-net-worth clients in the Bay Area who use smaller investment banks. See: Black Diamond wins a $4-billion RIA right in Advent’s backyard.

The hit-the-ground-running moves by Piazza reflect his determination to achieve a kind of big-time scale that reflects the firm’s considerable corporate digs — 8,000 square feet on the Bank of America building’s 16th floor at 555 California St. in San Francisco — and desire to have those corresponding expenses offset by big time revenue.

Getting to $2 billion in assets under management by mid-2014 “would get us profitable on a cash basis,” Piazza says. “We’re not doing this in a garage.”

His overhead is all the greater because Piazza has hired much of his original support and advisory personnel (see below) from the old Robertson Stephens wealth management unit. The original Robertson Stephens was shut down by FleetBoston Financial Corp. in 2002. Those hires are all support personnel who do not bring along books of business or the associated revenue.

The critical mass of humanity at
Robertson Stephens has Joe Piazza smiling.

Hiring retail

Knowing he’s well financed, Piazza insists that going big and going home are the only two options.

“Entrepreneurs are both optimistic and confident — and I’m a serial entrepreneur,” says Piazza. “I could easily have said that we’ll be at $1 billion by the end of 2014 and most people would say, 'He can probably do that.’ But I think we’ll do a lot better than that. We’ll be between $2 billion and $4 billion by the end of 2014. And within five to seven years, we’ll be back to $40 billion (where the former Robertson Stephens Inc. was at when it shut down in 2002). I’m willing to put that on the line and back it up.”

Still, this schedule of growth is daunting for even the most gifted entrepreneur, according to Tim Welsh, president of Nexus Strategy LLC.

“Wealth management is hard. It sounds like he bit off quite a lot to chew. It’s: 'I’ll fund it now and see if it pays off.’ Most RIAs do the opposite and bootstrap.”

But Piazza insists that such moon-shooting is a calculated move and the only way to recruit the best advisors.

“If you build out the best infrastructure and best practices, you’re going to get the best people,” Piazza says. “And if you try to do this on a shoestring, you’re going to get people who are good but not world class. That’s the difference for me.”

One firm that followed this blueprint was Evercore, which teamed up with the investment bank and brought over more than a dozen ex-U.S. Trust guys. See: Evercore is looking to its future after lifting out a huge team of U.S. Trust financial advisors.

Unfinished business

In addition to Tierney, the hires include chief operating officer and chief financial officer Robin Nakao, controller Bernadine Heinrich and director of client services Amy DeTolla, among others. Nakao says she jumped at the chance to leave the top slot at Trust for Conservation Innovation, a nonprofit that manages a portfolio of startup environmental organizations.

“When Fleet closed us down, we felt that they robbed us of our opportunity to really build a great business,” Nakao says. “I feel lucky that everybody was willing to get back to building what we didn’t finish.”

Luring former Robertson Stephens top management back to the brand served a second purpose, Piazza says — engendering investor confidence on the basis of the hires of those familiar faces. He was able to raise three times the money LPL had put in from former partners and friends.

“That was the turning point,” Piazza says. “That got the attention of observers — people saw that we were putting the band back together.” The seed money from LPL allowed him to buy the Robertson Stephens name and lease the Bank of America space.

One of those investors is Harrison Wellford, whose D.C.-based Wellford Energy Group Inc. is an investment banking firm for clean-energy and low-carbon tech companies. Piazza sits on the board of Wellford’s company, and vice versa, a move that has Piazza eyeing the alternative-energy sector as one of his key areas of focus. The idea is that while Robertson Stephens has no investment banking arm this time around, it can deliver and receive referrals in a symbiosis with a third party.

One key hire

To observers, the take-on-expenses-first approach makes this high-wire act an even more precarious proposition.

Asked to size up Piazza’s progress to date, Sanctuary Wealth Services co-founder and CEO Jeff Spears is blunt.

Jeff Spears: Joe’s progress to date
is that he’s hired Mike —
period.

“Joe’s progress to date is that he’s hired Mike — period,” Spears says. “He’s phenomenal. The first big hire is by far and away the hardest, and Joe’s done that. Most people don’t want to be the guinea pig.”

Sanctuary has a similar model as Robertson Stephens and draws on some of the same vibe of old San Francisco investment banking brands. See: West Coast breakaway drops UBS in favor of Sanctuary/Fortigent outsourcing.

“That’s reasonably accurate from an outside observer’s perspective,” Piazza says of Spears’ assessment. But he adds that he simply wasn’t ready to hire any big-time advisors until late September, when Tierney joined.

New blood

Piazza’s first two advisor recruits were a pair of Robertson Stephens alums: Andy Blau, who used to run the firm’s New York office and had been running the New Yoek office of Little Rock, Ark.-based Stephens Inc.; and Steve Stovall, a major producer for the firm in San Francisco who was at Merrill Lynch for 10 years before that.

