The Legends of WealthTech with Paul Hatch

Jack Sharry: Hello, everyone. Thanks for joining us for this week’s edition of WealthTech on Deck. Today we will be doing a special podcast we do from time to time that we call Legends of WealthTech. For our Legends series, we talk with people who have shaped and propelled the growth of the managed money industry over many decades. This week’s guest is Paul Hatch. Paul has 40+ years of experience in the investment and wealth management business. Paul’s now an entrepreneur, board member, dad, and military advocate, among other things. For most of you who have been around a while, you know Paul for the vital role he played in the development of the advisory universe. He has held several important roles at Citibank, UBS, Morgan Stanley. At those places, he led the managed money business for many years, in varying levels. I’ve known Paul for 30 years or more, and I look forward to our conversation around how our industry got started and has evolved, and we’ll also catch up with what he’s doing today, all interesting and fun. So, Paul, welcome. Thank you for joining us on WealthTech on Deck, the Legends series.

Paul Hatch: Thanks. I’m delighted to be here and very honored to be invited by you all.

Jack Sharry: Cool. So Paul, let’s start with you providing our audience with your backstory. How did you get started in the industry? And we’ll focus on early part at first. We’ll talk about that evolution, and we’ll go from there.

Paul Hatch: Yeah. I’m not supposed to be doing this. When I was four years old, I decided I was going to the Naval Academy. Everybody in my family, including my grandfather, my father, my brother, my two brother in laws, my sister, my uncles, everybody was a naval officer, and everybody except my sister and I were pilots, but I was the only one with bad eyes. So when I found out I had bad eyes, I decided I was not going to make the Navy a career. I’m also the only one in the family that did not make it a career, and my mother thought… she wouldn’t talk to me for a year. She said, how could you go from being a naval officer to being a financial advisor, which she called stockbroker at those times, because that’s what we were.

Jack Sharry: Sure.

Paul Hatch: But anyways, I decided very early to become one. I went to EF Hutton. It was just in the… this was the, the DOW was less than a… I thought I’d missed all the opportunity because of the 82 rally. Little did I know what the some of the best decades we’ve had was laying right out in front of me. I’m very lucky. And the business was going from being stockbrokers and selling ideas to really working with clients and becoming a consultant for them. And while I know it took a little while over the next couple of decades to get up, get there, that’s really what happened.

Jack Sharry: Yeah, so I know you, I think it was five years or so you were at EF Hutton, one of my favorite firms, way back when, I was around during those days. How’d you shift from being an advisor to going to the home office and running up the flagpole on the managed money side?

Paul Hatch: Yeah, well, everybody told me at that time that I was crazy. I was doing very well as an advisor. And of course, if you’re in this business, you know, the first thing that everybody tells you is, don’t give up your book. So I gave up my book anyways, didn’t pay attention to that, and the reason that I did is I actually really enjoyed working with clients, but I also really enjoyed working with advisors, and I realized that I could manage two to three hundred clients, or I could manage 10,000 clients, because I work with advisors who I have great just respect for what they do. That’s why I became a branch manager. From there, went to home office for the same reason, so that I could help clients and advisors have… I could have a bigger impact on their lives and the people that they serve.

Jack Sharry: How did you wind up in the managed money world? Because at the time, judging by the math here, you… it probably didn’t exist, or barely existed. So why don’t you talk about that transition.

Paul Hatch: It was just starting with EF Hutton, and it was really easy. I did what most new advisors do. I tried everything, and I was such a failure, and I was so bad at trading, and I was like, I just, I was killing my clients. And it didn’t take long, because, fortunately, I was in one of the really powerful EF Hutton offices in Washington, DC that had, I think we were number one in managed money for a long time. And so I quickly shifted from individuals to institutions, and I realized and believe to this day that it’s very hard to be a part time portfolio manager, and that the only real way for people to meet their actual goals is to work with advisors and firms that really have the capabilities, the resources, and, more importantly, just the discipline, because I saw it all and I saw very, very smart financial advisors kill their clients, and I just realized they’re way smarter than I am. They’ve been in the business way longer than I have, and I kind of got a, you know, step up on everybody in those days, because people hadn’t made that switch, and they thought it was expensive, and they thought it wasn’t really, they thought you’d lose track of of really following the markets. None of that’s true. And I think we’re so much better today, and I think we’ll be so much better tomorrow.

