Investment Banking Can Enhance Financial Advisors’ Value Propositions with Michael Nessim

Michael Nessim is the President of Kingswood U.S. and the CEO of Benchmark Advisory Services, LLC. He has been in the financial services industry for more than 24 years and had been involved with investment banking for the last 20 years.

In this episode of Power Your Advice, Mike and Doug Heikkinen discuss investment banking – what it is and why financial advisors should consider including it in their client portfolios. They also talk about how Kingswood can help advisors provide access to this important and differentiating solution for their clients.

  • What does ‘investment banking” mean to advisors and their clients
  • How does Mike feel investment banking drives the economy
  • How can adding investment banking help strengthen advisors’ value propositions
  • The types of risks associated with investment banking and how can they be offset

Resources: Kingswood U.S.



Mike Nessim, Douglas Heikkinen

Douglas Heikkinen  00:03

Welcome to the power advice podcast. Mike, How are you this morning?

Mike Nessim  00:06

Great. Thanks. Thanks a lot, Doug. Thanks for having me. . .

Douglas Heikkinen  00:09

Where do we find you? Where are you this morning?

Mike Nessim  00:11

I'm in New York. So we have our main offices down at 17 battery, which is the lower part of Manhattan, kind of just facing the Statue of Liberty give you an idea where it is? Yeah.

Douglas Heikkinen  00:22

Are you in the office? Actually?

Mike Nessim  00:24

Yeah, we're in the office. We usually have about 40 odd people at this location. And with the virus to probably about eight people come every day. So I live in Manhattan. So it's just an easy commute for me to come down here and work in the office.

Douglas Heikkinen  00:38

I'm here every day. That's great. So yeah, Kingswood us is rather new and you're the president. Give us some background on Kingswood us. Who are you? What do you guys do and, and why do you matter in the financial service industry?

Mike Nessim  00:52

Yeah, sure. So I'll give you a little bit of a history of Kingswood Kingsway. They started out as a ra model firm in the United Kingdom. So they basically do what we do here as an RA. That's what they're doing there. And, you know, they've been very successful in in a roll up strategy in the UK, where they're going out and they're kind of rolling up all of these smaller ri A's that are just, you know, it's harder and harder for them to compete. And they've been pretty successful at it. And so, a couple years ago, I started my own broker dealer, an RA and I was approached by Kingswood London to talk about doing a similar strategy here in the US. So what we've put together over the last couple of years is is Kingswood us holdings. Kingswood us holdings now is on the is on an acquisition spree similar to what they're doing in London. And our The idea here is that we're going to build ourselves to be the next great, you know, wealth management company in the US. And, you know, we think that there's plenty of room in the US for the next great name, you know, and and that's our strategy going forward.

Douglas Heikkinen  02:07

Well, it is a great name. But we're here to talk about investment banking, which can mean many different things. In this case, what you want to talk about, what does it mean to advisors and their clients?

Mike Nessim  02:21

Yeah, so So, you know, as we got into this endeavor of building out our RA and our broker dealer, right, you know, we are an independent broker dealer, Ra model, it just became clear, you know, to me as an operator, that, you know, that, in order to grow substantially, you're going to have to set yourself apart, you're going to have to do a value add not only for the clients, but for the advisors, right. And the advisors are ultimately our clients. So what can we give the advisors, you know, to offer their clients to be able to say, Hey, we're different. So, you know, investment banking, to me is, is rather important than that model. Because, you know, every day you're reading, on and on about advisors who, you know, are dropping their sevens because they see no reason to have it, there's no opportunity on their sevens, they'd rather just be ra only. And, and I'm here to say that that doesn't have to happen that way that, you know, we can offer your clients a product through using your seven, you can stay dual registered, and we can make it worthwhile for your clients to be part of your organization to the individual advisors in our organization. And we could give you a real value to be able to grow, you know, your client base by by offering them banking deals. And that's, that's, that's our model.

Douglas Heikkinen  03:37

You mentioned to me off the air, that investment banking drives the economy, which we found really interesting. Can you talk more about that?

Mike Nessim  03:45

Yeah. So I mean, if you think about investment banking is just two words that really people and we can go into this if you like, but that people, they just they don't really know what it means. But really, what investment banking is, is there's two sides to it. The first side is the ability to give financing to small publicly traded companies or I mean, small, I'm saying let's say, you know, under 100 million dollar, you know, market cap companies who don't have access to capital now, banking is done all across, you know, the universe right into the larger firms are doing, you know, the billion $2 billion banking deals, but our focus is companies 100 million to $500 million market caps, who can use some sort of infusion of cash, right, and how do they get the cash and what do they do for with it? Well, they use that cash to grow their business by growing their business. What are they doing? They're, they're hiring, they're expanding, they're getting new office space, they're marketing, they're doing all sorts of things that drive the economy. So so for us we're by doing investment banking deals, no, we have a service we offer our clients, but we we are generating economic stability among you No these companies in the US and really causing economic growth, which makes us feel good about it.

