CAIS’ Abby Salameh on Alts, Advisors, and ‘Leading With Learning’

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Hello and welcome to Barron's The Way Forward. I'm Greg Bartalus, and my guest today is Abbie Salameh, Chief Marketing Officer at Kase. Welcome, Abbie.

Well, thank you. Thank you so much for having me.

My pleasure. Now, prior to your role at Kase, you were at Hightower Advisors. What drew you to the fintech space and more specifically to Kase?

So it's interesting. I've spent my entire career going back 20 years in support of independent advisors, whether that was from the custodian side, the publishing side, or more recently with large RIA aggregator firms and providing them with guidance and direction on growing their business, marketing themselves, like really accelerating the growth of their businesses. And I was ready for something different. And when I left Hightower was really Due to the pandemic and just being home with 3 teenagers homeschooling. And when I thought I was retiring, 9 months later, the kids are out of the house and I'm wondering what I'm doing with myself. And I started thinking about what haven't I done yet? And Kase caught my attention not only because they were a fintech firm, but because I had really seen firsthand, especially at Hightower, the struggles that advisors had with understanding and investing in alternative investments for their clients. It's a really burdensome process. So the idea of helping advisors gain access to something that they struggled with was really what first drew me in to learning more about Kase.

It does seem that education would be a key component of this because in broad strokes, They know what it is. Clients know what it is, but there's an element often of uneasiness and it's like a little abstract. And they often hew to the traditional asset classes, of course, stocks, bonds, and maybe they, with REITs, they tiptoe towards there. But, but tell me about the role of education and, and how important that is.

Well, it's really important. And that was the other thing that drew me to Kase. Um, there was this education platform that they had started to embark on called KaseIQ. And now I run that business for the firm in addition to the other work that I do. And we really are all about access, but it's more of responsible access. So when you think about responsible access, it's all about leading with learning. So for every single product we have on the platform, there's a corresponding CaseIQ course. We also have courses that are available to any advisor that are on foundations that offer CE credits. But what's beautiful about this platform is that it really is tech-enabled. So it's very different from some of the training that we've all been through, which could be textbook training or tons of reading. It's very intuitive and it's very multimedia, media-rich. So you could read something and then you get some questions and then there's a video and you might get more questions. So it really takes you through a journey I've got a team of learning designers that actually are schooled in the science of learning behaviors, and they're the ones that create these courses and they're really fantastic. It's like the best kept secret.

Yeah, I mean, I've heard that the UX for that is very intuitive and user-friendly.

Very, very, very. And it's fun. It makes it fun. And what we found is that education is probably the biggest barrier to entry for advisors. Because if they don't feel confident talking about it with their clients, they're not going to feel confident investing in something.

Right.

So it's really teaching them the complex trends and issues and structures so that they can feel more confident talking about it with their clients.

I do find it interesting, like, so with now at Case, you understand the advisory world. So you have, you understand the culture, the motivations, the personalities.

So I imagine that that's a great benefit to Case to It's a great benefit to Case because I truly do understand the mind of the independent advisor and how they think and how they grow their business and how they manage their business and, and manage their clients. It was definitely a new learning curve for me to be in the alternative investment space. So I think that was probably what excited me the most was that I got to learn something new in this year that I've been here. That's been incredibly exciting.

Yeah, I read— forgive me, I forget where I came across this fact, but first confirm that it is a fact. But it was really eye-opening. Basically, it said that Case in the first half of 2022 had more revenue or profit than all of 2021.

I don't know if that's the exact number, but our growth and our trajectory has been tremendous. And I think that's coupled by a couple of things like, number one, the 60/40 portfolio is obviously not performing in a way that makes it appealing. So advisors have to rethink how they're allocating to investments in order to either enhance outcomes or preserve capital for their clients. At the same time, Kase was on a precipice of success. It's a 10-year-old startup, we like to say, and we finally got capital investment a year ago that helped propel our growth. So we went from a firm of 40 people to a firm of 300 people in 18 months. So whether or not those numbers are correct, I can tell you that the volume of business that we are seeing from the independent wealth channel has been remarkable.

I've heard talk about, you know, from 60/40, we're going to 60/20/20. That's something that's out there. I am curious, however, that, With the sell-off in stocks and bonds, all things considered, both now look a little more attractive than a year ago before the market fell apart. To what extent, if any, does their increased relative attractiveness act as a headwind for you, right? Because bonds now again are more attractive. Can you have both, that those suddenly look more attractive, but your growth will remain stronger? It's not so much a zero-sum game, or I'm just curious to explore that.

