Build, Grow & Transact: David Bahnsen on Building a $10.5B Business Worth Selling

Build, Grow & Transact: David Bahnsen on Building a $10.5B Business Worth Selling

A conversation with Louis Diamond and David Bahnsen, Founder & Managing Partner of The Bahnsen Group.    

Louis Diamond:

Welcome to the latest episode of our podcast series for financial advisors. Today’s episode is Build, Grow & Transact: David Bahnsen on Building a $10.5B Business Worth Selling. It’s a conversation with the founder and managing partner of the Bahnsen Group. I’m Louis Diamond, and this is the Diamond Podcast for Financial Advisors.

Mindy Diamond:

At Diamond Consultants, we help elite advisors identify the right environment for their businesses to thrive, whether that’s at a wirehouse, boutique or independent firm. With nearly three decades of experience, we’ve guided thousands of advisors and represented more than a quarter of a trillion dollars in assets transitioned. And each year, one in four advisors managing a billion dollars or more who change firms are our clients. Our process is education-driven and based on building relationships, starting as your strategic partner well before you’re even thinking of a move. To schedule a confidential conversation, call us at 908-879-1002.

Wondering why advisors change firms and where they’re headed? Are transition deals going up or down? Those very questions and more inspired us to create our annual Advisor Transition Report. It’s the award-winning, data-driven resource designed for advisors that connects the dots between the motivations around movement and the firm’s appetite for top talent. Arm yourself with the knowledge you need to make smart decisions. Download your copy at diamond-consultants.com/transitionreport.

Louis Diamond:

There’s a big difference between breaking away to create a better version of the business you already have and breaking away because you see an entirely different business you want to build. And I think that distinction becomes even more important as we look at what creates real enterprise value in the wealth management industry today.

My guest, David Bahnsen, is a pretty remarkable example. David first joined us in April of 2020, five years after leaving Morgan Stanley with eight people and 600 million in assets. At that time, the Bahnsen Group had grown to roughly two billion. Today, it’s a $10.5 billion business with more than 100 people and 13 offices across the country.

Perhaps the most interesting part of that growth story is that virtually all of it has been organic. David didn’t build the firm by buying AUM. He built it by creating an authentic voice, an incredibly effective content engine, investing heavily back into the business, adding services clients actually wanted, and being very deliberate about what his team should own versus what was better outsourced. There’s a lot in that playbook for any advisor who wants to build a business with real enterprise value.

But David’s story also gives us something we often don’t get to examine, the full build, grow, and transact arc. For more than a decade, Hightower went from employer to service provider while David maintained ownership and control of the business. Now, the Bahnsen Group is being sold to Hightower, giving David additional resources to pursue the next stage of growth while preserving much of what made the firm successful in the first place.

So we get into the decisions behind that extraordinary organic growth, why maximizing current income can work against building long-term enterprise value, how David thinks about content, clients, and scale, and ultimately why someone who was once intoxicated by the idea of freedom decided the next right move was to transact. It’s a great case study in what can happen when independence becomes a starting point rather than the destination. So let’s get to it.

David, thank you for coming on our show again.

David Bahnsen:

Well, it’s wonderful to be back with you. I love listening to the show every week.

Louis Diamond:

Oh, there you go. Just flattering us now. So for anyone who probably, myself included, doesn’t remember the last time you were on our show, it was April of 2020, a time warp into a crazy time. It was the five-year anniversary of your breakaway in the very, very beginning of the pandemic. Then you still had an amazing business, two billion in assets. But for listeners who may have missed it, and even just to catch us up, can you give us the quick version of your origin story of leaving Morgan Stanley in 2015 with 600 million and eight people and why you did it, just the speed round of compressing a stressful and very important time in your business arc?

David Bahnsen:

So I was one of those people that in an almost cliche, typical way, the types of folks that your business deals with all the time, left because I wanted independence. I wasn’t unhappy at Morgan Stanley. I wasn’t in need of any particular change, but I was very intoxicated by the idea of freedom and became very committed to the idea that if I were going to run my own business, I needed to run my own business.

It started in 2014. We made our official exit in early 2015. And as you said, there were eight people, all of which were folks on my team at Morgan Stanley and 600 million of client assets, and we basically moved 100% of that.

When I was on the podcast, April 2020, it’s funny when you were saying that, I can visualize myself at my home office at that point in time in Southern California recording this. And we would’ve been our five-year anniversary, couple billion, so we had a little bit over tripled. We probably had, if I remember correctly at that time, 25, 30 employees. And it’s interesting the linear arc of it, because you fast-forward now, we’re at 10.5 billion and 106 employees. And so it’s just proportionate, the AUM and the headcount and the time gone by, it’s been a very nice, steady arc.

But I really loved the idea of being independent. I turned 40 years old in 2014 when I began the extensive due diligence that led to me leaving Morgan Stanley. And it really was that moment that I said, “If I’m going to stay as a corner office guy at a wirehouse, I will stay at Morgan Stanley forever.” I had no issues there. My manager at the time is still, to this day, my best friend in the world. We’re like brothers. I just dedicated my new book to him. I wasn’t unhappy with Morgan. I just liked the idea of having my own business and haven’t looked back since.

Louis Diamond:

Amazing. Seems like it was probably a pretty good move based upon what you shared, but I think it’s an interesting perspective because I feel like I’m starting to see that more and more is the profile of the advisor who doesn’t have these intense pain points and is relatively well served, is going to be successful, knows how to operate at their firm, but they just want something more. There’s an intangible that staying isn’t going to solve for them. For many, it’s being a business owner, like the path you took. For others it’s, hey, I just want to be recharged. I don’t want to be static. I want something different. I want to monetize. I want to work in a bit of a different way.

