Strategic perspectives on scale and independence

Matt Brinker, Managing Partner, Merchant Investment Management

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About the podcast

Listen to Matt Brinker, Managing Partner of Merchant Investment Management, share how he built United Capital, a platform to help advisers scale their businesses, into a $25bn behemoth before its acquisition by Goldman Sachs. Matt reveals why he then changed focus from uniformity and scale to celebrating diversity in business structures and individuals with Merchant.

Brinker delves into his observations of the success factors of firms that have been able to scale, how digital tools can bridge the client experience gap, the growth of alternative investments in the US, and exciting developments in global markets. He also provides insightful commentary on investment strategy, capital duration, and the importance of building long-lasting, sustainable businesses.


Matt Heine (MH):

I'm delighted to welcome Matt Brinker to the show today. Hi, Matt.

Matt Brinker (MB):

Hello, Matt. How are you?


I'm very good. I was just looking back at the last couple of episodes and by chance, you're the third person from the US we've had on in a row. So great to have you on and look forward to hearing your story and about what you're up to now.


Oh yeah, thanks for having me. I really appreciate it.


And I think we had just touched on it before. Our last podcast episode was actually with Brent Brodeski, who I believe you know quite well.


I do. I've known Brent for probably 15 plus years and had a chance to see Savant sort of via a relatively smaller RIA in the United States and now be a national powerhouse and it's an aggressive firm.


No, it's a great podcast. Thanks for the plug. If you hadn't had a listen, go to the Between Meetings menu and have a look for it. But today, we've got Matt. So Matt, we had the benefit of catching up for breakfast when you were last in Australia, and I think why I'm really excited to chat to you today is just the experience you've had over in the US and particularly with your previous firm, United Capital. But for those that haven't had an opportunity to hear maybe about United Capital and also what you're doing at Merchant, do you to give us a little bit of a history about yourself and what you've done?


Sure, happy to. So I spent 15 years as the Head of Acquisitions and Chief Business Development Officer for a firm called United Capital, which was an acquisitive company that built an operating platform under a singular ADV, singular licence for the most part, that was really focused on building a scalable platform to help advisors really focus at on what they're excellent at. And what we found that advisors weren't great at or really all that interested in spending time doing were the things that actually scaled really well, bill pay, payroll, HR, IT, compliance, and we built a RIA that centralised a lot of those functionalities and provided the platform for firms to spend, or advisors to spend, more time doing the things that they're excellent at, which is meeting with clients and growing the business. We bought 90 of those businesses, grew to about 25 billion of assets under management and the business was bought by Goldman Sachs in the summer of 2019.

Goldman Sachs is an amazing company. They are really a well respected brand and organisation, but I just really personally wasn't all that interested in working at Goldman Sachs. And so the experience that I had at United Capital informed really what I wanted to do next. So I took some time off and thought about how I wanted to spend my time. I took, I think, about nine months off, travelled, just decompressed. A 15-year run of doing what we were doing was really quite intense, fabulous but intense. I was really interested in continuing to invest in wealth management firms, but I wanted to do it differently where the firms that I was investing in maintain the majority of the equity and I believe in alignment. It's one of my core tenets in any of the relationships, business relationships, that I have where there's just clear alignment of objectives. In a minority investment position, you have alignment with your partners that you invest in.

But more importantly, their alignment is to the improvement of their equity and the growth of their business, which I love that dynamic. And so I partnered up with Merchant Investment Management. They had done a really great job of making a handful of minority investments. We're structured as an operating company. We're not a fund. It's really important to make that distinguishing characteristic and we can talk about why that matters. And another interesting characteristic is the duration of the money that we invest. I tend to believe, Matt, that the duration of your capital informs your strategy a little bit. And when you've got 7, 10, 15 plus years to invest, you invest differently.

You think differently about the timeline in which you're deploying capital in increments of 3, 5, 7, 10 years and it allows those firms that you're investing in a little bit more breathing room to think about big strategic initiatives that have long-term implications, like developing next generation of talent, investing in branding and marketing. In our industry, there's a lot of capital in the United States and all over the world, but there's a tonne of capital pursuing the wealth management space. I think it's important to understand that if you take on a capital partner or taking on private equity investments, are you building a transaction or are you building a business? I think it's in a very important lens to think through.

