Non-Beta Alpha Clearing Week: Greg Bruce SVP & National Director of the Investment Advisors Division Raymond James

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Ryan Morfin:

Welcome to Non-Beta Alpha. I’m Ryan Morfin. Today’s episode, we have Greg Bruce, the national director of the investment advisory division at Raymond James, talking to us about the future of clearing. This is Non-Beta Alpha.

Ryan Morfin:

Greg, welcome to the show. Thank you so much for joining us.

Greg Bruce:

I appreciate you having me.

Ryan Morfin:

Well, we wanted to talk to you about Raymond James clearing business today. Some of the trends in wealth management that you’re following. It’s been a pretty active time for the clearing industry. Would love to hear your thoughts about the consolidation and the technology challenges facing the clearing business.

Greg Bruce:

Absolutely. Without question, there’s been disruption in the industry, as it relates to some of the consolidation that’s taking place. I think it’s an interesting time for the clearing businesses to think about their identity, to think about who they are and how they fit in, in the competitive landscape and how they’re developing their value proposition in order to build out market share, as we look at the future going forward. As it relates to my specific division, I lead the RA division at Raymond James. We feel as though we’ve got a very different story to tell. We feel as though that we have a model that’s predicated on comprehensive wealth management and advisors that are attracted to a bundled solution that has those types of attributes are interesting conversations for us to have. And we’re excited about the success that we’ve seen in the last six to eight months.

Ryan Morfin:

And it is interesting out of all the clearing opportunities for advisors to choose. Raymond James was really a wealth management business that evolved into a clearing business. Is that correct?

Greg Bruce:

It is. And I would say that if you’re going to look at the Raymond James landscape, you really start with what we call advisor choice. That allows our financial advisors to fully have a disclosed ownership of their book of business, but it also allows them to move freely amongst the different general affiliations within Raymond James to determine the best model for their clients, as well as how they want to manage and run their business.

Ryan Morfin:

And so you guys have a W-2 model, you have an independent model, a hybrid model. Maybe talk a little bit about the trends in the W-2 space. I actually have been seeing a lot of independent advisors want to go back to W-2. Are you guys seeing that as well?

Greg Bruce:

Yeah, there’s a lot of momentum there as well as the independent contractor division. I think that right now, the financial service’s industry is a tide that is rising all ships as it relates to the Raymond James experience. We’re certainly seeing a tremendous amount of growth on the W-2 as well as the 1099 side of our business. And I think, the way that we are approaching that, is that we feel that there are advisors that fit within all of those affiliations and our ability to attract and educate and create awareness there is really where our focus is.

Ryan Morfin:

And as it relates to the clearing business, the number of firms that are in the clearing business is shrinking. As there’s consolidation going on in some of the competitors, does that seem to open up a new window for you guys to grow your cleaning business? Are you guys excited about the opportunities in the years to come?

Greg Bruce:

I think it does. I touched on it a little earlier, but I think that it creates a unique opportunity to have different conversations. When you look at the core of clearing and custody, the tenants of that generally are service technology and practice management. You’re going to have one provider that is going to have a tremendous amount of market share and scale and have a version of how they want to serve their clients. I think you’re going to have owner solutions such as ours, that I think create interesting perspectives for advisors to look at something that might look and feel very different in the marketplace, as we get a little deeper around the comprehensive wealth management platform, we feel confident that there’s a fair amount of advisors that are intrigued about opportunities to embrace services, such as an investment banking, insurance, in house marketing and global wealth solutions. Have access to JDs, CFEs and CFAs that are part of their custody relationship, as opposed to relying on developing those within their RAA business. Again, I just think it’s an interesting time for us to have different conversations.

Ryan Morfin:

Do you provide access to even like the syndicate desk and all these other services to every different bucket of advisor types from different channel affiliations?

Greg Bruce:

Yeah. There’s different procedures and different, I would say boundaries around utilization of our capital markets groups, and other elements of trading and access to those asset classes. But without question, there’s an intention for us to look at the channel affiliations within our business model, create attractive and competitive offerings that are appealing to advisors. And then make sure that the client experience is driving their satisfaction and loyalty to us, both at the end client level, as well as the advisor level.

Ryan Morfin:

A lot of the other competitors are either have banks attached to them or are funded from a family office. A question for you, is where are you guys investing? And how do you see the competitive landscape changing in this kind of we’ll call freemium model that some of the competitors are migrating towards?