I think you’re early on that trend, to be honest with you. You were probably right in the middle, even probably even the beginning innings of the independent movement, and I am very excited to dig into how you got from 600 million in 2015 to over 10.5 billion, 11-ish years later. So let’s jump to today, and we’ll spend some time going through dissecting that growth. But today, like you said, 10 and a half billion under management, 100 plus people, 13 offices, including Santa Barbara where you just opened, but Newport Beach, New York City, Nashville, Tennessee, Palm Beach. It’s a real national firm. And I read that you’ve grown over 30% organically over the last decade. So when you look at the firm now versus 2015, what stands out the most? Let’s really dive into that.

David Bahnsen:

Well, a lot of this is where we’re going to end up going later in the conversation with where I see the next iteration of the company. But when you talk about the last 10 years, it has been the textbook definition of organic growth. There are 13 offices open and zero of them came by acquisition or merger or purchase. We’ve hired two or three advisors out of our 26 advisors that had a little bit of a book, but I mean under 100 million. We never paid for it. I’m talking about hiring people.

But you’re looking at an organic story, and I am proud of that, but I also recognize that it wasn’t intentional. And what I mean by that is I didn’t have this strategy in 2014, ’15 where I said, if I can just go independent, I have this evil genius behind me that is going to drive a mousetrap that will get me up to 10.5 Billion.

I’ve been as surprised, as many outside observers, but I have a lot of gratitude for it. I understand now why it has worked, and I think that there are people inside of our business that are a little more qualified to understand how the business works than people who are outside of it. Your consultants and professional investors are very smart at what they do, but they don’t necessarily always understand that advisor-client dynamic. And I get why we’ve been successful with it. But I also don’t want to take credit for it as if it were this master strategy. We just tried things and those things that worked, we kept doing more of, and this is where we are.

A lot of it, and I spoke to Mindy about this six years ago, it’s been content creation, thought leadership, and the voice that, much to my surprise, has attracted people and never doing it for the purpose of attracting people. This very natural and sincere delivery of a belief system about markets, about the economy, about the world around us, I share things sometimes about my faith, politics in a public square. I’m on television, this podcast.

And then the major driver is the written word, which some people might be shocked to hear as we’re talking about a podcast still even exists. But my weekly Dividend Cafe, which is my weekly market commentary, is up to 35,000 subscribers, 100% organic. We’ve never done anything to get any subscribers. And our video and our podcast and everything, the books I write, the television hits, they all have their audience. But most of it goes through that written word. That’s where I get to connect with people that if they like me, they may end up becoming a client. And if they don’t, they won’t, but that’s really been our story though.

Louis Diamond:

That’s absolutely amazing. There’s so much to unpack there. That amount of growth without anything inorganic, especially the way this industry is going, I don’t think I’ve ever heard that before. That’s amazing in and of itself. But just the way you can track back your meteoric rise to content creation, I think for many listening, it’s either, “Oh my God, that seems so daunting and so crazy.” Others would be like, “Well, I can’t do that, but that sounds great. Of course, he’s been able to grow because he can have an original voice.”

As a firm that puts out a lot of original content, podcasts written, Mindy wrote a book, white papers, et cetera, I know the amount of work and dedication and commitment it takes to stick with that for so long. So if you don’t mind, can we double-click into that written word story? How did you get started with it and what’s been the arc or the growth journey? Someone who’s listening who would love to do that, where did you get started? You didn’t just all of a sudden have a book and show up on TV. How did you get started?

David Bahnsen:

In the truest sense of the word, I grew up loving writing. My father died in his 40s and I was only 20, but he was an intellectual, a brilliant writer, had several books, and I was a nerd in high school. Luckily, I had basketball so that I could still meet a girl here and there and have friends on the team. But I mean, if it were up to me, I would’ve been home reading books and writing papers, and I would turn in extra credit papers more than I would study for a test because I loved writing. So the written thing was there. I don’t know if I was ever good at it or not, but I know I loved doing it, and I would credit my late father with the early seeds of that.

When the financial crisis happened in September, the actual week of Lehman’s bankruptcy, September of ’08, about three, four days later, Morgan Stanley’s credit default swaps were blowing out, and now it was not just the market was crashing every day. And of course at that point, Merrill had gone down, AIG had gone down. We were in this cascade, and everybody who lived through it remembers it all well. I remember every detail of it like it were yesterday.

But all that happened was once I got my 80th call about what the hell was going on with Morgan, I decided to write up a piece, not send it to compliance for approval and send it out to everyone. And if the firm was at risk of not making it for another day, I wasn’t especially worried about compliance getting mad at me at the time. And I did that, and then a couple days later did it again, just broad update on everything going on, and I never stopped doing it. That’s what it was, just every Friday since September 2008.

And then when we left Morgan, at some point along the way I started getting compliance approval and getting a bit more of an audience. We had hundreds of clients that were reading it, and we’d have a few guests that would ask to be signed up as clients were forwarding it around, but that was it. It didn’t have a website, it didn’t have a subscribe feature, it wasn’t a real blog or anything like that.

So then in going independent, I was able to incubate it, and we branded it as Dividend Cafe. We’re Dividend Growth investors at my firm. So we put a brand around it. We had a website, and I think we started a podcast and video that was becoming a very large medium around the mid-tens as well, and so we added that shortly later, but it was just because I had the freedom to do it.

And then I did do some hit on CNBC like Asia or CNBC World or something. It wasn’t anything with a big audience, but then we sent the clip to someone at Fox and they really liked it, and then they had me, and then I started getting invited more regularly. So now the TV thing was happening, and I always say that TV can be a really good thing for a very small number of people. Obviously, Josh Brown has been incredibly successful with it. He’s very good at it, and it’s done okay. It’s done well for me, but it’s different than people think.

