Welcome to the CAIS Live Conversations podcast. I'm your host, Alex Cavalieri, Head of Marketing here at CAIS. We are the leading alternative investment platform for the independent wealth community.
In these conversations, I'll sit down with industry participants from asset management executives to RIA and IBD leaders to uncover their insights and stories that may be driving the growth in the world of alts. Each episode, we take a deep dive into the views of those who are breaking down the barriers and making alternative investments accessible to financial advisors. My guest today is Aaron Hodari, Chief Investment Officer at Schechter Investment Advisors.
In this episode, we dive into the evolution of wealth management, the adoption of alternatives, and why innovation and trust are at the heart of client success. Whether you're a seasoned advisor or just curious about the future of our industry, this episode is packed with insights you won't want to miss. Let's get into the conversation.
The views and opinions expressed by the speakers herein are as of the date recorded and solely reflect the views and opinions of the speaker, and not necessarily the views of CAIS or the broader financial industry. This podcast does not constitute an offer or solicitation to buy, sell, or hold any securities, financial products, or services on behalf of CAIS, its affiliates, or any third-party investment managers, their affiliates, or strategies. This podcast is provided for informational purposes only, and is intended for an audience of investment professionals.
Welcome to the CAIS Live Conversations podcast. My name is Alex Cavalieri, and I am here with Aaron Hodari, the CIO of Schechter, and also, for no one who would ever know this, the man who I owe my career to, full stop. We can get into that, but Aaron, thanks for joining us.
You deserve everything you've got out. You deserve it. But still, you're the man who got me in.
It was 2009, it was a tough time in the markets, and you were ready to go.
I was ready to rock. So there's a lot I want to dive into. And I know your story, but a lot of people listening won't know your story.
Schechter, you didn't start there. Let's talk about the journey and how you ended up there.
Well, first, happy to be here.
At the summit.
This summit's amazing. This is great. I'm having the best time.
It was great last year. This year's even better.
Yeah, we were talking about, how are we gonna top it next year?
You'll figure it out.
We'll figure it out. I have some ideas.
Yeah.
Yeah, yeah.
I have some ideas too. I'll tell you later.
I think we need Elon. So, Elon, if you ever hear this, you gotta come.
Yes. Oh, I have others too.
All right.
But this is a good line up.
Let's be real.
This line up you guys have is, you know, if you had LeBron James here, I'd rather be talking to these luminaries of finance that we get to sit with. So cool. Okay.
Career. Started at BlackRock, interned there at the depths of the great financial crisis, then went and joined full time. Loved it.
Great place. But you're going to laugh at this. I mean, you know the whole story.
So Aaron and I both worked at BlackRock.
Well, no, this is going. So then I was like, you know what? I've worked in finance for a bit now.
What else is cool? Right? Yeah.
You almost forgot.
I forgot this step.
So then I'm like, what will be the cool thing to do next? Oh, go to a startup.
Yeah.
So me and your brother Lincoln worked, had a startup that was funded by Compure in Detroit called Glocal, which is, he has just kept running with that business. It's changed names 15 times. Now it's a robotics company, but it was a news company at the time.
So I moved back to Detroit, thought it would be temporary, and was doing the Glocal thing and hated it. And being in a startup, what I realized is every single person you talk to is it tells you how you're going to be the biggest business. They know exactly the formula.
And in reality, most startups fail. And maybe I just wasn't built for that. And so I had known Mark Schechter for my entire life.
Our dads were in a poker group together, playing poker every Wednesday night for pennies. And Mark approached me and said, I'm thinking about starting an investment advisory business. And would you want to join?
At the time, Schechter was just in the life insurance advisory space. So I said, sure, why not, right? I was kind of really ready to get out of Global.
And I joined. And two other individuals came over that had a book of business, kind of put us on the map. And we've grown it to about $3.6 billion in AUM today.
It's been a wild ride, a lot of learning, a lot of fun, a lot of mistakes, and fixing it. But getting to a place where I think we're in a good spot now.
So when he came to you, was Schechter built yet?
The insurance business was there. It had been around actually since 1939.
Got it. Okay, so it was an established business. How big was the team at that point?
Ooh, 20 people probably.
All right, so still small.
Yeah.
So the difference is that you went from going, you didn't want to do the two people startup, you wanted to go to the 20 people startup.
Yeah, that's a good point. You know what, if it didn't work out, I'd probably be like, oh, and I hated that.
But it worked out.
But we're like 86 people now. The insurance business and the wealth business are completely separate. So a lot of times you tell people, oh, we've got the life insurance business, the wealth business, and people just assume that those are cross-pollinated, cross-sold businesses.
But they really do operate differently. And I focus all my time on the wealth side.
Is there a lot of overlap between? No, but no.
Some, but no. No, they really are different businesses. It's kind of strange, but yeah.