With an array of alums in place, Piazza sought a major player who didn’t used to work for him. “It starts to feel a bit incestuous — people get sick of hearing the old stories,” Piazza said with a laugh.

He found that in Tierney. See: Former wealth manager for Montgomery Securities and Presidio Financial is remaking his [big] practice in wine country as an RIA.

Tierney is a longtime friend of John Botti, founder of hedge fund manager Mt. Tam Capital Management LLC and one of Piazza’s investors in the new Robertson Stephens. Tierney declined to comment on anything Presidio-specific regarding his decision to jump ship, saying only that “the Robertson Stephens opportunity was compelling, and I wish the people at Presidio the best.”

Tierney said that meeting with Piazza’s reunited brain trust — and knowing Piazza had the backing of Botti and others he’s known for years — sealed the deal.

“The endorsement was so overwhelming,” he says.

Pricey reunion

Piazza hopes to recruit advisors who left wirehouses over the past decade and started their own independent RIAs. Many of them, Piazza said, have had trouble balancing their need to expand their business versus managing their existing business (rent, payroll, compliance, technology, etc.)

“They’re grappling with that and at the same time their real love, all of ours, is managing the wealth — that’s why we do it,” he says.
He intends to win them over by offering them “structured entrepreneurialism” via a 50% payout and covering all expenses, including office space, an assistant and technology.

“You don’t spend any time on the business model,” Piazza says. “We have all these people to run that part of the business.”

But getting the band back together carries its own perils, Spears says.

“One of the challenges with putting the band back together is that most of the band members are on contracts with other record labels — that takes money,” he says.

Outsource everything

Tierney says that in addition to the reunited Robertson Stephens crew, Piazza’s business model — specifically outsourcing everything but the assets, advisors and clients — makes a difference.

“Putting all of your energy into high-level [process] and not product — that’s the way the business is going,” he says. “As great as Joe’s reputation is, if he told me, 'We’re going to put Robertson Stephens back together and it’s going to have a lot of product,’ I would have passed. That’s not of interest to me.” See: Former wealth manager for Montgomery Securities and Presidio Financial is remaking his [big] practice in wine country as an RIA.

Piazza is also offering advisors shares in the firm in correlation to their assets under management, in addition to the shares dedicated to outside investors and management. In what he says is a distinction with other roll-up-type ventures, no shares will be diluted over time as the firm grows.

“When we run out of [advisor] shares, we run out of shares, which is OK. If we have to create dilution, everyone [including managers and investors] will get diluted.”

'Relentless recruiter’

Piazza and his team spent the summer building the infrastructure to support new advisors. “Now we’re ready to bring on more people,” he says.

Spears says that Tierney and his reputation will also likely help Piazza recruit more top-flight advisors. “And Joe is a relentless recruiter. He’s been around a long time, so he’s got a ton of relationships.”

Piazza hopes to add an advisor a month and have a total staff of nearly 30 by mid-2014. That advisor recruitment pace is deliberate, Piazza said, in order to allow time to incorporate the clients and assets of each new advisor into Addepar, the firm’s back office reporting technology.

They want Schwab … they get Schwab

Piazza has made some key decisions that he hopes will make it easier to land top advisors.

Robertson Stephens has added both Schwab and Fidelity to LPL as custodial choices. Piazza says, he doesn’t want to upset the apple cart with advisors like Tierney whose clients are ensconced with another custodian, in this case Schwab.

“In my world, I want to have the advisors, the clients and the assets — and outsource everything else,” he says. “We control the intellectual capital, the asset allocation model and make sure we find the best managers.”

Tierney says Piazza’s model is right for 2013.

“If you are a breakaway broker and start up an RIA, there’s all this start-up risk. With Joe, all of that goes away, because it’s not a real startup. He’s done it so many times before.”

Despite the mint it costs, Piazza’s firm is also working with Mercer “to make ourselves bigger and broader,” Piazza says.

“You asked where the money is going,” he adds with a laugh. “That’s why I wanted to make sure I was going to have a lot of it. You want to get the best. It’s got to be top end.”

Affording Addepar

Piazza is also confident he’s made the right bet in choosing Addepar, which is still a cash-burning Silicon Valley early-stage venture but continues to draw plenty of buzz. One of the few clients it has disclosed is Iconiq Capital, the RIA start-up largely fueled by the billions of dollars of Facebook higher-ups, including Mark Zuckerberg. The ADV shows it manages $5 billion of AUM. See: How the Facebook IPO is creating the mother of all RIAs, Iconiq, and what an in-your-face it is for Wall Street.

Robertson Stephens’ exclusive technology partner “is spectacular,” Piazza says, and its principals were willing to charge a price that really only kicks in if and when Robertson Stephens grows. “It is a new, cutting-edge, disruptive technology. And I like to think of Robertson Stephens as a disruptive presence in the asset management marketplace.” See: Addepar hits $50 billion of assets and turns its eyes to Advent-Black Diamond’s plump RIA market.

