Domain Experience

Podcast Transcript

Ed Coyne: Hello, and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott. I'm pleased to welcome one of Sprott’s own, Robert Villaflor, CEO at Sprott Wealth Management. Rob, thank you for joining Sprott Radio.

Robert Villaflor: Thanks for having me.

Ed Coyne: Rob, as a new guest on Sprott Radio, before we get into what Sprott Wealth Management is and what you do, I thought it'd be beneficial to hear a bit about your background and how you found your way to Sprott.

Robert Villaflor: Thanks, Ed. I have been in the securities industry for over 30 years. I was raised to be in the industry, so to speak. My father is an active investor. Growing up, during our car rides together, instead of talking about sports, he would often want to discuss stocks. He'd want to talk about investing. He'd want to discuss interest rates and how they impact bond prices and options trading, among other things. Upon graduating from university with a major in finance and an MBA in finance, I immediately obtained a license in the securities industry.

I was with a startup firm in the early 1990s. That gave me the opportunity to learn all aspects of the business, from opening new accounts to working on the trade desk, in compliance, in operations and eventually running a firm in the Chicago area. When I was running that firm in the Chicago area, we did a lot of business with the Royal Bank of Canada in Minneapolis. They asked me to be on their advisory committee, which I'm still a member of today. Through a relationship on the advisory committee, I was approached and asked if I'd be interested in running a brokerage firm in Southern California.

Living in Chicago in the winter, I looked out my window at a snow-covered parking lot. When I visited San Diego, the view from my office was of a golf course and the ocean. It was pretty tempting. That's how I came to Sprott 10 years ago.

Ed Coyne: It sounds like it didn't take much arm-twisting. I've been at the firm for about a decade as well, and I've watched some of the great things you've done and how Sprott Wealth Management has really evolved. Could you walk us through that a little bit, and then we can discuss how this translates into a value proposition for investors and what that looks like to them? Talk about that evolution over the last decade or so.

Robert Villaflor: The firm that I ran in Chicago was not a natural resources firm. When I came to Sprott, the first thing I noticed was that the brokerage model was misaligned with the services we provided to our clients. Let me expand that a bit. In the brokerage model, you charge a commission for a trade. You're incentivized financially only when you do a trade, buy or sell. The way that our advisors work with their clients in the natural resources space is a very long-term process. They might recommend a stock, buy it, and follow it for years before the company has a liquidity event, at which point it will be sold.

We're really in the business of providing advice. We provide long-term advice, and that's the model that I moved to. We transitioned from a brokerage model, which was essentially 100% commission-based, to a 100% fee-based advisory model, providing personalized advice. I can expand on why I think that's a better fit for our clients.

Ed Coyne: Let's start with the hard part first. I think it'd be interesting and fun to talk about some of those hurdles or challenges you had to address first before you got everybody on board to get going from the sales brokerage model to more of the advice model of the business.

Robert Villaflor: A number of things. One is inertia. If you've been in the business your whole life doing it one way, completely changing your business model can be challenging. Two, they needed to take new licensing exams. For people who want to be an advisor, you have to register with the SEC, you have to take FINRA exams, and so on. That was also challenging. I would say one of the things that made it very successful is that I was asked to present my vision to the board of directors at Sprott in Toronto. Our current CEO, Whitney George, bought into it wholeheartedly and provided full support.

Once the advisors discovered that working with their clients in a new way, advising them instead of just being incentivized by doing trades, was a better fit for both our advisors and our clients. They're now fully aligned. We do better when they do better.

Ed Coyne: Talk about that. What are some of the key value propositions? If I were an investor coming to Sprott Wealth Management and wanted to work with you, what are a couple of the value propositions that would likely make me want to come on board?

Robert Villaflor: First of all, we're held to the highest standard in the industry, which is the fiduciary standard. Everything we do for our clients has to be in their best interest. We cannot sell them something or present a trade to enrich ourselves. The other value proposition is that the natural resources space is really tricky. We're not buying Apple or Walmart stock. These are very esoteric companies, especially when you get into the junior mining space. We have geologists on staff. We have a morning meeting every day to reviethe w previouday's s news, whether it's from Canada, Australia, the U.,S. or elsewhere.

We send geologists out to inspect mining sites and examine drill results firsthand. I'm not sure how you can effectively be in the space as a do-it-yourselfer or with a generalist security advisor, either. We're specialists with deep expertise in this area.

Ed Coyne: Speaking of being a specialist specifically in the mining stocks, you mentioned the seniors. I would assume a senior would be the equivalent of something you'd see in the S&P 500, for those who aren't familiar with that term. The juniors, perhaps, would be like a Russell 2000, a more small-cap type company. Do you have clients who are actually coming to you and wanting to invest a significant portion of their money in mining stocks? Then, can you advise on other ways to think about allocating, or are you solely just focused on the mining space?

Robert Villaflor: That's a good question. We can handle all asset classes, but we are definitely specialists in natural resources. That's what we lead with, and that's where our expertise is. We have a relationship with the Royal Bank of Canada. Suppose they want to diversify into general securities. In that case, we can hire asset managers from the Royal Bank of Canada, or we can develop our own in-house asset allocation model, which Ryan McIntyre created for large family offices that he works with.