Greg Bruce:

I think that as you look at the service experience, I think that’s an area of opportunity. When you look at where scale is developed with some of the largest providers in the clearing, I feel as though there might be a situation where service is compromised with some type of client segmentation exercise or otherwise. We’ve taken the approach to double down on our service experience. And what we’ve looked and do is provide every client on our platform a dedicated contact that is an extension of their back office. It’s meant to be proactive, it’s meant to be consultative. The idea is for them to create individual relationships with back office professionals and our clients. So there’s just more camaraderie and understanding of how they do business. And we’re confident that, that’s going to have a positive effect as we look to move forward and grow our platform.

Ryan Morfin:

And you guys talk a lot about technology and I have talked to some of your RAs, they do rave about the Raymond James technology experience. Can you talk a little bit about your tech roadmap and where you guys see the trends moving in wealth management?

Greg Bruce:

Absolutely. And I think part of the appeal within the investment advisors division that supports our RAs is the idea around, that we support both the ability to leverage a fully integrated, active model of technology that Raymond James has created and really worked and developed to make it advisor centric. But yet we also have the ability for them to choose more of the traditional, open architecture, a la carte infrastructure. Create their own technology stack, and allow our data to transfer there. So in many cases, there’s hybrid offerings, where they’re using some of ours and some third party. In other cases, they’re kind of drawing the lines on one of those former options. So within that conversation, I think we create a lot of opportunity for independence and the ability for them to create their own business model and serve the client.

PART 1 OF 4 ENDS [00:08:04]

Greg Bruce:

And the ability for them to create their own business model and serve their clients.

Ryan Morfin:

And your perspective. I mean, we’re in election season now. How is your perspective on the regulatory environment? Do you anticipate there’ll be a lot more change coming for RIAs and broker dealers? Or do you think it’ll just continued to elongate itself through another cycle?

Greg Bruce:

I think we’re going to continue on this cycle. I don’t know that I’d go as far as to speculate what the next domino to fall might be on the regulatory aspect of things. But I’d say that we’re being very cautious around our approach to paying attention around where we need to reinvest. We’re adjusting our platforms with a degree of flexibility, to identify where there might be some pivots in regulatory affairs and the need for us across all of our businesses to pivot and to make some directional moves. So I think within that idea, we’re trying to be as flexible as we can, without real certainty on the direction it’s going.

Ryan Morfin:

And going to the business model. I mean, given that interest rates are so low and may be low for a long period of time here, what does the revenue model or the pricing model look like in the future? Does free work? Is it subscription based? Is it a la carte? How do you guys look at the pricing of the clearing business going forward?

Greg Bruce:

Yeah, that’s an interesting question. I think that, undoubtedly in this type of environment with very low interest rates with [inaudible 00:09:32] positions being what they are, with no transaction fees and the custodial clearing models are certainly compromised in this situation, I think one, you can look out for an opportunity for growth and look for an opportunity to see where there’s a benefit of continuing to escalate your growth levels in order to create some additional high level revenue for the businesses. But to directly answer your question, I think that all custodians are reviewing their options as it relates to taking a look at different scenarios. I don’t know that there’s consensus as we sit here today, but I think there’s an evaluation around subscription, versus asset-based pricing, versus different types of relationship based fees within the models.

Ryan Morfin:

And the last few months have been very challenging for all advisors and anybody managing assets. As you look around the country and you guys touch all the different Raymond James offices, what are some best practices that you’ve come away with having conversations with folks that are part of your clearing platform?

Greg Bruce:

I think the number one thing is, without question, the advisors that are really being aggressive with their communication are benefiting from that. We’re starting to see double digit growth levels in this pandemic setting with those that are trying to get creative with how they’re connecting with their clients. I think we saw phase one in March when the volatility was at a peak, where our advisors were looking to really have phone calls, connect, touch base, and ensure that there was a level of comfort.

Greg Bruce:

And then the situation with the pandemic was elongated. And then there became the need to embrace Zoom or GoToMeeting and other technology solutions that are out there, in order to stay in touch. Then I think there’s a third tier of advisor, that’s understanding that there’s a further opportunity to be here. I can increase my credibility. I can do some webinars. I can bring some third parties in. I can add some expertise. I can create some additional connectivity, with that end client and my firm. I think those firms are getting talked about. I think referrals are getting made and I think growth is happening in those cases.