“Robertson Stephens is a terrific client and right in Addepar’s sweet spot of sophisticated wealth managers,” said Karen White, president and chief operating officer of Addepar in an email asking whether Robertson Stephens was receiving a special pricing deal.

Nakao agrees, saying that Addepar provides “the best and most flexible” solution that can be scaled. With functions such as daily data reconciliation from a variety of custodians, Addepar removed the need for Robertson Stephens to have “an army of people available as we would have in the past,” he adds.

“They understand our business, and that is sometimes not the case with companies that have a broader client base,” she says.

Investment banking firm affiliations

Piazza said that while his decision not to link directly with an investment back was a definitive one, he knows that he won’t be able to recruit independent RIAs forever. He hopes his second phase of growth will be driven by finding at least one boutique investment bank with which he can set up a joint venture-type referral system.

Despite having “internally sourced” — i.e., self referred — about 50% of the $40 billion gathered last time, Piazza says he sees an affiliation with an outside investment bank as a way to “benefit from the good years without suffering through the bad years” of the investment banking business.

His pitch to them? “Let’s take this one-time transaction revenue and turn it into a recurring stream by allowing us to manage those assets — it’s an easy conversation. Both parties benefit.”

Welsh expresses some doubt that this strategy is quite as seamless as it sounds. “I bet nobody’s ever thought of that one before,” he says.

Piazza says that receptivity to the idea has been “wonderful” to date and that he’s narrowed the possibilities to five contenders (ranging from $50 million to $500 million in revenue). He hopes to select at least one such setup by the end of 2013.

Tierney calls the dilemma of whether to go with multiple affiliations or pick one firm exclusively “very much a top-shelf problem.”
While he’s not sure exactly what form the affiliation would take, Piazza is certain of one thing: “I won’t allow any other firm to own us,” Piazza said. “We don’t need anybody’s money.”

Spears says thaT a joint venture/affiliation is a great idea, but having the partner take a stake is better. He points to JMP Group’s stake in Sanctuary, his own company, as an example of success. See: $2.5 billion roll-up-like entity in San Francisco brings aboard a chairman from its big investor.

“A deal is a deal — that never works as well as a partnership,” Spears says.

'Culture of exceptionalism’

Piazza says that while building assets and revenue via recruiting and affiliations is vital, establishing the right culture at the firm is just as important. As proof, he said he trademarked the phrase “culture of exceptionalism” and made it the firm’s slogan.

“You can’t just change culture — it’s an impossible task — but you can change the people who create it,” he said. “We started with pretty much an empty room after I cleared it out,” Piazza says of his decision to clean house at Robertson Stephens in the late 1990s, getting rid of stockbroker types for “being too brokerage-ish — even back then.”

Having built that business from scratch into $40 billion in assets under management and $240 million in revenue by the end of 2001, Piazza said he knew that getting the culture right this time was critical.

Piazza credits his ability to do so to date to the brand of Robertson Stephens.

“If I called it Piazza and Co., I’d still be the only person there,” he said. “Branding is really important, and this name still has a lot of cachet.”

Spears disagrees.

“I don’t think brand matters at all,” Spears says. “It might matter for Ferrari but not for wealth management. It’s such a relationship business. Joe is very persuasive and he hasn’t forgotten that.” Indeed, the E.F. Hutton name has yet to bear fruit for Frank Campanale on the other side of the country. See: Why Frank Campanale put his E.F. Hutton dream aside to join an OSJ.

Starched shirts and different drummer

While he’s far from the finish line of his latest venture, Piazza has a proven track record that dates back nearly five decades. A native of Trumbull, Conn., he came up in his family’s dry cleaning business, eschewing the marching band-dominated world of his maternal grandfather’s business. Piazza’s maternal grandfather had his own marching band and much of the family came through it over the years.

“I am the only person in line from my grandfather, including my own kids, who has no musical talent,” Piazza says.

His first job out of school was as a technology securities analyst for Chemical Bank, back when technology meant “anything plugged into a wall,” Piazza says. He then moved over to Goldman Sachs before stints at Dillon Reed and as the head of equity institutional sales at Donaldson Lufkin & Jenrette.

“He’s been doing this for almost 50 years,” Spears says.

Truckin’

Piazza said he’s avoiding a knee-jerk move to open offices immediately in places like New York and Boston, but will instead keep a laser focus on the technology and energy industries. (As mentioned before, Piazza sits on the board of Wellford Energy, and its chairman Harrison Wellford sits on Robertson’s Stephens’ board). To that end, he plans to open offices in Menlo Park,Calif., Austin, Texas, and Jackson Hole, Wyo.

“I’ll probably still open something in New York but I want to be West Coast-focused,” he said. “I want to think about technology and energy and all those businesses that surround each of those industries as a core of wealth creation for my firm.” See: Why the San Francisco Bay area is almost certainly the capitol of the RIA business.

“We’ll be rocking and rolling by this time next year,” Piazza said.