Soundtrack to a Financial Advisor's Life – Tom Prescott Discusses the State of Wealth Advisory and Much More!
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Tom Prescott discusses the state of wealth advisory and how his company, Advisory Services Network, helps advisor transition away from the broker dealer platform
Trevor Chambers:
Hey everybody. This is Trevor Chambers and Alex Mihajlov from Olde Raleigh Financial Group. Today on Meet the Masters, we are thrilled to have one Thomas C Prescott, say hi, Thomas.
Thomas C Prescott:
Good morning.
Trevor Chambers:
How are you?
Thomas C Prescott:
Doing great.
Trevor Chambers:
Good. We’re excited to have Tom because Tom is a veteran of the financial services world and he’s got a wonderful company called ASN that I want you guys to hear about. But real brief, Tom Prescott is the founder and managing member of Advisory Services Network. He’s got 35 years of experience. I see, in my deep research on your background, you’ve got Lehman and a couple of other big names in there. So you’ve been around, give me the two minute on Tom Prescott, please.
Thomas C Prescott:
Well, came into the industry straight out of college, got a training program spot with Lehman brothers, [CUNLOB 00:01:00] before it was the Lehman Brothers that we all read about in the news. It was a great, great experience and yeah, they did the old type of training program. They trained you in every segment of the business and then you decided, or they decided where you fit best. Been in the industry ever since. For the last 30, I’ve been obviously managing my own businesses since I left, what I would call the normal wall street experience.
Trevor Chambers:
Nice. So let’s get right into it. Tell us about ASN and why, more importantly, did you start this beautiful business of yours?
Thomas C Prescott:
Well, it’s a little more in depth of a story, but originally when I walked away from the wirehouse world, if you will. I was a fixed income salesman, institutional. Many of the banks were trying to start their own units. So, we started a consulting firm that would help banks and help other firms create what I would call boutique broker dealers, and what have you. That business actually still exists today, it’s Mainstay Capital Markets Consultants. What happened was we saw that business go from starting boutique broker dealers to starting boutique investment advisors and within a period of five years, we went from probably 90% broker dealer driven to 95% IA driven. It was a massive earth movement.
The business was, and continues to be, I guess for lack of a better term, a mainstay in the industry because that’s what’s happening on the street right now, is more and more people are breaking away from the banks. They’re breaking away from the wirehouses and they’re creating their own firms. So, we were there. We were early in that game and we were creating firms for people. What we found out is as we were creating firms for people, they were great money managers. They were great client people. They cared about their clients. They were great fiduciaries, but they were not necessarily great business people. They didn’t understand risk. They didn’t understand the compliance side of it. They didn’t understand the operation side of it. So they started coming back to us after we created the firm and they would say, “Hey, can you please take over this portion? Can you do this? Can you outsource this?”
Outsource, everybody loves to talk about outsource, but when you get right down to it, it’s a terrible business model. You don’t have control of the information and ultimately we felt like we could do something better and we came up with the idea of creating ASN as a platform for folks who leave, become their own brand, their own office, their own universe, if you will, but tagging into us as a deeper bench, or deeper resource. That happened 10 years ago and the firms has grown from one client to a hundred clients and three point $5 billion in assets.
Trevor Chambers:
So tell us exactly what you handle for people.
Thomas C Prescott:
We start with the easy one, which is compliance. We take care of all the compliance, which is a key component in the risk matrix structure. We do the compliance, we do the operations, we bring all the custodians that we utilize to the bare under a single contract. All the vendor resources. We have our own operational units that intersect at a higher level than, at 3.5 billion dollars, I get a higher level of access than a hundred million dollar advisor would get, or a $30 million advisor would get, or even a 200 million. So, the key to it was to replace what a person, a firm, that was going to go independent. They would need a CCO, they would need a contract with a custodian, they would need ENO theft bond, fidelity bond, they would need a cyber bond. They would need all these different components.
And for us, the question was, can we provide all of those services at a higher level, at a cheaper cost because we’re sharing resources. What we found when we brought in our first beta customer, he was an investment guy, he was out of Merrill Lynch, and he was very verbal. He was telling us the things that he wanted to see, and he was instrumental in us building out what our platform is. But when you look at everything that we do, it’s everything that an IA would need, an investment advisor would need to be in business on their own. So, the argument that they look at, when they look at a mainstay joining us are creating on their own, where are they better off? Where’s the cost structure going to be?
