Laura Tarbox is no stranger to challenges. She became a financial advisor in 1980, shortly after she finished college and when the profession was in its infancy. By the mid-1980s, she was starting her own planning firm by working 80 to 100 hours a week.
But looking back over her two decades plus in the business, the 44-year-old founder of Tarbox Equity, based in Newport Beach, Calif., says this with certainty: "The last year has been the toughest period I've ever been through."
The September 11 terrorist attacks produced more volatility in an already soft stock market and added a level of emotion, anxiety and uncertainty for Americans that they could not foresee. For many advisory firms, including Tarbox's, the market's behavior has translated into lower asset levels for much of the year, resulting in lost income. Although assets at
Tarbox Equity were back up to $120 million by mid-October and the firm is profitable, Tarbox says she doesn't expect to pay bonuses this year and has cut her own salary. For clients, the events of the last year, particularly the terrorist attacks, have left them shaken and searching for answers.
"We talked with clients after the attacks, and people were very emotional," Tarbox says. "We went through a lot more Kleenex. Sometimes, people were angry. And we were looking at everything, including did we do a good job at managing people's expectations?"
Like many other advisory firms, Tarbox Equity has been imparting this message to clients: If you don't need your money in the next year or so, don't make drastic changes. Most clients haven't panicked, but everyone hasn't heeded that advice. Tarbox recalls one prospective client who came to her office the week after the attacks. Not surprisingly, her advice was: "Don't sell now." But the client went home and sold everything. In mid-October, he did come back to the firm, and he became a client-but with $100,000 less than he would have had.
In fact, a lot of prospective clients, many with accounts at other area firms, are coming through Tarbox's door and deciding whether to change advisors. "Everyone is questioning and looking around," says Tarbox, who has been recognized as one of the best financial advisors in the country by Worth magazine for the last five years and was named one of the 100 great financial planners by Mutual Funds magazine in 2001.
Even before the attacks, about 75% of her clients were very concerned about their investments. "Most haven't been through a market like this, and in most cases, we were able to calm them down really well. Probably about 5% had a tougher time. We talk to them weekly. They are worried about the decline in their portfolio and think we should be doing something other than what we are doing. Those are probably the folks who misread their risk tolerance, and we may have misread their risk tolerance even."
In short, the environment over the last year has made the firm's work a whole lot harder. That's true, of course, for most companies in financial services, as well as many other industries. For many investors who were heavily weighted in technology stocks, this market downturn seems like the worst since the Depression, says Tarbox managing director Mike Nozzarella. In terms of the S&P 500, the last two years weren't as bad as the 1973-74 stock market decline. The S&P 500 dropped 14.7% and 26.5% in 1973 and 1974, respectively, he says, compared with declines of 9.1% last year and 19% for this year as of October 31. But the QQQ-which represents the largest 100 companies in the Nasdaq and includes many tech issues-plummeted 69% from March 31, 2000, through October 31, 2001, he notes.
Still, he believes the recent downturn has been a cyclical movement, and he predicts there will be an uptick in GDP in 2002. "The economy should pick up next year, not gangbusters, but at least moving in the right direction," Nozzarella says.
Despite the tough times, the good news for Tarbox Equity is that new clients are signing on, and older ones are staying, indicating that the future continues to look promising. "No matter what happens to what I have, I feel Laura has taken care of it as if it were her own," says Cynthia Witt, of Irvine, Calif., who has been a client for more than four years. "That's an incredible gift for the investor, to feel I am being taken care of."
The 10-person firm today has about 200 clients, who tend to be younger than those of many advisors. "Probably two-thirds are baby boomers, and the other third are retirees, and they are younger retirees. About 10% of our clients are over 70, which is smaller than at many firms," Tarbox observes.
When Tarbox started in the business, she took any client, regardless of his or her wealth. Today, new clients must have $1 million in assets to be managed. The firm's fee is 1% of the first million of assets under management, 75 basis points of the next $2.5 million and 50 basis points, or a negotiable fee, above that. Financial planning is included in the investment-management fee. Prospects whose holdings fall short of the $1 million level are referred to a select list of other firms that have lower minimums. Occasionally, Tarbox Equity will provide financial planning only-at $350 for a two-hour package-but that's done more as a favor for someone or for a person with whom it hopes to have a long-term relationship.
"A lot of our clients are more sophisticated, and they could do a lot of the work themselves, but they don't want to. They see the value and want to outsource. They really understand and appreciate what we do," Tarbox says.
Tarbox believes a lot of that value-and what sets Tarbox Equity apart-comes from the team approach the firm takes. She notes the philosophy of many planning firms when it comes to servicing clients and divvying up revenues is that "you eat what you kill." You prospect for your own clients, you help them make financial choices, you implement those decisions, she says, and more likely than not, your compensation is tied to how much business you bring to the firm.
Tarbox, on the other hand, promotes an open-team environment, one in which two advisors always meet with every new client and are free to disagree with each other when talking about ideas with an individual. Service is as important as bringing in new business. Information gathered from the client is discussed with all employees at a weekly staff meeting so that everyone in the firm is familiar with the case and can provide help. Details on clients also are entered in Junxure, office-management software that makes it easy for anyone in the firm to access account information when needed. Clients are invited to quarterly meetings at which they hear several people in the firm speak.
Clients sometimes work closely with one person in the firm on particular issues, but other times, they'll call and get help from another person, says Estelle Robinson, the firm's vice president and director of operations. "The main thing is not to drop the ball," she says. "You lose that team effort when something gets lost or the ball gets dropped."
