The Compound and Friends - Live at Future Proof

Episode Date: September 16, 2022

On episode 62 of The Compound and Friends, Shirl Penney joins Michael Batnick and Downtown Josh Brown to discuss market volatility, adjusting to a higher risk-free rate, investment banking, the state of wealth management, hiring top advisors, and much more! This episode was recorded in front of a live audience at Future Proof on 9/13/22. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/disclosures/ Inclusion of advertisements by podcast sponsors does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, hope you've all been enjoying Future Group so far. Today on the compound of friends, we have Josh Brown, we got Michael Batnick, and we got Cheryl Penny. So, welcome. Welcome. Thank you, Nicholas. Nick's got copies of his book, and the price that he's offering them at here. They are selling like hotcakes. It's called

Zero Dollars. Just stop buying. Actually, today would be a great day. Great day to stop buying. So first things first, we're going to do some market stuff, but I want to introduce you to my friend,

Cheryl Penny, who I consider to be one of the titans in the RIA space. I mean that with absolutely no sarcasm whatsoever. Cheryl has built a massive platforms for independent advisors, breakaway advisors, people who want to launch their own firm and do so with a very high level of professionalism. And I've been an admirer of yours since we met, and I heard your story and what you've built,

so it really means a lot to me personally to have you in my hot box today. Yeah. It's like 110 degrees in here. I didn't tell your team about a metal box on the beach. Yeah, I might take my shirt off. Batnik is basting like a rotisserie chicken. Anyway, welcome to the Compound and Friends Endurance Test.

Thank you guys so much for being here and being part of the show. The stock market is in the midst of a little mini panic or a crash. Michael, give us some of those superlatives. All right. So the Dow fell 1,200 points today. Yesterday, in this very hot box, I was saying that the S&P 500 just had its best four-day run

since the lows in June 2022, and it's over. So they all got ripped away today. So the Dow fell 1,200 points, dollars up, rates up, everything else down. If you own it, it's down. Yeah.

But other than that, it's sunny out. It's nice. Yeah. Let me just say what the good news is. And by the way, thank you for inviting me to an event where I'm actually one of the old people. Yeah. Which is one of the many things I love. We're the same age.

I feel old. I do. Yeah. which one of the many things I love. We're the same age. I feel old. I do. Yeah. So this is, for those of you who haven't been in the industry as long, this is the advisor Superbowl, right? You live, you live for moments like this football season just kicked off. And right now is a moment in time where everyone wants to talk to an advisor, right? If you're just starting out in your career, be proactive right now and you will significantly benefit yourself versus those that are not. It's a difficult time to engage with

clients, but now is an incredible time to engage with prospects. So go on offense right now. I think that's right. And this is when money is up for grabs. No question. Historically, a year with flat to negative returns, even though it hasn't been a catastrophic year, I do think a year like this causes a lot of people to second guess what they're actually doing, who they're working with, what kind of advice they're getting. And that is the environment where you see money in motion. You've probably seen a lot of that too, right? No, no question. Our advisors at Dynasty that we're powering right now,

they're growing disproportionately because they're going on offense, whether it's with digital media marketing, making the outbound calls. Right now is a moment in time where everyone wants to talk to an advisor. There's no better time to be an advisor than in the midst of an environment like we're in now. So it's good that you guys are all at a conference. be an advisor than in the midst of an environment like we're in now. So it's good that you guys are all at a conference. This is a festival, just to be clear. A festival. True. Yeah. True. My bad. Michael, what are we seeing in some of the big, most popular stocks right now? Just to give people some sense of what's happening. Yeah. So it was an ugly day on Wall Street and Nvidia fell 9%. Facebook fell 9%. Lowest close since, I don't know, many, many years.

The NASDAQ was down 5%. It was an ugly day. There's no sugarcoating it. And I think, obviously, inflation accelerating. Again, I said this 24 hours ago that inflation peaked. That was wrong. Inflation was up 0.6% month over month. It was twice as bad as July. So it was bad. And the Fed is serious. They're not stopping. They're not slowing down. And I think people got caught offside, got a little bit too bullish going into it. And it's not over yet. It's not even close to over. Two-year Treasury hit three spots, seven, five today. And if you think of the two-year Treasury the way I do, which is that it's the shadow Fed and Fed funds rate will follow it. One of the more interesting things that we've seen is that historically, it's not until the two-year drops 25 or 50 basis points and stays down that the Fed is actually done. So for people trying to figure out like, OK, I get it.