Douglas Heikkinen  05:06

As we started to touch on earlier, it's difficult for advisors to differentiate themselves add value, can adding investment banking to their arsenal help enhance their value proposition to their clients.

Mike Nessim  05:20

100%. And that, and that's really, you know, it's it's always the fight in the RA arena of what what makes you different, right? What makes you different from, you know, somebody sitting in a bank? What makes you different from an RA? You know, in California? What makes you different from the RA in New York? And you know, what you find very often is that in the RA business, you know, it's a very localized business, right? And so, you know, you're competing with other local groups. Now, how do you compete with those groups, you have to offer something different. And investment banking will be the differentiator, to allow these groups to offer products, investment banking deals to their clients, that their clients cannot get anywhere else. That's That's exactly it.

Douglas Heikkinen  06:06

So clients understand mutual funds, ETFs stocks, how does an advisor frame this conversation to a client?

Mike Nessim  06:14

Yeah, so you know, of course, it's it's really hinges on the client, right? Some, some clients that that's all there, they're able to do and they want to do but but there are other clients that look at their portfolio and say, Hey, I'm, I have these baskets of stocks, I have a significant portfolio. What else can you bring me That's interesting. So, you know, many of these advisors will bring, you know, their clients alternatives. So, you know, alternatives, could be thought of similar to investment banking, it's just a product that differentiates themselves and the investment strategy. So I think, for clients to look at investment banking, you know, what they're looking at is a sort of an alternative to their portfolio, where they have the ability to invest in companies in publicly traded companies. And and, and have just a diversified portfolio with those products.

Douglas Heikkinen  07:09

Do most clients have advisors have to be accredited to participate in these investments?

Mike Nessim  07:14

Yeah, most of the most of the banking deals are for accredited investors. And that's correct, because there is a little bit of a an understanding and a sophistication to be able to know if these are right for you as as a client. So you know, the the parameters now have a million dollar net worth, you know, or $200,000, you know, for the last two years of income, you know, most of these clients in this arena, understand this product and are qualified to do it.

Douglas Heikkinen  07:41

Can you give me an example of a recent investment that you were involved with, I know, visualizing something real helps me understand what you're talking about?

Mike Nessim  07:50

Sure. And, you know, I could talk all day about this. But I mean, like, if you look at, let's say, shelf offerings, now, if you, if I'm talking to you about shelf offerings, probably you've never heard of it, and probably the average investor has never heard of it. But if you dig into it with the investor, and you say to the client, okay, do me a favor, go Google shelf offerings, and Google the top 10 company, you know, Microsoft, Tesla, you know, Oracle, and just Google shelf offerings. teslin, tell me what you find. And what you'll find is multiple hits, where companies will come out, you know, on an overnight offering, well, they'll have the ability to sell a significant part of their shares in escrow to the public. And I'll just give you an example of this. And and just on a publicly traded company, Tesla, you know, everyone's seen Tesla, they've seen a huge run up. And just as full disclosure, we in participate in this offering. But this is an example of what we do. for, you know, smaller and midsize companies stock ran up from let's say, $150 to $400. Because everyone's excited about Tesla, Tesla in their safe To put it simply has extra shares, they have shares that when they did their public offering, they didn't put out to the market, they didn't sell to the market. So they're sitting with this safe of shares. Now, Tesla's watching their stock, and they're watching their market cap, and they're being they're speaking to their bankers. And when their stock gets to a certain level, where they think that this is the right time to offer some of those shares in their safe to the market, they do so. And typically what they do is they offer a 10 or 20% of the closing price that day. So an example of a Tesla offering could have been the market closed stock was $400. The board had already voted that, you know, the stock gets to 400. We're going to take some of our shares out of our safe, we're going to offer it to the public, and we're going to try to raise an additional X amount of money. And that's exactly what they've done over and over again. They go to the market, which Could be retail investors or, or institutional banks. And they say, guys, are you interested girls, you're interested, we can offer you our shares at 20% below the market tonight, if you buy them tonight, and this is a very easy way for companies to raise money, they're already public, they possess these shares in their safe ready to put out to the market. And it's the ability for an investor who can act fast and understand that say Amen, and capture a price below the market on a stock, which is freely trading the next day. So these kinds of shelf offerings, or we've done about, say, over the last three months, we've done half a dozen of them very successful offerings. And you know, it's it's been great for the investor, it's been great for the the firm, and the company that's put out these offerings. And it's it's been good for, for the economy, because now the company has the money to go spend to expand and do whatever they need to do.