A team also participates in investment decisions for clients' portfolios. "What we do is a modified asset-allocation approach. It's evolved and always evolving. We've made some shifts toward indexing over the last year, and what we're doing now is 60% indexing, 20% active management and 20% for a flex portion. Depending on the client, that might include individual stocks. We might focus on a sector. We might do some short-term investing," Tarbox explains. The firm also places a lot of emphasis on tax issues.
Nozzarella says Tarbox Equity offers four investment models-conservative, moderate, growth and aggressive. For an investment to be included on the select list in any particular category, at least three of five team members must vote in favor of that action, he adds. Sometimes the debates are spirited, as when the team was discussing Toys "R" Us in December 1999, he says. "Although it looked like a good value play, the members with kids didn't want to buy it because it was a horrible shopping experience," Nozzarella remembers. But about that time, the company hired the former CEO of FAO Schwarz, who seemed to understand branding and the need for a good shopping environment. At the same time, Toys "R" Us was making progress online by partnering with Amazon. The points helped those in favor of buying the stock win enough votes on the team to have Toys "R" Us added to Tarbox's select list, he says. In addition to discussing investment choices, the team reviews the holdings of five or six client accounts at every meeting to ensure they are weighted according to the models chosen.
"The question I always ask everyone on the investment team is: 'Is everything in a portfolio something we'd buy today? And if not, tell me why we're holding it.' There may be a good reason," Tarbox says.
Why is her approach successful? "I've got wonderful people," Tarbox says unequivocally. "We joke here. We don't hang out together outside of work, but we have fun together. We're like a family, and there's no internal competition." As part of her commitment to the staff, she plans to offer key employees equity in the firm.
Witt, who took an early retirement from a medical-services company and is becoming a ballerina at age 56, agrees. "They really are so there for you. Laura has a unique flavor-she's brilliant, beautiful, intuitive and has a certain spirit-and she's brought the same kind of people to her office. I can talk to anybody in that office, and I can feel without a doubt I am heard. If they don't have the answer, they'll find out where the answer is. They have been so gracious ... so generous with their input. I feel very fortunate," Witt says.
There's no doubt some reasons Tarbox has been successful are her vision, will and perseverance. Tarbox graduated from UCLA with a degree in English and entered financial planning in 1980, when she began working for Harry Gagen, who was dating her mother and had just started his own brokerage, Gagen & Co. Her mother, who later married Gagen, also came to work in the firm. Tarbox did options and individual stock trading, which she found to be a great learning experience but disturbing when clients lost money.
Because of that, she thought about leaving the field, but instead enrolled in a CFP program in the early 1980s with her mother, Neta Gagen. After Tarbox completed the courses, she stayed on at Gagen & Co. and began teaching CFP classes, something she still does to this day.
But by 1985, she was starting her own practice-charging commissions for investment services and fees for planning-and using steps to get her business going that she wouldn't recommend. "I financed opening an executive suite on my credit card. It was the only thing I could do. I was young and single. I worked 80 to 100 hours a week the first couple of years, and I loved it," she remembers.
But by the late 1980s, she was tiring of commission work, was discouraged by the broker-dealer model and again thought of leaving the business. "Then I heard [former Institute of Certified Financial Planners president] Ben Coombs speak, and I discovered the fee approach for managing money," she says. "I don't think I ever felt comfortable in the commission environment. I thought I'd give it another shot. In 1990, I dropped all my licenses, I unaffiliated with Linsco Private Ledger, and I starved for two years."
Robinson, who has worked for Tarbox for 12 years, remembers the firm's transition to fee-only. "I watched Laura struggle to find the right niche. She really wasn't a commission person. It was quite a struggle, too. When she told me about the rollout [for the transition], I took a deep breath. But she talked to clients, and it really worked," Robinson recalls.
Neta Gagen says at the time, she thought it would have been wise for her daughter to hang onto her securities licenses and remain with LPL because it looked as though they were putting in a platform to support advisors who prefer fees. "To some extent, Laura was a little ahead of the curve," says Gagen, who co-owns Gagen & Co., which is affiliated with LPL and today is a fee and commission practice. "I've certainly been inspired by her vision, and she's guided me in that regard. I fully respect and support everything she's done, but that's one of the few areas where we differ today. I feel I get a valuable service from my broker."
Gagen believes teaching CFP courses also has helped her daughter succeed, and Tarbox agrees. Tarbox has been part of the adjunct faculty of the College for Financial Planning, University of Southern California and California Lutheran University, and she currently teaches financial planning classes at the University of California, Irvine, where she started a financial planning internship program in 1994.
When Tarbox began teaching CFP courses in 1984, she found it was a good way to develop contacts. Over the years, teaching has allowed her to identify promising students who would be a good fit at Tarbox Equity. Through UC Irvine's internship program, she's also helped CFP students find employment in other area firms.
As far as the future of Tarbox Equity, the owner would like the firm to grow, and next year she plans to hire consultant Mark Tibergien, a partner in Seattle-based Moss Adams LLP, to help her develop a plan. "We want to grow, but we need to define that better. A couple of firms I see got too big. I never want to have 50 employees. I can't see being more than twice the number of people, and, of course, I want to grow the assets," Tarbox says. "I know firms that have 2,000 clients, but I don't want to not know the clients. I'm looking at about 300 clients, and I want to quadruple the assets."
Although Tarbox is passionate about the business and devotes a lot of effort to her firm, she also makes time for her husband, John Wallin, an executive-search consultant, and their five-year-old daughter, Jane. Looking back, Tarbox says, she didn't have much of a life beyond work before Jane was born. "Now, it's a lot more balanced, and it's even better," she says.