They have to keep going. When will they be done? You want to be focused on that two-year, laser focused on that. And you really don't even need it to drop. You need it to just stop going up. It has not stopped going up for most of the summer. And I think one of the things that that does as an allocator, and Cheryl, you could probably speak to this, the hurdle rate is higher because when we make investments, we're all allocating money for clients. It's not in a vacuum. It's versus the risk-free rate. We went probably 10 or 11 years with no

risk-free rate. This is a very different situation. Now, when you're about to allocate capital to something, you have to ask yourself, do I think I can, given the risk I'm taking, can I make double 3.75%? Am I taking twice as much risk to do that or more? And so I think that that two-year becomes really significant as it heads toward four. That Tina bullshit is over. Well, once you have that, you also have the other side of the equation. So people, if they're not directly saying, hmm, should I do stocks or should I do, you know, 3.7% in a two-year? What also happens is the multiple comes down in stocks, right? People are just less eager to pay up. And all the bullshit that was happening in 2021, obviously,

not only is that long gone, that's dead and it's not coming back for a while. Cheryl, these conversations must be going on with your advisors now. What's your perspective on there just being a much, much higher risk-free rate available in the market? For sure. We're having a lot of these conversations. I would tell you, again, speaking first to the younger attendees, we all know this. It's not about timing the market, it's time in the market. And the most valuable asset to investing is on your side. And those of you that are starting out and have younger clients, I would keep that in mind in terms of how you're communicating to them as well. We've seen a lot of so we have seventy two billion dollars invested on the platform.

So it gives us decent data in terms of what's going on with our advisors. We have seen a rotation towards fixed income, which I'm sure is not surprising. We've seen a fair amount. And I know that there's a number of sponsors that are here in the investment space. We've seen a rotation towards active, what I would call professional management, SMA managers, more outsourcing than what we've seen over the past multiple years using SMAs. And we've seen a fair amount of increase in assets going into alternative investments as well to further diversify the portfolios. Yeah, I think one other thing that's maybe underappreciated is for the wealth management

market, we have clients who are primarily in the top tax bracket. You can buy a muni bond portfolio right now and earn a tax equivalent yield of like 5.8 or 5.9 percent, let's call it six for argument's sake. If you had told a client four years ago, I'll get you 6 percent investment grade municipal bond, almost nothing to worry about. And inflation is 9 percent. Right. Well, that's the that's that's the thing. But you can lock in negative 3 percent real. But still, but still, you don't think it stays at 9 percent, I think is the thing. You can lock in negative 3% real. But still, but still, you don't think it stays at 9%, I think is the point.

But that kind of yield was not available like two years ago. It feels like a completely different time. So this has all changed very quickly. Yeah, the good news is the risk-free rate is higher. Everything else sucks, but at least the risk-free rate is higher. There was an announcement today. J.P. Morgan's president spoke at a conference and said they see third quarter investment banking fees down 45 to 50% year over year. I was thinking

about 2021 as being the high watermark for the cycle in terms of investment banking. There were 1,035 IPOs last year, which sounds like a lot. It is a lot. The average, 75% of those ended up on the day. And the average return was like high teens percent. That obviously was not going to be sustainable. And I think this is the year we pay the bill for all the money that was made last year. What's your view on what's happening with capital formation? Can people do deals? Is there an appetite for any of that? I'm actually surprised that that number is not higher. I mean, there really has been no activity, really no secondaries, no follow on, certainly no IPOs. And coming off an all time high to come to this type of screeching halt, it's kind of fascinating

to watch. I think, unfortunately, and we all have friends that work at some of those large banks, there's probably some headcount reduction and some other things that are going to come as a part of that as it plays through over the next couple of years. You haven't seen any of it yet, right? It's starting to a little bit. Goldman announced yesterday that they're doing a layoff. So, well, investment banking activity for the full year will be down 90%. Maybe 90 plus percent.

Yeah. But we're talking about bulge bracket investment banking. Specific to our industry, though, M&A activity and investment banking activity within the wealth advisory space continues to be really high. Sherlock, can I give some numbers? In terms of- I'm going to give you some numbers. Put some meat on that bone.

So August, so again, investment banking, IPO in capital markets is dead. The RIA marketplace has literally never been hotter. In August, there was a monthly record of 24 RIA transactions, 31.6 billion, now probably like 24, whatever, which is well above the number last year. And it's not just like the giants, which is what gets all the headlines, like the dynasties of the world. But you're seeing more small transactions, 10 sub $500 million deals, and year to date, sub $500 million deals are up 85% over 2021. So the market, our market is still on fire. Yeah. I think some of it is a sense of urgency. There are some people that maybe we're considering not doing a transaction