Ryan Morfin:

And this client experience, it seems that the advisors are being forced into this digital moment to accelerate their tech IQ, if you will. What can advisors do today to digitize or, be effective in a no touch economy?

Greg Bruce:

I think there’s a couple things. The first thing I would say is, really do some deep analysis around the existing policies and procedures to really try to identify to scale. It isn’t necessarily the purchase of a new technology. It isn’t the addition of some innovation related to their models. It’s really an assessment of efficiency of how they’re transacting business and really a drive towards doing it. What I found is a lot of clients that have been forced into business contingency plans based on the virus, have recognized that that’s an opportunity to embrace some efficiency gains and allow themselves to really look at where there’s improvements. And how they can embrace those going forward. I think when we come out of this, whatever that looks like as it relates to a new normal or any type of resemblance of the previous era. I think you’re going to see an increased business model across the RIA industry as it relates to efficiencies and cost savings.

Ryan Morfin:

No, that’s a great point. It doesn’t always have to be buying new technology and adapting. You can just change your workflows and design thinking around process management is really critical today. As it relates to marketing, you guys talk about your marketing services, how has your organization pivoted in the new normal from a marketing stance?

Greg Bruce:

Yeah, and I think when you look at the RIA space, I often times have been exposed to scenarios where well-intentioned RIAs go through some type of RFP process to try to identify a marketing agency or a group of professionals to really support an initiative or increased brand awareness. Maybe some new digital advertising for themselves, in addition to their logos and website and other types of affairs. And what I found was they often get left at a point of disappointment because those professionals didn’t have a specialization around the RIA industry.

Greg Bruce:

Although they might’ve had exposure to financial services, they truly didn’t understand the independent model. They didn’t understand the fiduciary standards associated with our client base. And it left them disappointed and falling short of maybe were expectations were to further extend what their value propositions are in the marketplace. What we bring at Raymond James is a marketing group that provides very competitively priced services, that have that specialization. That understand the business model and really can start in the fifth or sixth inning of that process. Instead of going through some type of educational alignment around what the message needs to be and how they’re trying to deliver it. They very quickly get to try to better understand the individual RIAs and what their core message needs to be.

Ryan Morfin:

It’s been a very active time in wealth management RIA, whether it’s been RIAs or broker dealer consolidation. From a Raymond James perspective, how do you guys see that unfolding with the volatility on the horizon of asset levels? And then are you guys going to be active in supporting advisors acquire books, et cetera?

Greg Bruce:

I think so. I think that’s something that we’re going to continue to support. We’ve found a tremendous amount of growth within our RIAs. From both an organic perspective [inaudible 00:15:29] clients, in addition to their ability to attract advisors with books and business. I think that’s a trend that’s going to continue to increase, but I do think the trend is changing there a little bit. And what I mean by that is, I would say, you go back 10, 12 years ago M&A was traditionally [inaudible 00:15:47] planning and really a focus on the legacy of the business. And then we went through a period where it was more geared towards talent acquisition, driving scale, or adding more services. I think based on the market volatility that we experienced early.

PART 2 OF 4 ENDS [00:16:04]

Greg Bruce:

I think based on the market volatility that we experienced earlier in the year and kind of the uncertainty of the virus, we’re kind of circling back to that succession conversation to say, “If I haven’t produced a plan that’s both contractually obligated and agreed upon as well as properly funded, that might need to be a priority for me right now.” And then you couple in the mitigating factor of many of the aggregators and other firms out there are very active in this space. So they’re adding services and creating robust platforms that’s driving competitiveness in a way that may produce additional M & A to stay competitive.

Ryan Morfin:

Yeah, no, it’s definitely the inorganic growth that’s been driving a lot of these productivity gains, I think, in the industry. What are your thoughts on fintech? There was an interesting stat that I just came across. I believe in the last five years there’s been about 25 billion in fintech funding in the IPO market and there’s only been about a billion of IPOs in the last five years in wealth management, mainly AssetMark and Focused Financial. Is that troubling for the industry? Do you think that the lack of access to capital in the public markets for our industry is a troubling data point?

Greg Bruce:

Well, I think when I look at fintech as it relates to the individual offerings for our clients, it’s as competitive as it’s ever been. I feel like there’s innovation that’s being driven towards enhanced services, additional features and functionalities. I think the integration of most of the third party tools is continuing to be refined. So I think it’s healthy from the perspective of what the end client experiences, and as it relates to individual capitalization of those firms, I probably am less competent to speak about those aspects of the business, but I can say from a deliverable perspective, I think that the market is moving at a faster velocity than it ever has. And I think that innovation is going to help the end client and it’s going to help drive the advisors’ efficiency as well.

