No CEO? No problem.

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Hello and welcome to The Way Forward. I'm Scott Winger, editorial director of Barron's Advisor. Today we welcome Jack Peterson, co-founder and managing partner of Summit Trail Advisors, which is Barron's 45th-ranked RIA firm managing or advising on about $11.4 billion in client assets. Jack and I are going to discuss the best strategies and avenues for growth, the merits of being part of an advisory network, diversity and inclusion, and thinking about planning post-COVID. Jack, thank you very much for joining us.

Hey, thanks, Scott. Great to be here.

Thank you. Let's dig in. I was intrigued by something you told us last year, that growing through acquisition is far more difficult than you, than you expected. Why is that?

Well, I, I think as we set out with Summit Trail 5 and a half years ago, 2015, I thought it would be relatively easy to find like-minded advisors running similar practices at the broker-dealers, at the banks, who would be looking for the same thing we had found and, and created. And I wasn't too worried about the logistics and the legal and the structuring It was really a focus and a thought that we could find like-minded advisors. What surprised me and what has proven out to be the difficult aspect of M&A is finding like-minded advisors with a similar client base. Summit Trail, we focus on ultra-high net worth clients, average clients about $30 million in investible net worth. We don't do well with small clients, and it doesn't mean we don't service them well. A client takes a lot of time. A million dollars is a lot of money. It's a significant responsibility. We take that very seriously. So is a $100 million family. They take a lot of time. It's hard to scale a high-touch, high-service business with smaller clients. And so we've been very disciplined. In our focus on 25 and above. And, and so as I'm out there meeting with advisors and networking, I find a lot of great advisors, but they tend to have a mix of clients. They have many small, you know, under $5 million clients, and then they'll have a number of, of high net worth clients, you know, $5, $10, $15 million, and they'll have a number, but a small number, of larger clients. And that business does not fit well in Summit Trail. Everything else about M&A has worked really well. We leverage a lot of good partners in the space. We've had really good execution and transitions. So it's really the client fit of the business that has been the challenge for us.

So I know you've said that you've wanted to add one office and one or two advisor teams per year over the coming 5 years. I know you've had some success with that the past couple of years, but are you on track for those goals?

I would, to be honest, I'll describe that as behind, and it's, it's my responsibility. So it's a self-criticism. We launched with 3 teams in, in July of 2015. We had 2 more teams join us later that year. We're now up to 9 teams. And so we've gone from 3 to 9 over 5.5 years. So that pace feels okay. It is lumpy. You can't really control or time when you find a great team. You just, you're always out there looking. We have 6 offices now. I think we're very well represented in the northern half of the United States, but we have not created the physical presence that we desire in the southern half of the United States. So Southern California, Texas, Atlanta, or the Southeast. Florida, big, big markets that we need to have a physical presence. So we'll be working on that in the coming years.

So we'll watch this space. Uh, I know you're a partner on the Dynasty Financial Partners platform. Uh, for our listeners, tell them, tell us, how did you decide on Dynasty? Because obviously Dynasty has competition. And also tell us how they've helped you fund your M&A deals.

Dynasty's been a great a partner of ours. I knew, having run the Lehman Wealth Management business, that what we were going to do at Summit Trail was going to be important. We thought it would be very good for our clients, but I also knew it would be complicated. And having never set up a firm before, the founding partners and I, we all agreed early on that we wanted to find a partner to help design execute and grow the business in the early years. And as we evaluated a number of different partners and vendors in the space, obviously Dynasty and Focus were the two large firms at the time. You know, both firms have talented people, very different business models. We ended up selecting Dynasty over Focus because of the front-end work that they do in designing the firm. And helping you launch. But also, we weren't ready to sell a stake in our firm, and that's the focus model. It's a great model. It was just too early for us. I also think we really fell in love with the Dynasty people. They had a national presence. We were opening 3 offices on the same day— New York, Chicago, San Fran. So they had a big team out in the field ready to go, and they were really helpful in, in the design and then the launch of the firm.

Great. Let's circle back on that, uh, question on your M&A aspirations and how Dynasty helps with that.