that are now worried that it might slow down. So they're hurrying to try to get something done. Like the windows closing, let me get my deal done. And I will say we're starting to see some multiple contraction a bit. So some of the valuations, we'll see if they top tick over the past couple of quarters. Some of that has to do with a lot of the large acquirers, not Dynasty, but some of the other large acquirers are primarily funded by debt. And debt costs are obviously going up. It's just like with mortgage rates, right? If mortgage rates go down, oftentimes the real estate prices go up and vice versa. That could have an impact on the valuations being paid. And then obviously, the vast majority of advisory business fees are tied to revenue, tied to the

market. So as the market has traded off, some of the revenue has come down. So I do think that you're going to see the continuation of deals. Some of the valuation might come down. I also think there's going to be a lot more creativity in this environment with deals. We've been working on a number of transactions where it's almost like a prenup or a postnup that's being put in place where somebody's agreeing on an acquisition. And then after 24 months, both sides have a mutual opt-out, right? So more flexibility, really dating before you get married. I've never heard of that before. Is that a new trend? It's newer, but I'll tell you, we've done it now five or six times. And especially with

someone who's a breakaway that might be selling to an established RAA, taking all the pressure off having to get it right in terms of the valuation when they leave. They can come in, they can join, they can start using everything, make sure they fit the culture, and then decide after 24 months if they roll in. And if it's not a fit, then they can roll out and start their own RAA at that point. So if you're an advisor, you can't do that twice. You could say, all right, I'm moving to this firm. I'm really excited about it. You're not really going to get into the prenup conversation. Like I might I might be screwing this up, but we'll see. You're obviously not going to do that. So then things don't work out or you're not happy.

You decide, you know what? I want out. I want to do this myself. That's pretty much it. I don't think you can move a client three times in five years. Well, the beauty about ultimately moving and having your own business is most people don't move again, right? That's usually the final move for somebody once they end up. So it's really a conversation around going independent, being more independent, more the fiduciary model, et cetera. And then if it doesn't work, then they're just running their own business. Well, you've done a lot of these deals. What percentage of the time do you think they end up not working out for various reasons? They tend to work out 80% of the time. And the reason, look, a lot of people here have hired a lot of people.

The reality is you don't know until you know, right? You try to get it right. But if you're batting 85%, 90% in terms of a hiring manager, you're in the Hall of Fame. So you just don't know. And sometimes if you do a transaction that's final, and oftentimes, I meet people at various industry events that sold to an aggregator or a roll-up that maybe didn't do enough due diligence and they want to get out, that's a forever transaction. So it just takes the risk off of making a critical mistake with your life's work when you can enter into a transaction that has more flexibility in terms of unwinding it

if it ends up not being the right fit. Hey, Stuart, can we talk about the why? Well, I want to stay on that for one minute because I get why that's great for the advisor. From a firm perspective, I don't think I would ever do a deal like that only because you did it with me you gave me 90 days no excuse me I didn't give you I didn't give you 90 days to decide I gave me 90 days so that's a true story that's a true story uh that's actually how I used to hire I'd say you're hired for 90 days we'll see how it goes we don't do that anymore.

No, but from my perspective, if I'm bringing an advisor on, I want them to be like, holy shit, I'm joining the New York Yankees. I'm joining Red Holds Wealth. If they're not like that and they're like, we'll see how it goes, that's not my guy. That meeting for me would be like five minutes. But I'm not saying that's good or bad. I'm just saying I'm kind of a, you know, and a lot of transactions are done that way. Well, my, my point was just, there's more flexibility, more creativity, more innovation, right. That's being brought into the space. And speaking of innovation, I just want to quickly

say, I'm so happy for you guys. And I dare say, I'm so proud of you guys. This event, the last couple of days has been amazing. I don't know about everyone here, but I really enjoyed it. And what our industry needs is more bold innovation, right? It's not easy to decide to do what these guys and Barry and the team decided to do. So I really, you know, bravo, commend these guys for having the courage to try to innovate, especially with something that at its core

is designed to encourage more people into this most needed profession. So well done. Thank you, my friend. Thank you, Cheryl. Really appreciate it. Hey, Josh, before you interrupt me again, I just want to talk about the why of these deals. So 158, I'm looking at the Fidelity Institutional Wealth Management M&A report. Year to date, again,

158 transactions, like big transactions. Why? What is the benefit of being acquired? Why are all of these deals happening? So we partnered a couple years ago with MIT and we created a program called Advisor to CEO. And the reality is the skill set that makes you a great advisor oftentimes is very different than the skill set that makes you a great CEO. And we've seen this with a number of breakaway advisors that launch businesses. And after a couple of years, they say, you know what? I got into this business because I really wanted to help people and advise clients not to run a business. Yeah. Right. And you guys know what I'm talking about. There's a lot of risk and responsibility. I'm pretty much at the end of my rope, to be honest. Yeah. So oftentimes there will be an M&A transaction for succession planning or, frankly,

an M&A transaction for succession planning or, frankly, to free up time for an advisor to get it back to what they love. Also, the RA space has been discovered from capital providers. It's an amazing business. It's the most critical industry. Most of the revenue is annuitized. It's predictable. It's core and essential. I think we're still in the early innings.

