Aequitas Capital Partners’ President Keith Gregg talks with Opportunist’s Managing Editor Leslie Stone about his company’s specialty financing verticals, his path from the Marines to the financial industry and his stance on the U.S economy.
Keith Gregg joined Lake Oswego, Oregon-based Aequitas Capital earlier this year to lead the company’s brand-new division, Aequitas Capital Partners. With nearly 30 years of executive experience, he has held leadership roles at prominent companies such as Wachovia Securities (now Wells Fargo), GE Capital and Prudential Investments, and most recently served as CEO and founder at FinTech companies Innovation Equity Partners and IEP Financial. His experience also includes presiding over a billionaire family office and asset management company in La Jolla, Calif., founding and chairing the Wealth Advisor Institute and serving as membership chairman of the Investment Management Consulting Association (IMCA).
Gregg is the former President and CEO of a $300 million securities brokerage and Registered Investment Advisory firm. He was the subject matter expert for the M&A team at GE Capital, where he assisted the company’s acquisition of Centurion Financial, which later became one the most prominent turn key asset management platforms in the financial services industry. He was also tapped to help build the independent broker-dealer channel for First Union Securities, predecessor of Wells Fargo Advisors Financial Network, where he was responsible for recruiting 550-plus wire house advisors who delivered in excess of $330 million in revenues and $60+ Billion in assets in less than five years.
Gregg is the author of Do Well by Doing Good: The Complete Guide to Charitable Remainder Trusts. A graduate of the Securities Industry Institute at Wharton School at the University of Pennsylvania, he holds FINRA Series 7, 24, 63, 65 registrations and a member of several industry associations including the Securities Industry and Financial Markets Association (SIFMA), Financial Services Institute (FSI), AAIP, Advisor Forum and Wealth Counsel. He also served in the U.S. Marine Corps and received the distinguished Presidential Service Award from President Ronald Reagan while serving aboard Marine One.
Opportunist: Can you tell us about your path from the Marines to the wealth management industry?
Keith Gregg: When I got out of the Marine Corps, securities brokerage firms were recruiting military veterans and Merrill Lynch in particular was hiring former Marines because the CEO at Merrill and most of the company’s leadership at the time were all former Marines and hard-charging former military guys. It was the post-Vietnam War era and they felt former military guys and gals had the discipline and competitive attitude to make it in the securities brokerage business. A.G. Edwards recruited me during the post-Tax Reform Act of 1986 era when the industry went from defined benefit plans to defined contribution plans. This was an environment where they wanted you to be hard charging and fear less. We were promised there were no limits to what you could make or wanted to earn. I look back on nearly three decades later and realize it’s been sort of a ‘Mr. Toad’s Wild Ride.’ [Laughs]
Opportunist: How has the industry changed since then?
Keith Gregg: Since my first stock market crash and correction in 1987 to the fixed income sell-off in 1994, the advent of the information age and the Internet to the tech bubble bursting and then the scandalous activities—whether it be insider trading of the late 1990s to the likes of Bernie Madoff—it has changed from a sales culture with very aggressive sales posturing to more of a consultative, solutions based sales effort. So, I would say it’s gone from more of a product sales industry to solution-based sales because we are providing solutions now as opposed to selling a product.
Opportunist: How so?
Keith Gregg: The biggest issue has been the advent of the information age and access to information. Years ago, the investor had to come through a financial intermediary, i.e., an advisor, to get access to products and services that weren’t available to retail investors themselves. Today, information is accessible 24/7 anywhere by anyone and access to products and services is also readily available in most cases depending on what you want. The wealth advisor of today must provide solutions, advice and guidance to help the investor with planning versus buying products. People don’t plan to fail; they fail to plan. Who helps the investor make sound decisions in protecting the wealth they will ultimately pass on to their families? Let’s not mistake information and access with that of education and experience. There is a great deal of confusion in the marketplace and clients rely on high quality advisors to help them with all their wealth needs. During the 1980s and 1990s, and even the 2000s, investments were central to the industry. It’s no longer about investments. There is a great deal more wealth now than ever before, so you need to be a wealth advisor versus an investment advisor.
Opportunist: What’s the difference between an investment advisor and a wealth advisor?
Keith Gregg: Two-thirds! Two-thirds of wealthy investors’ wealth is not your typical investment associated with the stock market. One third of their assets is investment products, and is a byproduct of what they’ve done to create their wealth. Wealth advisors make 66 percent more than the average investment advisors. Perhaps they accumulated wealth by building a business and being part of the enterprise they created. Now they have homes, yachts, and thoroughbred race horses and they’ve got all these other needs that the advisor must focus on how to protect, preserve and pass on to future generations as opposed to simply buying investments.
