Josh Brown on the Future of Advisors, AI, and Wealth Management

I can count on one hand, the number of investors I've ever heard of, making a decision to go with a particular advice firm based on their technology. Yep. It is number 11 on the top-10 list. It's needed... If you're an advisor, it's needed to compete, but it's not differentiated. Back of house. Do you ever go to a restaurant and say, "What kind of oven are they working with back there?" Exactly, yep. Right. It's back-of-the-house stuff. You assume it's good. You assume it's there. It has to work. Yeah. It's important. Yep. The fact that the client doesn't care doesn't make it any less important than it is. That's about executing what you're promising that you can do for the client. Welcome to "The Informed Investor," the podcast that brings you research and insights to help separate the news from the noise. Welcome, everybody, to "The Informed Investor." We are coming today from Future Proof in beautiful Southern California. We have a very special guest today. We have Josh Brown, the CEO of Ritholtz Wealth Management. I'm Mark Gochnour joined by Jake DeKinder with Dimensional. And got our swag here going. I think it's pretty clear who we work for. Pretty clear. Yeah. Wait, that's why I work for Brooks Brothers? We'll get you a shirt. All right, all right, all right. Josh, great to have you on the show. I'm so happy to be here. It is fantastic to have you here. You are a legend in the industry with the advice, the blogs, the podcasts. Thank you. And your role, really at Future Proof as well. You guys are a big part of this over the years. Yeah, this is unbelievable to see all of these incredibly smart, talented wealth management industry professionals. We have people from the asset management side, advisors themselves. I think there are 2,700 advisors at the event, like lead advisors. And then all the support people and all the tech people. And it's just cool to get together with everyone once a year in this very special place. So, thank you guys- And it's really global as well. I mean, we've got clients that are stopping by from the UK, from Australia- Japan. I met people. Yeah. Ireland, Australia. You know what? If you're gonna get on the plane to go somewhere, you should come to Paradise. That's right. So, strategically... We put all these palm trees here, and it worked out. Well, how did you and Barry Ritholz, your partner, how did you guys get in, so involved in Future Proof? Great question. We had done some conferences of our own prior to the pandemic, and we actually threw an event in Arizona. It was called WealthStack. I think you guys were there. Yep. And we were all excited to do WealthStack 2. The problem was, the calendar went from 2019 to 2020, and very quickly we realize, there ain't gonna be any live events. Maybe ever again, if you listened to what people were saying. So we sat out for a couple of years, and we thought about what would it take to get people on a plane again? What would it take to get people to want to come and be with a group of thousands of others? It's not continuing education credits, and it's not checking a box, and it's not to fulfill an obligation to some society that they're a paying member of. It's got to be bigger. And what we hit on was networking, having great visuals for your LinkedIn or your Instagram, is number two. And then number three, you have to absolutely crush it with the experience. It can't feel like you have people cooped up in a hotel ballroom eating Kind bars for three days. No one is getting on a plane for that ever again. And that's how Future Proof was born. We did the first one in '21. Now we're in year five. We've done two of these as well in Miami. So this is our seventh event. The progression is crazy. Year one, there were 1,700 people here. This year, we're knocking on 6,000. So, it's safe to say the bet we made has paid off, and now I think everyone gets to enjoy it. It's huge. People love it, like we said, coming from around the world. Absolutely love it. Here's the thing that I love about coming to this event, my fourth year coming to it is, is that I think there's been this view of sort of wealth management, money management, old, stodgy, not connected. And one of the things that the vibe here is, how do we make sure we design this system in a way, to reach, in my opinion, a new audience, a younger audience, pull people in, all the social media. And that's the thing, it's just a different feel than any conference. Yeah, I think that's right. And that stodginess, that reputation for being old and stuffy, it was well-earned. Mhm. And I think it's what organizers in this industry thought the practitioners wanted. They though people want to show up in a suit. People want to be at these locations that are, you know, buried inside of a city, or in some kind of a high rise. But I think what's happened in the wealth management industry, so much of it has grown up away from traditional Wall Street. Yep. You guys are a great example. You guys are in Austin, Texas. You couldn't be further from Wall and Broad if you tried. I think we're an example of that. We built the firm on the internet. We had more clients outside of New York than inside New York since day one, and still do. We never looked anything like Wall Street. So I think there are enough of us where we actually became the mainstream. The modern wealth management and asset management industry is very different than it was even 10 or 15 years ago. It happened almost overnight. Well, I love that you're talking about trying something different when you started the business, you know, going through the internet. I loved your comment about coming out of COVID and trying something different, and being comfortable with that. And I think everybody is