There's going to be more and more capital coming in, which again, I want to underscore something I said earlier. If you're thinking about a transaction, I cannot stress enough, do your due diligence. Talk to your peers, talk to lawyers. I meet so many people who ended up selling to the first person that they spoke to. That's not what you would advise your clients. Why do they do that? Because they get there like flattered and they fall in love? It's the cobbler's shoes in some ways. So hear me out on this. So if you had an entrepreneur

client looking to sell their business, you might say to them, look, we need to get a lawyer. We need to get an investment banker. We're going to run a process. We're going to talk to multiple players and we're going to make sure it's the best fit. So many advisors don't do that for themselves, right? They end up doing a transaction with the first person they have a conversation with. Usually focused financial. Well, there's a number of them that are out there that have a lot of salespeople in the field and that's great. And it's a good fit for some people, but it's unfortunate when people wake up and say, I wish I had taken my time. I wish I had spoken to more people and got better educated. I think that's a really good point. And again, you're an entrepreneur first, if you run a firm. You're an advisor second, half the time.

So sometimes you're an advisor first, but where the rubber meets the road in an M&A transaction is that you have to be both because you have to make sure your clients are aligned with why you're moving. So that's if you're jumping from a wire house to an IBD or an RIA, or you're about to put yourself on one of the platforms or whatever you're doing, your clients have to like spiritually be with you because it's going to be a pain in the ass. There's a lot of paperwork. There's a lot of back and forth. There's a lot of money in motion. Integration. Yeah. They really have to believe in what your reason is for moving. So the fact that you got an offer is not going to be enough from both perspectives, both as an entrepreneur and as somebody who's responsible

for clients. One additional point, because a lot of the CEOs or some of the aggregators, if you see them speak at different events, will speak their own book in terms of if you're not scaling up and you're not a large REA that you're going to be irrelevant in the near term. I fundamentally think that that's not true, that there's going to be room for advisory practices of all sizes. It's really about the relationship, I think, technology, the cyborging of our industry, to leverage technology, to scale yourself up, to work with a platform like ours, which really is synthetic scale. You get $72 billion of buying power working with a firm like ours without having to sell to us.

There's other platforms that are out there, not just Dynasty, but there's ways that you can build and scale and tech enable all aspects of your business without having to sell it. Cheryl, where do you think we are in the cycle? You've been doing this for a while. In terms of breakaway brokers leaving the waterhouse, you would think that if these people were going to make a move, they would have done it at this point. Is that true or not true? I always, I agree with that. I always think that, and then it just keeps going. I think it's 2022. How are there still people that are making the move? To the REA space, the biggest competition the REA space has is inertia. Good is the enemy of great in so many things across your life. And I actually think a market pullback like what we're having right now shakes up a lot of the complacency. And I think we'll put more advisors in motion

who went year after year just by staying in the seat, making more income as the market was going up. We're actually seeing a spike in interest with us in this environment. What we're also seeing is much larger teams are making the move. The road to independence at this point is very well paved. I mean, we've done hundreds of breakaways with incredible success in terms of percentage of assets that move. And success leads to more success. And when we started the business a dozen years ago, a huge breakaway, absolute huge breakaway would be $250 million in assets. Now we're doing routinely billion dollar breakaways. We did a deal- These are like what, like 10 people on a team? Yeah. We did a billion dollar breakaway two years ago that within six months did a billion

dollar breakaway tuck in. This is an RIA that has $4 billion with us that's been around for 24 months. I mean, the amount of innovation and acceleration that's happening is huge. The other thing, the trend that we're seeing now, and I think this is going to accelerate, is experienced managers, right? Whether it's a complex manager, a regional manager coming out with groups of advisors. We just launched a firm called Daymark in Cincinnati, where the CEO of that business was the regional, right? Was the complex manager, and then took a group of advisors out and they're going to scale and grow really fast. So that I think will be an accelerant as well. What's the litigation on stuff like that? Because it seems like it's calmed down.

There was this, they had the broker protocol, which was largely designed so that when a Merrill Lynch broker went to Smith Barney or a UBS broker went to Morgan Stanley, they wouldn't just sue each other every time. So they all kind of signed this armistice. And then a few firms pulled out of it. And then the whole thing just crumbled and went away. But you don't read as many stories about breakaways ending up in court the way that you used to. What's going on there?