You do not go on TV and then get done and all of a sudden the phone rang and someone said, “I saw you. You’re so handsome. I want you to be my advisor.” What it does is it might drive them to other content. It might drive them to the internet where they’re going to find other things about you. And if my name was David Johnson instead of David Bahnsen, I think I would’ve got lost in the SEO and nothing would’ve come of it. I really believe that. But it enabled some people that liked what they heard on TV to start following me in other more substantive and perpetual mediums.

And then in 2017, I wrote a book that I wouldn’t have been able to write at Morgan Stanley. I had very strong opinions about the origins of the financial crisis. And I did not believe the left-wing narrative that it was caused by unfettered markets, and I didn’t really believe the right-wing narrative entirely either that it was exclusively caused by government intervention. I believed that all of those things were true but were missing this cultural and moral component about Main Street. I wrote a book on it and I thought there might be 200 clients of my firm that would read it, and it ended up being a bestseller, and that created more television invitations and just to a slightly larger audience. And at this point now, I realized that all of these things were dovetailed together, content, the mediums, coming to Dividend Cafe, coming to an authentic point of view about markets.

And then, and this is the thing that is so important because of what you do and do so well in your business and within the kind of practitioners that listen, it wasn’t enough to have a mousetrap that drew people to us. We had to keep them. We had to deliver an advisory experience, and so we were just relentlessly reinvesting back in the business, adding planners, adding tax, adding more investment sophistication, family office, just improving our business, and that’s why we’ve added so much to headcount because we have just constantly wanted to really be what we were attracting people to.

Louis Diamond:

It’s amazing. The key themes I heard there, there’s a lot, but is it’s not one thing that works. It’s a coordinated strategy. I can attest to that for the content work that we do. There isn’t one single point of growth that comes from content creation. It’s everything working together. You don’t know, especially in this day and age, how people consume information or how a message gets across to them, whether they’re a reader, whether they find you in AI, whether they watch video, whether they saw CNBC in their barbershop. So I think that’s absolutely amazing, and congratulations.

Let’s talk a little bit about your breakaway setup, if you will. So when you broke in 2015, you signed on with Hightower, but in a bit of a different way, certainly different than today. You paid Hightower an override on your revenue, or basis points and assets, to be on their platform. But you owned 100% of your business, ran your own P&L, and they provided certain services to you. Thinking back to 2015, and then even up until your recent decision to sell to Hightower, why did you structure it that way rather than under their brand or as an employee or even just having your own RIA, especially given your size and scale?

David Bahnsen:

There’s actually one piece missing there. You may not have known, but I think is important to the story. When we came in 2015, we were employees and they had a 50/50 net model, and we joined in that capacity. And then when they recapped in 2017, brought a new investor on, eventually changed CEO about a year later, at that point, we were growing. I felt very comfortable with the independent space. I now knew what I didn’t know. I knew what I thought they did well, and I knew what I thought we could do well, and I took advantage of that moment to say, “Guys, I need to be on my own. We need to run our own firm, our own finances, our own payroll, our own brand.” And what the investors wanted at that time was some sort of affiliation that they could count on and not be vulnerable, but I didn’t want to sell and I wanted full control.

So I got control, much better control than I had had in my first couple years, and they got a extension of agreement of these services that they could feel good I was going to be a part of their ecosystem. And the cash flows were pretty meaningful as we grew from, at that point, a billion to over 10 billion, and we became obviously a very meaningful contributor to their earnings and revenues.

And the CEO who came in was the second CEO in the history of the company. And they now have a third, but that individual, Bob Oros, I knew well because he had been at Fidelity when I chose Fidelity as our primary custodian. Bob and I got along very well. And so over the years, there’d be things that we had impediments that we had to work through, and we worked through them just like adults, like businessmen and women and got stuff done. So it was a good relationship.

But we were really quite independent. Very few of my people that worked at Bahnsen Group even knew who Hightower was because we had our own brand, we had our own investment process, the HR, the payroll. And unlike a lot of the other platform teams, they didn’t have too many platform teams, but ours, the accounts payable were massive. I mean, we had to have a whole finance department just because of our growth. So it became a difficult thing for them at this stage to have such a meaningful company within their ecosystem not aligned and not harmonized within the economic model of the rest of the firm. But I would say that decision for 2017 until this year, I don’t regret it at all. Hightower doesn’t regret it at all. They benefited immensely from this growth we’ve gone through, and I very much desired that freedom.

Look, if I’m being very candid, Louis, you brought up why didn’t go on my own ADV? At the time in ’14 and ’15, I didn’t know enough. I didn’t understand. And I met with Focus, I met with Dynasty, I met with some others, and you just meet with different people, hear the stories, and the one I went with was Hightower, and there’s pros and cons to all the models. It’s one of the things I wasn’t joking at the beginning. I listen to your guys’ show every week. I’m a sucker for everything happening in our industry. I hear the stories of different successful advisors, and every one of them resonate with me in one way. There might be nine ways it doesn’t resonate, but one way that does because there’s always something that each person’s looking for that some of us can connect with.

And at the time, I didn’t know what I didn’t know, but I felt good about the Hightower story, went in that path, and I would argue that we got the best of all worlds in that 2017 to 2026 story because we really got to function independently. We were under their corporate RIA, but other than that, felt very independent. And that’s a testimony to Hightower that they honored that autonomy, but I think it gave me the entrepreneurial thing I needed, and I’m grateful for it.