Jack Sharry: Right, right. As I recall, and I forget where Len Reinhart fits in the picture, but I know he’s in there somewhere, because way back in the day, EF Hutton really was the kind of the kingpin when it came to managed money. They kind of set things in motion. Not sure when you came into that, but when you wound up in a home office role, talk about where you started, how you grew through your career, because ultimately you ran the thing. But talk a little bit about that evolution, that personal evolution.

Paul Hatch: Yeah. When I went to New York, they started giving me every job that nobody else wanted, and they said, hey, go do this. And I, at one time, I had like, seven hats, and the last one was, was advisory, and the last one was because Len was there. He was brilliant, and he was doing a fantastic job. But he had, he had an idea, which was a really good one, but really not what Jamie and Sandy wanted to do. And so Len, who ran advisory, at that time it was called Consulting Group, thought this would really be a fantastic business, a standalone business, which is what he did. He took his entire team, one person, Frank Campanale, up in Michigan, loud, you know him, stayed. He was the only one. He became the CEO and the president. Frank was and is a super consultant, but he doesn’t like administration and operations, not that I do. But I came from a background in which I was really… So they put me in there and asked Frank and I to work as partners. That was a little harder for both of us, because we’re very different, and we both had strong visions. Ultimately, I think it worked well for everybody, and that was because what happened with managed money is it went from just a solution around built around SMAs, that was a big deal. And you know, being able to step back and not try to be a portfolio manager, but have the discipline of looking at all these men and women who had these great track records and really did well. How do you beat somebody who’s got thousands of years of experience and a temperament? You can’t. But taking that and saying it’s not about the SMA, it’s about the advice was very hard for men and women who had been selling against individual securities, had been selling against mutual funds, had been selling against unit trust. So there was this little bit of a war in the industry between those who were SMA purists and those who thought it was really about, it’s not about the vehicle, it’s about the actual advice, and how do you do that across all of the asset classes, as well as all of the forms of the solution? And I think those who started the business, that was difficult for them, and I think they didn’t do well. Those who were open minded and said, how do we do this and work with the mutual fund industry instead of fight it? And that’s when it really started to explode in terms of the quality and the terms of the diversity of kinds of solution to the solutions where you have today, where people… RIAs that are independent look just like RIAs that are in the wirehouse or in the bank. Everybody thinks that they’re all different. No, they’re not. You know, advice is advice, and just because you’re at one legal entity doesn’t change what advice is, and different vehicles are appropriate at different times. It’s up to us as consultants to select those that are most appropriate, but it’s also up to us as consultants to constantly challenge ourselves to look at the new things that are going, the technology and the environment, the regulatory environment has changed. You can do all kinds of things you couldn’t do before. And the number of the kinds of quality solutions that we have, it’s amazing. And I think we’re just getting started.

Jack Sharry: You know, it’s interesting. You’re reminding me, I remember when I first got involved with MMI. I know you’ve been involved with MMI over the years. I remember going to board meetings, and there were the EF Hutton folks, and then there was everybody else. And so another thing that occurred over time, I’d love to have you comment on that. It was a little bit hard to hear about. I mean, I’ve always been a great admirer of EF Hutton and all the individuals, but it was a little bit, a little bit clubby, that EF Hutton mafia, as they were sometimes referred to, they were kind of a bit clubby. But, one of the things that transpired, love to have you talk about it, because of mergers and acquisitions and all the rest of it. You know, EF Hutton went away as a name, and Smith Barney came along, and then later that evolved to Morgan Stanley. Talk about that evolution, because you were there and ultimately running Consulting Group when it was part of Smith Barney. I’m not sure where you, where you signed off, but you were part of that evolution of, really the whole industry embracing… Hutton had it first, but everybody else soon followed. So fill us in on what happened.

