The fastest-growing RIA in the country according to Financial Advisor Magazine’s 2021 Rankings, is Brookstone Capital Management. What’s behind their unrivaled growth and success? This week we raise a glass to Brookstone’s Founder and CEO Dean Zayed.
Hear Dean's views on his:
Background as an estate-planning lawyer and journey of crossing over into finance to build an award-winning businessPerspectives on advisor trends and what it means to wear the fiduciary duty on his sleeve, and how Brookstone seeks to innovate on investment solutions while still meeting the long-term goals of its clients Approach to alternative investments, such as structured solutions, and the potential role they may play in long-term portfolios.
Nic Millikan (00:04):
Welcome to CAIS IQ's CXO podcast. I am your host Nic Millikan, managing director of Intelligence and Insights here at CAIS, the independent wealth management industry's leading alternative investment platform. Join me in my conversations with C-level executives from across the wealth management community as we explore everything from investment themes and opportunities to the broader macro trends that are reshaping the industry around us. I'm looking forward to having you join the conversation.
Speaker 2 (00:31):
This podcast was recorded on the 4th of August, 2021 and is for discussion purposes only. The views and opinions expressed herein are as of the date recorded and should not be construed as an offer or solicitation to buy or sell securities. Such views and opinions may differ from those of CAIS and its affiliates and are subject to change without notice. CAIS has no obligation to provide updates or changes. CAIS makes no presentation or warranties with respect to the information contained herein and this podcast should not be relied on as the basis for investment decision or for any other purpose whatsoever.
Nic Millikan (00:56):
Welcome, everybody, to today's episode of CXO. I'm joined today by Dean Zayed, the chief executive officer at Brookstone Capital Management. So, Dean, congratulations on FA Magazine naming Brookstone the number-one fastest growing firm in their 221 RA survey and ranking. That's an incredible feat, especially during the time of the pandemic. How did you guys achieve that?
Dean Zayed (01:18):
Well, I appreciate it, Nic, and it's a pleasure to be here. Yeah, it's been an interesting year I'd say, but we fought through the pandemic, we believe, in as successful a manner as we could have. Our growth really has come from a couple of different areas over the last couple of years. One of course is the organic story, right? So the Brookstone 15-plus year history has really been one about organic growth and we can talk more about that. And then we actually did do a transaction that helped us increase AUM as crudely as I can say that. So it's a little bit of both, but really would focus more on the organic story and I think the unique structure of how we work with other advisors in a partnership manner to help them grow, which of course helps our platform grow.
Nic Millikan (02:04):
Excellent. Well, we'll delve into that a little bit later because obviously it's a really interesting time, especially when creating new relationships with end clients and stuff like that is a little bit more difficult with where we are in the pandemic. So can you tell us a little bit more, though, going back to square one essentially in how you get your start within the industry and then how you built Brookstone into the firm that it is today?
Dean Zayed (02:27):
Sure, sure, sure. So I won't belabor the history too too much, but we would be remiss if I didn't talk about the fact that I'm a lawyer by background. So, yes, that's the dirty little secret, but it really is relevant to the story. So I'm an estate planning and tax lawyer by background who saw a vision back in the early part of my career to create what I called a multidisciplinary practice. And that was really fancy verbiage for a one-stop shop where a common set of professionals could work together and provide uniform, sophisticated advice that transcended both disciplines of estate planning and financial planning. That was the idea. So I actually left the law firm that I worked for right out of law school very early on to pursue this entrepreneurial vision that I had, which was to create this one-stop shop. So I did so with a partner.
Dean Zayed (03:20):
Long story short, I got licensed on the security side, I became a CFP and I became the financial advisor for this newly minted wealth management firm that sat side by side with my own law firm, in which my partner then wore that legal hat for the client. So estate planning is in my DNA at my core, but really was the stepping stone for me to cross over to the financial side of the industry. Those two firms still exist today. They are client facing.
Dean Zayed (03:53):
Back in 2006 I'd had such great success building my own private wealth practice that I saw this other vision and that was really the Brookstone story, Nic. And that was a more of an advisor-facing platform. I thought other like-minded advisors all over the country that were independent fiduciaries, that's important to us, could really partner with a platform like a Brookstone that could really help them grow and scale their practice in a way that would be win-win. So I actually started a Brookstone as a startup RIA with the idea that we would be a TAMP, a turnkey asset management platform, but really more focusing on the right type of advisor that could really help us grow, most importantly help them grow their practice, make it a win-win situation.
