Earl Wright has seen the future and, frankly, he's not nervous. Not by head-on competition from financial services giantslike MerrillLynch and Fidelity andCharles Schwab. Not by client demands for a 1% all-in fee, which he promises is just around the corner. And not by the demands of wealthy baby boomers who will step up requirements for a wide array of services, including trusts, in the coming decade.

Why should Wright be apprehensive? With 110 employees, $1 billion in client assets and more than $10 million in revenue, the national advisory firm he's built with longtime partner Mike Bergmann over the past 30 years can compete in these areas. By the end of the year, their firm, known until this summer as AMG, plans to offer trust services and take custody of client assets (thanks to a recent merger with the trust division spun off by Guaranty Bank & Trust). The executives at the Denver-based firm, which is being rechristened AMG Guaranty Trust, have spent three decades building a company that, as Wright puts it today, "makes offering the services that clients want the priority." Wright and Bergmann remain majority shareholders in the new entity, and the bank has a minority stake.

That has meant building and managing a fee-only firm that includeshighlysuc-

cessful investment and alternative-investment departments, a benefits-analysis service, a tax division, a charitable-gift foundation and, at the center of it all, a planning division that includes 21 teams in four offices across the country. The creation of AMG Guaranty Trust is a defining moment for Wright. He, like the other executives of the firm, says that being able to offer trust services and custody their own clients' assets, instead of relying on a brokerage firm that soon could be a direct competitor, will give the firm control of its own destiny.

"We've created a financial organization that can take clients all the way through their financial lifetimes. That's a crucial service for them and for us," says Diane F. Reeder, who headed up trust and asset management at Guaranty Bank & Trust and has been named executive vice president and senior trust officer at the new organization, AMG Guaranty Trust. Full trust and custodial services are slated to go live by the end of the year.

At the same time, AMG executives are finding the stamina to launch an acquisitive binge that will, Wright says, result in relationships with seven to eight strategically placed advisory firms over the next two to three years."Five years out, we'll be a full-service planning and custody-trust provider with eight to 10 offices," Bergmann says. "We're not out to take over the world, but we're not going away, either."

How will that impact the $1 billion in client assets the firm manages directly and the $3.7 billion for which it serves as an advisor? "I'd be surprised if they don't grow 10 to 20 times what we manage now. Our current clients alone have an investable asset base of $5 [billion] to $8 billion (currently invested in retirement plans and other assets). At some point, they'll have to harvest that," Bergmann adds.

Wright, a Wharton MBA, and Bergmann, a Stanford-trained economist, both still perform financial planning for a small roster of clients, most of whom they've worked with for years. "It's our way of keeping our ears to the ground," Bergmann says. "We're not very ivory tower here."

They don't think small, either. Maybe it was their start together doing financial planning for one the Midwest's wealthiest families that gave the AMG partners the blueprint for setting up a family office-style practice long before the name became a buzzword. Or the fact that the small planning office they started subsequently could have easily been eclipsed and morphed by the big brokerage operation that acquired it. Or, maybe it's the near-perfect complement of Bergmann's fascination with finding and building near-perfect investments with Wright's business and marketing savvy. Whatever the influences, today Wright says he never saw the firm developing any other way.

A relatively small Denver-based planning boutique was never going to fit the bill. Wright and Bergmann wanted a national planning firm, plain and simple. And that's what they've built.

But back in 1967, both Wright and Bergmann worked in a rarefied investment and advisory environment devoted entirely to directing the assets of one wealthy Midwestern family, the Millers, who founded Cummins Engine Corp. in Columbia, Ind. "Thirty five Ph.D.s, MBAs and JDs were devoted to managing the wealth of one family. It was an amazing environment, and the client had wealth beyond their needs that allowed us to ask: How do they use it wisely?" Wright says.

One way was through the formation of a family foundation for charitable giving that funded not only architecture throughout the city but also research on, among other things, Americans' sentiments toward U.S. relations with China. Wright maintains that American citizens' surprising willingness to open the door with the Asian giant, which the Cummins Foundation survey revealed, influenced President Nixon and Secretary of State Henry Kissinger to begin to recognize and enter relations with China. "It was an incredible period, where if you helped people create wealth and they surpassed their needs, they could do things to make society a far better place. That's stuck with us forever," Wright says.

From there, Wright went on to create the Los Angeles planning office for Shearson, Hammill, soon after recruiting Bergmann. Together, they built a small, but significant, practice of business executives. Instead of trying to adapt their fee practice to the brokerage regime that Hayden Stone brought with it when it acquired the company in 1975, Wright and Bergmann bought their practice and nearly doubled it in 1977.