Ryan Morfin:

Yeah, no, I do think it’s going to force some firms to either adapt or get acquired. And it’ll be interesting to see if the fintech companies become the acquirers and consolidators of the near future. From a Raymond James perspective, how has the RIA versus broker-dealer kind of hybrid back and forth with the SEC and FINRA, how has that been unfolding from your perspective? Do you think that there’ll be more oversight coming for RIAs in the future, or do you think FINRA and the SEC have kind of found an equilibrium as it relates to some of the DOL rule and the REG BI?

Greg Bruce:

I think we’re in a comfortable position where I think most of the stakeholders feel as though their interests have been represented from a regulatory perspective. It’s difficult to make any predictions as it relates to those types of affairs, but I do think that we’re in a position now that the major players have reacted towards the pending or already implemented regulations that are out there. And I think that we’re in a place the end client feels well represented and protected.

Ryan Morfin:

So as it relates to going back to the technology space and kind of risk management and compliance, what are some trends or some items that you guys are paying attention to from a regulatory technology-driven compliance framework?

Greg Bruce:

Yeah, one of the things is cybersecurity. I think that given that almost every firm was forced to engage upon some type of their business contingency plan and work remotely on a full scale, I think that that’s promoted the idea that our clients are being much more proactive than they have in the past around identifying cybersecurity concerns, remedying that, and reinvesting in their business more aggressively in that area than they have historically. I think as you move going forward with the idea that maybe not all employees go back to the office and maybe the remote work becomes more of a permanent solution, I think there’s going to be a heightened emphasis on cybersecurity and the production of client data in general.

Ryan Morfin:

No, that definitely is becoming a bigger and bigger issue with people working remotely. As it relates to Raymond James and the organization working remotely, how have you guys changed your business development at Raymond James to adapt to this new reality?

Greg Bruce:

Well, I think that the first element is just around the virtual communication. I think that there’s just a different type of sales cycle now and attracting advisors to our business lines. We prided ourself on what we called home office visits to really bring advisors in their teams into our headquarters and meet senior leadership and have the opportunity to embrace our culture.

Greg Bruce:

I think the ability to move in a different direction and do that virtually is admittedly less desirable. But I think that it’s also effective from an education and communication perspective. I think prospects are also being understanding of the idea that we’re just in a different environment, that the traditional sales process just has to morph into something different, something unique and something that can still meet expectations on a go-forward basis.

Greg Bruce:

So I think it started slowly. I think in March and April there was a pause in everyone kind of recalibrating and gaining an assessment of where the opportunities were. But I tell you now that things are moving full steam ahead, and those engagements are moving forward in the sales processes and in many cases are continuing to move forward.

Ryan Morfin:

Yeah. We’re seeing an increased pipeline across the board as well. It seems like people took Q2 off to lay back and watch this unfold and now there’s a lot of moves accelerating. As it relates to you kind of just being a leader in the industry and managing a large team of people, what have you done differently as it relates to your leadership approach during this pandemic?

Greg Bruce:

Well, I think initially I really felt as though there was the idea that you just can’t over communicate. I think that I was really trying to overextend all mediums of communication to allow people to have a sense of comfort, a sense of inclusion, and really be a need for them to be reassured that we’re still operating with full functionality and in a remote way, and they’re still valuable contributors and we need to continue to stay focused on what the objectives are.

Greg Bruce:

I would say as this is extended beyond the timeline that I think any of us have felt it was going to continue, that’s morphed into something different. I think that the cadence of communication is now moved into a bit more of a collaborative fashion. The biggest sensitivity that I have as a leader is that we lose that collaboration, that teamwork, that alignment as a group that we might have on a boardroom white boarding session that’s just more difficult to create in this type of agreement, in this type of arrangement. So we found some things socially to stay connected so we’re just not a hundred percent talking about business on all of our interactions and engagements. And in addition to that, I would say that we’ve probably just refined and tightened up some of our agendas as it relates to some of the work focus.

Ryan Morfin:

And where do you think we are right now in kind of the economic recovery? There’s been a V shaped stock market rebalance, mainly led by technology stocks, but do you see the underlying economy on okay footing, or what’s your perspective on kind of this bounce-back?