Ed Coyne: If I understand this correctly, there are the traditional investors that come in, and maybe they've got a $1 million portfolio, and they want to put 20%, $200,000 into mining stocks. They may carve that out of their other investment relationship with whatever advisor they're using and go directly to you for that. That sounds like one way to do it. Or are you seeing advisors working with your advisors on helping them allocate? Then the last one would be, as you mentioned, family offices, institutions, and so forth. Could you walk me through all three of those and help me understand how you work and what that looks like?

Robert Villaflor: Our bread and butter is high-net-worth clients, and we can work with family offices as well. We typically start with their natural resources sleeve. To your point, they come to us for that 20% because their advisor at XYZ wire house lacks expertise in this area. Over time, we hope to earn a larger wallet share by forging long-term, strong relationships with them. We lead with our expertise in natural resources.

Ed Coyne: It's predominantly that if you're an individual high-net-worth investor, or family office, you are the go-to for anything related to the precious metals space.

Robert Villaflor: Precious metals and critical materials, yes.

Ed Coyne: What are some of the themes that your advisors are talking about right now that could be fun to share with our listeners?

Robert Villaflor: Our bread-and-butter client is typically interested in gold and silver, using them either as a hedge to the rest of their portfolio, but as you move down the equity market cap, they use it as leverage for the price of gold. For wealth creation or wealth retention, silver has been a hot commodity with a lot more movement than gold. That's been of interest.

Obviously, copper has been hugely interesting to our clients. Steel. It's exciting. Most of our clients initially started out interested in gold, but we are now attracting more clients who are interested in commodities like uranium. For example, during my recent trip to the East Coast, I spoke with an asset allocator from a multi-family office. If they've heard of Sprott, they usually say, "Oh, the gold guys." He actually said, "Oh, you're the uranium guys."

Ed Coyne: Wow.

Robert Villaflor: I was like, "Wow. Okay, wow, we're really getting our message out there on the critical materials side." We're starting to receive a lot more generalist investors contacting us because their advisors are unfamiliar with this space. They see the headline in The Wall Street Journal, but as for where to allocate those funds, they're really at a loss.

Ed Coyne: You just mentioned leverage to the price of gold. Is that typically the case, then, when looking at underlying mining stocks themselves, or where are you getting that leverage from?

Robert Villaflor: Yes.This is the way it was described to me, and it makes a lot of sense. If you think of a bullwhip like Indiana Jones, the price of gold is the handle. That's going to move first. The price of large mining companies is next. They're going to move later, but they're going to move more. Then the tail end of that whip will be the junior miners. They're going to move last, but they're going to move the furthest and the fastest when they finally have that momentum. That's what we're starting to see now. The price of gold had been rising for a long time before gold equities started to catch up.

Ed Coyne: The term "overcrowded trade" is a fascinating one that’s being thrown around. It feels like it's an overcrowded market in terms of people discussing it, but in terms of allocating to it, we're just starting to see that. I really like that bullwhip analogy because it makes a lot of sense. As you were saying, I was drawing a bullwhip, and I was like, "Actually, I get it. That's good. Not bad." Then what about on the debt side? Are you doing anything in the credit debt markets at all? Are there any opportunities there? Is it primarily the physical market and the equities themselves that are driving the price?

Robert Villaflor: We would access those through other Sprott private strategies. There are different ways that our clients can work with us. We offer separately managed accounts (SMAs). You own each individual security in the model portfolio, providing ultimate transparency. Those are run by our portfolio managers throughout the Sprott organization, both in California, Connecticut and Toronto. They can work with an advisor individually for bespoke accounts or access one of our private strategies.

For high-net-worth clients, there are unique investment opportunities outside of individual securities.

Ed Coyne: It seems pretty cool to me that if you want to go beyond maybe just the traditional active mutual fund or ETF or even a factor-based ETF, you can custom-build a portfolio of not just gold or silver mining stocks, but maybe even uranium and copper mining stocks, and build it as one basket or one solution for an investor.

Robert Villaflor: That's exactly right.

Ed Coyne: That's cool. For those who are listening and think, "Hey, this is something I might have some interest in," what is the best way to track you down, learn about your services, and explore how they could potentially work with you? What's the best way to contact you?

Robert Villaflor: Sure. They can Google Sprott Wealth Management. They can visit the sprott.com website and click on Wealth Management. That's what we do. They can send an email to us at wealthmanagement@sprott.com or call us at 800-477-7853.

Ed Coyne: Awesome. Rob, before we sign off, is there anything that I missed or anything else you'd like to convey to the listeners that I didn't ask?

Robert Villaflor: At Sprott, we eat our own cooking. Sprott stock is one of my largest holdings in my personal portfolio. I personally allocate my sleeve of natural resource investing to our portfolio managers here at Sprott. I own several different SMAs. I own some of our private strategies. Because, again, you have to know what you don't know.

Ed Coyne: That's the hardest part, right? Rob, thanks for carving out some time today to talk to us. I really appreciate the insight and what you're all doing over at Sprott Wealth Management.

Robert Villaflor: I appreciate it. My pleasure.

Ed Coyne: Well, thank you all. Once again, I'm Ed Coyne, and thank you for listening to Sprott Radio.