So it's interesting, and obviously it depends on the advisor and it depends on the client that he or she is serving. When we've asked advisors and we've surveyed advisors recently, we did two studies just in the past 6 months. One was with Mercer, who's our due diligence and research partner, and then we did one at the Morningstar conference, just walking around asking advisors questions. And most of them indicated that they would likely be increasing their alternative investment sleeve of their portfolios. At least up to 15%, which is a big number. Like, institutions could be at 50% right now, especially in light of the fact that the balance has changed. So in order to increase the sleeve of alternatives, you have to decrease something else. So what is being decreased? And depending upon the advisor you ask, some of them were selling out of fixed income for sure. Some of them were really waiting until they were rebalancing the portfolios anyway, and then taking the cash even at year-end when they do tax loss harvesting, for example, they'll use that money and reinvest it into alternatives. And then some of them were using new assets from new clients to create portfolios from the start that included that sleeve of alternatives. And then new assets from existing clients, they would put that into an alternative sleeve to balance out the portfolio. So it really just depended on the situation. But the bottom line is that it is 89% of advisors that we surveyed said that they plan on increasing their allocation to alternatives.

Okay. And when they do invest with you, do they typically get a, you know, is it a diversified exposure or do some of them just like pick and choose? How does that play out?

We are really a marketplace, so we bring the leading asset managers together with the independent advisors through technology. We don't actually manage any of the funds.

Right. So you have the alt managers on one side and then the independent advisors and you're kind of the intermediary.

Exactly. So it really is up to them. What we do provide is the education. Each fund on the platform has a ton of materials, prospectuses, webinars from the PM. Our sales team also acts as like a very deep client service person and connects the advisor to the portfolio manager to have those greater conversations if needed. But we don't make any recommendations. We don't do the due diligence in-house. We really, we really act as like the marketplace, bringing people together, driving engagement and community, but not necessarily actually making any recommendations.

So, So I'm just curious with this, what appears to be breakneck growth, to the extent you can explain like what's behind it, is it, is it that there's the, that you're just filling, creating this platform that the market was, that there was this demand was there and the supply is there, but there wasn't that conduit? The conduit. Yes.

Yeah.

It's a little like eBay almost pulling the buyers and sellers together. It's a platform of sorts, but yeah.

Yeah. Um, I think it's a couple of things. I think there wasn't a way for advisors to access a wide array of alternative investments in one place. So I think that's number one. I think number two, independent advisors are still fairly new to alternative investments. The wirehouses have had them for a long time, but the independent advisors have never really had access to those products unless you were a really huge advisor with some really huge high-net-worth clients, like uber-high-net-worth clients. So I think it was the conduit that was now available to them. I think it was the trend in the market to move away from a 60/40 portfolio. And I think we're providing the education that advisors need to help them understand and feel more comfortable investing in alternatives.

Okay. And tell me about younger investors. I'm, increasingly seeing that they're much more interested in alts overall. So you have clearly with older investors, there's excess demand, but that's a separate thing that they believe a little less in the traditional asset classes and they're open to other things. So can you talk a little about that?

So I actually, millennials, basically 39% of millennials have said that they've left their existing advisor because they didn't have access to alternatives. And that's not something that we found from our research. It's from third-party research from Capgemini. But what we see is that when you do look at the next generation of investors, there is definitely a gear or a trend towards looking at alternative investments, not even in the way that we think of them at Case, but crypto and, you know, a lot of other things that aren't even on our platform.

Right. I mean, even like vintage valuable baseball cards. I mean, a lot of these are just getting really big.

Exactly. NFTs and, you know, sports teams and, you know, things like that.

Right. And technology is just really acting as a conduit to create liquidity effectively and a lot of data. So it's creating a much more real marketplace than in years past.

Yeah. And I think, I mean, I don't know the research off the top of my head, but I think that if you if you were to go to many of the direct access websites that the younger generation is using, like the Robinhoods or whatnot, what you would find is that they are investing a lot in the Bitcoins and things like that.

Is this number correct that Case is used by more than 5,000 advisory firms, over $2.5 trillion in assets? Is that ballpark?

That is accurate. And it's hard to say because when we count our users, users. That's users, right? So there's over 5,500 users, um, I believe as of the end of Q3. A user can be one advisor, but it could also be a large RIA firm that has, you know, hundreds of advisors. So it really depends on how the user is using the case platform. For example, um, Advisor Group, which is a huge independent broker-dealer, is using our platform exclusively for all of their advisors for alternative investments, that could be hundreds of advisors that start transacting through the Case platform, but it might not show up in our numbers as being that many because they're grouped together under one user.