The people that are attracted to the Merchant relationship are clearly, majority of them, are interested in building long, sustainable, durable businesses. Those are the businesses that we love lining up with because we are a team of individuals that have with the highest degree of humility, have really interesting backgrounds in where we've been as individuals in the businesses that we've built. We've seen a lot. We've built and operated wealth management firms from the smallest RIAs to building big national RIAs to working and running some of the largest banks in the world.

So our bench of people is really our asset at the end of the day. When we face up to one of our partner firms and they want to think about M&A, we can help them think through M&A. They're thinking about their operating platform, inorganic or organic growth strategies, whatever it might be, we like to think that we've seen a lot of the challenges that most firms are seeing across the sort of growth spectrum, whether they're at a billion and they're trying to get to five. If they're at five, they're trying to get to 20 and the like. We've been there. We've done that.

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I think it's really interesting as an observation, and maybe I'm misguided, that the work that you did at United Capital, which is all about scale and in many ways perhaps uniformity, you've now almost gone in completely the other direction where you're celebrating diversity and differences and investing into a whole lot of very different businesses with different structures and different individuals. Is there a right or a wrong or is it just different?


It's different. It's difference and it's preference and it's perspective. I've got a very firm opinion on some of the... Really around the behaviour changes of what happens when you sell a hundred percent of your business. You show up on Monday differently. You do. I didn't like that necessarily misalignment with working with individuals that have sold a hundred percent of their business. I just wanted to work with people that still were hard charging entrepreneurs and still trying to get better, be better, grow the business, recycle the equity for their next generation of advisors, thinking about potential family members stepping into the business. Just the optionality that you afford yourself in retaining the equity, I think, is well worth the journey of that control. And look, I think what I would sort of call the roll up firm's 2.0 that have been very successful here in the States, I think they're doing great work.

I think that they're providing an environment and a solution for a lot of firms that need to be surrounded and supported by a larger infrastructure and a larger entity. I love the evolution of the wealth management space in the United States because the number of options that advisors have, in terms of where they are on the development and the cycle of their business, is great. I think more options, more solutions, more capital is really great for the independent space. I've always, and this is a little controversial, but when Goldman Sachs bought United Capital, I thought it was a total failure for our industry. I thought it sort of messaged that the independent channel couldn't stand up on its own two legs and it took a very large national player off the playing field. But the great news is there's been seven to 10 other roll up firms that have stepped into that void and are doing things differently, probably doing things a little bit better, quite honestly.

And so people have stepped into that void and they provide the ability for advisors to totally sell a hundred percent of their business, bolt onto a platform where there's probably more resources from a tax and estate planning perspective. It gives the industry more optionality, which I think is very healthy, more capital, different types of capital, different structures, different entities, different solutions. Because I'm of the mind of the independent wealth management space is the best place to operate for clients and advisors and as much money and resources and capital and bright people and good thinking and capital investment and technology and fit wealthtech is all good. It's all very good because we need to stand up against the competition. I mean, I think I read somewhere that one of the major banks, Morgan Stanley or Merrill Lynch, I think they spent 4 billion last year on technology investment and that's across the whole bank. But some of that is going into the retail channels and investing in digital tools and solutions and the like.

When we as an independent space, we too need to be big enough to continue to reinvest in our channel, our firms, our wealthtech because it's an arms race. As you know, Matt, you've built a business to satisfy a lot of the growth opportunities in Australia.


It's probably a good point to change the conversation slightly. I think you've described the landscape really well and we're starting to see those different business models emerging in Australia. But when you look at the firms, regardless of the business model that have been really successful and been able to scale, what are the things that you see that they're consistently doing well? Where are they driving efficiency or business model improvement?