comfortable on that. If you try something that doesn't work so well, that's okay. You need something different than going into... You raise a great point. This only looks obvious now. People thought we were out of our minds. They were calling me Ja Rule. They though we were building Fire Fest for finance. So, now it seems obvious. I'm not gonna tell you like nothing went wrong along the way. There were some bad ideas we had that thankfully we didn't go forward with. We've iterated, we've evolved, we've done some things that we didn't bring back in year two, because people weren't into it. But when we find something that people really like, we double down. A great example of that is the breakthrough area, which as you can see, has grown so large. Now we have to host it literally on the beach. I think we're gonna have something like 270,000 one-on-one 15 minute meetings. Every one of those meetings was pre-scheduled on the app before people even showed up here. That is revolutionary. What does that mean for the industry? Think about what conferences were before this, and still are elsewhere. You show up to an event, there's a exhibitor hall. Mhm. There are, I don't know, 300 companies that were convinced to buy a booth. They're away from the main area. They're relying on foot traffic. And then they have to figure out how to flirt with people as they walk by. Mhm. Like, "Hey, you want a squishy? You want to..." Yeah, and it's like an awkward... Right. "Hey, this'll keep your beer cold. So anyway, where are you from?" Forget about all that. We want people to have purposeful meetings that are organized in advance. We want both parties to want the meeting, and we want those to be introductory. There's no reason to take someone out to lunch and waste an hour if commerce is not going to happen, or if there's no spark, or there's no reason for that to continue. So, people have compared it to speed dating. I think that's accurate. But we're not doing any flirting. There's no footsie. Sit down, you said you wanted to talk to me. I want to talk to you. Let's see if there's something here. If not, "Hey dude, great to meet you." Or, you know, somebody that we should meet. Yeah. Right. Or, "You know who you should really talk to? I met this advisor, and they're actually looking for what you do." That's been really successful. We've doubled, tripled and quadrupled down on it. So it's an example of us saying, "Oh my God, we were right. We were so right. People love this." Doesn't happen all the time, but when it does,.. And there's a great parallel to this in investing, you figure out what the data is telling you, what works, and you double and triple down on that, eliminate the stuff that you already know empirically doesn't. We feel the same way with the live event experience. Great summary. Okay. Bunch of stuff I want to get into to set it up though. Let's hear about your career. Let's go back in time, your business, or your experience in the wealth management space. And then from there, I'm going to just start pummeling you with questions. Okay. Well, we'll start, I spent 10 years as a retail broker selling stocks over the phone. And closed end funds and IPOs, and I was a product sales guy. Nothing wrong with that. And when was that? Late '90s into 2010. So, started out cold calling, didn't know any better. And in the financial crisis, about 10 years after I got rolling, I realized nothing that I have just spent the last 10 years has really been helping anyone. I dropped my Series 7, I became a financial advisor. And I said, "From now on, I don't sell the sizzle. I want to sell advice. I want to sell myself. I want to position myself on the same side of the table as the client, removing the conflicts, and really being paid by the person who's getting the advice." Right? So at that time, that was not as common as it is today. Now we take it for granted. Almost no one was acting as a fiduciary. So, I saw that opportunity during the crisis, because basically I had nothing to lose. So I switched over to this side of the business, was lucky enough to meet Barry Ritholtz, my co-founder and current partner. Barry was a mentor to me. He told the truth. He said it how he saw it. He let the chips fall where they may. And I watched him be brutally honest with the media, with clients, with financial advisors. And I just said, "When I grow up, I want to be like that guy." We built an amazing business together. We have about 95 employees. We're 13 years in, almost 10 billion under management. Cap table is fully owned by employees, no outside investors, and it's been an incredible ride. And it all started with that epiphany from back then where I realized, "This is not helping people. I need to figure out a way to do this where other people can win too." Let's talk a little bit about Future Proof, trends you've seen since you started this, because really, if you walk up and down here, you're talking about the companies that are on the forefront of trying to enhance that client experience, that financial experience, ultimately to benefit the end investor. What are the trends that you've seen over the last couple of years with the people that come to this? Obviously, ETFs are a really big part of the event. I think in recent years, custom indexing strategies, direct indexing have become equally big. This year though, seems to be all about custody. Custody is like the number one topic at the event this year. I think there's been this realization that custody is sexy again. It's been a long time. Yeah. Keep in mind, the custodians were processing trades for zero dollars in commission... Yep. For most of the last four years. And nobody really cared about the nuances between this one or that one. It was Coke and Pepsi. That's what's changed. That's what's on