Dear Valued Clients and Friends,
In this week’s Dividend Cafe, I am doing something a little different. I have done that a couple of times this year, and each time I thought it would generate negative feedback, but it didn’t. Both the commencement speech Dividend Cafe and the college letter to my daughter Dividend Cafe actually generated positive feedback and gave me a little more comfort with just doing what is on my heart each week, still within the mission of the Dividend Cafe. Well, this week’s is a little less on bond yields, markets, and the AI moment (though I am chomping at the bit to say more on all three), and a little more on the state of affairs at our very own Bahnsen Group. Indeed, this week we celebrated the long-awaited closing of our transaction with Hightower originally announced last April. And while I don’t expect readers of Dividend Cafe or even clients of TBG to care that much about our internal transactions, I do believe that this event calls for some real public candor and elaboration about where TBG is, where we are going, and what it all means.
So that’s what I am doing in this week’s Dividend Cafe, and if it leaves you clamoring for bond yield talk and AI analysis, I promise you we’re back to regularly scheduled programming next week!
Let’s jump into the Dividend Cafe …
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The Past
I entered the financial business in the aftermath of the dotcom and tech implosion of the late 1990’s, joining as a new hire into the Financial Advisor training program at a firm called Paine Webber. But a little background is needed before we get there.
After my dad passed away in the mid-1990’s (1995 to be precise), I elevated my “side hustle” managing musical bands into a full-time business, turning it into a real company with an office in Nashville, TN, and an office in Newport Beach, CA, and about 8 or 9 employees. I was not (and am not) a musician, but I was poor and desperate, and I worked with some really good bands. It turned into a pretty darn good living for an orphan in his early 20s, but it was not what I wanted for my life. I had always told myself that by not being able to go to college in the aftermath of my dad dying, I had cut myself off from the opportunity to really work in finance like I wanted. What I was telling myself was untrue.
The office for my then-pretty-successful music management company was at Lido Marina Village in Newport Beach, and I spent a pretty fair amount of time having my evening food and beverage at a little place that used to be there called George’s Camelot. I became very close with a longtime broker at Paine Webber who covered middle-market hedge funds, named Mike Gayner. He constantly told me I ought to enter the business, and let’s just say my appetite for working with musicians forever was declining. By the 1997-1999 era, I was making a few bucks and pretty obsessively involved in markets. I was also doing everything wrong so I could learn, with my own money, what to never, ever, ever do with client money. You’re welcome.
Well, bottom line, I exited the music world going into the new millennium, and Paine Webber seemed quite happy to have me. They sold to UBS, and I began life in the financial services industry. And I never blew up a single client in the tech mania of that moment, unless you count myself as a client.
I worked as a sole practitioner at UBS (formerly Paine Webber) until 2006 and built a $100 million business. I had a dedicated operations assistant, but that was it. I worked very hard every day, and I did all this in the first five or six years of my marriage to Joleen, who was as dedicated and perfect an advisor’s spouse as anyone could be. But she wasn’t just a spouse; she was my partner and best friend. And I am quite sure clients liked her more than they liked me, and I am 100% on their side with that. Anyways, I became a rabid dividend-growth investor during this period; Joleen and I began having kids, and I started getting a lot of calls from headhunters to join other firms. In 2006, I got a call from compliance chastising me for telling a client I would see them at church on Sunday, and for not mentioning that I was having dinner with Newt Gingrich in a client email, and by the following Monday morning I was aggressively working on my departure.
I ended up turning down a rather enticing offer to join Bear Stearns in 2006 in what was one of the major evidences of God’s grace in my career, though it would not be the last. I made the decision to go to Morgan Stanley with my client service associate, and that would be my home during the seminal moment of my career: the financial crisis of 2008. I worked and worked and worked, added to the team in this period, became a Managing Director and Senior Portfolio Manager at the firm, and actually thrived (not merely survived) through the intensely challenging period of the financial crisis.
In 2012, I added Brian Szytel to the team, another major moment of God’s grace in my career. He became an extraordinary friend, advisor, and complement to the business, and his highly capable client advisory work enabled me to continue doing what I was best at while we together made 1+1 equal something worth a lot more than two.
Robert Graham joined in 2013, initially to run the 401k side of what we were doing but becoming a significant private wealth advisor in his own right, and Kimberlee Davis joined in 2014 (she was initially to run the financial planning practice but would become one of the great private wealth advisors I have ever worked with). The four of us are the remaining four from the team of eight that I brought out of Morgan Stanley in early 2015 to launch our own practice.
Independence
That “launch our own practice” meant that we all left Morgan Stanley and started over. Our clients joined us (we were pretty confident they would), but it wasn’t a risk-free move (I am understating this point). Our move to independence came after about six months of rigorous diligence, analysis, and exploration of the independent space, how the fiduciary standard was overhauling the wealth advisory world, and which strategic partners existed to help aid this transition.
