Steve Lockshin, chairman of Convergent Wealth Advisors and founder of outsourcing powerhouse Fortigent, is convinced that independent advisors and wealth managers need to band together to have a fighting chance against Wall Street.

Independent advisors of the country unite; you have nothing to lose but your anonymity!

No, Steve Lockshin, uber capitalist and entrepreneur, hasn’t actually used that variation of the Communist Manifesto’s famous opening line. But he might as well, because it pretty much sums up Lockshin’s pitch for Advizent, his new business venture with Charles Goldman, the former head of the RIA custody units at Schwab and Fidelity.

Lockshin, chairman of Convergent Wealth Advisors, who also founded the firm that is now outsourcing powerhouse Fortigent, is convinced that independent advisors and wealth managers need to band together to have a fighting chance against the Wall Street and multi-national financial service firms against whom they compete for consumers’ attention and wallets.

In the spring, Lockshin and Goldman sent shockwaves through the industry when they announced the formation of Boulder-based Advizent, a for-profit consortium of advisory firms designed to pool resources to create brand awareness for independents.

The for-profit venture, according to Lockshin, already has nearly 90 firms with combined assets of $120 billion who want to join. The firms must have at least $250 million in assets under management and can expect to pay a membership fee between $25,000 and $100,000.

Next week Lockshin, who is currently Barron’s top-ranked independent financial advisor, will be making headlines again when he announces the  high-profile founding members of Advizent’s independent board, which will be chaired by a venerable industry figure whose name is practically synonymous with consumer advocacy and choice.

But first, Lockshin sat down for an exclusive interview with Family Wealth Report to discuss his vision for the potentially revolutionary new business.

FWR: How is Advizent being funded?

SL: The venture has been capitalized to date by Charles Goldman and myself with over $1 million in personal cash and we will continue to fund it as appropriate. We are in discussions with outside investors and hope to close an initial round in the coming weeks of an additional couple of million dollars.

FWR: What kind of investors?

SL: We’re talking to everybody. Private equity divisions of public companies and private individuals. Folks who cannot invest are members or asset managers because we want no play-to-pay or conflicts of interest.

FWR: What do you see as the primary mission of Advizent?

SL: Advizent’s primary mission is educating the consumer and matching them with appropriate and suitable fiduciaries to meet their financial needs.

Match game

FWR: So Advizent will have a matching, directory-type service?

SL: Yes, consumers will be able to sort by location, by services such as estate planning or tax returns, by average asset size and other criteria. They will be able to access, at no cost to them, firms that have already met criteria established by our independent board.

FWR: What is your assessment of the matching and referral services that already exist, such as BrightScope and Paladin Registry? How will Advizent be different?

SL: Those firms are very different because they are firms that collect public information and then try to re-organize that public information in a way that a consumer might use them. And then advisors, I believe, can pay to have their profiles enhanced. Advizent has a much different organization because we are going to create a standard and then audit annually to that standard.

Relating to Relais

FWR: You’ve mentioned to me that you thought the Relais & Chateaux hotel consortium was a good analogy to what Advizent is trying to do. Could you elaborate?

SL: Relais & Chateaux is a luxury hotel consortium of independently owned and operated hotels that are held to a very, very high standard. As a consumer looking for a high-end hotel that is independently owned and operated I know that if I go from one Relais hotel to another around the world I will be guaranteed an exceptional experience. They have certain criteria that I would suspect include thread count on their sheets, staff-to-guest ratios, quality of the restaurant, et cetera.

We’re very much the same in that we’ll be creating an exceptionally high standard and holding member firms to that standard. Like Relais-Chateaux, hopefully the consumer will become familiar with our standard and our mark and value it and rely on it. That’s what we’re trying to create.

FWR: What do you see as the biggest challenges facing independent advisors today?

SL: On a micro level most advisors will tell you their business is growing and the segment is growing. However I believe many firms are challenged with respect to profitability and margins.

But I believe the real challenge is that no one knows who independent advisors are. You could take the list of top 100 firms, walk down any street in America from Main St. to Rodeo Drive and show consumers the list and they won’t recognize one name on the list.

But if you ask them who the top financial services firms are in the country, they’ll reel off names like Goldman Sachs and Bank of America and JP Morgan. The primary difference is branding and marketing and no individual RIA can combat that machine.

Marketing mandate

FWR: Which is where Advizent comes in. How important is the marketing aspect of the enterprise?

SL: Branding is everything. You can be the smartest person in the world but if you have no one to tell it to it’s not very valuable. Same thing here. If ultimately we cannot get consumers to value the mark then this will likely fall flat.