What you said is actually not technically correct. Duncan, can we rewind that back? Thank you, sir. What did I get wrong? It hasn't crumbled and it hasn't gone away. There's still several of the largest firms, including the largest being Merrill Lynch, that's still in the protocol.

They're still doing it. Okay. So usually the playbook would be an RAA would join protocol itself. So then it's a protocol to protocol. We did that. I'm sure you did. We did that for one particular hire.

And then we never really had to make use of that again. Yeah. But usually even a startup REA, the new LLC, that new entity will join protocol. So you have safe passage. The reality is the protocol has been around directionally 15 years. There's a lot of advisors that move pre-protocol. So there's a whole playbook that's there. We call it the wedding style announcement. We make public announcement to let clients know where the advisor is now. We've had basically the same statistics. That announcement is designed to eliminate the need for the advisor to call

his clients from the car, from the parking lot. Yes. And it varies from firm to firm in terms of what solicitation is or what the advisor can do. But the reality is whether the advisor's in protocol or not, we still are averaging 90 plus percent of the assets moved in the first 120 days. That's incredible. I think what that speaks to. The relationship with the advisor. Yeah. I think what that speaks to is that the personal relationship is, in many cases, going to be more valuable than the client and the brand of the firm.

Obviously, my firm excluded, but for everyone. No, I think that's really a bullish piece of data for the industry. Like if you're going into this business, the relationships that you build actually end up really mattering. Look, 20 plus years ago, there were some proprietary product advantages. There were some unique things, whether it was credit or certain type of asset management product that you needed to get on Wall Street. Today, that's all flipped upside down, right? Some of the best advisors have gone independent. Asset managers have started

their own firm. And just a quick story here. Probably 15 years ago, I was sitting with a billionaire who had just sold their business. I was running the private wealth business. Was it Barry Riddles? No, it was pre-Barry. Pre-Barry becoming a billionaire. So the way that this family office and client were talking about how they wanted to receive their advice was in more of a triangulated model. So what I realized back then is we were delivering it in a silo, advisor, custody, and product in the same silo. And there is a bunch of conflicts that come with it.

But the way, for the last 100 years, family offices have received their there is a bunch of conflicts that come with it. But the way for the last 100 years, family offices have received their advice is a triangulated model. Advice delivered completely separate from safe custody, right? Any executing counterparty, they can custody wherever they want. And then the third is product manufacturing. They can go to any asset manager, lending provider, et cetera. And then they have technology that ties it together. The original idea behind Dynasty 15 years ago, given how I grew up, was saying, what if we could democratize the triangulation of advice? What if we could aggregate $72 billion of buying power, like we have today, to get behind an independent advisor to allow them to deliver the same type of triangulated advisory model that historically

had only been reserved for billionaires. And I'll tell you, I sit with hundreds and hundreds, as I'm sure a lot of you do, clients every year with our advisors. And when they understand, we have this, the triangulation of advice, and we take them through it in the transition. It's like clockwork, guys, 45 seconds. We have it down to 45 seconds. They say, why wouldn't everyone want this? Yeah. And a big part of what we didn't talk about, Mike, is why the independent movement is accelerating is because it's client-led. The clients want now to get their advice separate from where products are manufactured and sold.

And they're talking to their peers. And the flywheel is just going on. So what about things like banking relationships that they have? Just replicate it. There is nothing that can be done in a major bulge bracket wealth management business. There is nothing that we can't do on the independent side.

So that, but that, so that is true functionally, but I don't think the perception amongst the general public of multimillionaires is there yet. I still think – because I talk to people – I talk to advisors at banks. Maybe you're just not good at sales. Well, I'm not trying to sell them, but I'm also not good. But no, but they'll say like – I'll say how are things at – it's not UBS, but whatever. How are things at UBS?

Like you ever think about not being there? And one of the things that you hear a lot is the advisor and the client don't believe that they'll get the same level of banking service or access to capital that they're getting there. And that's where some of that inertia comes from. But I agree with you. Things have changed. They changed radically.

There are so many providers now on that side that can replicate a bank lending relationship. Yeah. Look, without saying the providers, in the last 36 months, we've placed over $4 billion in loans. Wow. On every type of, we finance a sports team, a sports stadium, multiple jets, yachts. I mean, there's really nothing, guys, that you can't do. Any margin calls today or not yet? Yeah, not yet. I haven't checked my phone.

Just borrow against your NVIDIA. It'll be fine. Cheryl, can we talk about the merge for a second? And I'm not talking about Ethereum. Schwabitrade or whatever we're calling it. This is a... No one's really saying Schwabitrade. Raise your hand if you've ever used the phrase Schwabitrade. I think I stole it from Michael Kempis. Keep them down. No one's doing that. They do that and the press is doing that.

