What firms should standardize before they scale

Envestnet Inside WealthTech – Hilltop Securities

Interviewer: Welcome to Inside WealthTech. We're live here at Envestnet Elevate in Phoenix, Arizona. My name is Blake Wood, Head of Strategic Partnerships.

Interviewer: And I am Joe Spatucci, Strategic Relationship Manager. And I'd like to introduce our guest and a good friend of mine, Robert Morales.

Robert is Senior Managing Director of Products and Solutions at Hilltop Securities.

Hilltop Securities, by the way, is a client of ours and a very, very good partner. So thank you, Robert, for giving us a couple minutes. We appreciate it.

Robert Morales: Thank you. Thanks for having me. Great to be here.

Interviewer: Of course.

So give us the elevator pitch for Hilltop Securities, Robert, if you can. A little bit of an overview, let people know a little bit more about what Hilltop Securities is all about.

I know that you're in a number of different businesses today as a corporation, as a company. Can you kind of explain a little bit about that?

Robert Morales: Yeah, sure, Joe.

We are an 80-year-old investment bank.

Hilltop Securities, we're part of a publicly traded company, Hilltop Holdings, which is a diversified financial services company that has a bank, a regional bank, and a national mortgage company.

The investment bank, Hilltop Securities, we have four different divisions.

We are one of the number one public finance firms.

So you think about the roads, the airports, the baseball stadiums, those all get financed. A majority of them get financed through Hilltop Securities.

We also have a large fixed income capital markets business.

And then where I sit is in the wealth management business.

And then we also have a structured finance business.

This is helping those states, affordable housing programs. We help underwrite various states like the State of Florida, California, their affordable housing programs.

But in the wealth management space, that's where I sit.

We serve roughly about 4,000 advisors across three different channels.

So we have a product wealth platform that sits across three channels.

One, a W2 channel, a 1099 channel, and then we have a clearing business where we have about 100 other broker dealers that clear business through us.

And so we have a kind of a core platform that sits across all three of those different channels, providing the products and services to help our clients and advisors.

And with the backing of the public company Hilltop Holdings, we have the financial strength that firms our size don't normally have.

Interviewer: Yeah, you really do it all, quite honestly.

It's amazing when I got to know you and the business that you do. It's amazing that you're every kind of facet of the financial world. It's unbelievable.

I think it's got to be one of the real challenges, especially in your position, overseeing products and solutions at a time when you've got W2 employees, 1099 employees.

They're going to go out and see shiny tools, tech services, and you need to deliver operational scale, efficiency.

How do you strike that balance between giving advisors some choice and flexibility, but maintaining that cohesive, governable platform strategy?

Robert Morales: Yeah, that is a very delicate balance and very unique.

When I came into this role about six years ago, trying to juggle that, and you bring up a good point that the different channels, you have your W2 advisors, you have your 1099, you have your correspondent advisors, they all have their different needs.

But what it really starts with, at least what we've done, is it starts with the core.

We've standardized the core, the core platforms that we use, the core partners.

That allowed us to put in some standardized processes.

From a supervision and a compliance standpoint, once we've had that core, that core helps us to scale for 90% of the business.

Then through that, we're able to effectively provide a little bit of flexibility on the edges.

That's how we've addressed it.

Interviewer: Makes sense.

Yeah, no, it definitely makes sense.

Robert, with everything, obviously the past day or two, AI is a big, big focus of what we're talking about and what the industry is talking about.

Today, from a complexity standpoint, when you're dealing with your advisors, them being really effective on the platform and doing business the right way, the way that Hilltop Securities wants them to do business, what do you find are the, I would say, unnecessary complexities within the advisor's workflow today that you are trying to get them to do business a little bit smarter?

Robert Morales: Yeah.

It all goes back to, with AI, I see AI as a co-pilot, so to say, to the advisor.

If you really think about this, what our advisors do, this is a relationship business.

The advisors need to be there for the moments in life when the clients are going through an estate issue, a transferring of money, a sale of a business, market volatility.

That's where the advisor comes into play, and that can't be replaced.

There's studies all the time that show that advisors really only spend 30% of their time with their clients.

There's also another study that shows that the clients expect all these other services.

I see AI, going back to the co-pilot, being that co-pilot, helping them with reviewing the portfolios, doing the due diligence, bringing up risks, handling that account opening part of it, making their life efficient where they're not in the administrative burden.