Nic Millikan (04:39):
So what is the right type of advisor? It seems like it's a very sophisticated advisor who probably approaches the financial advice in a different way than maybe more of a transactional, maybe a broker-type role that we've seen play. Can you talk a little bit about the platform, what it looks like today and how that transition from RIA into TAMP sort of occurred? Because you've done this at a time when it was really not something that other people were doing, right? So you almost are at the forefront of this TAMP industry that's now obviously become a really big offering within the broader financial services model.
Dean Zayed (05:12):
That's right, Nic. Yeah, so we did really morph into a TAMP and we're one of the leading TAMPs in the country. We're proud of that but mission incomplete, I can tell you. We're really focused on helping thousands of more Americans with their retirement needs. That's really the goal at hand here. My vision back then and my vision today really haven't changed and the idea was the future was always going to be about fiduciary advice, it was going to be about independent advice. And so you pair those two together, the independent fiduciary model, and then you pair that thoroughly with the type of advisor that's looking to grow their practice but really do so that utilizes their best skill set, right? As a personal advisor myself, I realize that I can't do it all. There's only so many hours in a day, so why not make decisions and choices in my practice that can allow me to either outsource or insource some of those capabilities to free me up to do what I'm best at, right?
Dean Zayed (06:03):
That's really the essence of a TAMP model. I invest at hypothetically cultivating new client relationships, maintaining existing ones, communicating with clients, making sure that they're at ease during times of high volatility. For example, doing reviews that make sure that they're in line with their retirement goals. And then maybe having other partners, strategic partners in my practice, like a Brookstone TAMP that can really do the heavy lifting of other things that we do that I could hire certainly in-house but maybe not do as well as a large TAMP like Brookstone. Things like building portfolios, right, that are sophisticated, doing the trading, the rebalancing, some of the compliance issues, fee calculation, right, want to make sure you get that right. All those regulatory things that a TAMP can do that can really help an advisor again focus on what they're best at, scale their practice, and really ultimately the client wins with more attention from the advisor.
Nic Millikan (07:00):
So it's an interesting one point you say there, which is focus on what you're best at where advisors sort of have to ask themselves, am I best at creating investment solutions or am I best at the relationship management side of things and do I need to outsource that. We still saw a lot of momentum behind a shift towards more TAMPs like that. Do you see a difference in the advisor who chooses maybe to maintain the investment side of the practice or doing what you are doing, which is focus on relationship management? Are there different advisors you see in the industry or is it people sort of coming around to the investment piece is the more difficult, more fraught with potential pitfalls than the advice side of things?
Dean Zayed (07:39):
Well certainly I've seen a big difference actually. Most advisors who want to grow their practice, right? Most want to have a profitable, successful practice that allows them to have a very comfortable lifestyle, right, and not work 15 hours a day. So to answer the question, we've seen a tremendous shift from advisors that wanted to be the investment manager. I coined the phrase, the stock jock, and I'm going to pick the things and I'm going to be the guy that outperforms and I'm going to sell on performance.
Dean Zayed (08:07):
We've seen a huge shift away from that towards the TAMP model. For example, with Brookstone we have an open architecture platform. It really allows an advisor to navigate that platform with a number of preselected, highly, highly vetted investment options that make it onto our platform to allow them now to build meaningful portfolios. If they want to be investment manager they can, but usually more so done in conjunction with our CIO and investment committee and the investment team, again, allowing them to scale the process and not force the advisor to maybe do the research and the analysis that don't really want to do, it doesn't really add a lot of value, when they can leverage our team for example.
Dean Zayed (08:48):
So I'll give you a quick example. We build the open architecture platform with over 10 different series of model portfolios, right? One model might focus on ESG, one might focus on low-volatility themed stocks. The models have become more or less the core offering for a lot of our advisors to build a portfolio with the core model that we're actively managing at Brookstone that they know is globally broadly diversified, largely using ETFs, low-cost efficient vehicles and then they can actually add some satellite positions using the rest of the platform that might then tilt that portfolio and customize that, tailoring it for the client, right? Client A wants more income, client B wants a little bit more alpha, for example, right? So it's a good example of how you can navigate a TAMP platform like Brookstone really without having to be that investment manager day in and day out.
Nic Millikan (09:43):
Yeah. So let's talk about the investment solutions that you guys offer. It seems to be at the core of your business and investment philosophy is really important. How do you approach building those model portfolios and building out the platform of solutions?