Is this the biggest deal for advisors in the last, I don't know, X number of years? I don't know, but it's a big deal for sure. We could probably talk for a minute in terms of the corporate finance aspect of what Chuck and Walt did in terms of making that deal happen, right, with bringing commissions to zero. And then they basically paid a premium off of a 25% decrease in the stock. That was a good move. It was unbelievable. They don't do a lot of M&A, but when they do it, they seem to do it really well. Look, I know I'm good friends with Tom Bradley and Bernie Clark also, who runs the Schwab's business. I am on Schwab's advisory board, so I spend a fair amount of time with them. What I will tell you is they're working really hard. And we have over $30 billion with Schwab, so we have a very meaningful relationship across our platform.

I am cautiously optimistic, and I do think they'll get there, where it's one plus one equaling three. They'll take the best of what we had at TD. We'll take the best of what we have at Schwab and put it together and leverage that scale in a way that's really good for advisors. And what we don't talk enough about is how consumers have won as a part of the shift to zero commissions and how scale is definitely benefiting a lot of our clients as well. So I understand it's complex. We're hearing it. We're feeling it. We're deploying people to help with transitions.

But I'm, like I said, optimistic that we'll be in a good place soon. So two observations on that. I think they're proceeding very slowly, which is good. They're not giving us deadlines. And I'm sure most of you that are involved in this transition, I'm sure most of you that are involved in this transition, you have business at TD. Everything is happening at a very moderate pace. I don't think there are any firms that are like, oh, my God, I can't keep up with the transition. But the workload is going to be the workload, and it's unavoidable. The second thing, though, is that they're keeping iRebel, which was like the most important thing from what I've heard from other advisors. Just please don't kill iRebel. And I think Schwab heard that loud and clear. And that's one of the

pieces of TD that we'll live on. And I think they made a good decision there. Look, and if you're coming over from TD and we were just talking about credit, I think, and this is maybe not such a great thing for Schwab and I'm sure they're working on it, but one of the best kept secrets in the REA space is Schwab's bank. Their banking capability is substantial. I mean, they really have a private bank that can do some pretty interesting, aggressive loans there. So there's a lot, as I said, it's the best of both, I think, will be brought together. I think some of the scaled tech and digital account opening and things like that that they're working on,

I think will really advance the industry in a meaningful way. Why do you think we're still at a point in 2022 where a retail client could go to even Schrauber TD or Robinhood, open an account in 30 seconds, not 30, but pretty close, and it still takes us days and there's paperwork and we're just not there yet? What's going on? Lawyers. I mean, it's risk related, right? You're taking custody for a third party entity that then can take discretion over the assets. So they just make sure that the accounts are set up right. So is it never going to get better than where we're at? No, it'll have to get better. And there'll be more disruptive

innovation that will come into the space, I believe. Some of those participants were here. I listened to them speak yesterday. And I think change is coming. The other big wild card, obviously, with AI and blockchain, I mean, why is it T plus two still today in the industry? I think blockchain could be meaningfully disruptive, which is why I think some of the leaders in custody in investing in innovation are really the custodfully disruptive, which is why I think some of the leaders in custody in investing in innovation are really the custodians themselves, which is probably a good lesson in leadership, right? You should be the firm that leapfrogs yourself, right, and disrupts yourself. And I think whether it's Fidelity, Schwab, Pershing is a great partner of ours as well.

They're hard at work in the lab looking at what that'll mean to their business. And I think we'll all benefit as a result of it. So you mentioned technology. We've got a demo at four o'clock with 10 very exciting companies. You guys leverage technology as do we. What are you excited about? We also are co-investing the compound capital and dynasty. We have some investments in common and some of them are here. Let's, should we, should we get into a couple of those? Let's get into it. Yeah. And I just, from our perspective, it's awesome. I'd spent a bunch of time talking with other entrepreneurs that are here. And it's, it's great for us to be able to invest in the ecosystem, in resources that our advisors see, they tell us about it, they love it. We can help be partners, mentors to those entrepreneurs,

invest capital, and help them grow the business. And we're like a live laboratory for a lot of these solutions. We can put them into our practice. We can figure out how they work, what we need them to change, and we give them real-time feedback in a way that most startups would not really get. I think that's a really important part. Within the last 12 months, we co-invested with Smart REA, which is a leading compliance software company that probably many of you use. Their business, without getting into too much of the details, has really accelerated since we started working with them. And they've been great partners. And we're customers as well.

Are there still holes in your technology stack? Is there still things that you're saying, like, why doesn't that exist? Well, I want to mention Virgil, VRGL, that we co-invested in as well. By the way, raise your hand if you checked out the Virgil and if you saw the Virgil demo or met any of those guys. It's at four o'clock.