We believe that it’s a good argument that we’re going to do it better. My average employee’s got 20, 25 years in the business. It’s not to say that we’re perfect or anybody is, but we’re going to hire a higher level of person than most advisors are going to be able to find in their own communities. Then we put our pricing structure around it,
Alex Mihajlov:
Tom, it is Alex. How are you doing today?
Thomas C Prescott:
Oh, I’m fine. I’m sorry, you were breaking up there. We’re doing great.
Alex Mihajlov:
We’ve gone into a zero trade commission world. What’s the impact on you guys? What’s the impact on Fidelity and Schwab and the big, where is all that going?
Thomas C Prescott:
Well, it’s actually, in my view, it has hurt the service model. Schwab basically was the first to move to zero commissions and it took away, depending upon what article you believe, anywhere between 20 and 30, 35% of their revenue stream. That revenue stream either has to be replaced somewhere else, or they have to do cuts and they use technology to make cuts in staffing and this, that, and the other thing. So, we’ve seen a bit of a drop off in the level of service. Now, once again, because of our size, we still get the access at a higher level. But, for the entry level advisor, and that’s any advisor under a hundred million dollars. These advisors now don’t have the access that they used to have. So, Schwab tried to make up for the revenue flow by changing the way that they handle cash balances and what they offer to clients. Fidelity tightened our belts in other ways that they didn’t impact the cash balances and what they were allowing clients to use.
But what we’ve seen is, it’s become a different ball game in terms of how they staff, how they operate, what they allow, and for that. It’s good, look, it’s brought a lot of people into the market who weren’t into the market. So it’s had a, what I would call a pedestrian effect to it. It’s brought a lot of people in because now they can trade for cheep. I mean, when I got into business, I don’t remember. Alex, you’re probably about my age. The average minimum commission was 50 bucks. Today you can do that trade and it’s zero. So, that’s the positive to it. Actually it’s helped our model because we have made up for the difference in the service drop-off.
Trevor Chambers:
Right. When, and I know this, but I’d love for you to address it. When an advised her leaves a wirehouse function, et cetera, they’re typically seeing a much broader investment selection. Do you want to relate some stories on that?
Thomas C Prescott:
Yes. That’s absolutely true. I mean, if you look at some of the wirehouses, they have what we call shelf space, and those shelf space, they pick and choose the investments, the categories investments, the type of investments, the strategies, which their advisors can use. When you leave a wirehouse function and you go out into the open air, if you will, of being an independent IA. Be it on your own, or through a firm like ASN, the wealth of investments that becomes available to you, it’s exponential. I mean, there’s things that you can do that you can’t do by virtue of the firm and the risk structures of the larger wirehouses. You’ve got to remember their compliance structures are set up for the common guy, not every guy.
Trevor Chambers:
Right. They compliance to the lowest common denominator.
Thomas C Prescott:
Yeah, exactly.
Trevor Chambers:
One of the things that we have really enjoyed in the RI space is, it’s basically the complete transparency of everything. Meaning, you use a black diamond or something like that, and the client sees what they’ve invested. They see what they’ve gained or lost. They see exactly what our fees are and, they see what their net rate of return is. We found that real, real difficult to achieve at the wirehouse. You got any comments on that?
Thomas C Prescott:
Yeah. Well, that’s how the wirehouse’s make money. It’s on platform charges. It’s on doing the due diligence of the investments. It’s money that’s coming to them from mutual funds that the client never sees. On the advisor side, being a fiduciary, we tell the clients, you tell the clients, “Hey, here’s what we charge. Here’s the investments. There’s no markups.” It is a pure conduit for your clients of what it really costs to be in the investment. So yeah, we’re not trying to make money on the backs of the clients, that is above and beyond the commission structure that the wirehouses would do. So to me, it’s totally transparent.
Alex Mihajlov:
Kind of staying with technology. If you’re on that platform, you’re also restricted to what technology that platform wants you as an advisor to use. On this side, you could pivot to whatever you want, really. And you also, guys like you in ASM bring some scalability to pricing and that stuff. Do you want to talk about that a little bit?