everyone's mind. The other thing obviously is AI. Mhm. Yep. AI adds an intelligence layer that sits on top of all of these amazing FinTech tools that you can see here being demoed. We're all aware that there are tons of point solutions out there. There are hundreds if not thousands of companies selling different tools to enable advisors to do more for their clients. We've never had a way to unify them until now. A lot of asset management firms, a lot of RIAs are getting excited about the prospect of everything being ported into one layer, and having the layer serve as almost the chief of staff for the financial advisor. That's a big part of what we talked about in one of the other interviews that we did a little bit ago, just how do you fit all of these pieces of the financial experience together, because the demand is coming from investors, and now you've got the technology to really accelerate that. This has been the Holy Grail for this industry, the RIA space for the last 20 years, and no one's had an answer. When you work at a traditional wirehouse, there are a lot of reasons to not be happy, but one of the good things is all the tech is integrated. It's a single log on. In some cases, they build the tech themselves, in other cases, they port it in. But the advisor doesn't spend the first 20 minutes on Monday morning re-logging into different systems. Yep. The advisor is not coming out of a CRM, downloading data into a spreadsheet, reorganizing it, reconciling it, and then uploading it into a trading system. So, that unification that a lot of advisors had at the large banks and brokerage firms, they've never had it on the RIA side. We are now knocking down the door to a situation where we don't have to copy paste data. Right. We don't have to make sure this column aligns with that column on two different software programs. We don't need 27 logins. Like this is... It really feels like something big is changing. And to the people watching this that are like, "What's the big deal? Just log in." The amount of cybersecurity involved to every login these days is unbelievable, number one. Number two, understand what this is about. It's not so we can take longer lunch breaks. It's so we can spend more face time with clients. That is what they're paying for. They don't care who pushes the buttons. They expect the execution to be flawless. They expect everything to work. They don't need the CFP that they're paying a percentage of their assets to doing that work. They're thrilled if it's automated. So this is, I think, the doorway to the next era, and it's all happening right here. So keep going with that AI theme of, what does that mean for the investor? What does that mean for the advisor's business? And by that, I mean, there's so much information out there an investor like yourself you can get. Like how's that going to change your relationship the client has with their advisor? Probably the pros and the cons of it. Hopefully the client doesn't really experience it in a direct way. Hopefully the client experience improves in such a way that they don't know it's because of AI. But we want our advisors to be armed to the teeth with every pertinent information about that relationship prior to them getting on the phone. Historically, that could be as much as an hour of prep work for a meeting. What if that prep work were automated? The advisor is talking to the client, and in front of them is everything they've talked about over the last three or four sessions, all of the actions that have been carried out on behalf of the client between then and now. The meeting ends, the AI generates a summary, emails it automatically to the client, all of the stakeholders that need to know. Accountants, lawyers. Emails it to the advisor, adds it to the CRM, briefs the other staff members who may have debrief actions that they need to carry out. Open up a custodial account, transfer $100,000 from this account to that account. Like, having that stuff automated rather than having an advisor spend an hour prepping for a call, an hour and a half on the call, and then an hour following through with everything that was discussed... What if that whole thing could just be 90 minutes, and the client gets almost all of that time face-to-face with the advisor? That's what makes this so exciting. Well, I just think it's interesting, 'cause there's sort of these two competing thoughts that are going on, which is... AI, access information, all of these systems. Does the do-it-yourselfer now think they can do it without the advisor? Because I agree with everything that you're saying, which is, make it streamlined, make it systematic, get back to the face-to-face, keep people disciplined when markets get tough, all of that. But you also have this competing view, which is, "Yeah, but do I need the advisor? 'Cause I can do that?" There's nobody here that has any interest in convincing someone who wants to go it alone that they shouldn't. Too hard. There are too many people who need actual help, know they need it, have raised their hand, and are telling us specifically, "These are my problems. I can't sleep at night because of stock market volatility." "My wife and I disagree about what we're going to spend the money on." "My tax rate. Am I correctly covered for insurance? Not just me personally, my whole family, my business." "What am I doing with my estate? God forbid something should happen." "My asset allocation. Am I making most of the opportunity set?" Like people are raising their hand every day and asking for help. That's what advisors are focused on. Will there be a portion of the portfolio that uses AI? Same portion of the portfolio that uses TurboTax. To file their own taxes. Yep. They are in their own silo. Some of them eventually come over into our world when