Dean Zayed (09:56):
We actually trademarked our own investment philosophy. We call it RAISE, it's an acronym. RAISE stands for risk appropriate investment strategy evaluation and it really does encompass the core of our philosophy. Risk-appropriate investment strategy evaluation signifies the Brookstone process to make sure that we actually define the client's risk profile, risk tolerance, and overall financial profile in the most accurate way and then simply match up their money and their portfolio and their plan with that financial profile, right?
Dean Zayed (10:28):
So it's not an exact science, it's a little bit of art, a little bit of science, but really largely relies on the experience and intuition of Brookstone and the advisor to get it right, so to say, for the client actually. So that's our philosophy and backing up that philosophy of course is this platform we talk about that has this open-architecture nature of tools and models and other individual securities that we vet and make it on the platform that allow us then to build these risk-appropriate portfolios. What's most lost nowadays is people get caught up with the frenzy of short-term gains and the market hitting all-time highs and crypto and all this great sexy stuff out there. Let's not forget that clients are living longer, they need a risk-appropriate portfolio that matches their profile that makes sure that they don't outlive their money, right, and not get caught up with some of the short-term frenzy. That's a big part of what we really do at Brookstone with our advisors is educate the client and keep them on track.
Nic Millikan (11:27):
So I do want to come back to education because that's a core pillar of the CAIS platform as well and it's important. But on different trends you've talked a little bit about shifts that you've seen. What about the role of alternatives? How do they come in and how are they incorporated on your platform?
Dean Zayed (11:45):
We actually do really appreciate the CAIS relationship by the way, because you guys have added great value to us. It's a great question. We haven't fully embraced the whole breadth of the alternatives world, to be perfectly honest. There are some liquid alts that we can access now, but I'll give you a good example. So I've been an early adopter of structured products, specifically structured notes that allow us to really, really go out and have a predefined risk return profile within a note. Predetermined outcomes are very huge for us and, again, clients embrace that once they're educated around the nature of the products.
Dean Zayed (12:22):
And it's a good example of how we've added value to our platform, leveraging our relationship with CAIS to not only educate around structure products but to customize notes in a manner that we think really creates a special alternative product. It does have liquidity, it's easily incorporated into an existing portfolio, and really truly the feedback has been tremendous from advisors, clients love them. The growth on the platform has been huge for us and so we think we're really just scratching the surface on the future of the idea of having defined-type outcome solutions today casted in a note that, again, CAIS is a leading, leading proponent of.
Nic Millikan (13:05):
So let's talk about that because the structured notes, if you break them down, can seem a little bit more complex when it comes to how they're actually generating those defined outcomes and benefits. How, when you started using structured notes, did you approach the education to end clients? Has that shifted or changed?
Dean Zayed (13:22):
Well, lots of research, Nic, and then it culminated about two years ago with a white paper that we wrote, right? So we wrote what I'd say is an industry-leading white paper all about structured products, the good, the bad, the ugly, all the different features there. So it's actually on the Brookstone website. We actually offer it out there and it's really meant to be, again, more of an educational piece. I'd say one common thread throughout the Brookstone advisor network frankly is, even though we're in a very salesy industry, let's face it, you've got to be a salesman in some capacity or a saleswoman, but there's not a lot of hard salesmanship going on within the Brookstone ecosystem. It's really more of a consultative approach, an educational approach. Let's get to the end result that we want to with clients hiring us and us being able to help them. But we do so, we believe, in a more of an educational, take the high road approach without any really hard-selling tactics per se. And so the white paper is one example of how we approach client conversations.
Nic Millikan (14:25):
So let's talk about the advisor and education. Obviously advisors need a lot of education when it comes to the breadth and depth of the products that you guys offer. How have you approached educating both your advisors as well as end clients in how to think about investment opportunities outside of maybe a specific example like structured notes in a white paper?
Dean Zayed (14:45):
Well, Nic, you're going to see a theme here. We like our acronyms over here at Brookstone. So another acronym I'm going to throw on here is PASS. It stands for Positioning Advisors for Success Series. And so to answer the question, we created the Brookstone PASS series, which is our educational series. We've got PASS core, we've got PASS advanced, and we've got PASS specialty classes all about educating the advisor now and, again, not just working with Brookstone, not how we can navigate our platform, some of the tools, the technology, the advisor portal, but more or less industry education.