I think it's a first day realisation that wealthtech, and it's a big broad bucket, is way more effective in, like I said, scaling the scalable. So scaling a lot of the middle office functionality. When I think about bill pay, payroll, HR, IT, investment management, those components of the business really lend themselves to scale. I think we have to accept that where advisors are winning new clients is the ability to spend, actually creating more actual capacity in the given day to spend more time with clients and prospecting for new relationships. So if there's an ability for, you make it up to 40 hours a week and you're finding that advisors are spending three to four hours working literally in the operations of the business or spending more time opening paperwork and the like, those things immediately tend to lend themselves to a high degree of scale. With the firms that I see that are doing that really well in the United States here, some of them are partner firms.

They've invested heavily in understanding workflows, the integration of technology to make it easier for clients to onboard and to service the clients. Now, I understand that the part of the client engagement, the actual delivery of advice, literally the quarterly, semi-annually meetings, they don't scale all that well and that's okay because that's where our industry becomes very defendable against outside competitive forces. So to me, it's more human engagement. Where can we find more human engagement? The firms that sort of figure out the next sort of hack beyond that is that they're understanding that technology isn't necessarily going to scale and grow the business. It's the empowerment of the advisor by technology.

That, I think, is the alchemy that is where I see firms figuring out using forward digital tools on the tip of the spear of the client engagement that tend to be differentiated. I know you've had a bunch of people on here, on the podcast, but the technology that we built at United Capital, the digital engagement tool that we built that was behavioural finance driven, we found really sort of where we could scale the human engagement with the client and the advisor by providing them front end digital tools where, let's be honest, the ability for advisors to immediately instil a level of confidence and trust with between the client is a bit of a innate skill.

It's not necessarily learned. Unless we're able to clone all of those advisors that have that skillset, we need to figure out as an industry, how do we deliver that type of client experience where it doesn't necessarily require that type of skilled advisor to get to that level of intimacy and trust. So I'm seeing a lot of digital tools bridging that gap for advisors that may not be necessarily a significant part of their skillset, engage having tools that help them get to those conversations quicker with a little bit of a digital crutch to dive into those conversations and sort of invoke those conversations that tend to be personal, nuanced around their money behaviours and some more financial and personal attributes that a really good advisor with a pen and paper and a pad can get to in a half hour meeting.


I'm not sure if it was a United Capital innovation, but I remember when we were in New York probably five or six years ago with the group of advisors, seeing some of the ways in which you'd actually put process around the things that you were just talking about, so the use of value cards, for example, where you could teach advisors now to have those difficult conversations or the emotional conversations and then link it back to their goals and display that through a life score. I thought it was really interesting and something we haven't quite managed to achieve over here yet.


Yeah, it's exactly what we had built. So the way Merchant looks today is that we've made 60 investments. It's about 140 billion of assets under management and we're launching currently Merchant Australia. I'm incredibly excited about what we're doing in Australia with two partners that are going to be running Merchant Australia for us. I've been exposed to the Merchant Wealth Management, to the Australian Wealth Management space for a decade now. In fact, one of the Australian banks was an investor in United Capital. So I've been tracking the Australian market and I've always just have thought about the Australian market and it's kind of this, I don't really want to talk a lot about it because it's a great little secret. I mean there hasn't been an incredible amount of capital, particularly outside capital, in Australia.

And so we've got a couple... And I've always felt that the only way that we could actually effectively deploy capital in Australia, because again, you'll know that the Merchant approach is that we are in the trenches, roll up the sleeve investor wanting to help our partners accomplish the things that they're trying to accomplish in their businesses. You can't do that from midtown Manhattan into Australia. It doesn't work. So I've had a long relationship with Santi Burridge, who's done some really cool things in Australia. He's built wealth management businesses, he's exited wealth management businesses. And same with David Haynes, another friend of mine. We're just incredibly excited about the market, the Australian market. I know it's obviously it's had a lot of disruption and everything else, but we feel like it's almost as I see the licensee growth, particularly sort of the one to a hundred or one to sort of 20 licensee market growing and other segments shrinking.

It's so similar to the early stages of independence in the United States about 20 years ago. It just feels like this is on the cusp of clients really understanding the value of independence and the advisors really starting to understand the value of independence, all of the solutions and the technology able to support independent advisors. I just think that we're in early days of massive growth on the independent side of the Australian wealth market and we're super excited to be a part of it. We got a lot of really cool things cooking.