Their track record has impressed fellow financial services and trust executives. "These guys have had big-time experience before going out and building a business," says Jeffrey R. Lauterbach, chairman and CEO of The Capital Trust Company of Delaware in Wilmington. "The addition of the trust services will allow them to do what they said they want to do, serve their clients and the local community," adds Lauterbach, a former journalist who's stayed in touch with Wright since interviewing him in 1984.

Striking out on their own was a launching pad for the firm Wright and Bergmann have built today, but the formative years told them a lot about themselves and the kind of firm they wanted to grow. Providing discriminating clients with customized services and encouraging them to envision their legacy remain key building blocks of AMG today.

It's why the company built its own charitable foundation six years ago. "As the population ages and gets wealthier, our foundation allows them to fulfill their charitable and giving desires and allows them to participate at a lower bar so they can get started off sooner," Reeder says. For as little as $50,000, clients can set up a family trust within AMG's public foundation, which gives them the benefit of controlling assets and distributions, for a significantly reduced fee.

At the same time, the partners had a taste of what it might be like to be held prey by another firm, thanks to the acquisition of Shearson, Hammill. It was a quick lesson in the eat-or-be-eaten world of financial services. In order to do things their way they had to grow big. They have.

To do it, they've catered to business executives. Corporate clients include AT&T, Honeywell, The Home Depot, Lucent Technologies and Qwest. Today, the firm has clients in about 25% of the companies in the Fortune 1000 market, and it plans to grow that as part of their acquisitive strategy over the next five years.

To complement that client base, AMG has found a natural fit with entrepreneurs and successful professionals. To serve these clients, the firm created its own benefits-analysis department, which provides bottom-line numbers on stock options and other opportunities clients need help negotiating.

Corporate clients also are a growing component of their business. To provide seamless, informed and integrated services, the firm also created its own tax preparation and management department more than a decade ago. "You have people trying to cover this gamut today in planning with a Scotch tape approach-taping one thing to something else. But the process isn't really integrated, and the end results show it," Wright says. "If your investment and tax planning isn't tied together, you're giving subpar advice."

To stay ahead of the curve, AMG also has a knowledge-training program designed to track and analyze state and federal tax changes and train planners on the opportunities such changes present.

Delivering advice in a meaningful and yet cost-effective way also is crucial to AMG's vision, which is why the firm uses 21 planning teams, which consist of a lead planner, an analyst and an administrative assistant, and are located in Denver, Chicago, Philadelphia and outside New York in Parsippany, N.J. "We instituted this approach quite awhile ago," Bergmann says. "As we grew, the issue quickly became: How do we service more clients effectively? You need more than one individual who knows a client."

Ken Chwatek, who heads up the firm's planning operations and is a planner himself, says being in a small shop or an individual planner must be getting tougher and tougher. "I think it's overwhelming to imagine keeping up with technology, all the changes in the law and tax rules, being able to leverage your client base to come up with meaningful costs savings, plus do investment research."

Because of its size, it is not unusual for AMG planners to go head to head with competitors these days. Many corporate clients that provide planning services for executives sign up two or three firms who then have the opportunity to compete for executives' accounts. Advantages Chwatek and his planners appreciate? Objectivity and in-house investment management. Many other firms competing in the business-executive market ship out their investment management to broker-dealers. "Our clients like our objectivity and the fact that we create and manage our programs in-house. Clients really don't like to introduce a broker-dealer relationship into this mix," the senior vice president of personal financial management services says.

Above average investment-management programs continue to be one of AMG's prized calling cards. Wright credits Bergmann with the long-term success of the firm's investments.

Bergmann is the chief architect of the firm's proprietary investment models and its ongoing economic forecasting. He also brings in an outside auditor annually to further refine his approach and objectively evaluate whether he's actually adding value to client accounts. So far so good.

Bergmann's customized screen for fund-manager selection has yielded performance that over the past 10 years has added value to every stock sector except the Standard & Poor's 500. "Using our asset allocation and weightings, we've added 400 basis points over the past five years (when compared with the performance of Chicago-based Morningstar's five-star funds in each sector).

"The real art form is figuring out how to diversify to get the tradeoff that makes the most sense," Bergmann says. "We're looking for reasonable risk reduction without taking materially lower returns over the long run."