Paul Hatch: Yeah. It’s interesting that you bring that up, and it is, listen, I started with the EF Hutton, and like everybody else, I have fond memories of it, although I do remind people, hey, they failed. They really weren’t that good. I mean, they were really good for clients, but like, in the end, the senior leadership failed everybody, including the advisors and the clients, and that was too bad. And the folks who started EF Hutton were such good advisors, and they were so revolutionary, but they weren’t able to make that pivot because they had fought against this idea of other vehicles, and they were very pure. They were very pure, but they missed it as a result of that. And we started to see not only asset managers come up with really interesting things that we should do, but we had to create different vehicles. And the UMA was really what broke that open. And there, you know, of course, everybody claims they they invented the UMA just like everybody will say they invented the SMA. It doesn’t really matter who did. What did happen is the UMAs showed that they were a better solution for the clients, they gave you… it brought costs down, and most importantly, it meant that you were managing as a portfolio, not as a series of asset classes. We ended up buying what used to be Citigroup Asset Management and became Legg Mason. We bought that business back from them. We started to try to build it, it was really hard to build. And so we got Roger, and he came back…

Jack Sharry: For our audience, that’s Roger Paradiso. So maybe give us some some dates around that, so that our audience can understand this evolution.

Paul Hatch: Yeah. So we got Roger back in I want to say ’07. It was the last acquisition done by Citibank. We paid $180 million for it. It’s a business today that generates several billion dollars of profit every year for Morgan Stanley, and it’s huge. And Roger and the team that actually came from Citi and we were able to, and we, you know, we went to Legg Mason and said, like, look, this UMA, you’re going to try to sell this to other asset managers. They see you as a competitor. They’re not going to join it. Sell it to us, and we’ll make sure that, you know, we always have a special relationship, which we always did, and it worked out really well for them, because they were losing assets. They were not gaining assets. They were clearly the highest quality. Roger and his team came in. It took us a year to put it together. Oh my gosh, and when we did, it just took off. And I think it’s all those things that we broke, kind of what was there before in order to make something new to get there.

Jack Sharry: So take us forward. So we’re… what year are we in, and where are we at? I’m not even sure what the name on the door was at that time, because… we’ve had Roger as a Legend of WealthTech on this show, but talk about post-Citigroup, because there was further changes and what transpired there.

Paul Hatch: Yeah, that was really interesting. Because just after we were able to bring them in, and we were actually implementing it, they took the wealth management business, including all of us at Smith Barney, and moved us over to Morgan Stanley. What was really interesting is that Smith Barney had almost 50% of their assets, or 50% of their revenue from managed money. Morgan Stanley had 19%, 19%. And so we all go over there and we’re like, what? What’s going on? Why…? Because, at Smith Barney, every conversation started with managed money. Every advisor knew that, every branch manager knew that, even people that just came in knew like, okay, we talk about managed money, that’s what we do. We all realized that transactional business was going to fall and dramatically be reduced. We knew that then, and we all played it. We got to Morgan Stanley. And Morgan Stanley was really strong with their research team. They had a great capital market. They were very proud of what they built in private wealth management. But it was so different from us. It was like, you know, it was like going over and starting to talk to the French, and I would say that they kind of treated us like we were the French and we were the lowly Americans that didn’t know how to speak French. There was a little bit of a culture challenge with that, but fortunately, both Andy and James really understood that advisory business was what was happening. James had already just decided to sell, this was in ’09 and 10, and they had just decided to sell their private client asset management business because of the conflict that he knew would mean that it would be difficult for them to sell inside, and they weren’t very good at selling outside. So they ended up selling that business so we could focus on the advisory business, and they created a whole, whole different culture out of what was and still is, an outstanding institutional firm. But now they also have a private client firm that, kind of hard to say there’s somebody doing it better. They do it very well.

