Stephen and Deirdre Rothleder have witnessed a lot of changes this year at RegentAtlantic Capital LLC, the advisory firm where they've been clients for three years.
The Chatham, N.J., firm has changed its name, added a partner and an infusion of $500,000in capitaland moved to a larger andfancier office-all as part of a strategic plan to expand its business by a factor of more than 10 during the next five years.
As the couple, who recently retired after years at Lucent Technologies and AT&T, sat at a shiny, 10-foot-square wooden table in one of the firm's new conference rooms, they acknowledged that they have some apprehension about the growth. "As you grow, things can become more impersonal," says Mrs. Rothleder, who, along with her husband, is depending on the firm to guide the couple through their retirement years.
But so far, shesays, RegentAtlantic Capital hasn't lost its personal touch. David Bugen, a principal of the firm, continues to stay in touch with them on a regular basis. And when the Parsippany, N.J., couple aren't meeting with him, he's still easily accessible by phone. The faces of support staff remain familiar. And everyone is as friendly as ever, they say.
And, most important, the growth hasn't led to a neglect of their investment portfolio. "I think David's going to work hard to make sure that doesn't happen," Mrs. Rothleder says. "And if it does, we'll let him know."
Bugen is well aware of the balancing act that lies ahead as his firm attempts to increase its bulk. As he sees it, the chief challenge for the concern is not growth itself. With the demand for financial planning remaining high and the firm's location in one of New Jersey's prime wealth corridors, that is probably the easiest part of the plan.
The tough part, he says, is getting big and preserving the fee-only firm's small-boutique uniqueness. "We want to continue to give clients the customization and listening and understanding atmosphere they've become accustomed to," he says.
Bugen has been balancing growth with personal service ever since he started his own wealth-management firm. Shortly afterward, in 1983, he merged his solo practice with a Princeton, N.J., sole practitioner. The next big step was in 1996, when another merger led to the creation of Bugen Stuart Korn & Cordaro Inc. in Chatham.
The combination created a company of about 250 clients and $200 million of assets under management, which Bugen ran with partners Larry Korn, Ed Stuart and Chris Cordaro. Korn went into semi-retirement at the end of last year and sold his 27% interest in the firm to the remaining partners. Debra Morrison was added as an owner-partner on September 1.
The four partners, and Bugen's former partner, who went on to pursue a mutual fund venture just before the merger, previously were members of a "study group" that met from time to time to share ideas. "We started saying that maybe there would be some advantage to putting the organizations together, so we started a series of conversations about doing that," Stuart recalls.
As Cordaro remembers it, the idea was sparked by discussions of how to achieve economies of scale-how to deliver more services to clients with the least amount of cost.
Cordaro, for example, wanted to offer clients more tax-managed solutions and more in-house research. As a result, one of the biggest changes triggered by the merger was the creation of an investment committee headed by Cordaro that guided the firm's asset management. A centerpiece of that management is a customized large-cap fund designed to beat the S&P 500 through maximized tax-loss harvesting.
That top-down philosophy meant there needed to be compromises. Bugen's firm, for example, used mid-cap stocks. Korn, Stuart and Cordaro instead used a blend of large- and small-caps to create a mid-cap effect. Bugen was also using emerging-market funds, while the other partners did not.
In the end, the firm decided to drop the use of mid-caps and retain the use of emerging-market funds. "We've stayed with the concept that we are not a bunch of individual practitioners sharing a common space," Stuart says. "We really are a single firm."
Another key move came in 1999, when the firm shored up its tax and estate planning services by hiring Bill Knox, who came into the firm with 25 years of experience as a tax and estate planning attorney. Knox got his CFP designation that same year. For both Knox and the firm, their union helped them achieve the goal of broadening the services they provide for clients. Knox says he grew tired of being limited to helping clients on narrowly focused tax and estate planning issues. "I'd draw up legal documents, then I'd say goodbye to you and not see you again for three to six years," he says. "It was a very narrow engagement."
The merger did succeed in bringing in new business. Leading up to its latest growth plan, the firm's client list had grown to 315, and its assets under management had doubled to nearly $500 million.
The firm decided to take its growth plans to a new level last year after discussing ways to respond to growing competition in the financial advisory industry. For Bugen, the changing face of the business was obvious-by the number of CPA firms entering the business, the growth of separately managed and wrap accounts, Charles Schwab's purchase of U.S. Trust, the downstream movement of JP Morgan and competition from the insurance industry. "The question was, where do we go to continue to develop and survive?" Bugen says.
The firm's partners reduced it to three choices: sitting tight and continuing business as usual, moving into some type of niche business or expanding into a more regional company.
The first option reeked of stagnancy and was ruled out. "If we stayed the size we were, we would maintain existing clients, but it would be difficult for us to obtain new clients," he says. Plus, he adds, it would have been impossible for the firm to respond to demands among its existing clients for expanded services.