Thomas C Prescott:
Yeah. So every firm starts with the technology deck that they use. We even have a technology deck. We start with, obviously the custodial software, and then tack on black diamond. Then the other softwares that we utilize and we get them all integrated together. The difference is where those softwares sit and where you have access to them. Prior to the COVID crisis, wirehouses were still basically, brick and mortar. You go into the office to get access to your clients. We in the advisor space, for years, you could work anywhere. You could have an office, you could be traveling and still service your clients, which the brick and mortar you couldn’t. What COVID is basically shown is that our model was the best model, because when the brick and mortar guys had to go home, they had to create a system in a very rapid manner that would allow for their reps, if you will, to intersect with the clients and then intersect back with a home ship, the mothership. We already had that for the last 10 years. So in that regard, we were way ahead of the game.
Trevor Chambers:
Plus technology is just important for the end consumer, the clients. I mean, having great reporting and having, I mean, that’s really important.
Thomas C Prescott:
That’s exactly right. I mean, you want your client to understand what you’re doing, what they have, where they stand, and you wanted it to be in a clear and concise manner. The technology is what, in my view, is what’s driving this business at this point. It’s allowed us to create a different level of business that did not exist 15 years ago.
Trevor Chambers:
As technology basically put the wirehouses in non-competitive position. I know when you and I were in a business in the early eighties, the Honeywell bull took up a building, and now all that stuff’s sitting on our phones.
Thomas C Prescott:
It sits on our phone and it’s backed up in multiple sites and sources around the country. So if something goes down there, we pick it up on the West coast, or in the Midwest. So yeah, it’s really brought freedom to the industry that when we both got started, it did not exist. I mean, we were basically writing paper tickets with pens. In today’s world, you have a laptop, you’re in business. For that matter, your clients have that same ability with their laptop to see exactly what you’re doing by logging in and seeing exactly what’s going on, on a live time basis.
Trevor Chambers:
Well, the other thing is, I mean, the Fidelity’s and Schwab’s and TD’s of the world, they really have the best technology as far as websites and keeping up with portfolios and all that sort of stuff. It’s just really easy.
Thomas C Prescott:
It is. To me, more importantly, it’s absolutely clean the way they run their business is different then what, I at Lehman, or you were at Alex Brown, right?
Trevor Chambers:
I was at AG Edwards.
Thomas C Prescott:
AG Edwards. All right. So what you saw there, and what we see here is so clean, and so easy comparatively, the experience is better for the client.
Trevor Chambers:
Tell me about who’s the typical advisor that you’re seeing inquire with you for your services? I mean, I think I know who they are, but you tell me what you’re seeing in reality.
Thomas C Prescott:
Typically, it’s people that’s been in the business for, on average 20 years. People who have soured on, they’re coming right now out of the wirehouses, out of the independent broker dealer channel, and out of larger advisors where they are being limited. Most of them are probably going to be contemporaries to who you are, and who I am, in terms of age. Maybe a little younger, but ultimately they’re trying to take their book and do what’s best for their clients. They’re trying to find a broader investment selection. It started growing 10 years ago. But what it is today, we’ve seen broker dealers, I think there used to be 7,500 broker dealers. I think it’s down to 3,500 now through attrition, or through mergers. So the broker dealer world is shrunk. The advisor side has just grown exponentially. So for the most part, it’s people who want to own their own brand that have some control of their destiny and have a better control of their client’s destiny.
Alex Mihajlov:
So, Tom, I’m picking up on that. You know, if you don’t know, you might have fears. If you don’t know some of the other side, but can you take us through the typical checkbox of fears that a transitioning over to an RA world, advisor would go through. It goes through.
Thomas C Prescott:
Well, depends on how he’s going to do it. If he’s going to use a firm like ASN, it becomes much easier. All right. So, but the normal steps are that they’re going to go out and do the research first, and they’re going to try to pick and choose who their vendors would be. With an ASN, we have four of the major custodians already in house and they can choose any one of the four. If they were going totally independent, they have to build it basically from scratch and they’re typically going to hire an attorney and a consultant to build the firm for them. The step typically takes anywhere between 60 and 120 days to get a firm built, registered, get all the provisioning setup and all the vendor choices made and everything set up so that it’s live.
With an ASN it basically can happen within two weeks. It takes us two weeks to get somebody live on one of the custodians. Other than that, it’s a very short process. But what most of it is, the largest part of the journey, if you will, is the research to make sure you’re choosing the right custodian. That the right investment strategies are available to you through those custodians. And that’s where we see most people spend most of their time. Honestly, it’s just doing the research. And then once the research has done, they’ve made their decision. It’s a fairly quick slide into home plate.