For those who don’t know, “independence” is essentially when the “advice” and the “custody” are “independent of one another.” So if you are a client of ours, you know that your accounts are held (“custodied”) at either Fidelity or Charles Schwab, whereas your advisory relationship and the services and experience you receive (including discretionary portfolio management) sit with us. At firms like Morgan Stanley where I used to work, they custody the client money, provide advice, provide trading, provide lending, and are able to charge for all these different services. The independent world sees advice and custody as best provided independent of one another. I became convinced of this in my diligence process, and then became obsessed with it. To this day, having custodians and vendors work for us instead of us working for them has drastically changed the experience we deliver to clients, and I remain convinced that the independent model is unquestionably the one that optimally meets the needs of clients in the most aligned, transparent, and conflict-free way. But I digress …
We spent the spring and summer of 2015 moving our client accounts and setting the stage for this new practice we had poured ourselves into. That “strategic partner” I mention above that we selected to help drive this process was Hightower Advisors. Many in the space were beginning to offer scaled and substantial business services to “corner office” advisors from the big firms like myself who were seeking the independent pasture. We didn’t know what we didn’t know, and from technology, to billing, to regulatory compliance, to a whole bunch of “nuts and bolts” needed to drive this new endeavor, we forged a commercial relationship with Hightower right out of the gate that was paramount in that initial transition.
Evolution
We continued doing what we do in the years ahead, growing, sharing our gospel of dividend growth, and expanding the services and capabilities we could offer clients. No longer a Managing Director of a major Wall Street firm (to whom I did owe a professional duty), I was now free to, shall we say, speak my mind. I wrote a book about the causes of the 2008 financial crisis (that I understandably could not have written if still receiving a paycheck from one of the firms in the belly of that crisis). I expanded my weekly market commentary into this Dividend Cafe. We opened an office in New York City. I began getting invited to appear on various TV shows on CNBC and Fox Business. And as business grew, we poured every bit of that growth into expanding our services and capabilities.
In 2017 and into 2018, Hightower brought on a new lead investor into their company. The Bahnsen Group changed its commercial relationship with Hightower but continued under the same services agreement, whereby Hightower provided technology, compliance, and key back-office functions. A new CEO came to Hightower in all of this, and he and I forged a close relationship. I will now skip over many years (or basically pack what I think was ten million hours of work and not a lot of sleep over six or seven years into the next few sentences). But bottom line – we found our groove in this relationship, this model, and this approach, and our business grew substantially. Year by year, we continued hiring more people and adding more offices as would facilitate delivering the right client experience. I don’t want to be self-righteous about it, but it really was the core driving principle that we continue to have a boutique, relational, high-end model of client touch and service. We opened our family office about five years ago, added a tax department four years ago, added a risk department around the same time, and yes, added more and more geographical footprint to where we could serve clients.
And here we are today.
The Present
We just opened our 14th office in 13 cities around the country (we have added a second office in New York City and opened a beautiful office in Santa Barbara, CA, where more details about that and the advisor talent there will be announced publicly on October 19). We manage $10.5 billion of client capital and will have 110 people on the payroll next week (with two new planners, two new advisors, and one new operations associate all starting next week). We believe this is a relationship business, and that includes our view of relationships between clients and us, but also our relationships amongst ourselves. In both cases – client relationships and team relationships – we are a five-day-a-week in-office company. We do plenty of Zooms and calls with clients, but we love in-person meetings, and we insist on in-office collaboration with one another. This allows accountability, camaraderie, idea-sharing, mentorship, collaboration, and culture that we simply could not have without it. These are really core tenets of what we are doing.
While I have maintained my role as Managing Partner of the organization, I have added significant bench strength to our Leadership Team over the years, with Luis Garcia serving as CFO and Joe Klein as President, in addition to Brian Szytel serving as co-CIO with me and Trevor Cummings running the Private Wealth Advisor Group. We have grown up as a professional practice, developed great leaders, managed to create real departmental structure and organization, and kept our advisors in the “advisor” business (allowing them to serve clients all day, every day, while fully sourcing the needed tax knowledge, investment knowledge, planning knowledge, operational support, and so forth across the organization). We not only have ten people in our Investment Solutions department now, but three of them are pure equity research analysts, devoted to deep levels of company analysis, sector knowledge, and research conviction. For years and years, all such bottom-up equity analysis was done solely by yours truly, in addition to all the other aforementioned tasks. It is surreal to think about how robust this investment capability has become versus times past.