Dean Zayed (15:21):
So PASS core morphs into PASS advanced with advanced topics, for example, charitable planning, estate planning, tax planning, Roth conversion planning, and really getting the advisor up to be, we believe, among the most sophisticated in the country. So the answer to the question is the PASS series. And then with clients, of course, we've now gone down the road of creating a lot of ongoing content all around what we think are going to be the most relevant, timely topics for clients to be able to digest. We want them to be in smaller pieces, digestible, relevant, and not longer pieces. So we're actually doing that now and trying to push out the content through our advisors to help the end client. So it's really kind of a two-pronged approach: PASS for advisors and then, again, this ongoing relevant content series for the end client.
Nic Millikan (16:12):
So this really seems to be a core value of Brookstone as a firm. Is this something that resonates with clients? Do they feel that consultative approach, do you find that they interact well with you guys because you guys are actually helping not just sell a solution but have them understand how this impacts their future?
Dean Zayed (16:32):
Yes, yes, we do. We've actually surveyed clients in the past and they really do appreciate the approach we take. Again, not very salesy, much more consultative. Here's what I'd say, though. We learned along the way that you can really overcommunicate with clients as well, right, to be honest with you. So for example, our chief investment officer puts out a piece every week on the market and market update. If you did that three times a week, I think it's going to get lost in translation. And there is a point where you have to really be more delicate in terms of balancing how often and what that message is. So we've sort of tweaked it along the way. We don't want to overly communicate. We want to make sure that it's thoughtful and digestible again. So for us it's a couple of times a month that are really meaningful ways and meaningful topics that we would communicate on.
Nic Millikan (17:21):
How do you cut through the noise? What if you have a client who comes to you and is like, "I saw Cramer on CNBC like saying, 'sell, sell, sell,'" and how is that impacting? Do you do education at that level as well to refocus, you've talked about this, on the long-term plan versus cutting out that short-term noise?
Dean Zayed (17:36):
We do, we do. We always revert back to the notes we take in meetings, the actual feedback, and that the clients actually gave us, right, to make sure we can remember and understand what their goals are, what they told us their risk tolerance was, right, and why maybe XYZ idea that they heard on Cramer is not going to be a good idea. Now we're open and flexible and for clients that may want to take a little bit of stuff I call play money, you want to open up a robo account, you want to play a little bit with crypto, whatever that is, as long as it doesn't interrupt what we believe is the core plan to get you to the end result, right?
Dean Zayed (18:09):
What's the end result? Again, you're living longer, you want to accomplish all of your retirement goals and make sure you can do so in a balanced way, in a comfortable way and not outlive your money. So if a client is adamant about incorporating some of these hyper type, media-driven ideas, we are open to that doing so on the side, as long as it does not interrupt the plan that we build. We build plans that can last 30-plus years of retirement and that's really going back to the client's own words and making sure they remember what the goal at hand is.
Nic Millikan (18:41):
So fiduciary seems to be at the core of what you guys do as a business and obviously we have the brokerage or more transactional side of our industry that exists as well. For an end client, how would you define fiduciary and, in your opinion, how would a client distinguish between a true fiduciary and a more transactional-type advisor?
Dean Zayed (19:04):
A great question. And again, I'm not one of those advisors that's hyper righteous about being fiduciary and it's the only way to do it, right? I respect the fact that there are different licenses that allow for different ways financial professionals can work in the industry. I actually was a Series 7 licensee for a long time and I affiliated with a broker dealer for a long, long time. So I get all that, right? But for us now, Brookstone being fee-only as an RIA and a TAMP in the space, I go back to a little bit of a history lesson with clients, right, back in the '30s, around the Depression era, post-FDR, lots of regulation, right? You had sort of the modern day laws that kind of still exist today, '33, '34 Securities Act governing kind of the broker dealers and the modern day broker. They sell products for a commission, they act in a suitable manner, right, suitability standard. That doesn't necessarily mean in the client's best interest, right? I didn't make it up. It's just what's been in the law, in the books for a long, long time.
Dean Zayed (20:00):
And then in 1940 Investment Advisors Act came out, which really created this new breed of fiduciary-based advisor that would give advice and charge a fee and disclose all that. But to do so, to be in the advice business now and not in this transactional brokerage business, you've got to agree to be a fiduciary. The Series 65 license is the modern version of that, which is what we are. And so again, to me, it's not about saying one is better than the other necessarily. I think there's a place for both today. We've obviously chosen to be independent fiduciary-based advisors. We wear that fiduciary duty on our sleeve. It's a big part of our DNA. We simply want clients to understand the differences between a more traditional broker and a fee-based modern day managed money advisor. Again, making sure they understand the differences, for us, putting the client's best interest at heart, number one, no conflicts of interest. Having the duty of good faith and trust, right, is most important to us in our client relationship.