the complexity rises. Open arms. Until then, you do your thing, we'll do ours. I think a lot of investors, your point about they need help. They don't know how much help they need. Well, that's a whole other- Until they get into it, and then it just cascades. But I'm going to go back to your business, and you guys have had phenomenal growth. Congrats on the success of the business. And you guys were early on around using a lot of social media, the blogs, the internet. So kind of walk us through that, how you saw that as a growth engine for the business. You know, it's funny, like when I first came to prominence, it was because I was blogging, and that's 2008, 2009. And then like a year or two later, Twitter became a really big deal. Twitter was moving the markets, and electing officials, and had a lot of influence. And I was there too. So they stopped calling me a blogger, and started calling me a Tweeter. And then. And then- Did you prefer one or the other? No. And then I got a contract with CNBC, so they started calling me a TV personality. And then we started YouTube, they started calling me a streamer. And the podcast, and they started saying I'm a podcaster. I've written books. I'm an author. What doesn't change is the message. Yep. The medium is less important. We're doing all of those things still, by the way. We write, we record, we broadcast, we live stream, we do live events, we publish. We've always looked at it as... People have different preferences in terms of how they want to receive their information. We're wherever you want us to be. In whatever format, you know, within reason. I'm not dancing. I'm not on TikTok. Like there are things that I'm not doing, but the idea is that we have this investing philosophy. We have this practice management philosophy, this client service ethos. That's what we want to get across. We will utilize any medium in order to do that. Advisors wanting to up their game in some of these areas. I mean, everybody asks us questions about this. Like, "Should I be doing a blog? Should I do a podcast?" I mean, going down the book, I feel like I've got 50 financial advisor books in my office back in Austin, right? Like, I mean, what are your thoughts for people? 'Cause I think the intention behind it is good of, "I want to get out there more because I believe that I can help more people." You just see a lot of people kind of fail at it, in my opinion. The last frontier, in my opinion, is to corner the market for a specific niche, and just become famous amongst 500 people. If you are the number one financial advisor who works with oil and gas executives- Yep. In Midland, Texas, or in Oklahoma or whatever, you still have an opportunity to build something that's meaningful. And all of your content can be so narrowly focused on that, that people find it almost by accident. 90% of the world, 99% of the world will not care. The 1% that does, they're gonna really care if you're good. That is what advisors should be thinking about. "What niche can I dominate?" This idea that someone's going to start doing content, and build a general audience, I think is very farfetched. I can only name one or two people that have done it. One of the things you said when you guys started the business, you did it with honesty. And I'll throw another one out there. We talk about this a lot. The confidence. Yeah. As an advisor, that you should deliver. And I think that's what's a lot of successful firms have is, they always stick to their guns, and confident about what they're delivering. I guess if you were to give advice to a firm that says, "Hey, I'm not growing. It's ready, I want to grow." What have you observed most with those kind of firms? I think the problem is, they don't know what makes them special. They haven't figured it out yet. And so they can't tell the world. And this gets back to that niche thing that we're talking about. If there's nothing separating you from the RIA down the street, or the advisor at the bank next door, that's your problem. You need a story. There has to be a narrative. Why do people want to talk to you? What is it that you know or that you're willing to do, or that's in your background, or that is part of your life, that makes you appealing to a certain type of customer? Until you've arrived at that, you can come up with a tree, maple, oak, pine, whatever, make up the name of a firm, lake, pond, cliff, mountain stream, right? Anybody could do that. Great. Now you named your firm. Nobody cares. What's our colors? I don't know. If you're a boy, it's blue. If you're... Right? Okay, great. Your color is blue. What's your URL? All right, you got a website. Everybody has these things. You need a story that separates you and makes you stand out. It might be you're an engaging public speaker, and you travel all over the area. You go to country clubs, churches, temples, mosques, speaking about something that's relevant to that audience. That's a great idea. You might be somebody who volunteers very aggressively with charities and soup kitchens and collecting cans. Like, that might be your thing. Whatever it is, you have to stand out. A website, a firm name, and corporate colors are table stakes. Everybody has that. So I think that's the number one thing, to answer your question. I meet advisors from all over the country. They're good advisors, they don't have a good story. I would argue too that with everything we're seeing here at this event in terms of the technology, the integration of the different pieces, the tech stack, all of these things, right? None of that's a differentiator, or it's not going to be a differentiator. Client will... Right. You're exactly right. The client's not going to know. They don't care. You call yourself fiduciary, you call yourself... And you do all of these