Louis Diamond:

Fantastic. So let’s say from the 2017 to 2026 timeframe when you decided to finally sell to Hightower, how did you weigh the leverage that outsourcing certain things provided your business versus paying a fee, obviously, more than what it cost Hightower and not having complete and utter control over your business? How do you track that to your growth, if at all?

David Bahnsen:

The criteria was always anything we like doing or are good at doing, we’re going to do it, whether Hightower offers it or not. So for example, I’m sitting here in a beautiful office. We have the 31st floor of a building on 54th Street and 6th Avenue, and Hightower has a whole facilities department. We’ve done 13 office leases with no involvement from their facilities department because my wife loves designing the offices. She’s an interior designer. My team loved picking our own locations. I didn’t find negotiating with a broker all that hard. So we were able to do it, we liked it, so we did it.

But then the supervision side, the regulatory side, and candidly, a lot of the technology side, which is where some of our talk is about to go in terms of the new transaction, those things I felt more comfortable outsourcing to Hightower who had entire departments and resources geared towards it. And we would do them if we had to, but we weren’t passionate about it. I didn’t want to go understand all the nooks and crannies of the regulatory apparatus. So that was part of their ecosystem, and we were happy to utilize their services there. Investing money, financial facilities, the business development mousetrap we built, those things we were good at, and so we held onto that, and that’s how we viewed the division of labor.

Every firm, RIA, IBD, a wire, W, it doesn’t matter. Everyone who optimizes this challenge of doing what you like and not doing what you don’t like is going to grow. It’s hard to do. It’s easier said than done, but that’s the challenge right there.

Louis Diamond:

I absolutely love that. I think it’s so true, knowing what’s actually going to add surplus value relative to the amount of time you’re doing versus what’s commoditized or back of house or isn’t something that lights you up. Because there’s plenty of RIAs that I’ve interviewed or that I know where they enjoy building technology, they like designing their own compliance organization, and to them, that’s their superpower. That’s what makes them different.

For you, it sounds like it was very clear. You knew exactly what you wanted to do. As long as you’re able to still do it, you’re very comfortable with outsourcing certain things that would’ve been a distraction or something that you and your team weren’t world-class at.

I want to talk a little bit about some of the deliberate choices you made to take the business from, I would assume it was you as the rainmaker, and now you said you have over 25 advisors. So just thinking about hiring, structuring the business, investing in the business and platform, because I’m sure you’ve had the temptation, maybe not because you’re a business builder, but I think a lot of people love, “Hey, I can make a ton of money if I don’t make that second, third, 125th hire, and instead I just take cash flow. I don’t necessarily need this person. I can make more money or distribute more to my partners.” So I’d love to hear a little bit about some of the deliberate choices you made on hiring and investing in your business.

David Bahnsen:

There’s two things that I am very hesitant to take credit for, even though they’re true. You had mentioned before when we left in 2014 that we were early innings of wirehouse defections to the independent movement. I was early, but I wasn’t a first inning guy. The real trailblazers were going in 2006, 2007, 2009. 2014 is a lot earlier than those that have gone in the last two or three years, but I was like a third or fourth inning guy, and I don’t deserve credit to be a first inning guy.

The other issue is that I reinvest in the business constantly and have not been greedy about maximizing all the margin, but that is easy to say once you’ve already scaled the business, right? You’re already in a place where things are going very well, and then from there, deciding you just really want to run the business the way you want to run it. It’s not as selfless a decision as people may think. It was a luxury.

And at the same time, I cannot tell you how bizarre I think it is when people are focusing on maximizing margin versus running the business that they want to have. It’s a high-margin business. There is not a lot of operating leverage in it. More or less, not completely, but more or less expenses go up in proportion to revenue. Particularly for us opening new offices and hiring a lot of new people, our biggest overhead far and away is people. And we started an ETF a couple years ago and I got a chance to learn the polar opposite where my business has tons of pricing power and very little operating leverage and asset management has unbelievable operating leverage. I basically have zero dollars of expenses on my next dollar of revenue, but no pricing power.

Louis Diamond:

So interesting.

David Bahnsen:

Yeah. I mean, it really is just two different business models. When we have hired more people, we’ve always done it based on are we going to serve our clients better and enjoy running our business better with these people? We don’t want wasteful positions, but we want the maximum optimization for how to service clients and how to give advisors an ecosystem to function in. So a one-to-one operations to advisor, having planners that are not the client-facing advisor themselves, but are devoted to the behind the scenes planning process. Having a full tax department that does not provide tax services to non-wealth clients, that is only there, a robust tax consulting, tax preparation, tax advisory arm to drive a better client experience for us. These things all erode at margin, and I wouldn’t do it any other way. And the biggest thing, by the way, is the investment management, because then you’re not just talking about profit margin. We’re talking about time.

I am a 3:45 AM guy every day because we’re inside markets. We have analysts, traders, investment folks. I think it’s something like 10 or 11 people on the org chart. It costs me millions of dollars a year for us to manage money in-house. There’s no justification for that other than it’s what we want to do, what we believe in. And those that have a outsourced Vanguard DFA-type model, I have no criticism of it in the world, but it just wasn’t us, and so we had to do what we liked doing.

Louis Diamond:

Yep. And once again, the authenticity shines through.

Can we talk a little bit about the financial advice part of the business? I would assume when you’re at Morgan Stanley, you were probably the driver of growth, you were serving personally probably every client or just about all of them. Today, with 10 and a half billion, 25 advisors, just the immense scale of the organization, how do advisors advise? Are you still providing financial advice to clients directly? Are you more of just the CEO, the rainmaker, the strategist? I mean, how do you think about, I guess, allocating clients to your advisors? How have you grown your capacity for financial advice?