Nic Millikan (21:03):
Great, that's a great answer there. I think there's a time and place where everything certainly, and it sounds like setting those expectations has been at the core of not only the outcomes but what you're going to receive through a relationship with you guys. So what's next for Brookstone? You guys have been obviously busy, you're winning some awards here and there. What can we expect to hear and see from you guys in the next six to 12 months? What are you working on?
Dean Zayed (21:26):
Well, good question. We are focused at the task at hand, which is to continue to help as many American retirees and soon-to-be retirees as possible through our network of a thousand-plus affiliated Brookstone advisors. So it's very much business as usual. We're not caught up with the awards or the numbers or the AUM. We definitely want to continue to be what we would say the thought leader in the TAMP space, being a B2B RIA. We want to make sure we can help as many advisors grow and scale their practice and enjoy what they're doing that ultimately helps their end clients, right? So that's really been kind of the vision on day one and as boring of an answer as that might be, honestly, I'm actually gratified by the fact that the actual business plan has never changed, right? 15 years later, it's the exact same goal. We're just a much bigger company now but really focused on the same, same goal. Advisors and clients need to win with the Brookstone relationship.
Nic Millikan (22:24):
Excellent. So it looks like you're in an office. Are you guys back in the office full time or how are you guys managing the return to work?
Dean Zayed (22:30):
Yeah, we are back full time, obviously being very flexible with certain employees that might need to be a little bit more flexible with some working out of the house with some family situations and making sure we're very conscious of the health situation going on in the country, but we are for the most part and have been back in the office. I think everyone loves being here. It's been great. And the camaraderie and the teamwork in the office here, everyone really did miss it actually. So it's been great for everybody.
Nic Millikan (22:58):
Yeah, I took my first trip to the CAIS New York office a couple of weeks ago and certainly found that, you know, you miss a lot, that camaraderie and just the catching up and getting to know people. How has that changed for your clients? Are you seeing clients right now? Are you getting demand from clients to actually see advisors?
Dean Zayed (23:15):
We are, whereas, again, a year ago everything was Zoom and Microsoft Teams and all these online videos. Definitely have a very good percentage of our clients coming in to the office. I'd still say there's also a good percentage that still like the Zoom meetings. They like the comfort of being able to do a meeting. It takes a lot less time, less travel, easy to do, and it is very effective to be able to see a client on Zoom and really it is an eye-to-eye type engagement. So it's a little bit of both now, but we do have a number of clients coming in and I do really appreciate they love that personal interaction just with me or the advisors, but with the staff in general, right? It becomes a family-type environment that they become used to. So it's been great.
Nic Millikan (24:00):
That's excellent. I'm glad to hear that and I'm glad to hear that you guys are flexible and accommodating clients' needs. So, Dean, thank you very much for sharing some of your insights with us today. Congratulations once again on being recognized for the growth that Brookstone's been able to achieve and we wish you all the success going forward and look forward to continuing to work with you guys on different solutions here and there. So, Dean, thank you very much for your time and thank you to everyone who took time out of their day to listen to this podcast. We've all certainly enjoyed this conversation. So-
Dean Zayed (24:28):
Thank you Nic, it's been a pleasure.
Nic Millikan (24:29):
Thanks, Dean, cheers.
Speaker 2 (24:30):
Thank you for joining the CXO podcast with your host Nic Millikan. To catch all the latest content, subscribe today and follow CAIS and CAIS IQ on Twitter and LinkedIn. The audio presentation represents CAIS's intellectual property. No part of this presentation may be published, reproduced, transmitted, or rebroadcast in any media or any form with that express permission of CAIS. CAIS has no obligation to provide any updates or changes. CAIS nor any of its affiliates makes no representation or warranty to the accuracy or completion of statements or any information contained in this podcast and any liability therefore, including in respect of direct or indirect consequential loss or damage is expressly disclaimed. CAIS is not providing any financial, economic, legal, accounting, or tax advice in this podcast. The receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by any CAIS entity or individual to that listener, nor to constitute such person a client of any CAIS entity.