Okay, so start at Schechter. What was it like starting at that time?
I had no idea, right? So I had worked in finance at BlackRock, but I had never worked at an RIA. And we had two guys come over that had been in the RIA space for a while.
And you were on the institutional side of BlackRock.
Correct. Mostly dealing with foundations, endowments, pension plans.
So a totally different world.
Totally different world. And it probably took, you know, we're 10 years in now. It took 10 years of trial and error to really figure it out.
And by the way, I don't have it figured out, right? This industry is so complex. There's so many ways that you can skin it.
Everyone's doing a great job, but doing it in their own way. And so it took us time to figure out our path. And I hope 10 years from now, we continue to look different, right?
I always want to be innovating, making us better.
What do you think about that when you're saying everybody's doing it different? So like there is no blueprint in terms of how someone could build an RIA. Everybody builds their RIA differently.
Also, I think that it's like different from other industries, like a B2B SaaS company. You kind of like have your components of like what you need to build, what you need to put together to build, what does the team need to look like? Do you think not having a blueprint for our industry is a good thing, bad thing?
How do you think about that?
Well, I think there's table stakes that you need, right? And so you can pick different ways to build that, but you need compliance, you need a CRM, you need a custodian, you need, in my opinion, you need performance reporting software. So there's different ways.
So I'd say there's a blueprint in like the table stakes to hang your shingle, but there's no blueprint for how you're going to run your business. You know, some people segment their clients and say, we got one offering for the ultra high net worth market, one offering for the lower ultra high net worth market. You got some people who say, I specialize in doctors or divorced women or what, you know, people will build their career and their practice with specialization in a lot of cases.
My view, at least how we've done it, is we've kind of just built what we wanted for ourselves, and, you know, I'm putting my money in Schechter as an investor or as a client of Schechter. What do I want as a client? And that's led to us innovating really quickly, putting in place a lot of cool technology things that I think we probably invested in technology earlier than firms of our comparable size would have done.
The other thing is it also taught, we made mistakes, right? Like, oh, as a client, I want to do all this cool stuff. I want this, I want this, I want this.
Well, shoot, two years later, now you've really operationally strained your business. And so we've had to figure out how to kind of fix those things.
How has the business evolved? Like, what are the three biggest ways the business has evolved since 2009? Oh, I got, well, I guess not 2009, 2000.
I would say like 2020 was pivotal for us. That's the year we- COVID.
The world moving to being comfortable doing Zoom, Microsoft Teams, video conferencing, face to face is still critical, but we do a lot of business with people that we have never met in person, and they're fine with that, right? We're- I'm based in Birmingham, Michigan.
I've got clients five blocks away, and I'm like, hey, you want to meet?
Love Birmingham, by the way.
It's a great city. They're like, send me a Zoom link. Right?
People have just gotten really comfortable with this. That's been great for our business, and that's technology, right? The second is the performance reporting software.
We use Black Diamond, but there's other great ones out there. If we didn't do that, I do not believe we would be where we are today. It's incredible.
I mean, the fact that I lived without this software for five years, I don't know how I did it, right? Like now, at your fingertips, every single piece of information you need on your client accounts, updated daily, accurate performance reporting, tracking of outside assets, alternatives, everything. I have not logged into a custodial platform probably in two years.
Got it.
I don't use them. I go right to Black Diamond. I get all the information I need.
Now our operations team, they're in the custodial platforms all day. But for an advisor, the Black Diamond or the performance reporting softwares is great. So that, I would say those two things are critical.
And the last would be the product innovation. So I wouldn't know the product innovation in the alternative space. We are big users of alts.
That was really hard to do when you had to do a ton of sub docs directly with managers, track all of that, deal with cap calls. So that's why we, you know, initially we started working with CAIS. That was huge for us, allowed us to continue to scale.
And then the second thing would be product innovation, where yes, we still have and use those drawdown funds, but the products today look and feel a lot different than they did eight years ago. And I think it's phenomenal for advisors. And I think even better for the end clients.
So talking about performance reporting and the client experience, what has that done from the client side? Obviously, it's helped you, but does that just completely opened up how the client interacts with you in different ways?
Absolutely. But first, it's really funny because I can see when clients log in. I've got a couple of clients, the website updates once a day.
They'll log in 10 times a day. Nothing's changing, but it's just funny. Some clients log in once a year.
One, that helps me, which this is such a small piece, but it helps me know what I need to be talking about with the client. Two, I think the old school way of financial advisors, you have this image of the guy in the dark suit and the tie, and he comes to meet with you, and he's got a stack of papers, and he puts them in front of you, and you sit for an hour, and your eyes hurt. You're just going line by line by line by line.
This, now, client's performance is delivered to them on their phone, at their fingertips, whenever they want it, and updated daily. So what does that mean? Now, when we meet with a client, I'm not bringing paper and doing that, right?