Greg Bruce:

I think that what’s interesting to-

PART 3 OF 4 ENDS [00:24:04]

Ryan Morfin:

… perspective on this bounce back.

Greg Bruce:

I think what’s interesting to watch is the separation between the economic indicators and the correlation of where the market’s going. I think that’s very interesting to continue to take a look at. As I’ve been following our CIO, Larry Adam, he’s been very focused on a number of those types of considerations. And we can send you to monitor that as a interesting perspective for us.

Ryan Morfin:

Do you guys see rates going sideways for a while or did they go negative? Any thoughts on that?

Greg Bruce:

I don’t. I think that I’ll follow the Fed’s recommendations and what they’ve shared and that’s how we’re strategically positioning our business or this to be an extended rate environment for the foreseeable future. And that’s how we’re coordinating our businesses going forward.

Ryan Morfin:

Yeah, yeah, no, it’s a very interesting period for interest rates. If they go negative, which a lot of people say they won’t, but if they do, it could be a very dire situation to get out of. We’re following that very carefully. As it relates to, I’d say, silver linings in the US economy, are there any silver linings that you see either in the industry or the US economy that keep you optimistic?

Greg Bruce:

Well, I’m going to continue to be excited about the R&A space. I think this is an ideal time, and an opportunity for advisors to do research and do their due diligence to determine whether this is a consideration for them. Although, many in the beginning of this crisis maybe thought that they needed to pull back, focus their clients and really stop all types of maybe external investigations. I think what they found now is that there’s the ability to take a deeper look. There’s additional ability to communicate with their clients, given that many of them are still staying at home during this period of time in order to share what might be the future evolution of their business, what might be the business model that allows them to serve their clients in a better way going forward.

Greg Bruce:

So I would encourage advisors to continue to look at their options, and I think that that’s happening in the marketplace. So very optimistic about what’s happening there.

Ryan Morfin:

And as it relates to some of the wirehouse advisors that are out there, you mentioned people have been working from home longer and it seems to be working out for some of them, growing double digits. Do you see a continued secular trend towards independence from the wirehouses now that maybe the crutch of commercial real estate is no longer as valuable as it used to be?

Greg Bruce:

Yeah. I think what we’re looking at now is you can really have any flavor of this independence that you’re looking for. And if you embrace the independent model and are looking to really have a high degree of entrepreneurial spirit and do all of the elements of running your business, I think that’s always been the option, but then there’s the other options of outsourcing a variety of different services there that create the capability for those, that may have less comfort in certain areas, whether it be compliance or technology or insurances or IT work or hardware, leases, all of those things now at third party solutions that can provide some level of expertise that I think creates the model to be more attractive than it’s ever been.

Ryan Morfin:

Yeah. Now, the ecosystem has gotten very sophisticated with a lot of these compliance technology and administrative solutions, even outsource CFOs. I guess one of the last questions I have for you is through the summer, what have you been reading? Any good books or listening to podcasts or newsletters that you’ve been reading to chart your recovery, but also your firm’s recovery through this new normal?

Greg Bruce:

I continue to be intrigued by listening to podcasts with a lot of industry leaders. I think that there’s the opportunity there to gain perspective around how different business cultures are adapting to this environment. I find that fascinating in regards to how they’re strategically managing this process, what pivots they’re looking to make as it relates to growth, the managing of their balance sheet. What they’re looking at in terms of capitalization. Are there opportunities for acquisitions and other things in this environment that might be uniquely appealing? I think there’s such a broad disparity of opinion and thought process that I just find that very interesting as we think about how leadership is reacting to this environment.

Ryan Morfin:

Yeah, no, it’s definitely a different perspectives. It’s not a homogenous view today. I think a lot of people are differentiating their views based on their personal perspective of where they’re sitting and I do see some huge opportunities that I think the secular shifts in our industry are definitely going towards the trend of independence. And so, Greg, I appreciate you joining us today and I appreciate your insights and we’d love to have you come back on the show at some point.

Greg Bruce:

I’d love the opportunity. Thanks for having me.

Ryan Morfin:

Thank you, Greg. Thank you for watching Non-Beta Alpha. Before we go, please remember to subscribe, like, and leave us a review on Apple Podcasts, YouTube, or Spotify. This is Non Beta Alpha, and now you know.

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PART 4 OF 4 ENDS [00:31:18]

 

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