It won't be long before HighTower's fee-for-service channel revenues draw even with its partner firm revenues

HighTower Advisors’ new policy of expanding its offerings to non-partner firms will make up more than half its business in three years’ time, according to executive vice president Mike Papedis.

The Chicago-based strategic buyer hasn’t announced a signing of a customer to this channel yet — but it is apparently a huge part of the company’s future. The idea is to especially make the HighTower scale advantages — and even brand — available to advisors in cities where there are no company branches.

“It was part of the plan all along — another way to extend our reach in the marketplace,” Papedis said Friday in New York, after Fidelity’s Insights on Independence Media Roundtable. “It’s still people delivering services. Still extending talent. We’re not a vendor of vendors.” See: Fidelity goes to the Wall Street Ritz Carlton with five partner firms and preaches a more dependent form of independence

Not for everyone

HighTower Advisors LLC’s chief executive, Elliot Weissbluth, made the unexpected announcement at the MarketCounsel September conference in Las Vegas that RIAs would be able to access a range of HighTower products and services via HighTower Network and HighTower Alliance. See: HighTower throws open its doors to non-partner firms who want service and/or brand.

“Network” is a turnkey option in which RIAs will keep their net income and “Alliance” is geared toward advisors on the road to independence with a distinct brand, says Papedis.

By the end of 2016, Hightower projects, these two new channels will make up more than 50% of the firm’s revenue. Annual revenues for HighTower are about $44 million, according to Inc. magazine. See: What exactly the CEOs of HighTower, Focus Financial and Dynasty Financial revealed when they shared a stage in Las Vegas.

“Partnership is not for all advisors,” Papedis says. “In three years, we see Network ad Alliance together making up more of our business share than Partner.”

In the current “Partner” model, advisors are first paid upfront for their practice with cash and equity. The acquired RIA’s payout is then based on profits.

Calling for backup

Papedis made these comments after participating in a round table that extolled the merits of RIAs taking advantage of outsourcing and strategic acquisition options.

“Some breakaways that go totally independent find it’s not all it’s cracked up to be and want backup,” Papedis said on the panel, which included representatives from four other firms that, like HighTower, are Fidelity clients.

No dedicated staff

As of Jan. 1, HighTower is in “active dialogue” with 50 firms that are interested in using either Alliance or Network, says Papedis.

Currently, all 60 staff members in the corporate office are involved in plans to service all three channels.

“The objective is to keep the same delivery of service. It may evolve into separate groups. Now it is the same group. The same infrastructure serving three groups. Our point of view is there’s no difference between Alliance or Network or existing teams [as regards to] our responsibility to service those practices. ... Their sole focus is to focus on the teams. That’s the constant and the differentiator,” Papedis says.

Plenty of high tide

Shirl Penney: It would appear that
there’s a shift.

When Weissbluth made the initial announcement at MarketCounsel last fall, many noted that it seemed as if Hightower was taking a page from Dynasty Financial Partners LLC’s playbook. The New York-based firm, headed by Shirl Penney, has had a virtual monopoly on the “platform of platforms” business model — although neither firm feels any affinity for that term because there is also significant proprietary technology built in, too. See: Dynasy Financial recruits another field general from the Citi-Smith Barney army.

At MarketCounsel, Weissbluth went so far as to give Penney a heads-up phone call the day before he made the announcement and to speak highly of Dynasty during the panel as a solution at least on a par with his own.

When told of HighTower’s latest update on its expanded business model on Friday, Penney was equally politic, although he did note dryly that the new direction HighTower is heading in “does seem familiar.”

If it’s true that HighTower expects the majority of its business to come from fee-for-service in three years, “it would appear that there’s a shift in focus to a new model,” Penney says. “We just focus on our business. [But] It is closer to our model. It doesn’t surprise me.”

Penney’s company mostly handles very large, sophisticated customers and he suggests that a competitor might find green pastures down market from Dynasty. See: How exactly a sports super agency plans to use Dynasty Financial to extend its dominance to the RIA business.

“There is plenty of room for other service providers, especially in different segments. We’re on the high end. but especially in other segments, there’s room. There’s enough business to raise multiple ships.”