Right, right.

So it's a little bit of a misnomer. But regardless, we have grown a lot in the last, I would say the last year to 2 years has been remarkable growth, which is why I'm, I was glad I joined at the time that I did.

Are there any misconceptions that people have? I mean, education is clearly helping that, but just in general, in terms of media narratives or what have, is there something that you often read about and you say, that's not true, or?

I think unfortunately a lot of advisors have had at some point in time have had either a negative experience with an alternative investment or knew somebody who had a negative experience with an alternative investment. So it's those Madoff-type things that cause people to have even more concern. So helping distill confidence in the asset classes themselves is just part of the challenge. And I think that, again, going back to the education piece, you know, if we can properly educated advisors and have them understand these complex products, then I think they feel more confident in using them in their client portfolios. And look, you know, the one sense of security that— and the reason we built the platform by using Mercer is so that we are outsourcing that whole function of due diligence. And Mercer doesn't just do due diligence on the investments, They actually do operational due diligence as well. They look at the books and records of the company to make sure that the company's books and records are actually legitimate. And if they don't pass the Mercer sniff test, doesn't get on our platform.

Are there any plans on the horizon for Kase that you want to talk about or—

No, I think that the one thing I will say is that I think there's a huge opportunity for advisors to leverage alternatives in ways that they haven't thought of. There's also new structures that are popping up every day in the alternative investment space so that they could provide more liquidity than, than the true private investments. Interval funds, for example, we've seen a huge increase in interval funds that have intermittent liquidity. So you're not locking up the money for 5 years. So I think that creativity in the product space coupled with inventive technology like what we are doing is going to drive the marketplace even more. And now we're working with more and more firms that are large, large firms, independent broker-dealers that know that they need to find a single solution for their advisors for alternatives. And what we have found is because CaseIQ and CASE can go hand in hand, a firm like Advisor Group can say, you know what, we're only going to approve these 5 funds on your platform for our advisors. When the advisors come in that are under that broker-dealer, they will only see those 5 funds. So it's permissioning the users, the corresponding CaseIQ courses for those funds are all those advisors will see. In addition, the home office can mandate that the firm's advisors take those 5 courses before they actually can even access the product. So they may have to finish the course. The minute they finish the course and pass it, that block opens up for them to be able to invest. And at the home office, they have a line of sight into dashboards that will show them who's taken a course, who's in the middle of a course, who completed a course, who transacted, so that they can really have a line of sight and supervise the alternative investment space, which as we know, the large broker-dealers have also been dinged in the past couple of years about non-supervisory procedures and over alternative investments. So—

Yeah, that's really interesting having that level of visibility and clarity, and it definitely can help mitigate risk to—

100%. It's a risk management tool for sure, not to mention the operation efficiencies because, you know, we can, we connect all the pipes with all the custodians and the performance reporters and all of that stuff.

That's very smart.

Yeah, it's fun.

Yeah, sounds like it.

Yeah, it's been a ride, but it's been a fun ride and I'm excited for the future of our platform and what we're building today to really further drive engagement and community within the platform itself. Not to mention some additional bells and whistles that I think the advisor community really needs.

And your CEO, Matt Brown, said that you have about 20% market share amongst RIAs using platforms to access alts and that you'd like to increase that to 50% eventually.

He would love that to be the case. He reminds us of that every day. So I think we have a good shot of getting there. Look, there's a lot of new entrants into the market these days. There's new firms popping up because they see the opportunity as well. That to us just validates that we've been doing something for 10 years that finally has caught on. So, so I think we will see pretty, pretty remarkable growth continue.

Before we end, can I ask you for an actionable idea, something for the listeners that might help them get closer to this world of alts, demystified, etc.?

Yeah, I think if anything, I would encourage them to take some foundation courses. You know, they're available to anyone in the public. If you're an advisor and you really just want to learn about the foundations of alternative investments, the foundation of real estate, the foundation of hedge funds, these are really fun, interactive courses that you can get through in a half hour to 50 minutes. 50 minutes is the requirement for CE credits. So a lot of them are 50 minutes, but they're great basic foundational ways to learn about these different asset classes and asset structures, which can help you understand this, this segment of the market a little bit better.

Okay. Well, terrific. Thank you so much for joining and for sharing all that.

Thank you for having me. It's been really a pleasure.

My pleasure as well. My guest was Abby Salameh. For more advisor-specific podcasts, please check out barons.com/podcast. For The Way Forward, I'm Greg Bartalus.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.