I am surrounded by great leaders with whom I serve daily to run the business. And our advisors are surrounded by subject matter experts every day with whom they work to serve clients. It has been a wonderful model in both design and practice, and we are not letting up.
The Future
And this brings me to the partnership with Hightower. While our relationship with them has always served both parties very well, we began discussions earlier in the year about expanding our work together to be more collaborative and more commercially aligned (less of a “vendor” relationship and more of a true partnership). I would say that to allow us to become a wholly-owned subsidiary of theirs I had to insist on us maintaining our operational independence, but there was never an iota of desire from Hightower for anything different! Hightower wants to be the best home for independent advisors in the industry, and they believed Bahnsen Group was in that camp. To stay who we are, we had to maintain our autonomy, independence, and individuality, and every stakeholder in the transaction agreed without hesitation. We now get to do exactly what we have been doing for over eleven years, yet the “strategic partner” we “dated” has now become a spouse. This is the right commercial outcome, and it is by far the best scenario for clients. There is no disruption, no change coming, no need to alter who our back office partner will be – and clients don’t have to worry about what will happen in the future around succession, ownership, and continuity. This “dating” to “marriage” evolution made all the sense in the world, and I now have decades in front of me with the business organization set, the capital structure set, and the vision for who we want to be well understood.
And who is it we want to be? Well, here is what I said at the very, very beginning of my career when drafting the only vision statement for the organization we have ever had:
“Our vision is to be the highest quality provider of wealth management services to all those within our sphere of influence. We do not want to merely be great; we want to be extraordinary; extraordinary in the size and scope of our business, but more importantly, extraordinary in the impact we have on our client’s financial lives.”
The most common question I have gotten since this deal was announced was whether or not I was going anywhere. It is a fair question, of course, but only because the folks asking can’t possibly be expected to know me. I literally wrote a book two+ years before this transaction answering the question. I will not be changing one iota of one detail of one element of my life. Joleen and I are as motivated as ever to continue growing and improving this business and deliver a client experience that is extraordinary. We are blessed to have an enhanced partnership with Hightower and to have vastly more resources to draw on in their arsenal of tools. We are hiring. We are expanding.
And we are ruthlessly protecting the culture of our business, the personal relationships we believe in with our clients, and the distinctives that make us who we are. And we are going to deliver an extraordinary impact in our clients’ lives, to our dying day.
To THAT end, we work. Always have, always will.
Shots Missed and Shots Made
I shared with my team at our annual team retreat in 2023 a little of the biographical story behind my life’s journey. I believe most people start down a certain path in life, for good or for bad, in high school. I had some really, really hard things happen in my life between ages 15 and 20, and I have been sort of responding to all of that ever since. The story I shared was that I thought I worked so hard and had so much ambition with this business because I missed a shot at the buzzer when my high school basketball team played St. Margaret’s for the league title my senior year. Our best player (who was my best friend, and is still a stud of a human being and dear friend), was double-teamed with us down by three and just seconds to go. He got the ball to me. I shot. I missed. And I’ve been dealing with that disappointment ever since I was working 16-18 hours per day.
Okay, maybe this diagnosis isn’t totally accurate. But it’s not totally inaccurate either. I had a wonderful high school experience, despite some challenging experiences. But what I believe from the bottom of my heart is that we have the life we want, and I wanted to have a good life. I wanted to have a fulfilling and rewarding life. And by God’s grace, I do. And this business is my calling. It is my dream. And it is the shot I didn’t make in my senior year league title game. But sometimes you get a second shot, and I am now willing to forgive myself for missing that other one.
Quotes of the Week
“Dreams don’t work unless you take action. The surest way to make your dreams come true is to live them.”
~Roy T. Bennett
“Dare to live the life you have dreamed for yourself. Go forward and make your dreams come true.”
~Ralph Waldo Emerson
“It’s a town full of losers and I’m pulling out of here to win.”
~Bruce Springsteen
More to Chew on
Next Friday’s Dividend Cafe will look at this issue of bond yields and what it all means to markets, investors, and the economy that the long end of the curve has behaved the way it has in recent weeks and months. I will have a normal Monday Dividend Cafe, and next Friday’s will cover the bond yield topic; all week long we will be in ~20 meetings with our portfolio manager partners here in NYC. This annual affair is one of the most important weeks of the year for us, and this week is no exception. I would devote next Friday’s Dividend Cafe to recapping it, but meetings will still be going through Friday, so I know it needs to be the following week to do it right. So now you know what the next two Friday Dividend Cafes will bring. And if today’s “company journey” was not what you want (“give me some bond yield talk!”), your wish is my command. To that end, we work.
With regards,
David L. Bahnsen
Managing Partner, CIO
The Bahnsen Group, A Hightower Company
thebahnsengroup.com
This week’s Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet
