For those who wax nostalgic at the mention of names such as Pan Am or Polaroid, the news last week that E.F. Hutton & Co. is coming back after a 25-year absence triggered golden memories.
But just as deregulation transformed the airline industry, and microchips revolutionized photography, observers are wondering whether former Smith Barney executive Frank Campanale and a group of other Hutton alumni can resurrect the venerable Wall Street firm in a financial services environment much changed since 1987.
A “new-millennium version” of Hutton, as Mr. Campanale envisions it, will be launched this year. Aside from saying that the new Hutton is well-capitalized and will engage broadly in the retail business and investment banking, the firm's leadership team has been stingy with details of its intended operations.
If the new Hutton intends to be a national full-line firm, it will face significant hurdles, observers said. For one, big-name firms have lost their luster with investors and advisers in the wake of the financial crisis.
At the same time, numerous consolidator firms, independent broker-dealers, registered investment adviser custodians and other startups are aggressively courting the high-end advisers that E.F. Hutton will be recruiting. These competing firms offer robust technology, open-architecture platforms, practice management services and even the sense of community that Mr. Campanale wants to recreate.
Then there is money.
“It's going to take more than just a great name to attract advisers,” given the big bonus deals the wirehouses offer, said Ron Edde, a recruiter with the Armstrong Financial Group Inc., who noted that building a national network of offices is hugely expensive.
“That is not a startup-type budget,” he said.
Such an investment comes at a time when brokerage firms are seeing profit margins squeezed due to low interest rates and low trading volumes, observers said.
“The question is, if you start a full-service hybrid-type firm, how do you make money in this environment?” asked Felipe Luna, chief executive of Concert Wealth Management Inc., which provides independent advisers with administrative services.
The group of investors bringing back the Hutton name said that it has plenty of money.
“In the course of the last year, we've brought together a number of people — former executives and management of Hutton,” said Chris Daniels, a former Hutton investment banker who will lead the new firm's investment banking effort. “We've got substantial support and backing.”
Financial resources aside, the new Hutton will have to create something different to attract advisers.
MORE THAN A NAME?
“Outside of that [Hutton brand], what are you bringing that's unique? It better be significant,” Mr. Edde said, because advisers won't move just for the name.
Mr. Campanale, who left his most recent position as chief executive of Advanced Equities Wealth Management in January, said that he wants to re-create Hutton's innovative and energized culture.
“It's amazing what people will do when they feel good about where they work,” he said.
“It's magic. And what happened at Hutton was really magical,” Mr. Campanale said.
“Culture is one of most underappreciated factors in attracting talented individuals,” agrees Philip Palaveev, president of Fusion Advisor Network, a practice management and consulting firm whose affiliated advisers manage more than $3 billion.
Hutton will join a field of upstarts such as Dynasty Financial Partners, Focus Financial Partners LLC, HighTower Advisors LLC, United Capital Financial Partners Inc. and others that have already had success picking off top wirehouse representatives.
“This says to me that it's a market in disruption — the status quo is over. New competitors have a chance to be successful,” Mr. Palaveev said.
“The industry is hungry for new names,” echoed Danny Sarch, founder of Leitner Sarch Consultants Ltd., a recruitment firm.
Small size and lack of legacy costs are advantages for startups, observers said, pointing to technology and other services that can be outsourced.
But no upstart has a “monopoly on new ideas or the breakaway phenomenon,” Mr. Sarch said.
Another challenge for the new Hutton is that the firm's alumni are getting along in years, observers said.
“The driving people at the firm were 45 years old, but that was 25 years ago,” said Richard Schilffarth, a former executive in Hutton's consulting unit who is now an adviser with RBC Wealth Management.
“So they're 65 or 70 now,” said Mr. Schilffarth, who just turned 81.
“They'd be hard to get. And are there enough [who] want to come back and re-create that [Hutton] image?” Mr. Schilffarth said.
“If not, Frank's got a tough job,” he said.
djamieson@investmentnews.com