Trevor Chambers:
All right. Well, that makes sense. Do you want to tell any stories, successful stories?
Thomas C Prescott:
Yeah. I mean, we just onboarded a hundred million dollar advisor up in the upper Midwest. He owned his own firm, and what he found was he had created, he had run it, he and his father for 10 years, 15 years, actually. They were a CPA based firm and ultimately he found he was spending more time on dealing with government regulation, all the various pieces that were not client facing. His value that he saw was he wanted to have more time with his clients. So ultimately he went out and started shopping around. He got introduced to us. He was also introduced to a couple other firms and he did a matrix of, the old T charts. Give me the positives and negatives and he started doing it and ultimately came down and spent the day with us. He ended up closing his firm this spring.
He and his father moved the entire practice over here. We were lucky enough that it ended up in the press and that he was telling the story. The story was, he was able to spend more time with his clients and he was able to do it in a more economical fashion and had better support than what he had is his own firm. So, it was a validation of what we were doing and it’s actually driven probably at this point, more people to us than anything that we’ve ever done in terms of marketing. It’s just people read the article and started calling. So, it’s been a quite amazing story actually.
Trevor Chambers:
So, let me cut right to the chase on fees and stuff? You can make a little more money on this side of the equation, right. As opposed to a traditional, can you talk a little bit about that?
Thomas C Prescott:
You mean the advisors?
Trevor Chambers:
Yeah.
Thomas C Prescott:
Well, of course, yeah. I mean, if you’re an advisor and you’re charging 1% at a wirehouse, or at a larger advisory firm, the advisory firms going to take the lion’s share of that to cover house expenses. They’re going to cover the buildings, this, the mortar, they’re going to cover all this. So when you go independent, it is dependent upon you as to what you’ve chosen to do, how you’ve chosen to do it. So from that standpoint, it is a significantly larger take home pay out to the reps because they’re not giving away 50% of the dollars right away. Then, the question is, what do you get for that 50% that you give away versus what it costs you to provide that level of service, or a higher level service? I mean, the math actually works out to the advisor side, not the house side.
Trevor Chambers:
So what you’re saying is, better lifestyle, more money to you as an advisor.
Thomas C Prescott:
Absolutely.
Alex Mihajlov:
Tom, where do you see the whole industry going? I mean, what’s going to be the next step beyond the online world. I mean, is this it?
Thomas C Prescott:
I think it starts growing faster. I think it starts moving faster. I think, as bad as we see on the news every night about everything that’s going on with the pandemic, if you will. What it’s shown is that people can work from any location. They can provide services from any location. So, to paint sort of a visual picture, you no longer need the bull, or the bear standing outside your office. You no longer need 2.5 sales assistants. You no longer need the mahogany that you were paying for to try to impress somebody. What you’re doing is impressing the clients now with the technology and your level of service and your level of expertise. So what’s happened in my view. And actually I’ve got a very good friend who’s with Morgan Stanley and he bleeds Morgan Stanley. He loves it. But I saw him the other day running through the neighborhood and I said, “How’s it going?
He goes, “You know, I never knew that I would enjoy working away from the office,” but he goes, “I never want to go back.” I said, “Well, they’re going to give you that option.” He goes, “I don’t think so, but we’re pushing for it.” So the question is, he would be stuck still here in Atlanta working if they don’t, or he could move his practice to wherever he wanted it to be. And that’s what ASN has done is we’ve created lifestyle practices for many of the advisors who have left the larger cities, gone to, it could be their vacation homes, and they’ve set up shop within their communities there, and they’re serving their clients nationwide. So I see that expanding and the number of calls that we’ve been getting from potential advisors, if you will, who are shopping for their new home has grown through the last several months. It hasn’t shrunk and you would have thought because of the crisis, it would have scared everyone, and they would have not been looking for a move, but that’s not been the case. It’s gone the opposite direction.
Trevor Chambers:
So, let’s say you’re an advisor, to your point, you’ve talked about somewhere around 60 plus, plus or minus. I mean, in a BD world, but want to make this transition not only for themselves, but it definitely sets the clients up for better situation. I mean, that’s an important point because you can stay at the BD and just keep rolling and then somebody else gets the book. But maybe, it sounds like you attract a client that wants to ultimately do what’s best for the clients. That’s seems to be a key interest.