A couple of different ways that we work with Dynasty on M&A. Uh, number one, they source deals for us. So they've got a big network and an active team out in our industry looking, uh, for like-minded advisors. And, um, they've helped us, uh, identify and attract those teams. Secondly, They've helped us with financing. They were important in our efforts to arrange a sizable line of credit early in our launch, and we probably could not have done that without Dynasty. And I think the terms and the structure were negotiated, I think, with Dynasty's size and buying power. So we've had a really good relationship with a bank through Dynasty. Then lastly, they have a number of flexible capital products. Depending on the firm and what you're trying to do, you can deploy a number of different equity and debt-like instruments that Dynasty's created. We've not deployed those equity or debt products yet, but as we grow and I think about our partnership, They're relatively attractive and they're getting more and more relevant for our firm. But line of credit has been critical and terms are competitive and they've got a team of experts. So I've got people I can call, you know, moment's notice, talk about a deal structure, competition, et cetera. So important partner of ours.

Yeah, I can see why you're identifying that. It's one thing to have the, uh, to feel like you're in sync, that you've got a good connection with a potential partner. But of course, this is business and the line of credit and the scale and scope of the business are key pillars. And without that, it might not work. You know, as all of us have been thinking, uh, about being on the cusp of a year plus with COVID how do you think Summit Trail as a business will look when COVID is hopefully finally in the rearview mirror?

Anxious to get there. I like Johns Hopkins, April, May, I'm ready. I think everybody's ready, and I think it's gonna evolve. I think we're all gonna anxiously, you know, reconnect in person. We'll all be back in the office part-time, and I think that's gonna feel really good, but I do think we have to be realistic. We have to balance the work experience with the private life experience of each of our employees, Work-life balance has always been important at Summit Trail, but we work long hours. I think what we've all learned in literally 12 months to the week here of COVID we can be highly productive out of the office. And I think advisors have been doing that forever, but I think the entire firm, and I think most firms, have found multiple ways to be productive and be effective. So I think post-COVID, there will be sort of this quick, you know, reconnect back in the office, but I don't think it's going to be 5 days a week. And we now have employees scattered around, so we're going to have to think about flexible workspace. We're not going to stay remote. We're going to get back together, but I don't think it will necessarily be 5 days a week. We're going to really, I think, have to and probably want to be flexible Employees who want to be in the office 5 days a week, would love to have them. Clients and employees who want to balance that out a little bit and maybe not be in every day, I think we're going to embrace that. I don't think we'll have as many client meetings in the office for a long time. And I think even in-home meetings where we see most of our clients, I think clients have found a way to adapt to video and audio conferencing with the various platforms. We are finding that to be highly productive, easier to schedule meetings, especially with our larger multigenerational clients.

Yeah, I've heard many technology writers and other societal commenters say that we've advanced a decade in a year on that front. If you think about the number of video meetings you were in before COVID and how it required a lot of coordination and setup, and now it's just second nature. I'm curious though, have you been to your office? I know you're working from home, but have you been to your office in the past year?

After the first few months, we've had somebody going in almost every day to our New York office where operations and technology are all, are all based. So we've had somebody in the office. I'm going in roughly once a week when I'm up in the New York tri-state area. I'm spending about half my time in South Carolina. And half my time in the Northeast. And it's good. It is good to get into the office. But we also, you know, we have some daily operations that need to be taken care of, and we spread that responsibility across a number of different employees. Just mail and packages, you know, you've got to continue to run the business. So, but I do think the client, most importantly for us, the client has accepted the video interaction as an acceptable platform. You can have really important, meaningful conversations with clients and prospects over video, and I don't think that was nearly as accepted pre-COVID. And I think now most clients, they like it, they get it, and it's more productive for them as well.

Yeah, without a doubt. I mean, there's no commuting time, there's no prepping, you know, the way that everything is just kind of in your home and you can get everything set. It could be even just more time efficient. So, that's an obvious answer, I think, to what I wanted to ask you next. But beyond the adaptability and the productivity of video meetings, have you had other top work-from-home surprises in the past year?

It's a good question. I, you know, the one thing that has surprised me And I didn't realize it until my wife told me, uh, I was doing it, but I find myself having calls with clients, uh, 24/7. Uh, the mobile phone, right? Every client has your mobile, but normally clients call between 9 and 5 or 8 and 7, but they're trying to get you during the business day. And they— most clients tend to leave you alone on the weekends, not all, but most. Um, it's, it's become a, a 7-day work week. And it has become a 6:30 or 7:00 AM to 8, 9, 10 o'clock. I'll get a client, you know, he'll text me and he'll say, hey, listen, I, I, quick question. Are you, you know, are you awake or do you have 5 minutes? And so they're polite about it. But I am, I'm finding myself having those conversations really from early morning to late at night, other breaks during the day. So it's a nice, it's a nice mix. But I am surprised at the client's willingness and comfort in wanting to hop on a call. I mean, last night, 8:30, you know, I'm in the middle of an episode of Peaky Blinders and the mobile phone starts to buzz. So you've got it, you've got it. And you know what, you want to talk to your clients when they want to talk to you. So you drop what you're doing and you take the call. So I think that's been the biggest surprise. They They want to talk, but they're not long conversations. It's quick. You've got to be responsive. You've got to be available.