David Bahnsen:

So our leverage is entirely limited by my ability to find like-minded advisors who can go deliver our client experience and be in relationship to clients. It’s why I’m not a big believer in this notion of scalability. I think technology helps scale. I think there’s all kinds of processes you can do more efficiently, but it’s a relationship business and relationships don’t scale.

And we have an internal policy philosophy preference, if you will, that no advisor will cover more than 80 households. And so for us to continue growing at the number of households, number of AUM, and therefore number of revenues, all those numbers, of course, have some proportionate relationship with one another, we have to have the advisors to do it.

And so as we find advisors that can not drool on themselves and be professionals and deliver an experience to clients, we want them to be generalists. We want them to be very good at what they do, but we don’t want them entering trades. We don’t want them doing their own operations work. We don’t want them having to pick stocks. We’re providing this ecosystem of the tax, the planning, the estate, the operations, the content, the marketing, and the biz dev. They don’t have to go try to rainmake at their kid’s soccer game or join the chamber of commerce or things like that. That we believe we have enough internal biz dev opportunity that what they need to do is cultivate the relationships with the prospective clients we give them.

They do have to close that business, but our industry, for all of the talk about this, people diagnose it wrong. We do not have a problem with closing business in our industry. We have a problem with opening business. And so the sourcing is the issue. And for whatever reason, it’s a mystery to me, it’s been a mystery for 27 years, I’ve been pretty good at sourcing business. And so we can share that with our advisors and then expect them to, their job when they wake up and go to bed and everything in between is to be in relationship with clients.

Louis Diamond:

If I think about, just think of 20 highly successful RIAs and think of some of the biggest and best names in the space, I think a critical connection point or commonality for all those firms is they’ve somehow figured out lead flow or some mechanism or capacity to bring in clients for their advisors. To me, that’s the truly only scalable way to keep adding advisors and growing a business is if there’s enough inbound lead flow that’s cultivated or created by the firm to really feed all the different advisors, and it’s not snap our fingers and it happens.

But if you compare that to many other models, the wirehouse model where it’s all on the advisors to go out and find clients, that’s great. And if you find some amazing rainmakers, amazing, and it’s additive, et cetera, but you eventually hit a ceiling because it’s hard to find advisors who have that knack. You’re not bringing in the ideal client every time, and it’s an unpredictable way to grow.

So I think I wouldn’t gloss over the fact that you’ve been able to create enough inbound traffic or lead flow through all of your content and thought leadership that you’re able to sustain that type of model. Because it is the best way to grow a business is keep your advisors focused on just being advisors, solve for organic growth, solve for the other things they have to do. And then when you open up a new market or hire an advisor, boom, you got capacity, you got someone trained up, and it’s predictable, your close rate and your ability to scale it from there.

So I’ll get off my soapbox, but I think that’s such an important element of the biggest and best and most valuable firms in our industry today.

David Bahnsen:

I agree with you a thousand percent. And even if you put numbers around it, somebody who has to go make their own rain and service the client, they will expect, if you use wirehouse-like grids around it, this is just round numbers, I know you could turn a knob a little bit, but I view the business as more or less it costs something in the range of 40 cents of a dollar revenue to run the business. There’s 20 cents available to the owner, 20 cents to the person who makes rain and 20 cents to the person servicing the client. It’s back of napkin math.

If you are a wirehouse advisor, you’re making the rain and servicing the client, you’re getting two of the 20 cents, you’re getting 40 cents, let’s say. And if you’re the person who owns the business and makes the rain and is the advisor, you can make 60 cents on the dollar. That’s a wonderful margin, and you cap out at a certain level where you just cannot grow any further. I would rather make 20 cents on where we are now. My advisors would rather make 20 cents on where they are because 20 cents of something big is a lot more than 40% of something small. And again, and my numbers are, I’m rounding, but you get the idea. That’s really the kind of business model we’ve done here.

Louis Diamond:

I think it’s brilliant. And some would argue about the percentages and would say, oh, it costs 40 cents to 30 cents to run a business and we have a small team, but I think philosophically that’s exactly right.

And I think something you said too, which is there’s been a common thread in our “Build, Grow, Transact” series. You think about Jason Fertitta of Americana Partners or Matt Kilgroe from Cyndeo and many others that we’ve had or will have, it’s really playing the long game. No one we’ve had on the show is optimizing for how much money can I make this year, next year or the year after. It’s the intentional decisions to invest in capacity, invest in growth, and by choice take less as the owner of the business, but doing it because what you’re building is enterprise value that will sell at a dramatic multiple of that growth and have room to run.

So I think that’s the big thing is, again, it sounds easy, it sounds great, but it’s not an easy decision to say, “Hey, I’m going to make less money today and over the next few years because I want to hire the next person or invest in an organic growth funnel.” That’s discipline, for sure. But I think it’s a great takeaway for anyone listening is play the long game, invest where it makes sense, and the riches will follow you later. They don’t have to follow you today or tomorrow.

David Bahnsen:

And it’s a whole business of playing the long game, not only in the value creation and enterprise value of being independent. But even for wirehouse advisors, I remember back as I was entering the business, that debate about fee-based business versus transactional, and all it was, are you going to play the long game or get more money quickly? There’s temptations in both ways. There’s goals, there’s overhead, reality. Anyone who played the long game in that story from 30 years ago benefited immensely. And now you see it, of course, in what we’re talking about here, playing the long game in the way you run your business has just been the smartest thing anybody could do.