I am actually providing real help and assistance on a couple of fronts. I help wealth advisors be of greater value to their clients by solving their fixed income needs. Wealthy folks are not so much concerned about making money as about keeping it and getting a return on their money. We specialize in private credit strategies and private notes that provide enhanced yield anywhere from 7 percent to 9 percent over a one-to three-year period. This is a terrific fixed income alternative investment to CDs or bonds, with yields of 1.5-2.5 percent that may be subjected to interest rate risk.
Opportunist: How do you accomplish that?
Keith Gregg: First, our goal is to provide wealth advisors with a solution that satisfies their high-net-worth client’s fixed income needs. This is accomplished through a private credit strategy or a private note that gives them a competitive advantage in the marketplace by giving them access to institutional quality investments and democratizing it for retail investors. Second, we strive to provide capital to help the advisors grow their business. If the advisor is doing business with us here at Aequitas we want their business to grow because when they grow we’ll grow with them. Ultimately, the client wins by accessing a higher income producing investment, their advisor wins through access to capital for growth and better products for HNW investors, and Aequitas wins through advisor relationship and assets from wealthy investors.
It’s kind of what I have tried to do my entire career. I will never be in a position that provides a product or service that is only good for one side of the equation. Creating win-win-win relationships is very gratifying!
Keith Gregg: Aequitas is celebrating 21 years of existence and success. It started out as kind of a merchant bank and investment banker advising small- to mid-size businesses on strategies for accessing growth capital, assisting with capital formation and raising capital in the form of equity, debt or a combination of the two. Today we are a specialty finance, asset management and wealth management firm.
Over the years we have helped many businesses, and we now take advantage of the investments we have made in private companies and make them available through private equity and private credit investments for HNW investors. These are mature, growth companies with positive earnings that are private. We are best known for our private credit strategies and private notes. In the credit business there is a saying that ‘People buy coupon, and institutional investors invest for spread.’
Opportunist: What industry sectors is Aequitas involved in?
Keith Gregg: Our specialty financing verticals are in three areas: education, health care and financial services.
Health care deductibles have doubled for many patients that go for medical care, so we offer gap financing to help them pay their bills. We actually invest in these hospitals, which are terrible at collecting from the patient and have a collection rate of 10 percent or less. What we do is offer to collect the funds from the patient on behalf of the hospital and guarantee no less than a 30 percent recapture of the receivable.
Opportunist: How does Aequitas do that?
Keith Gregg: We issue an interest free credit card that allows the patient to pay their hospital bill over 24 months. That business is growing and has doubled and we originate over $200 million in loans in the healthcare industry alone. We provide gap financing and affordable student loans on behalf of colleges and universities all across the country.
For wealth advisors, called RIAs or Registered Investment Advisors, we are providing growth capital in the form of equity, debt and asset based lending as well as succession planning. These are yet again small- to mid-size businesses that have limited access to capital for growth and acquisitions. When we provide the capital we can pick up more distribution opportunities for origination and distribution. We re-appropriate or reinvest those monies in the form of private equity and private notes to investors.
We are acting like a private bank with expertise in education, health care, and financial services.
Opportunist: How does Aequitas stand apart from the competition?
Keith Gregg: We have what’s called the Aequitas way and that is really all about building mutually beneficial relationships—true win-win partnerships. We look to solve for real capital needs in the real economy, in areas that serve the greater good—such as education for building a brighter, smarter work force and informed citizens.
Healthcare is for solving the woes of affordable health coverage and patient care. Our investments in financial services include helping RIAs to provide better alternatives for investors than lower yielding fixed income products and manipulated stock markets.
We are looking for a few good men and women to be partners with Aequitas versus product sales folks. Building winning relationships is our mission. We can provide our partners with intellectual, monetary and human capital.
Opportunist: We understand 2014 has been a prosperous year for Aequitas.
Keith Gregg: Yes, business is growing at a rate of 15-20 percent per quarter. In fact, for a firm that just five years ago had 17 employees, we added over 50 employees already this year and now have more than 220. In each of our three verticals—health care, education and financial services—the firm is experiencing exponential growth and we expect to double our business yet again over the next few years. We will double the size of our firm this year as we employ more people and put real people back to work to support the real economy—not one artificially created by the government.
We recently acquired a specialty finance credit firm called Maple Bay with offices around the country and the globe—in Oregon, New York, and London. These executives ran the wildly successful Morgan Stanley Credit team prior to the credit crisis in 2009.
We are also building a brand-new division that I run called Aequitas Capital Partners; it is the retail distribution for Aequitas Capital Management.
We are assembling some of the finest RIAs and wealth management firms in the country to be distribution partners with Aequitas Capital. We will build the most exclusive RIA membership network in the country; it won’t be the biggest but it will be the best. There is an exclusive billionaires’ club called Tiger 21—the premier peer-to-peer learning network for high net worth investors—and this is where we want to be. Member 22 is waiting for 18 to die to gain access.