I think a takeaway from that is that in order to ward off burnout from working from, as you said, especially when your business is national, when you've got people on Pacific time and East Coast time and the two time zones in between, you know, there's the trade-off as a responsible professional who's invested and and feels ownership of a business that it's not that big a deal to lose 20 minutes late at night when you can get something off your mind and it's done. But can you then find the adaptability so that way in the middle of the next day or 3 days later, you know, you could go for to run an errand or do some exercise or, you know, have a personal lunch, you know, that you might not have otherwise done back when you're at your office 5 days a week. But Finding the balance through new routines and habits might be what's called for. Do you see the merit in that?

Scott, I think that's great insight there. The day has become fluid. At the end of the day, you've got to have a couple meals. You've got to do your work. You've got to take care of yourself. That's a shower at some point. That's a workout at some point. That's a mental break at some point, reading, watching Peaky Blinders, whatever it might be. But It used to start in a sequence. Get up, take a shower, commute, work, or maybe gym first, then work, or then gym, you know, home after dinner, whatever. It, it, now it's just very fluid. Every day is different. And you, you just gotta go with the flow. And, and I think most people are relatively adaptive that way. But I think you can be incredibly productive. I, I, I feel like I'm working more hours, but I feel good. And I'm getting my workout in or my walk in. I'm getting some family time. It's been a very different experience, but I think a lot of suffering and obviously terrible loss of life, but when you set those elements aside, I feel very fortunate looking back on my COVID experience, and it's certainly brought our family closer together.

And it sounds like you've had some good viewing time as well, so I know our listeners will appreciate the recommendation on that front. Of Peaky Blinders. But in thinking about, as you were just saying, that the experience of the past year has been so divergent, we hear a lot of confidence in emphasizing long-term thinking and doing our best to feel strong. But we also know we've heard a lot about suffering this past year. It was a very different crisis, but you survived the Great Recession and the collapse of Lehman Brothers, where you were a top wealth management executive. How does that experience with adversity help your perspective on making it through difficult periods?

That was easily the most painful professional or business experience of my life. I never want to go through that again. It was really scary. I think what we face as a country, but also specifically Lehman Brothers. And we had 1,000 employees and $95 billion of AUM, and you did not know what was going to happen the next day. And watching that business unravel quickly and fortunately getting bought by Barclays at the last minute, we lived to fight another day. That experience taught me a lot about myself, and really about just people in general. And deep down, I think most people are very, very well-intentioned, but everybody has a different level of stress that they can tolerate and deal with before they start to, you know, they start to get off the rails a bit and, and may not be as, as rational. And that's fine. Everybody is different. I think this pandemic was very difficult because it, it was a, it was a financial crisis that was really started by a health crisis like '08. We did not know anything about COVID We did not know what was going to happen the next day with the virus. But I think we all know a lot more about the markets going through '08, '09. So I think there was much more calm in regards to the markets and securities and pricing, and also confidence in our government and, and all aspects of, of the government. And I think the Fed in particular was incredibly helpful in calming the markets. And when you had muni bonds down 5, 6, 7, 8, 9, 10% for a couple days there, um, that was scary and, and that was alarming. And for the Fed to come in and calm the markets, uh, that really shortened the crisis both in length of time and depth of sell-off. But really every asset was going down in value. And that was somewhat different than '08. So I learned in '08 that you are really capable of almost anything. You need people, you need to take a problem on with a team, you've got to delegate, but you also have to trust in yourself You have to trust in the system, and I think we've all learned, uh, really how incredibly strong this country is. The vaccine, uh, it's, it's a miracle. It's a, it's a healthcare bioscience, uh, miracle. It's a record. Um, and, and now the distribution is finally kind of in place, and we're getting everybody vaccinated, and we're gonna— according to President Biden, you know, we're gonna be, you know, done vaccinating, uh, you know, late spring, early summer. So, um, We've all survived it, you know, for those obviously who physically survived it, but the loss of life is shocking, and I saw a stat last night, 20% of Americans have lost somebody, you know, close to them or in their family, I think was the stat. It's a shocking stat. It's scary. It's sad. It's affected the country. The Northeast, I think, in particular, where I spend half my time, psychologically is in a completely different place than the Southeast. So, it's definitely taken its toll on our country physically in loss of life, economically, but also psychologically. It's going to take some time, but that is coming. I think this recovery, and I think we'll probably talk more about that, is going to be powerful.