Louis Diamond:

Absolutely. Especially in this industry where each new client that’s brought on, there’s a lifetime value of a client. That success compounds with market appreciation, with them adding new monies, and then ultimately they’re going to give you referrals hopefully. And then over time, that’s where the real money is. It’s the compounding nature of doing the next right thing rather than, we’ll say, taking a shortcut or not making that investment in the business.

I have a ton more questions for you on this topic, but I want to spend enough time on your important decision to sell the business, sell the Bahnsen Group to Hightower in April of 2026. So after more than a decade of being an employee of Hightower, being affiliated with them but really owning your own business, you decided to not just sell the business, but to sell it to the very platform that you’re operating on. So can you just talk about that decision? Why was 2026 the right time? Why did you decide to stay with Hightower rather than any of the other 100 acquirers or a random private equity firm that would love to buy a business that’s growing 30% per year?

David Bahnsen:

It’s interesting to think about as our deal gets ready to close here at the end of September, if I had gone out and run a process, if I was looking to sell, would I have been interested in conversations with others? And I don’t know the answer to that because I wasn’t looking to sell. There was nothing broken, in my mind, in what we were doing. But when Hightower and her investors came to me, the entire conversation centered not around what we needed and wanted to be a seller, but on what we didn’t want or couldn’t have.

And I’ll share the story because I haven’t shared it publicly with anyone. As we were having conversations about a variety of things in the relationship between Hightower and the Bahnsen Group and Hightower’s investor and so forth, there were a couple of different meetings and things and we ended up having a pretty significant meeting in person in their conference rooms here in Midtown. And I’ve had seven eye surgeries, and I have challenges with my eyes and there are all these numbers up on a screen in the conference room. I couldn’t see any of them.

And it occurred to me that there was an offer on the screen they wanted to buy the business. We had not discussed that. And I turned to the folks and said, “I don’t really know exactly what it says, but I just want to make something very clear to save time and drive our conversation constructively. There’s no amount of money that I would sell for if I can’t be fully in charge of what we’re doing. Our brand, our business, our autonomy is what I care most about. If there’s a way to have that, protect it, enhance it and do a commercial transaction, I’m open to it.” And I didn’t really think that would be possible, but I will say to their credit, they did not want to interfere with that autonomy and what they believe to be a successful formula inside our company at all.

And so while they’re doing a lot right now to build their Hightower Signature Wealth brand, both internally and externally, and are coming up on $50 billion of assets that they’ll have moved onto that platform in trying to create more centralization and consolidation, which I think has a lot of commercial rationalization behind it, what they’re looking to do with the Bahnsen Group is have a wholly owned independent subsidiary where I still have plenary authority to run the business, control of the P&L, hiring and firing, strategy, branding, and yet the resources of Hightower at my disposal more now in the HR front. That gets a little trickier with 106 people that will soon be 150 than it was when it was 20. I’m committed, Louis, to knowing every one of my employees’ names forever and it’s getting harder, but luckily I have a pretty good memory.

But the technology side, the AI moment, the way in which a tech stack all intersects, I hate this stuff. And they not only are good at it and like it, but are heavily invested in it. And so it felt to me like if they’re really going to allow me to continue running this and have that control of the P&L, it could be best of all worlds and certainly very value additive to the enterprise of Hightower. And that’s what we worked a few months to put together and everybody is really pleased with the outcome.

Louis Diamond:

Amazing. I mean it’s an interesting shift in the way I’m seeing a lot of these platforms, that they start off as a fee-for-service affiliation platform and then over time they morph to being buyers of businesses, investors in businesses. And Hightower is definitely, they’re probably at the forefront of really completely shifting or re-identifying themself in the market, especially on buying practices. So I think it’s very interesting that you had this long-term relationship and ultimately having such an amazing business, they were the ultimate buyer of the business.

David Bahnsen:

And I think it’s important to say for our listeners, you know as well as I do, if we went to market, there would’ve been a lot of interested parties.

Louis Diamond:

That was going to be my question.

David Bahnsen:

The organic growth alone would’ve commanded something pretty attractive. We were under Hightower’s ADV. I not only had a positive relationship with them and a good cultural dynamic, which I wouldn’t want to risk changing, but I don’t want to re-paper the size of this business, and so it was just a non-starter. I talked to a couple investment bankers after we were already in LOI and they all said the same thing. You had your most natural buyer. It was the one you were already dating. And that’s how I feel, is if there was going to be a transaction, it made the most sense for us to do it with the one we were already partnered with.

Louis Diamond:

So was it like, hey, you know exactly who we’re getting in bed with because they’ve already been our partner in this business for a while, and as long as I get what I think is fair value for the business, that’s good enough? I’m sure you could have gotten a turn or two more to have 50 bids and to have the shark circling to push Hightower higher. But it sounds like for you, that was of course important, but that wasn’t the number one driver. It was more how do we preserve what we like, preserve our autonomy and do it with people that we like and trust?

David Bahnsen:

Yeah, that continuity, in a funny way, I did it the wrong order. I ran a process after I was already at LOI, meaning I did enough to find out, hey, did I just do a good deal or not after I’d already done the deal. And the good news is I did, but it wasn’t the way most people go about doing it.

But the continuity thing is there’s always two fronts to it at our size of business. There’s the client continuity and the team. Our team is going to move the payroll from being under Bahnsen Group to Hightower, and there’s benefits and changes and things. But the clients don’t know any difference whatsoever. Custodial, the G numbers, the ADV, there’s no signature required, no negative consent required because they already were under the Hightower ADV before. So this transaction all at once allows us to go into the next iteration of our business, which I’m very excited about, and I think is a wonderful deal for Hightower and what their goals are, but we didn’t have to bother clients with it. And when we say to clients, “Nothing’s going to change,” we can actually mean it.