Jack Sharry: Yeah, I think I have my dates right. So I think the merger between Morgan Stanley and Smith Barney originally called Morgan Stanley-Smith Barney, was in 2009 and they merged that together. And clearly James Gorman, who you were just mentioning, and Andy Saperstein, who worked with him, and both who had come over from Merrill, and then others that joined, namely Jed Finn and Ben Huneke. There were a number of other folks that sort of were part of that team and and basically they caught on to this managed money thing. And I think it was particularly that 50% of revenue was coming through managed money. So how did you guys work that culture thing out? Because it clearly that’s, they’re the biggest managed money institution in the industry.

Paul Hatch: It wasn’t easy. A lot of people came kicking and screaming. Mike Armstrong, who runs RBC now and is a very big proponent of managed money, ran capital markets, and Mike and I are great friends, but at that time, we were great competitors, because I would get on the stage. And I would just say, Mike, I don’t know why you guys are doing any capital markets. That’s ridiculous. You know, it’s all going to be managed money. And then Mike would get up and say, well, Paul didn’t really mean that you shouldn’t be doing capital markets. He just meant that advisory is another alternative. And I would get back up on there and say, no, I really meant it. There’s no reason to do capital markets. But ultimately, all the people that you talked about, Andy and James, knew it for sure. Charlie Johnson that came in, and everybody that followed that, after that, Ben Huneke was my COO, super smart and great guy, and did a great job. Jim Tracy, who stayed there, you can’t dynamite Jim Tracy out of Morgan Stanley, and did a great job of taking the culture that we had and moving it over. Glenn Regan, a lot of the people that started at EF Hutton and were still in Wilmington were able to take their culture because the advisory business was a culture driven business. It was a culture driven business. You took your hand. You said, I’m going to be an advisor. I don’t care what the firm says about being a broker dealer and just doing what is appropriate. When you took that at EF Hutton, and at Smith Barney, and eventually at Morgan Stanley, you raised your right hand and you swore that you on the Bible, that you were going to do what was best for the client. That’s really what advisory business is really all about. You know, all the technology is great, but in the end, it’s about like, hey, I’m going to do what’s right for the client, period. And that’s how we did it. We went to the guys who had always been on the thing, we tried to explain them. You can do that, but you know, you got to disclose it, and you got to make sure it doesn’t conflict over here, and it took a long time, but we got there.

Jack Sharry: You know, it’s interesting. A lot of memories coming back as you’re describing all this. Because I was, I was with the old Dean Witter, way back, another company name that’s in the middle of all this. And as I think about it, because I, I remember I was a wholesaler way, way back. And I remember I was trying to get into the Hartford office of EF Hutton, which was one of the top offices in the country. Bob Clark was one of the… was the manager there. You probably remember him. And they were just, that was a selling machine. It was a marketing machine. It was a managed money machine. They even were among the leaders in selling life insurance. I mean, they, they just really, it was a great, and I say this with the highest regard, a great sales organization. They knew how to sell stuff. They knew how to sell it well, always in the best interest of the client. Boy, do they know how to move product, if you will. And that was a fee based orientation. And that came through as it became Smith Barney, as the Hutton name went away and Smith Barney took over. And really, in large part, it was the EF Hutton Smith Barney ethos, that culture that I don’t know what you want to call it wound up and is what is Morgan Stanley to this day. And it really that approach taught the industry about advice, advisory, managed money. Would you agree?

Paul Hatch: Yeah, no, I 100% agree. I think that was a really important aspect of it is the Morgan Stanley people had to be told, hey, you can still be a great salesperson. That’s not a curse. It just, you just have to sell managed money, and that’s how it all finally, they finally realized, oh, I can sell. Yeah, you can sell. Like it’s in the client’s business best interest, you can use your best sales techniques to make sure you’re doing what’s right for the client, period. And they all of a sudden realized how freeing and how powerful that was.