Oh, it didn't happen today? It's at four o'clock. Oh, it didn't happen today? It's at four o'clock. All right. So listen. Protect our investment and get over there. No, there's a lot of amazing companies demoing here, sponsoring here. So by all means, make sure that you give them all attention and check out what's going on. I'll do the quick Virgil pitch. Do the Virgil pitch because that thing is incredible. Yeah. so we see a lot of prospective account statements from UBS, Morgan, Goldman, whatever. And the most common thing that we see are half a dozen accounts, 117 pages, like literally. Brokerage statement, unending. Even if, you know, 197 securities on the low side, even if we were trying to analyze these portfolios,

they're too convoluted. There's not enough hours in a day. The solution for every portfolio analytics tool today is an Excel spreadsheet, which doesn't work for anyone. And so I was looking for, begging, asking people, there's got to be a way where I could upload a PDF with a click of a button and you show us what is a portfolio breakdown. That's all I wanted. Stocks, bonds, all. That's all I wanted. So Virgil took it 10 steps farther than that.

They show taxes. They show fees. They show performance. They do like an amazing x-ray of a prospective account statement in the very, very short amount of time. So that is true innovation. I'm sure we're all inundated. Our inboxes are full of wealthalthTech, FinTech, whatever. And usually it's, at best, a derivative of something that already exists.

So Virgil is a truly innovative company. And I encourage everyone to check them out at 4 o'clock today on the stage. Yeah, we had a customer win, which not to get into details, but it was just like one of those huge PDF packets, multiple accounts, all kinds of structured products and notes. You really couldn't make heads or tails of what was even going on. Fed it in. Michael had the idea. Let's see if we can feed this in and what we get out of it.

And what we were able to tell the client about their true exposure and what bets they actually had on versus what they thought. And this was a sophisticated client. This guy was like, oh my God. And so one final thing, we're never trying to make a customer feel bad about their portfolio. Obviously that's not like the goal, right? You never look good making somebody else look bad. But maybe you find something that they don't know about. Maybe you don't, but if nothing else, if you show them their portfolio in this software, they've never seen it like that. So to say that it speeds up the sales cycle and instills confidence that they're working with the right advisor, that's what Virgil is all about. Totally.

So before we – with the time we have left, we're going to do some other stuff. But I want to throw out some t-shirts that we have. And if you catch one and it's not your size, I apologize. Nicole, what sizes did we even bring? Large, extra large. Okay. We'll have to be good enough. All right.

I don't know any scientific way to do this. I'm just going to try to do a lot of coverage around the whole space. Is that cool? Alright, ready? Michael, you got a few? Alright. I'm going to hit you in the face. Here you go, my man. Oh! You got a good arm. Oh, wow, that's a good one.

Josh kept all the double X's. Yes, that's right. They're all in my room. For those of you who want to check out the official Compound store, it's idoneshop.com. We appreciate seeing everybody with the shirts here at the event and the hats. Thank you guys so much for supporting the brand. We really appreciate it. We have a couple of questions. Maybe one question we're going to get to from the audience.

Not planned, but I feel like this has to be addressed. Shake Shack or In-N-Out? Let me see In-N-Out hands. Wow. Let me see Shake Shack hands. Come on. That looks like, is that half and half? It's not even close. What's not even close? In-N-Out is the inferior product. Come on. That looks like, is that half and half? It's not even close. What's not even close?

In-N-Out is the inferior product. No offense. Oh, shit. That's controversial. We're in California, bro. Yeah. That's controversial. I always go to the In-N-Out.

I think it's in Inglewood when I landed at LAX. You can see the sign as the plane is landing. So it's kind of hard for me to not hit it. But I have to agree. I'm definitely a Shake Shack guy. Cheryl, what do you think are your biggest challenges? We know you've been very successful, but surely you must struggle with something.

You run a huge platform. You've got founders and type A personalities running each of these firms. What are these guys giggling about? Yeah, yeah. What, Cheryl? Yeah, guys giggling about? Yeah. What? Yeah. Surely you must face challenges every day. And don't say my hardest challenge is that I care too much.

Like, give us a sense of like what it's like to be you in the position that you're in and all the stuff that you have to deal with. I think, look, for any entrepreneur here, we know that only the paranoid survive. So we worry about everything. I think for all of us right now, it's very challenging to find all-star talent that are going to ride for the brand, be all in with what it is that we're trying to accomplish. So talent for the industry, I what it is that we're trying to accomplish. So talent, you know, for the industry, I think is huge. I think the end consumer is still very confused, right? I think there's still too much jargon in the industry, the confusion around, you know, who's a truly independent advisor. There's 50 shades of independence. Everyone's trying to leverage off of that story. We have more and more competitors trying to come into the space.