things. Like you've got to stand out, because it's getting more and more competitive. I can count on one hand the number of investors I've ever heard of, making a decision to go with a particular advice firm based on their technology. Yep. It is number 11 on the top 10 list. It's needed from... If you're an advisor, it's needed to compete, but it's not differentiated. Back of the house. You ever go to a restaurant and say, "What kind of oven are they working with back there?" Yep. It's back of the house stuff. You assume it's good. You assume it's there. It has to work. It's important. Yep. The fact that the client doesn't care doesn't make it any less important than it is. That's about executing what you're promising that you can do for the client. The client facing stuff is, "What asset management strategies do I employ? Which building blocks are in my portfolio? Is there a story behind why this fund and not that fund? Can the advisor accurately convey to the client there is a rhyme or reason for why they own these building blocks as part of their asset allocation?" Yep. Sounds obvious. You have no idea how many advisors are out there. They haven't figured out yet how to do that. Yeah. That's client facing. The messaging. "What do I believe in? What's my investing philosophy? What do I think matters?" The outlook, in some cases. "Do I have an opinion on the economy?" Not a forecast, but an opinion. Right. In some cases... "Do I have a particular alignment with something?" You'd be amazed. I'm not a proponent of this, but there are people who are liberal, there are people who are conservative, and their clients look a lot like them, based on how vocally they are in one direction or the other. Not saying it doesn't work, I'm saying we don't do that. But, you know, there are people where that's been successful. Those are the things that are client facing. What's CRM? What email system? Yeah. Never be in the conversation. Hey, we've had a nice run here in the US for a number of years in returns, kind of going into the investment side of things. How are you talking to clients right now about like setting expectations about this may not go on forever? There aren't going to be times where it gets tough. Well, we have the battle scars. We went through the last 10 years, keeping people invested internationally. So like, we have already done this. Fortunately, those areas of the markets are doing better, and people actually have gains now in places that, you know, for a long time it was like, "Are you sure we want to have an allocation?" I've seen that side... I'm doing this almost 30 years. So I've seen that play out with small caps, with bonds, with gold, with stock. I understand that it's a wheel, and something's on top, and something's at the bottom, and the wheel will roll. It seems like the United States has had one of the best runs. At a certain point, that will change. My job is not to tell you when, it's to make sure you're prepared for it when that does happen. Yep. It will happen. How do you prepare folks? Do you show them the numbers of what we've seen historically? Yeah, we use a lot of data. We use a lot of historical context, and a lot of humility. If you actually follow our content, we're not telling people what's going to happen next week. We're talking about the probabilities. Yep. And I think that's really helpful for investors. I would completely agree with you on that. I think once investors can get that understanding of there's no guarantees with any of it. All you're doing is making decisions that put the odds in your favor, and you do it day after day, month after month, year after year. I mean, that's the message that you're communicating to them. 100%. Yeah. And I think most investors understand it. When you explain to them to follow your forecasting... You show them some of the most famous wrong calls, not by one individual person, but where the consensus was just so completely and wildly off. I have a hundred examples at my fingertips. I've seen rate hikes where stocks rallied, I've seen rate cuts where stocks have fallen. Nobody knows what's gonna happen. The more you talk about probability and diversification, the better off your client's gonna be. Yep. I mean, I almost feel bad for investors in terms of the explosion of products that we've seen come onto the market. And it's challenging for them. I mean, it's sort of everything that is marketed, pushed to them, sort of crammed down their throats, and they think it's good for them. Then maybe the advisors give in a little bit. They put that in the allocation. I mean, it's tough to sort of weed through when everything seems on the surface like, "Oh, I might need that." Yeah. The five main hats an advisor wears... Number one is a psychologist. Number two is coach. Number three is historian. Number four is subject matter expert. And number five is bouncer. Mhm. When we confront the alts circus... Yeah. We are the fifth thing. We are the bouncer. Not everybody can get in. It's not that there aren't any good alts. Your point is the right point. There are too many. A lot of them are new, untested in different market environments, very high cost. Not all of them will earn a long-term place in an allocation. I find that my planners are acting more as bouncers than any of those other four roles when we look at the alts universe. That may not always be the case, but today that's certainly the case. I'll tell you, that's a great way to wrap up with those five things, especially the bouncer. You gotta remember that one on there. Josh, thanks so much. Here's my bouncer pose. Thank you guys. Appreciate it. Thanks, man. Great conversation. Thank you. Have a great event. Great job on Future Proof, the business, everything. Thank you. That's awesome. Thank you. Thank you.