Jack Sharry: Let’s move forward. Not sure when you exactly left Smith… Morgan Staley Smith Barney, and then went on to UBS. Why don’t you just talk a little bit about that, and then I’d love to hear what you’re doing now. So talk about sort of that next, the next chapter of your career.

Paul Hatch: Sure. After four years at Morgan Stanley, I felt comfortable that I had done what I needed to do, which was mainly move the advisory business over, make sure it worked, and make sure that I led the cultural shift. And I felt like I was a very important component of that, and I spent a lot of time with leadership, both in the field and otherwise. And I actually wanted to go into the independent space. And I had been trying to convince Morgan Stanley, which clearly was unsuccessful, but I did get onto the board of Focus Financial, which is huge these days. It was really, that was kind of early days for them. And I really enjoyed the independent space, because I felt like there’s so much innovation going on and so many interesting people doing things and stretching the boundaries, as you always can do in a early stage and at smaller firms. And I just really enjoyed that. But UBS came by and I thought, well, if I go back to the Big Four, maybe I can have an impact to change how they think about the business. And so that was kind of why I went back to UBS. I thought, okay, I know this business really well, and now I can take what I’ve learned in the independent space and what I’ve been able to see, because lots of times you just can’t see this stuff when you’re at a big firm like that, you talk to the same people every day, and you hear the same things, and you say stuff like, we’re the only ones that do this. And when you leave, you find out, like, no, we’re not. And so you get your… eyes get opened, and you get excited. So I came back to UBS, and UBS has had its challenges over the years, and they’re a very good firm, really strong globally. But ultimately, I left there for the same reason that I just didn’t feel I could do it and I wanted to go and be part of the independent. So I left in 2019, as soon as COVID hit, I left. I started my own firm, and I was focusing on fintech. That company is still working and doing a lot of things, but as I got there, I decided I wanted to move from FinTech, which is super interesting and super you know, there’s so many great things going on for clients and advisors. I wanted to do that in wealth management, and I felt I could do that. So today we have a company we call an accelerator, and our goal is to improve client experiences and outcomes. I don’t think it’s enough that you service clients. I think you have to actually show them results. And there are lots of companies that can show you how their revenue is growing and their assets and their and their profits, but none of those have anything to do with the client, and I just felt like the focus is on the wrong thing. We got to focus on the clients first, and we have to hold ourselves accountable for giving them good outcomes. By the way, we don’t define outcomes as they beat somebody else in an asset class. We define success for clients as they got to fund their retirement, their kids are all going to school. They retired early, right? Like we did all the things that are important, we do think about relative performance, but we, we don’t give ourselves a pass because we have good relative performance. That’s not the goal. The goal is our clients get what they’re trying to do, and so we focus on that, many people do. I’m not suggesting I’m the only one, but I am telling you that even in the independent space, the focus isn’t as much on the client as it is on how’s the business doing. Those are important metrics. We should watch those, but we ought to, we ought to define ourselves by and the industry isn’t doing it now, and I know why they’re not, but our team will always do it, which is, look and focus on how well we’re doing for the clients first and second thing is, what’s their experience? How do they feel about it? Do they understand what’s…? It’s not enough to give them good returns. You also have to give them the confidence they can go to sleep at night. And more importantly that, when this world, which is pretty crazy, and getting more crazy by the day, you need to give them confidence, hey, it doesn’t matter who’s president. I mean, it does, it matters a lot, but regardless of who becomes president, we have a plan to work around any of those possibilities. So, yes, you have a right to be concerned.

