Hightower's suit against $39 million RIA described as 'wirehouse 101'

As private equity-backed RIA aggregators continue to gobble up market share in the wealth management space, the evolution of some firms is starting to resemble the same wirehouse model that advisers have been fleeing.

Exhibit A takes the form of a lawsuit filed by Hightower Advisors last month charging Michael Policar, owner of the $39 million Seattle-based advisory firm NGP, of stealing information and recruiting clients when he left Hightower in January 2021 after about two years with the $104 billion Chicago-based aggregator.

“They’re trying to say the agreement said that I couldn’t solicit clients and the allegation is that I tried to lure clients when I left,” said Policar, who joined Hightower in 2018 from Merrill Lynch.

Policar said he doesn’t recall the number of clients or the amount of assets that he brought with him when he joined Hightower from Merrill, but “the majority of the clients named in the [Hightower] complaint were relationships that were with me prior to me joining Hightower.”

Bob Oros, Hightower’s chairman and chief executive, would not comment specifically on the lawsuit, which seeks $500,000 in damages, but said the business model is very clear.

He explained Hightower’s platform with the analogy of being hired to drive a car.

“There’s the IBD model where you use your car and when you leave, you take the car with you,” he said. “The other way is you drive my car, and when you leave, you don’t take that car with you.”

In Oros’ analogy, the car represents clients and assets that are acquired by Hightower under a model that's been in place since Oros joined the company in 2019.

Oros said Hightower made its first RIA acquisition in 2016, three years before he joined the company, and two years before Policar joined Hightower in 2018.

“Since 2019, we haven’t done anything under the old model,” said Oros, who would not comment on the model under which Policar joined.

For his part, Policar said he “did not sell anything to Hightower.”

Louis Diamond, president of Diamond Consultants, said the issue is likely tied to the progression of Hightower’s business model, which pivoted away from its original focus on recruiting wirehouse reps and toward acquiring registered investment advisers to join the platform once Hightower partnered with private equity investors in 2018.

“Advisers on the Hightower platform were granted consideration in the form of cash and equity, and in return they willingly signed more onerous employment agreements than they would have had at a wirehouse,” Diamond said. “These advisers that sell to Hightower are getting a ton of money and getting more restrictive employment agreements.”

Charles Failla, principal at Sovereign Financial Group, sees the Hightower lawsuit as the unfortunate byproduct of PE-backed RIA aggregators morphing into wirehouse-like behemoths.

“We’ve been seeing so much of private equity Pac-Manning through the RIA space that what’s coming to a head now is what it means to advisers and their clients,” he said.

Failla described Hightower going after a $39 million adviser’s book of business as “wirehouse 101.”

“If you leave, they’re coming after you,” he added. “That’s probably not what they thought they signed up for, but if that’s what it’s going to be like, these advisers need to know that coming in.”