When it comes to investing, it seems everyone wants to beat the system, find the silver bullet, gain an edge that will make us the envy of all our friends. So much so, every investor becomes inherently vulnerable to countless pitches where all their greatest hopes and aspirations are pledged to be fulfilled with the swank services of brilliant managers. The problem is, these solutions come at great cost and often fail to deliver the incremental results they promise. Segment Wealth Management believes there is a better way.
When Segment’s founder, Gil Baumgarten, went to work for brokerage powerhouse EF Hutton in 1984, he was looking to succeed by helping his clients succeed. At the time, the culture at brokerage firms was client-first and the broker-client relationships reflected that. But the big banks were about to enter the business, and they had big plans to bundle it all up under one roof. Merging a bank, a brokerage, and an insurance company had been illegal for seven decades due to systemic risks laid bare by the Great Depression. The mega-merger rules were relaxed in 1999 and Baumgarten was immediately skeptical much good would come of the first merger of that type. Nine years later, in 2008, we saw why those previous rules had stood the test of time. Baumgarten says, “these mergers presented not only systemic risks to the economy, but also put the mega-firms in a position to bully their advisors and demand allegiance to the firms’ directives, which generally focus on profits for the firm.”
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It was then that Baumgarten decided to make a break for it, and he set up Segment Wealth Management as a firm unencumbered by the brokerages and their transactional mentality. He re-registered with the SEC as a fee-only fiduciary, requiring him to favor the client’s interests at every turn. His experience at the big brokerages allowed him insights into what made portfolios inefficient. He noticed the correlation between layers of costs and inefficient outcomes, including taxes as a byproduct. His approach gained steam, with the wealthiest clients noticing the greatest impact. Since its inception in 2010, Segment Wealth Management has since grown to a top-10 firm in Houston, as recognized by the Houston Business Journal, with nearly a billion dollars in client assets. His client advocacy model is working. Baumgarten points out that, “While brokerages lobby to reject the fiduciary standard of client care, they simultaneously and proudly point out the small fragments of their business where client interests do come first. You can’t have it both ways.”
Baumgarten was an early adopter of Exchange Traded Funds, which today are quite popular. ETFs, as they are called, have unique features that often lower client costs and offer tax savings in the way they compound. His use of them has become so significant, he was named a top-20 ETF thought leader in America by BARRON’S in May of 2019. But Baumgarten and his team, including a CFA and CPA, also build portfolios from scratch with individual securities to drive client costs even lower and gain still greater tax control.
It’s ironic that back in 2003, Gil had trouble convincing his prior brokerage firm that embracing ETFs and abandoning commissions and conflicts was so good for client trust, that the sacrifice would pay for itself. Turns out he was right. Segment now stores that near-billion dollars in client deposits at Schwab and other low-cost providers. Now he finds his low-cost, low-tax methodologies often run circles around the more complex solutions the brokerages still love to present to clients.
Over the last 10 years, Segment has seen countless clients come through the office door wanting something different. Baumgarten’s high-touch wealth management business has offered exactly that. The firm’s services are reminiscent of an outsourced family office for the very wealthy, and it’s no surprise many of Houston’s wealthiest families have entrusted their family legacies to Baumgarten and his team. His journey through the brokerage business resonates with the very reasons these families are searching for a better path, with Baumgarten as their guide.