Pilates instructor, barista and actor: these are among the career backgrounds of those now managing $2.6 billion at Morton Wealth. The Calabasas-based firm doesn’t shy away from talking about its employees’ backgrounds outside of finance. In fact, the firm credits these perspectives for honing its unique approach to wealth management, which recently resulted in the firm’s best quarter in its 40-year history.
The company credits its unique employees and push to asset-backed lending for garnering its record-setting returns amid a high interest rate environment.
The firm now manages assets on behalf of 1,100 clients and has seen an uptick in client interest since macroeconomic headwinds brought on by the Covid-19 pandemic exposed many stock market investors to loss and uncertainty.
Unlike most wealth management firms, which commit half to two-thirds of their portfolios in the stock market, Morton reserves only a third of its assets – at the most – for the market at a time.
While unconventional for an industry built on formulas and models, Morton has been courting entrepreneurial clients through its distinctive approach since its founding.
“That nontraditional background makes it so that we’re all more impact driven, as opposed to just data driven,” said Stacey McKinnon, the firm’s chief operating officer.
The firm’s unique approach to hiring people with backgrounds that aren’t strictly financial has been around since the beginning.
Jeff Sarti, Morton Wealth’s chief executive, credits the firm’s founder for its approach.
Lawn Morton, a former professional baseball player who founded the firm, brought Sarti on in 2004.
Sarti was at the UCLA Anderson School of Management studying real estate. He had bounced around multiple industries, even trying wealth management on at one point, but remained disillusioned due to what he called “the industry’s lack of excitement.”
But Sarti believed Morton’s strategy outpaced an industry that can be slow to change, and this kept him intrigued. Ultimately, Sarti was named as Morton’s successor.
“In many ways his lack of traditional Wall Street experience was actually his strength,” Sarti said. “He was very entrepreneurial – brilliant, but not classically trained, so he had a very different approach.”
Today, Morton’s firm continues to seek the nontraditional. From top to bottom, the majority of the people within the firm come from other industries, and that’s intentional.
McKinnon, the chief operating officer, was hired by the firm’s chief investment officer, Meghan Pinchuk, after making an impression as her Pilates instructor.
The firm’s 55 employees include a former teacher, people who worked in restaurants or coffee houses, and a former actor. According to McKinnon, including different backgrounds, especially those where an emotional connection is emphasized, allows for clients to tap into different industry expertise.
“One of the things that surprised me the most about this industry is (how) we play the role of life coach and therapist as much as we play the role (of) financial advisor,” McKinnon said. “It’s because money is sensitive, it’s emotional.”
More online options available for wealth management
Morton Wealth sees firsthand how digital marketing now pressures clients into unverified investing methods, and updated its business model to pull its clients back to reality.
The firm used to meet clients twice a year for a checkup. With the onset of digital investing options, where push notifications and digital marketing fuel hype cycles on assets, the firm now runs a tracking list to see each client at least every other month for smaller check-ins.
“It’s become incredibly important for us an organization to be connected with our clients,” McKinnon said. “Because otherwise, if they don’t have us as a resource, they will find another resource.”
Digital wealth-management platforms have disrupted the space and clients’ expectations across the industry. But both Sarti and McKinnon warn these low-cost and low-barrier investment options reinforce the formulaic bubble Morton Wealth believes is unreliable.
“It’s very dangerous,” Sari said. “It reinforces a silver bullet-type approach with regards to investing short term versus long term. That’s something we’re always cognizant of and battling against.”
The firm is also shifting to cater to more Millennials now committing to long-term financial planning but perhaps without the net worth of Morton’s typical clientele.
Its standard offering is a $15,000 minimum fee, which when factored against the 1% charge on assets puts most clients at about $1.5 million in assets.
To meet earners in the 30-to-55 age range, a year ago the firm launched in stealth a program called Modearn, which McKinnon described as a concierge doctor crossed with a personal trainer for finance.
This service aims to get younger customers on board and broaden the firm’s base past the typical high-earner profile associated with wealth management. Modearn runs on a $6,000 per year flat fee, and offers services such as behavioral finance training and estate planning. McKinnon says the firm will likely launch the program officially in the fall.
Morton’s real-world investing
Morton doesn’t shy away from showing its strategy. In January, Sarti published a column in Forbes outlining his firm’s resiliency plan amid an environment where uncertainty will only increase.
Asset-backed lending remains critical to the firm’s portfolio building. While cash-flow lending focuses on revenue and earnings, this line of credit focuses on the value of existing assets, which can ultimately serve as a backstop for potential losses.
In Morton Wealth’s view, these asset types can achieve their return across economic outcomes, compared to cash-flow lending, which depends on positive economic scenarios far outside both the company’s and investor’s control.
“Having that resiliency in terms of that collateral is something we crave as lenders,” Sarti said.
A real-world tie-in allows Morton to reduce risk, and for clients to grasp exactly what they are putting their money into. McKinnon highlighted some assets such as boat-finance flips, where one can invest in the rental incomes at marinas, distilleries, and health care royalties, where a drug inventor receives a lump sum to develop a new product while investors cash in on his or her previous drug-sale royalties.
For a client base made up of small-business owners and entrepreneurs, the tangible feel to what a financial advisor is outlining allows a real-world tie-in to what could be an unfamiliar risk outside of the stock market.
“Our investors appreciate the fact that a lot of what we’re bringing to the table and our unique investment strategies is actually how they experience their life,” McKinnon said.
As the Southern California entrepreneur base grows, Morton Wealth remains optimistic its nontraditional strategy and emotional focus will resonate with future cohorts of founders and business owners – even if they contribute to the automated tech rapidly changing its industry.
“At the root, the service we provide is having true, vulnerable conversations with our clients around these emotions,” Sarti said. “All of those complexities from the social point of view, I don’t see how technology can really solve some of those issues.”