As for narrowing the target market, Bugen says the firm's broad client base made that choice impractical. "Our practice up to then was very diversified," he says. "We had clients that weren't coming from one industry or market sector."
That left the third option, which the firm decided to pursue with vigor-even more than it did after the 1996 merger. "We weren't as focused on growing the business as we are today," Stuart says.
One of its first moves, taken about a year ago, was hiring a chief executive. The man they chose, James Marlow, the firm's CEO and president, came after having served as chief executive, as well as chief operating and financial officer, for companies ranging from Exxon and Xerox to venture capital-backed start-ups. He called Bugen more than two years ago, after seeing his name in Worth magazine's annual listing of the top 250 advisors in the country.
Marlow had a developing interest in the financial planning profession and eventually got his CFP designation in 1998, at the time he met Bugen. Up until the time Bugen called him last year to offer him the CEO job, Marlow mainly had done financial planning for only family and friends. "Putting together a comprehensive picture of an individual or family's situation really interests me," Marlow says.
With Marlow on board, what followed was a reorganization of the firm that was funded with a $500 million loan and a $500 million line of credit from a local bank. The money paid for the company's relocation in the spring from a 3,300-square-foot office at 97 Main St. to a 9,000-square-foot office a few blocks away at 1 Main St. The firm currently uses only two-thirds of the space and has set aside the rest for further growth.
The reorganization also included increasing the size of the staff by 60% to a total of 18 people and creating three, five-member teams to serve clients. Each team consists of two advisors, two analysts and a client-services administrator, typically a paraplanner, who handles much of the day-to-day interaction with clients. Bugen says each team could essentially be viewed as "an entity unto themselves," except for the fact that they are bound to the firm's broader planning and investing philosophies.
Marlow says the restructuring also has brought orderliness to the flow of information. "The way it used to be, advisors would deal with clients and get random support from staff," he says.
Cordaro says the system actually has increased the amount of time he and the rest of the firm's planners can spend with clients because it's relieved them of many administrative duties. That, he says, is sometimes a mixed blessing.
"The most difficult part of this has been giving up control over things," he says. Marlow estimates each team can handle between 150 and 225 clients, and each currently is at 60% of its projected capacity.
The firm's overall annual revenue is $3 million, and the goal is to increase that to $37 million within five years. The continued slump in the stock market hasn't changed its plans. At a strategy session about a month ago, Cordaro says, the firm's principals-which consist of the four partner-owners, as well as Knox and Marlow-decided to increase the target slightly. "We think the market and time frame we're talking about is going to be just fine," Marlow says. "We're long-term players from every aspect."
Other changes included a ramping up of fees, although existing clients were grandfathered in under their old fee structures. The biggest change is the adoption of a minimum $10,000 annual fee. The sliding-scale fee structure starts with a 1% fee on accounts of up to $2 million.
Bugen says the reorganization also entailed providing employees with career tracks-incentives to stay with the firm. He notes that under the way the office now is structured, assistant analysts can strive to become analysts, paraplanners to become planners, and so forth. Sometime next year, he says, the firm will introduce programs to allow employees to purchase an equity stake in the firm, either through options, shares or some other vehicle.
It's an extension of a philosophy that already existed within the company, Bugen says. Advisor Deirdre LaRue started with Bugen right out of college and "has held practically every job in the company," Bugen says. Jennifer Papadopolo, the firm's director of operations, started with the firm out of high school.
The firm also has instituted quarterly incentive bonuses, quarterly performance reviews and has for the first time published an employee handbook, Marlow says. "We're trying to align the goals of the firm with those of the people who work for it," he says.
Finally, the firm changed its name to RegentAtlantic Capital on September 1. Bugen says there were several reasons for the new name. Among them was practicality: with its upcoming employee-equity programs, there would have been too many names to fit on company letterhead. Also, he says, people sometimes confused the firm with that of a law practice.
The new name, he says, will provide better continuity. "We did it to create more of an institutional presence and to remove confusion," he says. He notes that the firm did not re-invent the wheel with its reorganization. Most of the ideas that led to the changes, he notes, were made based on what colleagues have been doing.
Bugen is a member of the Alpha Group, a national peer group of senior investment advisors. His involvement in that group, in fact, is how he met Morrison.
When she was approached earlier this year to join the firm as a partner, Morrison was hesitant. She had spent years building up her own practice in Fairfield, N.J. At the time Bugen called her, she was renovating three suites in her office to expand her firm.
Eventually, however, she was won over, and she brought her 75 clients and $40 million in managed assets to RegentAtlantic Capital. "There's a sense of respect here I haven't seen anywhere else," she says.
Further explaining the reasons she joined as a partner, she looked over some notes she jotted down. They contained the names of the company's principals, along with their years of experience. The way she has it figured, the sum of those years is more than 130 years. "That's impressive," she says.