Yeah, it's not a whole thing to do.
You already know your performance. We're happy to talk about it, but let's talk about financial planning related items. What are we doing with your estate, right?
A state tax laws are changing. How should we be tackling that for your situation? You know, Roth conversion, whatever it is, we can talk about planning related items and not sit there and have to go line by line.
That has improved the relationships with our clients huge. The other thing, the last thing, I think this is critical, is there, I believe that there's a sense of people do not fully trust the financial industry.
Still.
Still. And, you know, they always think someone's out to get them or something, you know, like, oh, something like that. The trust that you create when you put that data into your client's hands and say, you can have this daily, we can't hide from anything, right?
You got a performance, you know, a investment in your portfolio that did poorly. It's right there, right? It's right in their face.
And I think that that created a lot more trust with our clients and has led to more referrals. And I think it's phenomenal for the industry.
Yeah. And I think transparency has been a big, big, unique value prop of case too, just in terms of how we've built our business and the data we're providing advisors and what we're doing with our roadmap from a technology perspective. When you think about Schechter overall, though, and how you've evolved, because I know there's a few cool areas of your business that you have within the non-insurance business in terms of investments that you made and kind of how you've played in that area, talk a little bit about that.
Yeah, I would say thankfully I'm 37. And so I've got a lot, hopefully got a long career ahead of me. And you're constantly going to be learning new things and both good and bad from your experiences.
We have done a lot in alternatives, private equity, private credit, real estate, hedge funds, all these things. And I'd rather stay high level on this and just say like our experiences have thankfully been good by and large, but you learn along the way, right? And that's what this whole process is and building that relationship with your clients, where you're able to have those conversations with them, let them know, hey, this fund that we thought was going to be, I never had a down month in 10 years.
Well, COVID hits and the business blows up and they're down 30% in a month.
Yeah.
And so I would say my investment philosophy is rooted in diversification, because no matter how smart you are, no matter how right you are when you make that investment, things will go wrong against you. And if your clients are diversified, then you make enough good bets, you're going to lose money in some places. I can't guarantee it, but I can almost guarantee you will lose money in some places.
Yeah. But if you do it the right way and you build good diversified portfolios, client experience will be good.
So for any advisor who's listening to this, who may not be allocating alts or allocating their clients' portfolios alts or whatever the case may be, talk a little bit about that evolution, the introduction of interval funds, BDCs, liquidity elements.
This is crazy. This is crazy. What's happening is unbelievable.
I mean, I don't know if you saw this, but Apollo and State Street.
Yeah, the ETF.
An ETF that's going to have private credit. This is going, you know, the Matt Brown from CAIS has been saying, you know, the CAIS, democratization of alternatives. That is literally happening.
And at first, you know, it's a great slogan, tagline, but it's happening. Product innovation has changed our lives, right? And if it's going to be an ETF, that's going to be really easy, right?
But from interval funds, which are registered under the 1940 Act, purchased daily, sold out of, you know, typically quarterly or semiannual interval fund, intervals, easy to use. Those are really great products for financial advisors. Getting the same exposure that 15 years ago, you'd have to put your money into a fund, commit for the next 8 to 12 years.
Yeah, this stuff is, if you believe these are good investments and they belong in someone's portfolio, then we shouldn't, in my opinion, be limiting them to people who have $5 million net worth, right? Why are you going to let the person who doesn't have as high of a net worth not access an investment that may be perfect for them? And so I think like this product innovation, I think regulatory innovation, all of these things are so powerful and good for investors.
How do you think the balance will be between the adoption of interval funds and products like interval funds, which has been, like you said, an incredible evolution and I think an incredible adoption curve over the course of the past few years, balanced with traditional drawdown?
You cannot price a 12 investment private equity portfolio daily and let people buy in daily.
Yeah.
But you go to the secondaries space, right? If you're doing private equity secondaries and you've got underlying exposure to 2,500 companies, max position size of 80 basis points, I think you can create a price. I know you can create a directionally accurate pricing model.
So I think certain types of assets you won't be able to do it with, certain types you will.
So there's always going to be a room for both.
I think you're going to have to. There's certain types of that. Now, I'll tell you one other thing, though.
Some managers are having to create what they're calling the operating company model now. That allows them to invest in the same assets that they're buying in their other funds in control investments. And the reason they're using that model is because they need relief from the SEC to do it otherwise.
And apparently the SEC doesn't give it very often. In my opinion, instead of saying, hey, we can't create the product this way, we have to do it this way because the SEC says that, in my opinion, they should probably be talking to the SEC and helping educate them on, you know, if it were this way, this is how we could benefit investors. Because if you're going to bet and fit in investors, I'm a believer that, you know, the regulators will listen, right?
They're there to help protect investors. If you come to them and you have an idea on how you can benefit investors and it's not going to harm them, I believe that there's rules or there's room for rule change.
