Seven Questions with Tony Sirianni: Phil Hildebrandt, Principal, CEO of Segall Bryant & Hamill
AdvisorHub’s Publisher & CEO — Tony Sirianni — asked executives from top firms their thoughts on the wealth management industry. Here is how Phil Hildebrandt, Principal, CEO of Segall Bryant & Hamill responded.
TONY: Thanks for being here Phil. I want to talk about and get your insights on three extraordinary challenges our business, advisors, and clients are facing this year—the pandemic, social unrest, and the markets.
First the pandemic. I’ve spoken with CEOs of RIAs who have had to face tremendous changes this year, but for you at SBH it’s a dual threat because you have advisors dealing with clients at ground zero, and an asset management arm trying to deal with markets and trading during COVID.
What have you done as CEO to meet the pandemic threat and how has your firm fared?
PHIL: Well the first thing we did was just react to keep our employees and clients safe. We were planning to do a remote workday to test our systems but things escalated so quickly, we never were able to do our scheduled test. We simply told employees we were activating our business continuity plan the next day. Fortunately, we had a strong plan in place, but I wouldn’t be telling the truth if I told you I knew for sure it would work smoothly. I can tell you with certainty that I did not expect it to work this well or for this long.
Candidly, we love market disruptions, but it is unusual when EVERYONE is in it together. From a work environment perspective, across our industry, everyone was in the same boat, figuring out how to navigate the new remote world, which has challenges and simply breathtaking opportunities. We provided home equipment for employees and Zoom training for our client-facing portfolio managers. We stayed in close contact with all our clients, including advisors and investment consultants. For me, I did team meetings and one-on-ones, all on video. I basically don’t take phone calls anymore as they are way too impersonal.
From an investment standpoint, for us, nothing changes. The hallmark of SBH is our adherence to our investment discipline and our ability to help protect our clients’ capital in down markets. Across the majority of our strategies, we were down less than the markets in the first quarter and have performed well this year. Our industry was really affected by passive investing, and as active managers, we needed this type of catalyst to show why active still matters.
TONY: You mentioned how you are innovating to meet the challenges of a socially distanced business cycle.
What changes that COVID forced upon us do you think will remain with our business as permanent changes like Zoom calls or its impact on real estate?
PHIL: We have surged forward from a technological perspective at least five years due to video technology. This technology has been available, but very few firms in our industry had adopted it. In this pandemic, we had no choice. Without the ability to meet our clients face-to-face, we have relied heavily on both Zoom and Microsoft Teams. We have also focused more on podcasts, webinars, and other virtual events that are more scalable compared to in-person events and therefore allow broader participation among our clients and prospects.
I also believe that business travel as we knew it will not exist going forward. Do you know how many times I flew across country for a couple of meetings? The cost and wear and tear of this makes travel very inefficient and expensive. The world has also gotten much smaller as a result of video meetings. We believe these changes will actually increase our client contact and allow us to provide our clients with access to our investment talent beyond just the portfolio manager with whom they are working.
Office real estate is likely changed for the foreseeable future as well. We have offices in five U.S. cities and will likely keep all of them. But the office will likely be a communal space now, not a daily destination. Too many of our employees spend too much time commuting and would prefer to work from home in some amount. However, firm culture will demand some physical contact, so we will still have offices. How they look is still to be determined.
TONY: Our country while battling the pandemic is also facing issues of social justice, and our industry in particular has long-standing issues regarding race and gender, I’ve written on this topic outlining some practical steps firms can take that won’t erase the entrepreneurial spirit we all love.
What do you think the industry can do to become more inclusive? What specifically can SBH do?
PHIL: Stop talking and take some action. I will share with you my personal story. We welcomed a young man into our family when he was 16. He is Black. Anyone who knows me knows how important this issue is to me. Yet when George Floyd’s killing spurred unrest, I refused to write a “CEO” letter to our clients or employees because every CEO letter I read sounded like an advertisement. They all had the same platitudes. And while some of those firms may have been taking steps to make progress on this issue, I just felt that talk was easy. While I was hosting a firm Zoom meeting on racial unrest, an employee shared his disappointment that we as a firm hadn’t responded with a public statement. His feedback hit me hard and I decided to tell my very personal story in a letter to our employees. That time was raw for me and for so many of our employees, but we were able to create a dialogue that was open, honest, and allowed people to be vulnerable and ultimately understand one another better.
Now what? As part of our efforts to foster a more diverse and inclusive workforce and work environment, we have a very active Diversity & Inclusion (D&I) Committee that meets monthly and consists of employees and senior leaders from across the firm. For some time now, we have been taking our D&I efforts externally. For example, we host College Career Days to provide insights on our industry to college students with varied backgrounds and interests, and we participate in local Chamber of Commerce events. Importantly, we have changed the way we recruit. We are building relationships with non-traditional colleges and universities like the HBCUs (historically black colleges and universities). We need to start with our younger talent because we have very low turnover in our staff. We need to find and grow our own diverse talent. It will take time, but it is the right thing to do.
TONY: All of these challenges are occurring against a backdrop of economic collapse of some industries, political uncertainty, and wildly fluctuating markets. Our business is right in the center of the storm.
What are you telling your clients to guide them through?
PHIL: Stay the course. This is the third crisis in our firm’s 26-year history. We have not changed anything about the way we invest during these periods. For those clients that have been with us a long time, they typically don’t even ask the question of what they should do. For our newer clients, we have been staying in close contact and providing assurance, but ultimately, they will feel better only when we get “on the other side” of this global pandemic.
As active managers, the artificially low interest rates since the Global Financial Crisis have created friendly markets for passive investing. Passive investing loves this type of environment, including the fact that the FAANG stocks (generally thought to be Facebook, Apple, Amazon, Netflix, and Google, usually with Microsoft added in) are at their highest level of concentration when stocks are rising. We love turmoil and market disruption as it can provide incredibly attractive opportunities for active managers and expose the weakness of passive investing.
TONY: Any final thoughts for the future for Advisors and their clients?
PHIL: I think the most likely theme moving forward is consolidation. The Registered Investment Advisor (RIA) market is extremely fragmented and the cost of data and staying up to date technologically is going to make consolidation an imperative. The best firms will do it out of opportunity, but many others will do it out of necessity. I also think the industry will begin to develop a more efficient database of managers, that when combined with remote access, will make the RIA industry much less geographically centric in the future.