It's been very neat here at the conference to see Envestnet throwing that into their report builder.

I forgot the gentleman on stage that presented it. I mean, that was right on.

Our advisors call us. They're like, "Hey, I'm trying to prep for this client. I need to pull this report. I need to pull this report."

They're going to several different places.

Being able to leverage AI to simplify that for them to do the meeting prep, I think is really going to be big.

That way, the advisor is going to be available for those moments in time where the clients really need the advisor.

Interviewer: Right, so that robo-advisor thing is like out the window.

Robert Morales: Oh yeah, robo-advisor, yes.

I mean, I think if you've been in this industry long enough, you've seen, they've mentioned multiple times that the advisor's going away.

You had the online trading that came about, and then you had robo-advisors.

All that did not kill the advisor because you can't replace that emotion.

Interviewer: That's right.

Great point.

If you think about the difference between market demand, rising client expectations, the generational wealth transfer, the demands on advisors are expanding quickly.

As you mentioned, clients want more from advisors. Advisors are spending 30% of their time in a client-facing orientation.

What product or solution gaps do you believe the industry still hasn't adequately provided or solved for advisors that need to and want to spend more time engaging with their clients and delivering a sophisticated delivery and set of services to the families?

Robert Morales: That's a good question.

I think it's not really a new product or service that the advisors need.

I think it's really about taking the complex and making it simple.

That is where the gap is.

Firms such as Envestnet are working at trying to integrate processes and stuff to make it simple, to be able to allow the advisor to spend more time with their clients, figuring out how to make that complex.

If you go back and you think about it, Joe knows I'm an endurance athlete.

If you think about a single athlete, like a marathon runner, you only have to worry about running.

But then, like our financial advisors, back when they first started, you had a broker. All he did was talk about stocks.

You had a life insurance agent that only talked about life insurance.

You even had P&C guys that only talked about P&C.

Now, they're kind of a multi-athlete, a triathlete now.

They have multiple disciplines that they have to deal with.

Like our advisors, advisors are the same way.

They have multiple products, from advisory, to structured notes, to annuities, to bonds, to stocks, you name it.

There's direct indexing.

There's so much stuff out there for them.

Trying to make that complex simple by, one, having platforms and partners that are really integrated, and then providing support, providing support to them.

One of the things we're doing is, with our partners, to help our partners help us to integrate.

Then we are layering that upon with specialists that actually help our advisors understand all the different products and services that are out there.

Interviewer: I really like the idea that you could be great at running the marathon, but you really almost have to be a decathlete.

You've got to have 10 different things that you're really good at to deliver services to families.

In order to be good at those 10 things, you need a coach along the way.

Love that analogy. Got to use that. That was awesome.

Question in regards to the future.

If you think about three to five years from now, differentiating Hilltop Securities primarily through financial planning, I know MoneyGuide is a big partner of yours today, and that's something that you look to have every advisor utilize.

When you think about planning, when you think about technology integration, or the advisor experience like we were just talking about, how is Hilltop positioning themselves?

How are you positioning your wealth management organization itself so that within three to five years in the future, you're going to be best positioned to do the right business and do good by your clients?

Robert Morales: It really goes back to three things.

The first one is making sure that we have the right product set.

One, we have the right product set for all the issues that the advisors have to deal with.

Then two, having the right partners that we're deeply integrating with, such as Envestnet and so forth.

Making sure that they're integrated and the processes are good.

Then finally, what I mentioned the other time is then layering it on, because we understand you can't be an expert in every single area, is the specialists.

We have committed resources to layer on individuals that go out there and help our advisors, from an annuity specialist, to a financial planning specialist, to you name it.

To help them look at their books of business, to leverage all the technology, leverage the insights that are out there, to pull it all together for them.

So the advisor has a more holistic view.

I mean, we're really pushing financial planning.

I know financial planning has always been kind of the buzzword for years, but I think we're now getting to a stage where advisors can truly spend more of their time doing financial planning than having to deal with each individual, "How do I rebalance this portfolio?" Spending all the time rebalancing that.

With technology, that's allowing them to free up time.

Interviewer: Love it. Absolutely.

So the next question, maybe a little bit more insight into you, Robert, personally.

What's a book, a show, podcast that you're reading, watching, listening to that you'd like to share with us?

Robert Morales: A book, a show, or a podcast.

So I read a lot of books and they're all over the place.