Louis Diamond:

Yeah, that’s the definition of it. You mentioned there you’re excited for this next iteration or the next chapter of the company. Can you explain that? I would imagine just continuing your strategy that’s worked so well for the last decade plus, you keep doing that, I mean, you’re going to have a 20, 25, $30 billion business over the next handful of years. So what’s the next chapter? Why change it at all? What are you thinking about?

David Bahnsen:

Well, it’s funny in a moment now where, first of all, I’ve went out of my way to say that we didn’t grow at all inorganically, and a lot of people have now decided that inorganic growth is a little bit less impressive than organic growth.

One of the issues with the law of large numbers is growing 30% at two billion meant adding 600 million and growing 30% at 10 billion means adding three billion in a year.

Louis Diamond:

That’s fair.

David Bahnsen:

And then 3.6 billion, the exponential nature of it. And I believe that there are… I’ve never gone to a meeting with an advisor with a checkbook or with a balance sheet, and we want to find some folks that want to join us, join our system, join our culture, not merely aggregate a bunch of unified parts, but in some cases doing that with other people demographically would mean some monetization events.

So I do believe that there will be some inorganic growth that we will add to our toolbox as a supplement to our core underlying strategy, which we think is industry leading organic growth. So we want to continue doing more of what we’re doing. And then just as we continue to professionalize based on our size and scale more of those things that are not passions for us, technology, supervision and HR, utilize the mousetrap Hightower has that they do well while maintaining the things that make us uniquely us, which is our branding, our business development, our investment strategy, our delivery of services to clients.

I’m not naive enough to think that there won’t be some growing pains and some hiccups and whatnot, but we believe that model, all the parties are very committed to it, and we believe it’s the right model for us.

Louis Diamond:

Absolutely. I think what’s really cool about what you said was, one, I agree with the concept of law of large numbers. I mean, it’s a fact, right? No matter how much content you put out, it’s going to be hard to bring in 10 billion of net new assets eventually without going inorganic.

But I think to me at least the big trap in the industry today is firms either completely ignoring the organic and just focusing on buying and growing that way and pointing to, oh, we grew by this amount. But what you said, which is really cool and important I think is we’re going to continue the organic side to the best of our ability. That’s not going to change. Inorganic is a supplement. It’s not the replacement. I think that’s a really important lesson or discipline that it’s the combination of the two that really builds an enterprise and builds scale.

You already had your transaction, but anyone who’s weighing a transaction in the future, buyers will always value a dollar of organic growth than they would inorganic growth. So if you can hit both and you do transactions strategically, you’re not just trying to buy anyone or everyone, but you’re doing it to add the right capacity, add a new discipline, diversify the talent pool, honestly, you can’t lose. Because worst case, it’s not that successful, you still got the organic engine. Or I think knowing you it’s going to be very successful and now all you’ve done is ratcheted up what you’re able to do. So I think it’s a very smart way to look at the decision to go inorganic after all this time.

David Bahnsen:

Well, I appreciate that. It means a lot coming from you, and of course I agree and you would know a lot more about this than I would. I also believe that some of the things people are afraid of in going inorganic are a byproduct of people hitting the buy button that are not the ones who have to deal with the cultural integration afterwards. When you remove the skin in the game factor, anybody we choose to buy, they’re going to be people I got to have breakfast, lunch, and dinner with. And inorganic growth is a lot more successful when you care about culture than when you don’t. And we’re not planning to just care about it, but to obsess over it.

So I feel very excited about it. We have a couple deals that we’ll be announcing here in the fourth quarter to kick things off. And in the meantime, it’s funny, the valuation period of my transaction ended June 30th. My deal closes September 30th, and in this quarter in between, we just had our biggest organic growth ever. So we’re already off to a great start in making money for our new owners.

Louis Diamond:

There we go. That’s amazing. So was for you the pivot point then the realization that in order to protect our 30% or more growth per year, that we’re going to have to supplement with acquisitions? Was that really the we’ll say the critical link that was the why now moment? Because I would imagine, I mean, given the size of your firm, you could have gotten debt to buy businesses, you could have gone and sold 10%, 20% to a PE firm or a family office. So was it really like, we really want to lean into the inorganic side? Was that what you thought Hightower, and being owned by them, would really unlock for you?

David Bahnsen:

That is a true statement, but even then that wasn’t true until we got over the original hump of control. That once it was clear that they authentically wanted, not like they were willing to let me run it, but they were willing to memorialize to that they valued what we had done and did not want to disrupt it. And when I became convinced that they were convinced that it was not just best for me, I mean, that’s what I cared about, but they wanted our autonomy out of self-interest because they viewed that it was best for their enterprise to let us continue running independently, that was the sine qua non of everything. And then on the other side of it, it opened up the benefits of the inorganic growth.

And I also think I felt a burden to properly professionalize and scale our internal team without me working eight jobs. And I felt that there became a need for specialization in the technology supervision and HR functions that I didn’t have an interest in building in-house. We built in-house our investment, our tax, our family office, our content, all of those things, and I loved it. But these other areas, I felt like we had it good enough, but we were going to benefit from the strategic partnership with them going forward. And so all of those factors together allowed us to put this deal together.

Louis Diamond:

It makes complete sense. So I mean, there’s this version of your story, and you’ll probably be like, “That’s not my story, clearly.” But you broke away in 2015, you keep doing your thing, grow a couple points here or there. It compounds, you’re at two, three billion without really breaking much of a sweat. Take a lot of vacations, make a lot of money, but you did the opposite, right? You really took independence as a signal like, let’s go, let’s build something, let’s build a real company, a real business. So can you talk about basically how you thought about treating independence as the starting point rather than the terminal destination?