Jack Sharry: Paul, talk a little bit, if you would, about name of the firm, role as a consultant. Are you a RIA, talk a little bit…

Paul Hatch: Yeah. So the name of our company is Vestria Capital. Vestria is an acquisition vehicle. We’re in the early stages of our first acquisition. We have seven of them in a row planned right now, and we are busy finding capital. We look for RIAs that are in the 1 to 5 billion stage that need to be scaled. And so the business right now, the RIA business, is so under scale, 97% of the businesses have less than a billion dollars. And even at a billion dollars, you’re just starting to achieve scale, you’re just starting to have a professional staff that can help you with marketing and all the things that have to be done. So we provide a platform and capital, which makes us a little bit different. There are a lot of capital providers out there, and there are a lot of services and platform providers, but there’s not a lot that do both, and that’s what we’re doing.

Jack Sharry: And where do you see that going? Where do you want to take this?

Paul Hatch: I’m less concerned with where we take it in terms of things, I mean, the capital providers want to give us money… Of course, we’re building something so that we we improve clients’ and advisors’ experiences and returns. If you ask me, what do I think, I hope that we’re the most respected RIA in the business, and that we have the most satisfied clients, and more importantly, we’ve done a good job for them, and we do as well or better than anybody else in achieving their goals. We don’t look at this as, well we need to, we need to exit in five to seven years. And capital providers have those numbers, and they come to us and they ask about that, and we we tell them, we’re 100 year firm. We’re not a five year firm. We’re happy to to have a financial arrangement with you. But let me be really clear, we’re not selling it in five years. We’ve made relationships with these advisors. We made relationships with these clients, and we’re going to keep them for the next 100 years, and that’s where we’re going.

Jack Sharry: Great, great. Well, Paul, this has been a great conversation. It’s been great to catch up, find out what you did way back when, what you’re doing today. We lived through many of those experiences, more of an arms length observer of you at Smith Barney and I don’t think we knew each other back in Hutton days, but also at Morgan Stanley. So great job throughout it’s been great to watch that evolution, excited to learn more as your, as Vestria raises more money and brings on more firms. So we’ll stay in touch on that. One of things I’d like to do, we have an awful lot of young listeners. Any key points, any key takeaways you’d like to share with our, I guess, our audience of any age, but any observations you’d like to share with our audience?

Paul Hatch: Yeah, this is the best business in the world to be in if you’re a young person, the world is just opening up for you. We all know how old everybody is. I’m 67. By the way, I’m not going to quit anytime soon, but a large number of people are. This is a fantastic business, and you got to play the long game. You got to understand that you establish these relationships, all these things are coming to you, probably in the next five to 10 years, you’re going to have a massive thing. So figure out how you make yourself more valuable. What certifications have you done? How do you find the best way to make your clients be more comfortable? Start moving people from the boomer generation. Make, if you’re young, go out and find the young people, because your young clients will start to be, they’re going to be the ones who own the companies 10 years from now and 20 years from now, not only are they going to inherit money from their mom and dad, but they’re also going to start companies that become unicorns. So if you’re going into any business except this, I think you’re dumb, and it doesn’t matter, get on a team. Don’t worry about how fast you’re going, just work really hard and focus on clients.

Jack Sharry: Great. That’s great. One last question before we say farewell, my favorite from all of our podcasts, what do you do outside of work that you’re excited or passionate about, that people might find interesting or surprising?

Paul Hatch: I moved here to Texas from New York for lots of reasons, but one of them is they have fantastic barbecue. So I not only do I get to partake in that, but I get to, every once in a while, pretend like I’m a bit master as well. And so whether it’s a craft beer with my brisket, I just love the culture of food cooked by fire. Yeah, and it’s a lot of fun here.

Jack Sharry: That’s great. That’s great. So, Paul, this has been great. Really enjoyed the conversation. For our audience, thanks for tuning in. If you’ve enjoyed our podcast, please rate, review, subscribe, and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. You should also check us out at our new, dedicated website, wealthtechondeck.com. All of our podcast episodes are there, along with blogs and curated content from many folks who’ve been on the show and otherwise, but all from around the industry. Paul, thanks again. It’s been a real pleasure.

Paul Hatch: Thank you very much. It’s great seeing you and an honor.