Lessons from Our Origin Story


To hear an audio spoken word version of this post, click here.



I took my boss to lunch on a Wednesday before Friday the 13th. I was about to drop a bomb after the weekend; I liked him enough to share some things he should know prior to — Surprise! — 20% of the firm’s AUM walking out the door with my crew the next Monday.

Over steak salad at the Strip House, I explained why he needed to take control of his firm’s future. His partner was standing in the way of his success, with too many examples to list. The portfolio was in the green in 2008 despite the S&P500 crashing 38% — until that other partner loaded up on Wells Fargo cause “it looked cheap.” What should have been a career year was instead proof the firm lacked process, internal controls, and proper management.

I felt comfortable being (dangerously) blunt because my team had been busy the prior 6 months: Josh, Kris, Michael, and I had taken the steps necessary to launch RWM. Our still-secret exit was inevitable, and I wanted it to be on good terms.

My then boss was a well-regarded technician whose methodology incorporated both Technicals (price action, relative strength, rate of change) and Fundamentals (earnings, revenue, debt). He developed a screening tool to apply this approach, generating a stock ranking system scaled 0-100. My job was to run this division, build out the software tool/website, and attract institutional clients.

A buddy who managed >$100m for the Thundering Herd loved the tool. He overlaid our rankings with his firm’s analyst research/price target list. The results were impressive, showing alpha of ~300 basis points annually. I knew BAML’s CIO and showed her the real-life trading results. “Wait, you can use our research to make clients more money?” To get on their platform (as a fund or subscription) required a comprehensive white paper. Total cost: ~$30,000; potential upside was 100X. I was excited, as was my boss . . . until his partner refused to spend the money. It was one of many last straws. Less than a year later, RWM launched.

I tend to find fascination even in things that go horribly wrong. Failures can be more instructive than successes because there is less of an element of random luck involved. Two partners with a 50/50 control equal a dysfunctional firm.1 They disagreed on decisions big and small, leading to stasis. In any dynamic and fast-moving industry, stalemate is a death sentence.

Rather than bore you with those stories, I’d rather share the lessons I learned from that experience:

1. Capital Required: You can get away with bootstrapping yourself on the cheap when you are a small start-up, but at a certain point in your growth trajectory, it takes money to build a firm. We launched RWM with Josh & I supplying the initial capital; we funded growth by reinvesting profits in the firm (as opposed to taking big salaries/distributions). Yes, it does take money, but we have been fortunate to go into this with enough savings to make it work on our own.

Do not underestimate how important those initial dollars are to getting off the ground. Office space costs money, Lawyers cost money, everything costs money! You must have enough of it to ensure you are around long enough to focus on your clients, the markets and running the business. If you are constantly raising operating expenses or stressed about cash flow, you simply won’t have enough bandwith to serve your clients properly.

2. Control: We never sold an interest to outside investors; we were founder-owned and managed from day one. Today, we are partner-employee-owned. There are no 3rd parties dictating terms to us (“Sell more high commission variable annuities!”). We embraced the fiduciary side and never looked back. I believe this philosophy is incredibly valuable to our clients.

I was surprised to learn mid-pandemic of firms that had ceded control to outside investors – leading to layoffs, poor product offerings, and revenue-maximizing. I would argue this came at the  at the expense of client service and those fiduciary obligations that are a core of our belief system. So while sufficient capital matters, it should not come at the expense of controlling your own destiny.

3. Ensemble Advantages: Everyone one of us has diverse work experiences, skillsets, and perspectives. Putting those to best use meant as we grew, the founding team was able to each gravitate towards doing what we indiviudally did best. Dividing oversight and management was crucial to improving our professional performance. This approach has allowed us to focus on our strongest and highest value work.

A team approach also means having faith in your partners and employees, delegating authority to them, and trusting their judgment. Giving people clear goals, the tools to do their jobs, and enough space to pursue those objectives as they thought best has been a core strength. The net result is each of us is more productive, creative, and valuable to the firm.

4. Press Your Advantages: During the post-GFC era, it was clear that prospective clients were: a) Unhappy with their existing brokers/advisors; b) finding us on their own, and c) Asking us help on issues we had shown expertise in. These were a powerful force leading us to deeper understanding about how the RIA world should work, and what we had to do to push it in that direction.

We found countless ways those three steps were uniquely advantageous to us. We continued to tack into what was working, and tried out new things that were adjacent. Our moat (for lack of a better word) was contained within that model, and we continually pressed that advantage forward.

5. Be Willing to Fail: If you are not failing, then you are not taking chances, experimenting with new innovations, or venturing outside of your comfort zone. Some firms can get away with this for years, but eventually, newer entrants will eat their lunch. You must adapt, change your mind, admit error, and reverse yourself.

The key is quantifying the metrics of success or failure, understanding the costs involved, and having a stop loss where you can declare the experiment over; then, you move on. Faster/cheaper/smarter/better eventually comes for all business models. You may not be driving towards those qualities, but someone else is, and they will eventually take your market share.

This week was the 8th anniversary of RWM’s launch. This time of year usually leads me to think about the circumstances surrounding our beginning.

We were lucky in terms of timing within the market cycle, our reputation around the GFC, how we exited via not burning bridges on the way out. I probably have dozens of other lessons I could write up as well. But these 5 stand out to me. But mostly, I am filled with gratitude for this team, my partners, and our clients.

There is a lot more building to come; I am very excited about the future we are creating . . .




See also:
Announcing: Ritholtz Wealth Management (September 16, 2013)

How I Met Barry (September 9, 2018)

5 Years On . . . (September 17, 2018)

10 Things I Have Learned Launching RWM (September 16, 2019)





1. This sort of arrangement is a terrible idea, one I strongly suggest avoiding, but if you absolutely must, then have a mutually agreed upon 3rd party to be a tiebreaker. Businesses that exist in a constant state of stalemate/stasis soon calcify and die.




click for audio


Print Friendly, PDF & Email

Posted Under