I appreciate your thoughts on that. You know, in thinking about your firm and preparing for today's podcast, I saw that no one is CEO at your firm. You have about 2 dozen equity-owning partners. Detail for us why that management structure makes sense and is effective.

It's a good question. We could talk for hours on this one, but it's one of my favorite topics. Summit Trail is a private partnership. We're employee-owned. We have 22, currently 22 equity-owning partners. We don't have a CEO because I was a CEO at Lehman Brothers, and you run a large business, I think, differently than you run a small firm. In our business, we are owned by our advisors. The advisors are the majority owners of Summit Trail. Everything we do is focused on the client, their needs, and really what is best for them. So No CEO means consensus building. Everybody has an ownership stake and they vote their pro rata share in decisions. It can be slow. It can be cumbersome. It can be frustrating for certain personalities. And I'm okay with that because in the end, I think we have a stronger base supporting any important decision. I think that Most of us grew up at the big firms, Morgan Stanley, Goldman Sachs, JP Morgan, et cetera. That's a top-down organization. You're being told each day or each year what to focus on and really how to execute your role. Summit Trail is very different. We've really created a hybrid. It's a blend of private partnership combined with what I think of as sort of the best of the broker-dealer world, high-performing advisors that are talented, good investors, but also very good at business development. And to attract that type of advisor, we believe you need to have a formulaic payout. We have 40% payout, but also getting away from some of that hierarchy and bureaucracy. The flat, widely held organization with that managing partner as opposed to CEO has created a culture that we all really connect with and we believe in, and it's working very well for us.

Let's pivot to diversity and inclusion. To what extent does that come up in conversations with clients? And at the firm, where have you found success on that front?

Really important topic. It comes up in conversation with clients. Prior to 2020, it was a conversation, I think, 2019, 2020, the, the more recent couple of years, it has become a, a front-burner topic. And for us, as a smaller firm, you know, 57, 58 employees, we felt like we, we could, we could do something about it. I, I think this time it's different. I think the country acknowledges we have problems. It's not a problem, there multiple problems. And I feel encouraged that we are, we collectively, the United States, we're going to do something about it. And you're seeing that happen. Many good examples kind of throughout the country. For us at Summit Trail, you know, we had really almost every employee sign up for, I think at the end, we have every employee on a working committee. We created committees around 5 different foundational components of our plan: education, people, philanthropy, investments, and then social awareness. We organized quickly. We had 4 or 5 employees take the lead, not me, across the firm. They organized our views. 9 different action items that we're working on. COVID has definitely slowed us down, but I think financial literacy and getting involved in the local schools is going to be an important one for us.

That will pick up probably in the fall with the end of COVID Could you share 1 or 2 of those action items as they might be relevant to other firms?

Sure, so with education on under that part of our overall plan, we have worked with a number of outside business partners to identify schools and various programs that will involve funding and also volunteer time depending on the part of the country and the program we're going to plug into. Will either be going into classrooms to be teaching financial literacy or will be funding a financial literacy curriculum at various schools. And I think given our industry and the importance of learning earlier in life, not later in life, the basics of how to run a household, how to run your personal financial life is incredibly valuable for young people. The dangers of debt as an example. So that is one on the people side. We are rolling out a minority-focused internship program, and again, we're working with other partners around identifying the sources, what schools, where can we find the good fit of talented minority candidates in their sophomore and junior years. And again, COVID, you know, kind of slowed us down on that, but we will be deploying that internship program. We're working on identifying recruiters that specialize. Now, they're all in demand right now. We're all, I think we're all trying to do the same things, which is probably good and bad. Awareness, you know, we started a book club. So, you know, we have a group that gets together, decides on a book that is relevant to the diversity, inclusion, social awareness content. And it functions like any other book group. Lastly, I'll mention investing. So ESG impact investing, really important. We actually found a manager through Dynasty, StoneCastle. It's a money market kind of short-term cash management platform, but they're stacking bank deposits across community banks in those economically challenged neighborhoods and cities and towns across the United States. So Summit Trail took a good part of our free cash deposits and we moved it to StoneCastle. You earn a competitive rate of interest, but you're now taking your capital into this banking system and those deposits are now providing collateral for the banks to make loans to minority local business owners.

