Wealth management firm throws itself big curveball

Longtime wealth manager and business owner Scott Pinkerton, pondering the rapid consolidation and technological disruption of his industry, recently asked himself an existential question.

Pinkerton’s query: “Should we coast along and just stay comfortable, or should we challenge ourselves to beat the trends and go for it?”

One major industry trend is the increase in robo-advisers, which use artificial intelligence and algorithms to create investment plans — an efficient, if impersonal advance in money management. Also, with online brokerages eliminating commission fees, money management is becoming increasingly commoditized, with, Pinkerton says, a crowd at the ultra high-end and low-end of the market. That presents an opportunity, he projects, for personalized, customer service-focused money management firms that can do well by both high-net-worth and middle market clients. One more trend? Firms are breaking away from big brokerage houses at rapid pace, choosing to work independently.

On a local basis, Pinkerton, 57, says as of early 2020 there are about 70 financial advisors in Venice, where his firm is located. The industry trends, he projects, will cut that number drastically. “In 10 years there will be two or three teams doing wealth management here,” he says, “and we want to be one those.”

Pinkerton’s first step was a big one: His firm dropped Wells Fargo brokerage unit it had been under for 32 years. Formerly Pinkerton Private Wealth under Wells Fargo, and before that, A.G. Edwards, the firm is now FourThought Financial. In addition to a new name and branding campaign, the company is now an independent Registered Investment Advisor. That’s an important distinction, Pinkerton says, because the firm can choose any products and services and isn’t beholden to one bank or brokerage for fees. “We are now completely conflict free,” Pinkerton says.

FourThought Financial has three units: FourThought Private Wealth, FourThought Signature, which offers family office services and FourThought Institutions, which serves businesses and nonprofits. The firm will continue to serve families, foundations and endowments. And, Pinkerton says, without being pigeonholed under a corporate structure, it will expand into new business lines. “Good planning takes forethought,” Pinkerton says.  

The transition was announced early this year. Two families/clients declined to move with the company, which left it with some 700 families and $850 million under assets management through February. Officials project $5.2 million in revenue in 2020, up 30% from $4 million in 2018. “We did this slow,” says William Mehserle, 31, a firm partner, “and in calculated, well-thought-out steps.”

The move to become an RIA firm is gaining traction national too. The rate of firms or individual wealth management advisers leaving a brokerage house or bank, according to a Schwab Advisor Services report, increased 59% nationally from 2012 to 2017. There are now nearly 13,000 SEC-registered RIA firms nationwide that served some 43 million clients in 2019, according to a separate report. The client base is up 26.4%, from about 34 million in 2018.

‘We told our employees this was going to be difficult, that there may be some extra hours.’ Scott Pinkerton, FourThought Financial

Although the forward-facing transition for clients, by design, was effortless, internally the process was a giant undertaking. Many of the firm’s 15 employees worked nights and weekends, given the large plate of regulations and systems to pore through. Because an investment adviser can’t have a license with two entities at the same time, the firm was cognizant of making sure no client funds were tied up while it dropped Wells Fargo. “We told our employees this was going to be difficult,” Pinkerton says, “that there may be some extra hours.”

One of the biggest internal challenges: implementing a new customer relationship management software system. The firm spent at least $600,000 on the system in the fourth quarter of 2019, working out kinks. Given privacy rules and data security, Pinkerton says “it’s enormously complicated to build a platform that’s client centric.”

A lesson learned for Pinkerton from that process is to be wary of change orders. “Make sure it is as a la carte as possible,” he says, “so you can replace anything that goes wrong and any broken links.”

The end result is a firm Pinkerton and his colleagues believe will be sustainable through any changes, from either the financial markets or the industry. “We think this is going to be like a hot knife going through butter,” Pinkerton says. “People understand what we are doing and they really want to be a part of it.”