Douglas Heikkinen  10:57

At the beginning, you talked about kings Woods out on tree into a roll up and helping smaller advisors succeed through through that model. Since you're new, and there's, there's competitors out there, what's going to be special about Kingswood, that you're going to offer to advisors that's going to be differentiating, and make them want to follow you.

Mike Nessim  11:20

Yeah, I think I think we have a great value prop, besides, you know, everything that's out there that we have, which is you know, the tech stack, and, you know, the the platforms and the technology. And, you know, in the banking, which is extremely important. I think our people are our biggest asset. And you know, it's not a cliche, you know, all of our people, or at least the vast majority of them that are in any kind of management role, or any kind of operational role have all been advisors in the past, right, so many of the advisors that I've recruited, you know, in who, you know, maybe they don't want to be an advisor anymore, but they know everything about this business, I find those people as the best opportunity to bring in for our operational group, our compliance group, our you know, our back office, all across the board and our management, because no one understands advisors better than advisors, and we're all advisor, I'm an ex advisor, you know, all our people, our exit advisors, and that lets us understand what they need, and how we can get them what they need, in a rapid pace.

Douglas Heikkinen  12:25

You're parent company is in the UK, and they've been doing this a while, is it the exact same model? Or is it pieces of the model, because this is the US, you're doing a blend of different things.

Mike Nessim  12:37

It's a very similar model, the brief history about the UK, which is kind of what the opportunities here, if I just go into that so we can understand, you know, in in 2012, in the United Kingdom, they enacted a reform act similar to the Department of Labor fight, do Sherry act that you see here. And that Reform Act made it illegal for advisors to charge commissions. So in the United Kingdom in 2012, it drove all of these smaller firms and smaller advisors who were charging commissions into a fee only model, you know, and this, this drove the roll up because many of these smaller companies could not compete with the larger companies. And this started a roll up that Kingswood took advantage of, and is still doing. So, you know, the the model for us here is very similar to you know, we have the history, we've seen it. So we know that with Department of Labor fiduciary act, you know, with with all the governing regulations that are going in now with with the new administration coming in, that the idea that Commission's are going to go away is a very real, it's very real event in the US and what we think is that this country will become a fee only country and with fee only it will the dislocation that you've seen now and the market will accelerate. It will drive all the small broker dealers and the small RNAs to you know, larger groups. And we think the model that that we've put in place in the UK will be the same exact model here, except that we have the history we know what's going to happen. So be a very similar model.

Douglas Heikkinen  14:13

How pumped up? Are you about the opportunity, when you're talking to people? Are the lights coming on? And people seeing that? Oh, my gosh, this is this is pretty cool.

Mike Nessim  14:22

It's it's very exciting. As you know, I mean, listen as a group, you know, over the last year and a half, we've probably grown 300%. I mean, you know, we are growing by leaps and bounds. The you know, we now at the firm itself, we have we have a five person recruiting team that we put in place over the last six months to handle all the inbound calls and the follow ups because if you look at the marketplace, it's dominated by maybe five major independent broker dealer ra firms. Right. And and you know, that's not a lot considering the marketplace. We're in and considering the dislocation. So We're very excited, everyone's here is very pumped up for the opportunity. And we're going to create, you know, the next we're going to be the next Wall Street story. That's, that's what we're gonna be.

Douglas Heikkinen  15:10

That's great. Let's close with what do you think 2021 holds for the industry. Are you hopeful?

Mike Nessim  15:18

I'm extremely hopeful. I you know what you won't call me on a day that I'm not hopeful. So that's get sick. We could just say that. But I'm extremely hopeful. I think that when I see further regulation, you know, in the business, that that that makes me hopeful because I understand that there's going to be further consolidation. And there's going to be room for, you know, six or seven top players and we're going to be one of those players. So we're very excited for this year in the coming years. And we have a lot of good stuff lined up and

Douglas Heikkinen  15:49

Mike it's been quite a pleasure speaking with you. Thanks so much for joining us.

Mike Nessim  15:54

Great. Thank you very much. Thanks for the time today. Appreciate it.

Douglas Heikkinen  15:59

For our producer Jakie Beard and everyone here at Iris mediaworks this is Doug Heikkinen. Take care.


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