Thomas C Prescott:
Yeah. I mean, to me, it’s the fiduciary. It’s the fiduciary responsibilities. If you’re at a wirehouse, they are not necessarily, fiduciaries. They might be on the advisor side of the channel, but typically they’re there to sell a financial product to you. When you get to our side, you pick up that duty to your clients. I think ultimately that’s the main difference, but yes, what you really find is that you become entwined with your clients lives. You know those clients, they know you, they know your kids, they know what you do. They know your process and you become an extended part of that family, if you will. I think that’s hard to take away. If you’re at a wirehouse and you leave the wirehouse, what’s the first thing they’re going to try to do is take every client that you had and try to keep them because you were never important. It was the firm was important. So it strengthens the relationship between the advisor and client. That’s the key. Go ahead…
Thomas C Prescott:
I was just going to say, the conflicts that exists between selling a product, or selling a service, and being paid a fee versus a commission, that all goes away.
Trevor Chambers:
Hey, do you want to speak to any difference between selling your practice to an RA, like yours, and that whole world. I mean, excuse me, selling your RIA to a bigger RIA versus staying with somebody like ASN.
Thomas C Prescott:
Well, all, so the main difference is at ASN, the advisors that come to us, they are associated with us, but I don’t own them. If they ever choose to leave the ASN model, they take their books and their clients and they leave. We’re here to be a service organization and make sure that the reps, the practices, are staying within the lines of the road, if you will. So, that’s the main difference is, we’re not here to buy practices. We’re here to have practices join us and take advantage of what we believe are significant benefits to being with a firm like us. The problem is when you sell your firm, whether you sell to a larger advisor, or you sell to a larger broker dealer, there’s a lot of aggregators out there that are trying to buy practices.
You lose control of that practice. You lose control of the clients, yes, you’re still there. You’re still the primary person, but you’re now using their models. You’re using their research. You’re using their two pages of things that you’re allowed to utilize, but you could be leaving 50 pages of potentials out there that you can’t even touch. So, typically the folks that are trying to sell their practice are trying to monetize it. Which, there’s nothing wrong with that. The clients actually get the ultimate say whether they go, or they don’t. But the question is, is it a benefit to the rep selling the practice or is it a benefit to the client?
Trevor Chambers:
All right.
Thomas C Prescott:
We make the argument that by coming to an ASN, we’re not buying the practice, so it’s a free market exchange. As long as we do what we’re supposed to do, you’re going to be here. If we’re not, you’re unhappy, you’re going to move your clients to what you think is a better location.
Trevor Chambers:
Well said, do you want to talk about your thoughts on the big three custodians and your experiences with them. Was talking to somebody the other day, I see very little difference personally, between Fidelity and Schwab. I don’t know if you want to get into all that, or don’t want to get into all that.
You know, I think it’s yet to be seen. With the merger between Schwab and TD and the various intricacies that are going to go along with that. It’s going to be interesting. I think you’re right. Look, technology is technology and everybody has some version of it that accommodates their clients. To me, it comes down to a personal relationship. Where do you feel more comfortable? Where do you get the better service? Where do you feel is your home? There are people around the country that will swear it’s Fidelity. There are people around the country that would swear it’s Schwab. Pershing is the only custodian out there that doesn’t have a retail division that competes against the advisors. But, I think the landscape is changing right now because of the potential merger, and I say potential because I even saw an article yesterday that said that there are constituents out there that want that merger to stop. Will it, won’t it, I don’t know, but I will tell you that if it happens, it forever changes how Schwab will be doing business in terms of how they handle the larger clients versus the smaller clients.
And it’s not that they’re not going to handle them professionally. It’s just, it’s going to be different and nobody knows what that difference is yet. They’ve certainly put out the articles of what they think it’s going to be. But, I don’t think you just know, but to me, it’s where you’re most comfortable.
Trevor Chambers:
Yeah. All right. Well, Tom, thanks for joining us. I appreciate it.
Thomas C Prescott:
No, no worries. I enjoyed it.
Trevor Chambers:
Yeah. We appreciate your insights and your opinions on stuff as always. So thanks for joining us.
Thomas C Prescott:
All right. You guys have a good day.
Trevor Chambers:
You too.
Alex Mihajlov:
Thank you.
Trevor Chambers:
All right. Bye bye.