Got it. Got it. That's super helpful.
So shifting gears, you've been in, you've been in Schechter for, you know, over a decade now. What's next? What's on the horizon for, is it just...
More gray hair.
More gray hair. Yeah, you and me both. What's next for the firm?
What's next for building of the business?
You know, that's a great question and it's something that I think about a lot. And one of the reasons I love coming to this conference, because you see and talk to other advisors and firms that have faced these questions and made a lot of different decisions, and you get to hear, okay, this guy did this and I liked it. The private equity experience in our industry is rapidly increasing.
You've got a lot of large roll up firms out there. You've got private equity ready to back firms with their growth. My feeling is, and careers long and I might change, but I'm obsessed with organic growth.
And a lot of advisors out there love the inorganic side. I don't think one's wrong or right, but when I think about my career, I want to just focus on, can I get more clients? Can I win more clients?
Can I keep my clients happy? Can I deliver a better service? And so for me, I'm very focused on what's going on in the industry because that might change.
And I think if we can add capabilities through inorganic growth, that could be interesting. But I'm more interested in the inorganic side, I mean the organic growth side. And so what comes next is I'm going to go back to Michigan and I'm going to try and win more clients next week and try and keep my current clients happy.
Yeah. How much are alts, just building off that, how much are alts a part of the initial client conversation? Is that a part of the initial discussion or is that kind of in the second, third, fourth discussion?
That's a great question. I think that alts are core to what we do and investors self-select advisors based on what that advisor specializes in. And they should know if you hire an advisor, you don't know what they specialize in.
You didn't ask enough questions. So for us, right off the bat, we're using alternatives. We're talking about alternatives.
So it's not educating a client three years from now on alts. They already, they came to us and they wanted to work with us because they knew that was going to be part of their experience. So it's critical.
One thing I'll say, alts force advisors to act, not act, but maybe talk like brokers sometimes, because you got to do a subdoc. So I got to go to a client and I got to say, hey, you know, this is a fund we're going to use. This is the manager.
This is all this information. And now the client's mind is, okay, I'm buying a fund XYZ. And I don't love that because I think as an advisor, our job is to help be a planner and asset allocator for our clients and help them reach their goals.
We should be, you know, we select and, this is our firm at least, we're discretionary advisors. We're selecting the investments. We're on the hook if they're good or bad.
It drives me crazy when you go to a client who's hired you and they say, no, I actually don't want that one. I want that one. Right?
Fine. Okay. But then don't judge my performance.
You have to judge your performance because I didn't pick that. So for me, that's the one frustrating thing and I'm trying to figure...Interval funds allow us to bridge this gap, but every line item investment in the client's portfolio sums up to a portfolio.
And focusing too much on any one line item takes away from the bigger conversation and leads to bad decision making, bad relationships, mistrust. It's just not good. So that's one challenge, I think, in talking about alts or any investment too much.
Because we're planners, right? We're helping our clients reach their goals.
And keeping it holistic.
Yes.
Yeah. Okay, so we're gonna wrap up here, but before we do, what is the... You have to give me three recommendations of things you're reading, watching or listening to that you would want people to pick up.
It could be educational or not, it doesn't matter.
Okay, so I read pretty much every night before I go to bed, and I love spy novels.
Okay.
Or cop novels and stuff like that. Nelson DeMille is my favorite author.
Leon Panetta was mentioning there's a really good spy novel out yesterday.
I'm going to have to find out, because I just...
I can't remember what it was.
I got to find out. Nelson DeMille is unbelievable. And I just am finishing a book called Plum Island that he wrote.
This is my fourth time reading it.
The same book?
Yeah, I do it all the time. I do it all the time. I probably read The Born Identity like 12 times.
Interesting. And if we can get my buddy, Nick Helfenstein, to listen to this podcast, he'll be reminded that he promised me he was going to get an autographed book from Nelson.
Got it.
So that's that. And then listening. I'm a country music fan.
Nice.
And Post Malone's new album.
It's so good.
It's so good.
It's so good, yeah.
I can't believe it.
Well, he also has a lot of stars.
He does. Every song is like, oh, you got Luke Combs on one and you got... It's unbelievable.
So that's pretty much, I would say, like, I get obsessive about a CD. And so one month, you know, if not a month, one, six, six months will be Morgan Wallen's straight. Every time I get my cards, Morgan Wallen.
Right now it's Post Malone.
Are you, are you Zach Bryan fan?
I wasn't and now I am.
He's so good.
He grew on me really hard.
Yeah, yeah.
Yeah.
It's my favorite country singer.
Nice.
Yeah.
All right.
Well, we appreciate you coming on the podcast. We appreciate you coming to the conference. We appreciate all your partnership over the years, and I appreciate the friendship.
Absolutely.
So thanks for coming on.
Thank you, Al.
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