Therefore we plan to embark on a very substantial branding and marketing campaign. We have engaged very notable folks to help our efforts by both serving on the board and supporting our organization and then ultimately unifying the stakeholders in the fiduciary argument. But at the end of the day the consumer needs to understand what it is that they’re getting and be familiar with the name and the mark.

FWR: How do plan to implement the marketing strategy and what do you see as an annual budget?

SL: We’d like to see the initial budget start at $30 million to $50 million dollars a year and ultimately approach and exceed $100 million a year. We expect it to be funded by the natural beneficiaries of our growing segment which includes the custodians and the asset managers already engaged by the top firms.

Given that amount of spend, we anticipate working with major agencies to help us deliver a successful branding and marketing campaign but it’s premature to have selected a firm or even have our plan fully formulated.

FWR: How far along are you?

SL: We’re just shy of 90 firms with $120 billion in self-reported assets under management/assets under advisement. These are firms that have said I’m interested in what you’re doing and I want to be a member. They’ve signed the agreement but have not gone through the audit process. Anybody can sign up to be a member today, but ultimately firms will have to qualify to remain a member.

Strict standards

FWR: So how will member firms be audited? What will some of the most important criteria be?

SL: There will be a very defined process, and if I want to underscore anything, it is that there will be complete independence and no “pay–to-play.” There is an advisory council made up of the major stakeholders in the current fiduciary space in the investment world. It will include folks like the Institute for the Fiduciary Standard; fi360/CFEX (Center for Fiduciary Excellence) and the CFP Board (Certified Financial Planner Board of Standards).

Those folks will work together to prepare a set of information to an independent board that will ultimately determine roughly 6 to 12 core, very digestible standards that will be publicly available for the consumer. The standards will all be very measurable.

The audits will be completed by outside parties, and we’re currently working with a number of folks, including CFEX, as well as major accounting firms and significant audit contributors in the industry to serve as audit partners who will also be independent.

FWR: Who will be on the independent board?

SL:  An announcement will be coming out shortly. It will be chaired by a major lifelong figure in the industry. It will also include notable, financially successful individuals who all have no interest other than insuring that consumers be treated fairly and equitably.

FWR: Some people may say that this sort of judging should be done by an SRO (self-regulating organization), not a private company. How would you respond to that?

SL: I think that the current debate that’s going on between SIFMA and those who are arguing for a higher fiduciary standard underscores the challenges of an SRO.

The FINRA regulated firms are arguing for a fiduciary standard. They want one that is unimpressively low, while those of use who are regulated by the SEC are held to a much higher standard.

Advizent member firms want the highest possible functional standard – not pie in the sky that we can’t adhere to but something that every consumer should expect, and deserves. So I don’t think an SRO will work and as a libertarian, I haven’t been impressed by the government’s ability to protect consumers.

Give and take

FWR: What are some of the ground rules for firms who want to be part of Advizent, and what can those firms expect to receive?

SL: In order to be a member, you must meet, via audit, the standards of excellence put out by the independent board, which will in a constant state of reform. And you must pay the membership fee, which is expected to be between $25,000 and $100,000 per qualifying firm.

We have assured all firms who have expressed interest that we will not begin charging fees until we can deliver demonstrable value. For example, we are working on certain programs such as insurance where we are the unique underwriting group. We believe we can secure significantly better coverage than any one firm can get on their own at a significantly lower price so we can offset some of the membership fees with benefits like that.

And many of the major vendors in the industry have reached out and expressed interest in creating savings programs for our members. So there should be a number of ways to deliver very tangible economic value.

There will also be non-economic value in the form of real-time online constant benchmarking, which is currently available only annually from the custodians. And there will be peer relationships, very much like the Young Presidents’ Organization model which has been so successful for the past 55 years.

Target market

FWR: Who do you see as Advizent’s target market? Will it run the gamut from mass affluent to ultra high net worth? Or will it be more segmented?

SL: I see it as serving somebody who’s got $5,000 all the way up to someone who’s got $500 million and beyond. If we only serve the top 1 per cent, then we will continue to do what has been done to date, which is penalize the less affluent because they don’t have the access to top advisors nor do they have the breakpoints on costs that the wealthier consumer has.

There are firms like betterment.com that can serve consumers with very small amounts of money and there are more launching every day. And we want to encourage firms that have the technological capabilities as well as the interest to serve all consumers.

In terms of what’s best for our firms, the only way to build a brand is serve everybody. If we only serve 1 per cent of the folks then it’s unlikely that our brand will become recognized.