I think we all worry about that. But I think that the best businesses, I mentioned this earlier, are the ones that are trying proactively to beat themselves. We actually, once a year, we do a couple day offsite where we do nothing but try to beat dynasty. And we take the whole firm and all the talent together. And we say, how do we disrupt ourself? Right? What is it if we were on the other side that we would be doing to try to beat us and, and, and try to stay, try to stay sharp. But, uh, I don't sleep much. I worry. I worry about it. I never sleep because sleep is the cousin of death. Yeah. I worry if when I'm hanging out with Josh and Sarah, I worry about everything. I don't either. I never sleep because sleep is the cousin of death. Yeah. I worry when I'm hanging out with Josh in Saratoga, I worry about keeping him awake long enough to make it to the end of the racing day.

I made it. No, you didn't. You didn't. Cheryl, how did Saratoga go this summer? I came out last summer. We had a blast. Yeah. But it's a big day.

Yeah. And it looks like celebrities are more into Saratoga than ever before. What, what, what's it like, uh, being involved with that scene? Real quick. So Josh comes in guns blazing, you know, he's a hot shot. He's like, just take me out with your friends. I can hang. Uh, so we, we go out with a good friend who's a mentor. So I'll mention him, a guy named Mike Rapoli. Mike founded Vitamin Water, Body Armor. Mike is the man. Brand building genius, right? Long Island guys. So we're out and then Josh gets introduced to the never ending glass of wine, right? It's just, it's going.

They shouldn't top people off. I think you should have to finish one glass before they refill it. So anyhow, the next day, the highlight, we go to the races together and the highlight race is at four o'clock, four o'clock. That's the whole reason we're there that weekend. At 3 o'clock, he taps me, and he goes, I'm done. I'm out of here. I can't do it. Can't make it. I think what he says, I got it.

The horse, it goes around. I got it. I got it. I'm going to the pool. Yeah. He went back and took a nap. I know what he did. Dude, that would have lasted one hour, max.

He would have said, I get the gist. I got it. It was fun. I love it. You won a big gist. I got it. No, it was fun. I love it. You won a big race recently. I did. Not you, but your jockey, your horse. No, yeah, I did.

Come on. All right. Discounting? Fine. The owner pays all the bills. No, we had a great meet. We won some races. I will tell you, racing for me has been a great social outlet in terms of I get 100 friends at every race.

And it's tough when you're running around and doing this. It's a chance to get all your friends together, your family there. I like to say I've won before the gate even opened, which is good because you only win 20% of the time. So you should have that. Is that the number? Yeah. I mean, by the way, you're a really good stable if you win 20%. It's hard. Okay. Well, I'm going to come back to Saratoga, but this time I won't go to the race at 10 AM. Now that I know the main thing is at four, I'm coming to come back to Saratoga, but this time I won't go to the race at 10 a.m. Now that I know the main thing is at 4, I'll come at 2. And I think I'll be able to make it. Michael, any closing thoughts on what we saw with markets today?

What you think the meaning of this reaction? My final trade? Well, like how do you want to kind of wrap up? Because I think it's kind of a momentous day. Well, today was a big day, but let's move away from markets for a second. And I'll say that as advisors. Okay. No, no, no, no, no. What do you want to do?

It's related. Okay. It's related. As advisors, our jobs are to take the burden away from our clients and to get them ultimately to their final destination, which sleep slash the cousin of death. And so this is the year like more than ever where our advice really matters. And I think everybody here is representative of the fact that we're doing our job for our clients. Yeah, I think that's, I think that's a really good point. And if you're at an event, as an advisor, it's probably because you're trying to get better. I don't think like a lot

of people would travel go to an event, because they don't care about their practice or their clients. I think it's the opposite. So I think this is a very, by the way, I don't know if anybody's heard this stat before. Over 2000 people registered, a thousand are financial advisors. Anybody want to guess what the average age of a financial advisor here is? Any guesses? Younger than us. Close. 35 years old. 35 years old. I have been to every financial advisor event there ever was, like every version of it, from Morningstar to Impact. I've been to them all. I don't think I've ever seen this many young, young, energetic, enthusiastic advisors all in one place. So I think I want to end this by just saying thank you.

Whether you're young or not, I'm not young. But thank you to all of you for coming out and being a part of this. It's really special. We're going to run it back next year. The outpouring of enthusiasm for this conference's festival is so far beyond anything that I could have imagined. So I really appreciate all of you. And bring your friends. Thank you.

Give yourselves a round of applause. Thank you. All right, bye. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.