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Yeah, it's very exciting. One of the other areas I'm quite interested in the moment, we're again, I think very supportive of all of your comments around independence, but seems to be the growth of alternates over in the US. I know that's an area that you are spending a lot of time on as Merchant and working with your firms. What is the trend over there and why are we not seeing more of it locally?


The trend is, I think, and this is just beyond just sort of anecdotal, I'm seeing some of the fastest growing wealth management firms here in the United States differentiating themselves by curating alternative investments. It's interesting that we sort of went from here in the States, the RIA industry was sort of built on independence and then independence in delivering pure investment management solutions. That has since evolved into investments are commodities. We need to differentiate on financial planning and holistic and all of the financial planning aspects. We're still in this environment of financial planning and whatnot being the core driver, but it's really hard to differentiate yourself in this environment with that conversation. We do holistic financial planning via an open architecture and cross a diverse investment management solution platform. And so what I'm seeing as advisors, particularly those that are focused on the ultra-high net worth, a massive amounts of demand for alternative investments.

I think we're actually even still sort of early days here where I think individual investors hold 50% of the world's 300 trillion in assets, but I think alts only represent about 16%. I get that they typically have been very hard to consume. They're hard to access. They've been usually packaged by the big banks. So it's been very difficult for independent firms to access alternative investments. But I think you're starting to see a blend of wealthtech and alternative investments figuring out how to deliver alternative investment solutions to the RIA community. We've partnered up with the firm to deliver those type of solutions. I don't know what the right ratio is. It might be 70% wealthtech and 30% interesting access to alternative investments, private markets, debt, real estate and the like. But I think there's just a massive, massive appetite within the ultra-high net worth community here in the United States, and it's starting to get real traction. Like I said, the firms that are doing it are really differentiating themselves.

Second part to your question, why not in Australia? I don't know, but we'll fix it. We'll figure it out. I mean think the demand is, I'm sure across the whole world, candidly, of ultra-high net worth clients looking for alternative investments.


And on a similar vein, I'd be interested to know, when you are looking at making investments across the world, Australia's clearly very important to you. Are there other markets that you feel are equally exciting or doing similar things, whether that's through alts or technology or a shift to independence?


Yes. I mean we're looking... I think in your part of the world, I think we have an investment in a firm that has locations in Brazil and Switzerland. I think in your neck of the woods, Singapore, I think it becomes a really interesting market where you're seeing the seedlings of independence growing there. Canada also is another interesting market that has been traditionally dominated by banks. Again, I think it's almost like a revolution. Whenever clients start waking up to this idea of wanting a better experience, wanting their advisors to have objectivity and alignment is where I think you're going to see independence really start to take shape. I mean, obviously in the Australian market, you had to have the disruption of what happened with the banks. We sort of saw some of that disruption in '08 and '09 in the United States where there was real brand damage to the banks during the financial crisis.

You sort of saw a spike in AUM growth of the RIAs, advisors moving to the RIA channel. So I think the good news is that clients are going to more and more demand of their advisors, higher degrees of personalization, higher degrees of customization. It's far easier to do that in the independent world. It's easier to deliver on all of... And that's not changing. I mean, if you think about consumer habits, we've been trained by Spotify, we've been trained by Netflix. We are on demand, customised, personalised consumption experiences, and consumers don't go backwards. Their expectations don't go backwards. If we're not meeting clients where they want to be met and engaged and delivering a personalised, more customised experience, somebody else will. Somebody else will. Those are the firms that I'm seeing that are winning here in the United States, understand the consumption habits of their target clients.


Matt, I'm conscious that we've almost run out of time. I'd just like to thank you for again, a wide ranging conversation. I think this high level of evidence of your experience, but more importantly your passion I think for the industry. Certainly, I'm excited to seeing you over in Australia more, so thanks for coming on the show and look forward to catching up very soon.


Yeah, I'll be there. I look forward to seeing you in person again.


Can't wait. Thanks a lot.


Yeah, thank you.

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