David Bahnsen:

Well, I think that your question itself, it has the answer in it. It’s so important. I mean, without us knowing each other, you’re really capturing something very biographical. I did not want to go to independence as an ending point. It was a beginning. I intend to do this the rest of my life. I was already financially comfortable, but I didn’t realize that when people talk about payouts like, oh, you’re going to have a higher margin of what you keep as an RIA than W-2 at a wire, I never even thought about that. It was purely for me the type of business I wanted to have, the way in which we went about servicing clients.

I’ve said this to good friends of mine over the years. Greg Fleming ran Morgan Stanley Wealth Management at the time, and now of course is CEO of Rockefeller. One of the things the wirehouses did so well was convince me about teaming, about having a business. I’d go to Chairman’s Club every year and they would talk about you build out your team and you have your own little mini group and you’re adding a planner into this, and yet you couldn’t really do it. You couldn’t really hire and fire who you wanted. So they tantalized it. They gave me enough to know that this would be a wonderful way to run an advisory business versus the pure vertical type team that I had. And yet to go be able to pick our own furniture and do our own creative marketing work and all that, you had to be able to have your own checkbook.

Independence was the start of a journey, and I really view this next phase of where we’re going as a new journey. I don’t know if I’m going to be good at doing inorganic transactions. We’ll see. But I do want to find out, and I’m determined to become good at running a 150-person company the way I think I was good at running a 30 or 40-person company. And so I’m up for that new challenge.

And one thing I’ll say over 27 years from being an independent self-practitioner at PaineWebber through the Morgan Stanley years, through this last phase on our own at Bahnsen Group, it’s always been client-centric. And I just think that those advisors that somehow have that in their DNA, that if you keep everything focused on the client, the rest comes together, it does come together.

Louis Diamond:

Amazing. There’s been a number of episodes where that’s been a through line is if you do right by the client, that’s your North Star, you’re never really going to lose. Will you grow slower sometimes? Sure. Will it cost you money sometimes? Absolutely. But in the end, the goodwill, we’ll say the spirit, the culture of generosity, it always shines through. Think of any company, even outside of our industry, that’s been their North Star and they don’t lose. It’s brilliant.

Last question for you. I think I can probably go for another four hours, but you got some content to create and some new households to bring in, so I’ll let you go after this. For an advisor who’s sitting where you were, let’s say 2012, 2013, 2014, who’s successful, growing, comfortable, they make a lot of money, but sensing that maybe there’s something missing, there’s a business to build, there’s something that’s not really charging them up the way that it used to, what’s one thing you’d tell them?

David Bahnsen:

You have to overcome the inertia because I think it is a universally true thing in our business that when there’s something holding them back, there’s something not right, there’s something that’s off, it’s still usually pretty good, especially in a good market. You have recurring cash flows, you make a good living, for most people, they’re probably making a better living than they ever thought they’d make doing anything else, and so to say it’s good enough is to me a hallmark of mediocrity.

But to say even though it’s already good, I want it to be better. I’m going to have to go dig in to create the right ecosystem, the right apparatus, the right partnerships, the right strategic fit, whether it’s going to a new firm, whether it’s starting your own firm, whether it’s partnering with one of the aggregators or doing your own thing, I mean, there’s so many choices to walk through.

But I don’t believe most people say, “Oh no, I’ve just decided where I am is the best.” I think most people decide where I am is good enough. And overcoming that inertia, you will be glad you did because there is a better world waiting when you take that step. And not only a better world for you and your family and enterprise value and cash flow, all that matters, but I’m saying a better world for your peace of mind, for your internal fulfillment of what you’re doing and for the experience you’re able to give a client. Everybody, every advisor worthy of the name should desire to optimize the ecosystem in which they work.

Louis Diamond:

That is absolute gold and brilliant. I couldn’t agree more. I mean, I feel like the great thing about being an advisor is even if you’re in the most captive environment, you’re the one who gets to choose. Is it good enough and does that work for me? I want to golf four days a week and this works, this checks all my boxes. Or if there’s something more, something that good enough isn’t solving for, that you have the optionality and the ability to go out and do it.

And it’s not going to be easy. It’s a lot of work to transition or to build and to do something like you’re doing, but I think every advisor owes it to themself to at least test out that thesis. Is good enough really good enough or is there something better that makes me better, makes my team better, lets me serve clients better, and ultimately is going to be more fulfilling in the end?

David, this has been absolutely amazing. We will definitely have you on again soon. I mean, I want to just talk to you every day because I’ve learned so much from this episode. But to me, a couple of the key themes to take away here is focusing everything on clients. It’s the compounding effect of organic growth, playing the long game, optimizing for enterprise value and building a sustainable business rather than income, and ultimately picking your partners and outsourcing, et cetera, wisely. And if you do that as the North Star, you become pretty unstoppable. So congratulations on everything. Congrats on the upcoming closing of your transaction with Hightower and can’t wait to see where you go from here.

David Bahnsen:

Thank you so much. I really appreciate your kind words and appreciate all the great work you guys do.

Mindy Diamond:

As a financial advisor, you hold yourself to the highest standards of integrity, honesty, and credibility. You are successful because you take your professional responsibility seriously and are dedicated to your clients. But are you living your best business life? Are your goals aligned with your firm’s or could a better option exist? Should I Stay or Should I Go is a book written with you in mind. It’s a self-guided journey that walks you through the key steps that we take with our advisor clients. This strategic thought process and roadmap to professional self-discovery is designed to help you ask the right questions and think critically and objectively, whether you’re considering change or not. Learn how to get your copy at diamond-consultants.com/thebook.