A Conversation with Cambridge Investment Research Founder Eric Schwartz

When Eric Schwartz founded what is now Cambridge Investment Research, the Fairfield, Iowa-based independent financial solutions firm, he had a clear vision of what he was building and why. In the almost 45 years since, he’s had a front-row seat to the trends and developments that have transformed the face of wealth management – and has remained vigilant in his dedication to his original vision.

In an era of growing demand for its services, the wealth management industry has, in effect, become smaller in size as fewer, though larger, firms dominate and alter the competitive landscape. As firms are subsumed by consolidation, aggregation and M&A activity, financial advisors find themselves going along for the ride … one they never bought a ticket for.

Since its establishment, Cambridge has remained steadfast in its dedication to its original business model: as a privately held entity, it remains an outlier among its competitors. It’s a story that has not only endured but continues to resonate with independent advisors across the nation.

Industry stalwart Schwartz, who was a founding member of the Financial Services Institute (FSI) Board of Directors, is no longer involved with the day-to-day running of Cambridge. He leaves that to his carefully selected team of executives who, like him, own stock in the firm. Schwartz remains an important force at Cambridge in his role as Co-Chairman of the firm’s Board of Directors.

I’ve worked with Cambridge in the past and have always been impressed with its leadership and rank-and-file employees. I recently spoke with Schwartz to discuss Cambridge’s hard-won successes, the legacy he is building and how the firm intends to stay faithful to its origins and culture in an industry where sea change has become the norm.

Sander Ressler: You have decades of experience in wealth management. What do you make of the industry today, and where do you see it going?

Eric Schwartz: Wealth management is a dynamic industry and all of the M&A and private equity participation we’re seeing reflects that: it’s a good place to invest your money. Unfortunately, all the interest in the space has shifted the focus from advisors and clients to the bottom line. This fosters an atmosphere that forces advisors to constantly wait for the next shoe to drop. 

Look around at the players, and pretty much all of our competitors have sold at least once, and most of them have sold multiple times. I see this type of consolidation continuing because most wealth management firms have a business model that makes it all but inevitable. And they’ve not put anything in place to stem the tide. 

This environment distracts advisors from their primary objective of supporting their clients, and for what? A few basis points of efficiency? That isn’t the reason I got into this business. And I’ve never heard an advisor talk about that either. However, there has never been a good advisor who doesn’t talk about serving clients as a primary goal. 

At Cambridge, we’ve had a strategic plan in place for nearly 45 years that clearly outlines our intent – and the actions we’re taking – to remain internally controlled, truly independent and beholden to no one but our advisors – empowering them to better serve their clients. 

SR: So, your plan is your secret sauce?

ES: I suppose you could call it that. But it’s no secret. We’ve been completely transparent with who we are, what we stand for, what our plan entails and how we’re going to achieve it. Since 1998, we’ve been executing our plan – and refining it as needed – to ensure we can achieve our goals of staying internally controlled and independent. It’s been out there for everyone to see. 

For the past 25 years, we’ve been selling stock internally. In 1998, I owned nearly 100% of the company. As part of the plan, I’ve given approximately 25% of the company’s stock to my charitable foundation. Additionally, 25% is held by our senior leadership team and advisors. Now, I own approximately 48% of the firm and 52% is held nearly equally among the trust and the leadership. 

Full transparency is what our advisors and associates deserve.

SR: When you’ve been working for periods that can be counted in decades, you often start thinking about what comes next. How does your plan ensure this vision of true independence continues into the future, especially after you’ve stepped further away from the business?

ES: While there are complexities, at its foundation, our plan incentivizes those in charge to keep our business running as it always has – independently. I’ve spent nearly 30 years working with Amy Webber, our CEO, and other members of the senior executive team, who control a significant portion of the company. Their approach to the business is grounded in the same values I hold: ensuring our advisors are at the center of our decision-making process. We maintain voting control of the company and if anything were to happen to me, a plan is in place to ensure my shares will support Senior Leadership’s efforts to maintain that voting control. This plan has been in place for years, and while periodically updated to reflect changes in the industry, its purpose has always remained the same – to protect our independence, so the financial advisor can control their journey.  

And it’s not like I haven’t been approached. During this period, we’ve turned away at least 20 or 30 different private equity firms, public companies and investment bankers looking to buy the firm, but we’re not interested. I’m not interested, our current leaders aren’t either, and our advisors don’t have to worry about a shoe dropping at Cambridge. 

Sander Ressler is Co-Owner and Managing Director of Essential Edge Compliance Outsourcing Services, LLC, a strategic consultancy specializing in compliance and regulatory affairs for broker-dealers and registered investment advisers (RIAs).