To do that, Bergmann also develops alternative investments-lots of them. "We're strong believers that there is more to the world than the financial markets," Wright says. "The vast amounts of wealth that have been preserved over the years aren't all preserved in the stock market. Broader diversification in private equity or venture capital or real estate stabilizes portfolios and runs counter to what the financial markets are doing."

To date, the firm has created more than 50 limited partnerships since 1981 and four funds of funds, which run the gamut from real estate and oil and gas to private equity, derivatives and hedge funds.

Under Bergmann's direction, AMG created its first hedge-fund fund of funds in 1998. On its limited partnerships, AMG serves as a general partner of convenience, charging a 1% administrative fee. Multifamily real estate partnerships formed since 1987 have generated after-tax returns averaging in excess of 14%, while commercial partnerships have generated returns averaging about 20%. Speaking at a Chicago conference on alternative investments in late June, Wright noted that some of the firm's best investments came from limited partnerships and went sour, prompting AMG to fire the general partners.

The private-equity investments the firm has created have generated between four to six times return on investment. A derivative product created by AMG in 1997 to reduce the risk of international equity investing while maximizing upside participation was liquidated in early 2000 and provided a cumulative return of 78% compared with 45% for the Morgan Stanley EAFE Index over the same period. The firm's alternative-investment department also does due diligence on investments in which clients have interests.

Although such services may seem outside the mandate of an average advisory firm, Wright says they're an integral part of the overall package AMG has developed to provide full service to clients, which will allow them to compete and grow in the coming decade. AMG allows investors to participate with as little as $250,000, rather than the millions hedge funds often require.

Equally integral are the custodial and trust services that AMG expects will go live by the end of the year. The firm, which currently custodies its client assets at Charles Schwab & Co., will have the option of taking control.

It's an option the firm is considering, Wright says. "The fact is, as an industry, advisors have done the R and D. Our business model is successful. And now, the big boys are coming after us. Now, instead of the Schwabs of the world helping us grow our businesses, they're going to be in direct competition with us."

The two-to-three planner shops will be particularly hard-hit and have the biggest decision to make, Wright says. Do they stay with Schwab and take advantage of its services or move clients to a less-competitive broker-dealer? "I've said to Schwab executives: 'You've been using advisors as your reps, which was great for you because you're not paying us,'" Bergmann says. "They were offended. They didn't understand I thought it was a brilliant strategy. But for planners, it's a business decision. Do you keep feeding your business to a partner becoming a competitor? Do you keep feeding them profits? It's hard to say, but clearly the big brokerage firms are after our market."

And advisors know it. As Financial Advisor went to press, several groups of advisors were meeting with AMG executives to find out if its custodial, trust and alternative-investment programs could be made available to their firms. "It's not the reason we created the programs," says Wright thoughtfully, "but it's a strategy we're carefully considering."

Of course, if AMG pursues that strategy and keeps expanding by entering new markets and grows tenfold, it could some day find itself in the same position that Schwab is in today, one in which there is no way to grow without competing with its own clients. For now, though, that's far down the road. It'll be a long time before Earl becomes Chuck.

A Dose of Realism

Competing against giant planning entrants that all are angling for the same elite clientele won't be a cakewalk over the next five years. Still, AMG Guaranty Trust President Earl Wright, who has created a $1 billion plus firm, plans to control his company's destiny with the recent addition of trust and custodial services. Here are his tips for confronting the future:

Own Your Clients. With firms like Fidelity and Charles Schwab ramping up to pursue the same clients advisors covet, the time is now to decide whether status quo brokerage relationships are a safe bet going forward.

Envision Your Future. Wright merged operations with a Denver-based bank's trust department to create a new entity and acquire trust and custodial services. Are you set up to serve baby boomers' growing needs and the $5 trillion in wealth they are expected to have?

Get Real With Fees. Within the next decade, Wright says, clients will expect you to offer an all-inclusive fee of 1%. Is your firm prepared for that watershed mark?

Put Clients First. Some consultants suggest exploiting a niche. Thirty percent of AMG's clients are high-level business executives. Both Wright and his partner, Mike Bergmann, continue working with clients so they know their needs and challenges firsthand and can refine their firm's business strategy accordingly.

Consider Alternatives. AMG offers energy, real estate, venture capital and other fund-of-fund and direct-equity investments to clients at relatively low minimum investments. Executives say the alternatives have offered vital returns and risk management since 1986. Wright advises: If you're shopping for similar investments, find a "best of breed" manager with longevity.