Alternatives Boost Schechter's Fast Growth
December 10, 2024
Schechter Investment Advisors has tripled its business in the last five years, in part by introducing its high-net-worth clients to alternative investments, according to the firm’s leaders.
To a large extent, alternative investments are still dominated by institutional investors, meaning many high-net-worth retail investors are missing out. It is an area that Schechter is cashing in on for its clients, according to CEO Marc Schechter.
Schechter Investment Advisors, a full-service financial firm based in Birmingham, Michigan, was named a runner-up in Citywire’s 2023 report of the fastest growing RIAs in Michigan. The firm grew from $1.25 billion in AUM and 300 clients in 2019 to $3.7 billion and 700 clients as of September 30, 2024.
“We are pleased with our growth, but not satisfied. We know we have to keep improving to stay ahead of other advisory firms,” Schechter said in an interview.
“We have our eye set on $10 billion in AUM within another five years,” he said. Much of the past success can be attributed to diversifying clients’ portfolios with the use of alternative investments, including private equity, hedge funds, commodities and real estate.
“Institutional investors devote on average 40% of a portfolio to alternatives, but high-net-worth investors usually have less than 10% of their portfolios in alternatives,” said Aaron Hodari, managing director and chief investment officer at Schechter Investment Advisors, in an interview. “We are aiming at 20% to 30% of a portfolios in alternatives for our clients in a combination of asset classes.
“The mix changes depending on the client, but almost everyone here has some money invested in private credit. Our goal for our clients is to get as broad of a range of market exposure as possible,” he said. “This provides diversification and protection during downturns. It also allows our clients to more fully participate in the market during upturns. While other RIAs are starting to become more familiar with alternatives, Schechter has built relationships with alternative investment firms over the years to provide this asset class to our clients."
Schechter believes investors can experience average asset class returns of approximately 9% on private credit investments, 7% on real estate, 10% on private equity, 7% on public equity and 5% on fixed income.
“Diversity is so important because all asset classes have been positive and all are important to the clients’ portfolios,” Hodari said.
“We got into this area because we felt many investors were not receiving the level of expertise they needed,” Schechter said.
The firm started as a provider of estate planning and insurance, but it also provided clients with investment ideas they could take back to their advisors to implement.
“We realized we could do a better job for them on the investment side than their current advisors were doing, so we evolved,” Schechter said. “Now, we want to keep improving and adding new services.”
Schechter Investment Advisors targets clients with $10 million in investable assets, but has many with less. All new clients are from referrals.
One trend that has boosted the use of alternatives is evergreen funds that provide quarterly or yearly liquidity and are now more readily available. The liquidity means the money in the funds does not have to be tied up for years. Schechter Investment Advisors has been taking advantage of this shift to liquid funds for years.
“Other advisors are now beginning to educate themselves on the asset class. This is where people have seen a significant differentiation between our advisors and others,” Schechter said.
“Our difference comes out when potential clients are interviewing us and when we do reviews for existing clients,” Hodari said. “Up-to-date technology is important, too, and we have that, but the relationship with the client is the most important thing. It takes a long time to build trust.”