So you're helping them grow their asset base so they could do the work that helps communities that don't always get those kinds of opportunities.

Those banks are starved for deposits, and if they have more deposits, they can make more local community loans. So it's funding loans, and we've rolled that out to clients. We've had many clients who've opted in to take some of their cash balance and move that over to StoneCastle. So that, that's an easy one that feels good.

I want to quickly focus on a client question. I know the way you've structured the firm, you tend to have, as you've said, UHNW clients, professional athletes. How do you work to protect those kinds of clients from potential problems and threats like creditors?

Well, athletes are, and celebrities in general, they're a bigger target. They're a bigger target because they're more—

They have deep pockets.

They have deep pockets, and their wealth is more public. Whether they actually have as much as you think they do is really irrelevant. They're viewed as rich. And so anybody who is wealthy, if that wealth is publicly known, it does increase your chances of targeting. And we believe in working with high-quality T&E lawyers in structuring Estate plans, and in particular, you've got the transition of wealth, right? How are you going to transfer your wealth from generation 1 to generation 2? That's estate planning 101. But I think in the world we live in today, creditor protection, asset protection is equally important. And so, through a number of very common trusts and LPs and FLPs, there are ways to wrap your assets. To create a layer or multiple layers between you, the owner, and the actual asset. And the best example is a car accident. The first thing that happens when somebody hits somebody else in a car, there's insurance companies and lawyers get involved. And if somebody is wealthy and they actually were the cause of the accident, there's now an opportunity for the victim or so-called victim to pursue the wealthy person. And so I don't think it's highly proprietary, but we're very disciplined. We're very careful. We want to make sure our clients understand all of their risks. We go through a risk assessment. And that kind of targeting is one of, on a long list of risks that our clients need to be aware of. And A, we make sure they're aware of each and every risk. Then we agree that they have that exposure or they don't. And then we agree on or evaluate, have they properly hedged or protected themselves from each of those risks? It creates a gap analysis where we say, okay, You've got 4 or 5 exposures that you didn't know about that we need to go ahead and find the best way to protect you. And creditor protection is a really— it's an important one and it's getting more important. People like to sue.

That is for sure. Well, I've appreciated all the strategies you've shared in our conversation. And as we get close to time, I'd love to conclude with a Barron's tradition. We ask our guests for one final actionable idea that listeners can put right into practice. Can you tackle that for us?

Sure. So I would probably focus on the investment side. I mean, there's two elements: tax right now with Georgia Senate seats going to the Democrats, the control they have now. I think tax reform is obviously back on the table. We're spending time with our clients focused on tax. That's a big, complicated topic. Topic. And I would not want to try to give a specific actionable item today other than if you're not talking about tax with your clients, you should be. I think the more actionable item on the investment side for us is emerging markets and specifically Southeast Asia. China was kind of ground zero with COVID They they shut it down quickly. They're clearly ahead of us and the rest of the world in their recovery. A strong China will pull a ton of economic activity into the region. So throughout Southeast Asia, India being a big country, obviously China, you need to have exposure there. And, you know, we, we still believe in alpha here at Summit Trail, and there are a number of SMAs, LPs, and mutual funds in the emerging market space. But we are trying to focus on that Southeast Asia region of the emerging markets universe because we think there's going to be really strong growth and it's going to run for a while. So this is not really a tactical short-term trade. This is a longer-term tilt for us. That we think will generate excess returns.

Fascinating. I know that advisors really do need to think about the portfolio structures that they have for their clients and how exposed are they to where all the opportunities are now and might be in the years to come. Jack, thanks so much for your time today and sharing your knowledge. A terrific conversation. And thanks to all of you for listening. Tune in next week for our Barron's Advisor Podcast, Actionable Intelligence with Steve Sandusky. Steve will have a conversation with author and consultant Robert Fritz about organizational structure. We'll be back in 2 weeks with another edition of The Way Forward.

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.