By the end of the year, we will surpass a very big milestone for the firm when we reach in excess of $1 billion in balance sheet assets. It’s one thing to claim somebody else’s money as yours; it’s quite another to have it on your own balance sheet.
Opportunist: What do you find most rewarding about your work?
Keith Gregg: Creating the win-win-win relationship. When I look back at all the relationships I’ve had in the marketplace and in the business, many of which have developed into great friendships over the last 25 years, what mattered the most was that it was a win for the client, a win for the advisor and a win for me to create that relationship. That, to me, is the greatest success and enjoyment.
Opportunist: What is your greatest fear in the markets at this time?
Keith Gregg: From my personal perspective, any correction based on something scandalous could do irreparable damage to the markets. If we go through another investment scandal like Madoff or a situation similar to what author Michael Lewis writes about in his latest book Flash Boys, I fear the public’s confidence will be so shaken they will believe the markets are rigged and lose trust in their ability to be fair and equitable. The economy is shoring up and the markets are not oversold at this particular point, especially with interest rates being low. Unless we scare the retail investor away, I believe it’s really fair and equitable. So no more scandalous activity!
Opportunist: What inspired you to write your book Do Well By Doing Good?
Keith Gregg: In the late-‘80s when I was doing investment seminars I met a couple named Jim and Jean MacLaine who said they wanted to buy some annuities from me. I thought Great! I’d like to sell you some. But it wasn’t that easy. They had $600,000 worth of highly appreciated dividend stocks and if they sold them they would have to give up one-third to income taxes. So I consulted this terrific estate planning attorney I had worked with, who taught me about charitable remainder trusts or CRTs and leveraging estate planning techniques and how establishing a charitable remainder trust would actually allow the couple to give that stock to the trust, sell it and reinvest it without ever paying taxes—and ultimately get a charitable tax reduction. Most people couldn’t even spell charitable remainder trusts back then [Laughs] and I learned how to teach people how to do estate and tax planning simultaneously.
After seven or eight years traveling around the country doing presentations on CRTs, I was asked to do a presentation and speech at the D.C. Fundraising Days event hosted by the National Society of Fundraising Executives and spoke about coupling the financial and economic benefits of estate planning using CRTs. A woman asked me if I was published and when I told her no she said ‘You need to write this; you’ve got story after story about how you’ve helped people avoid paying income taxes and truly create this kind of win-win situation.’ CRTs really are a win for the investor, a win for the charity long-term and a win for the heirs because, through appropriate estate planning, they can replace 100 percent of the estate back to the family, tax-free. They bypass capital gains tax, and upon the death of the second to die the charity gets the remainder of all those assets and the family gets 100 percent of those assets replaced back to them—all income and capital gains and estate tax and income tax free through a wealth replacement trust funded by a life insurance policy. The catalyst of it all was that I was asked to present my experience on my findings and success through the years. It was essentially nothing more than recapturing my life experiences of helping people do well by doing good.
Opportunist: Was your book well received?
Keith Gregg: I never expected to make a nickel. [Laughs] Then, lo and behold, a lot of the insurance companies and charities were buying the book to educate advisors and donors, and before I knew it tens and tens of thousands were being sold!
Opportunist: Do you envision yourself writing another book?
Keith Gregg: The short answer is yes—when the dust settles. It will probably be about putting one man’s life in perspective and living with significance. That’s not unlike the last chapter in my first book, which is dedicated to Ralph Waldo Emerson and his quote: ‘It is not the fear of dying I have—it is the fear of dying without significance.’ So it will most likely be about living with significance and how to build those win-win-win relationships that last a lifetime.
Opportunist: What is your stance on the U.S. economy?
Keith Gregg: I wouldn’t say we are out of the woods yet. It’s still relatively fragile. The recovery is happening but not fast enough. Unemployment is still too high. But as the old adage says, ‘Time heals all wounds,’ so I think that unless there is some catastrophe like a war and the associated costs that we become engaged in, or some destructive mechanism in the banking industry yet again, the economy will eventually be fine.
Negative GDP growth in the first quarter was a wakeup call. With innovation, trust and bold leadership, I believe we can build our way out of this. When JPMorgan Chase CEO Jamie Dimon announced that his company has pledged $100 million to Detroit over the next five years to support and accelerate the bankrupt city’s economic recovery, he made a bold leadership move. Hopefully, others will stand up and follow suit. Detroit was the foundation of a labor force that brought the automobile industry and Motown to life. How do we revive that community? With time, money and people. Those are the three key ingredients required to create a successful outcome. You can’t do it with the absence of capital infusion. It takes good leadership and investment of time and money.
At Aequitas, we are about time, money and people. We put our money where our mouth is and put an infusion of capital into businesses so they will continue to grow. That is precisely what our economy and our country needs. It’s not just about the money, though. As I wrote in my book, you have to do the right things and money will come.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @lescstone.
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