Actually, I shouldn't say I read them. I travel a lot and so forth, so they're all audiobooks.

They range the gamut from U.S. history, so I'm a big history buff, to leadership type books, to financial planning books and so forth.

One that I just finished was called Range, which is all about how the generalists overcome.

The generalists are the ones that overcome the specialists.

You know, there's power in being the generalist.

The book's called Range. I can't remember who the author was, but it's really kind of interesting talking about how a generalist is able to bring all the specialists together and so forth.

So like I said, my books, if I showed you my Apple Books, my audiobooks, it's all over the place.

And then there's sports things too.

Interviewer: Diversified in your reading interests.

Robert Morales: Yes.

Interviewer: Like a good portfolio.

Robert Morales: Exactly.

Interviewer: Nothing wrong with that.

So next question, Envestnet, how have we helped you and Hilltop Securities really adapt, innovate, and meet the moment for your clients, would you say?

Robert Morales: I think it really goes back to the overall platform.

So one thing that I did in the position that I came into, we had a lot of different partners in technology and so forth.

We consolidated everything to the Envestnet platform.

And the reason was, is that they had a lot of different capabilities that allow us to kind of build kind of that, I mentioned the core, that's kind of one of our core platforms.

And it allows us to integrate for the advisors to see everything from MoneyGuide, the financial planning, to the portfolio management, bringing in all the other additional assets.

And then layer on top of that the insights that Envestnet has provided.

We've been able to kind of leverage that to kind of grow our advisory business and to show the advisors kind of the value.

It's kind of one holistic place.

And then you guys have been building it over time.

That has really kind of helped us to have the advisors have one central place where they can look at their book of business.

Like the big winner lately has been the insights.

The platform was there.

You're able to go through the different advisory programs.

We do something unique in that we have all of our clients' assets on the platform regardless of whether it's the brokerage assets, annuity assets, direct assets.

The entire book of business is on the platform.

So the advisor is able to do the analysis all he wants, but then he's also able to leverage the insights that you guys rolled out.

What was that, a couple of years back?

We've been a part of that.

We've seen a lot of good impact on that with the advisors finding opportunities within the books to relook at the books.

These advisors, they acquire clients and their books get big and they don't know where to start.

So that is, I would say, probably one of the big things that's really helped us.

Interviewer: Love it. Love it. Makes complete sense.

So Robert, we'd like to end the interview with a speed round, if that's all right with you.

Robert Morales: Sure.

Interviewer: And we'll start with the first one.

Interested in your view on this, given the W2, 1099, and where you said giving advisors flexibility. Is it a competitive edge or an operational risk?

Robert Morales: I would say both.

And the reason why I say both is flexibility can help give you that edge.

But if you don't have, going back to my standardizing the core, you don't have the standardized core in place, it could become a serious risk for you.

Interviewer: Absolutely. Very good.

Managed accounts, scale engine or customization engine? What would you say?

Robert Morales: I'm going to say scale the engine first and then customize.

Kind of goes back to my same thing.

If you can scale it first, then you can work with your partners to customize it.

Interviewer: So this next one, I'll kind of time box it in the present.

AI tools and capabilities. Is it an efficiency tool or a competitive advantage?

Robert Morales: I say right now it's an efficiency tool.

If you time box it right now, I say it's an efficiency tool.

I can see that being a competitive advantage down the road.

Interviewer: All right.

Practice growth, better advisors or better systems?

Robert Morales: Better systems make better advisors.

So to explain there, you could have a great advisor that's growing.

But if you have bad systems, it just causes all kinds of risk, all kinds of problems for you.

So better systems, better advisors.

Interviewer: Love it.

And last question.

The future of the wealth management firm. Is success or winning going to be driven by consolidation or specialization?

Robert Morales: Again, I mean, I have to go to both.

I see a pattern here.

So you can't specialize if you haven't consolidated.

That's my main theme.

If everything is a snowflake, then it's very hard to manage, to grow, and so forth.

And I've kind of proved that out at my firm.

So yes, consolidation first, then specialization.

Interviewer: Fantastic.

Robert, that's all we had for you today.

Appreciate you stopping by and spending the time with Joe and I.

Robert Morales: Yeah, I've enjoyed it.

Thank you for having me.

Interviewer: Thank you, Robert.

Appreciate everything you do for us.

And that was Robert Morales of Hilltop Securities.

And this was Inside WealthTech.