Buckingham Asset Management and its sister firm, BAM Advisory Services, are proving that accountants can successfully make a transition to investment management.

Fifteen years into his career as a CPA specializing in tax and financial planning, Bert Schweizer could tell that something was up when it came to the touchy subject of accountants giving investment advice. The number of clients asking for investment help always seemed to increase, as did the instances in which Schweizer had to politely turn them down.

Too often, he recalls, Schweizer would draw up an asset allocation plan for a client and then, upon their return weeks or months later, see that it was totally ignored by a broker-along with any thought of diversification-when it came time to pull the trigger on investing.

There were also the annual conferences, at which Schweizer saw more and more accountants attending investment advisory sessions, and the gradual liberalization of regulations that had historically prevented accountants from giving investment advice for a fee.

By 1994, Schweizer was convinced that bringing an RIA component into his St. Louis-based practice was not only an option, but also an obligation on his part to fully serve his clients. There was, however, one problem: His partner would have none of it.

"He was 20 years older than me and just old school," Schweizer says. "His thinking was CPAs don't have the competency and skills to give investment advice. We reached an impasse."

An impasse that was finally solved by Schweizer deciding to leave a firm where he had spent the prior 12 years of his career and then hooking up with three partners, including Stuart Zimmerman, a like-minded accountant who also felt the tea leaves were pointing to a role for CPAs in the investment advisory arena.

"I very much believed that CPAs were the premier provider of financial planning and investment advisory services, and I wanted to go out and prove it," Schweizer says. "And my clients wanted me to do it."

As it turned out, Schweizer and his partners not only proved to themselves that accountants could thrive as RIAs, but they're also proving it to hundreds of other accountants through a firm that provides advisory services and training for accountants transitioning into investment advice-giving.

The first company, Buckingham Asset Management in St. Louis, got off the ground in 1994 with $400,000 in startup capital from four outside investors. It has since grown to serve just under 1,000 clients and more than 2,400 portfolios, with assets under management of about $600 million. The firm's offshoot, BAM Advisory Services, was founded in 1997 and now provides services to 100 RIA firms, of which 90 are run by CPAs. Growth at BAM, in fact, is outpacing Buckingham Asset Management. BAM currently serves firms that, as a group, have about $1.9 billion in assets under management, a figure that grew by 80% in 2002.

When you consider that, as a group, accountants have been moving into the investment arena at a glacial pace-despite perennial predictions that they are going to take the industry by storm-Zimmerman feels that BAM's best days lie ahead. "It's all going in the right direction, and the CPAs are coming," Zimmerman says. "I can't tell you how quickly they're coming or how slowly, but the answer is, they are coming."

As Schweizer and Zimmerman tell it, one of the key decisions they made was not just starting Buckingham, but how to start it. In other words, they were both rookies when it came to managing a portfolio, and were in search of a system-or a philosophy.

Initially that search led them to surf the databases of Morningstar; Schweizer remembers meticulously screening mutual funds in search of managers who performed consistently, stuck to their announced styles, used tax efficient strategies and generated low expenses. He did this for six months. He found successful managers, but very few who were successful consistently. "Whenever we saw a manager with good performance, we'd dig a little further and things would be different some years before or after," Schweizer says.

As accountants, Schweizer and Zimmerman were used to using discipline when allocating assets and were thus uncomfortable with how loose some fund managers played it when it came to allocating fund assets. Zimmerman notes, for example, that it's common to see the manager of a large-value fund go 10% or 20% into cash, depending on his view of the market. But if that fund is part of an asset allocation plan, it's supposed to represent a solid block of large value. "That changes your allocation," Zimmerman says. "In that sense, it was unreliable."

They then turned to researching what academia had to say about asset allocation, and to the philosophies of John Bogle and index funds. "That really convinced me we wanted to stick to a passive approach," says Schweizer. That belief was cemented when Schweizer attended a conference for fee-only advisors that was run by Dimensional Fund Advisors (DFA), a Santa Monica, Calif.-based fund company that utilizes a cadre of scholars to build a family of funds that is built on a philosophy of passive management, low cost and tax efficiency.

The philosophy espoused by DFA-whose founders could practically be called zealots when it comes to promoting passive investing and denigrating active management and stock-picking-was music to Schweizer's ears. He remembers going back to his hotel room and sending an e-mail to Zimmerman that said, "This is the answer. This is a sensible, logical and defensible approach to giving investment advice."

Zimmerman and Schweizer say that as accountants, with a bent toward the mathematical and analytical aspects of finance, they were in perfect harmony with the preachings of DFA. Thus a perusal of the portfolios of Buckingham Asset Management clients will reveal that, with a few exceptions, the asset allocations all utilize an array of DFA funds. The exceptions, in most cases, are miscellaneous holdings investors decide to retain after becoming clients or fixed-income investments, which are managed directly by Buckingham to reduce costs.

"The key was they were going to give us the tools to assure our clients they would get market rates of return and no less," Schweizer says.

The passive strategy, Zimmerman says, allowed the typical client's portfolio to remain about break-even from March 2000 to March 2003. It was also a crucial reason, he feels, for the influx of accountants that BAM has been able to achieve through both the bull and bear markets. The academia-based investment philosophy of DFA, with its preachings about efficient markets and emphasis on tax efficiency, strikes a cord with accountants and provides a comfortable entry into an unfamiliar field.

"It appeals to conservative CPAs who like to see evidence," Zimmerman says. "That's why they move so slowly; they want to see the evidence."

Helping Buckingham get its style message out is the fact that, two years after starting the firm, the founders recruited a prominent voice and author in the passive investment school to educate clients about what the firm was doing. Larry Swedroe, former vice chairman of Prudential Home Mortgage and author of several books, including "Rational Investing In Irrational Times," calls himself a jack-of-all-trades at the firm. His books are often given to clients of Buckingham and BAM in introductory meetings. Swedroe says he often meets with clients, and acts as an in-house consultant for advisors at Buckingham.

Zimmerman and Schweizer also say Swedroe was influential in the startup of BAM, feeling confident that accountants would gravitate to Buckingham's investment philosophy. "This is a natural for anyone who is an engineer or mathematically inclined because it's all founded on math," Swedroe says. "Accountants love it and get it right away."

Echoing a common refrain of the passive management school, Swedroe says this is in contrast to the average investor, who is too often swayed by the "investment pornography" of a Wall Street establishment that is bent on increasing trading volume. "Their interests are totally misaligned to those of the public," he says.

Elliott Garsek, chairman of Barlow & Garsek Professional Corp., a law firm in Forth Worth, Texas, says he was introduced to Buckingham through clients who used the firm for investment counseling. Garsek decided to become a client of Buckingham's himself two years ago. As he describes it, he was 53 years old at the time and getting less and less risk tolerant when it came to growing his assets.

He signed on with Buckingham hoping, on average, to gain about 9% to 10% on his investments each year. He says his portfolio was down about 11% last year, but that after analyzing his investments before and after joining Buckingham, figures that his losses would have been two-and-a-half times greater had he not made the switch. This year, he says, the portfolio is up about 11%. But he's more focused on the long-term picture.

"I have adopted the philosophy that it's a little like owning my house," he says. "Market conditions are going to cause values to go up and down along the way, but since I have no plans to sell it, it's all meaningless to me."

Sherman Doll, an accountant in Walnut Creek, Calif., is one CPA who decided to enter into the investment advisory business as a client of BAM. He says the decision to use BAM came after a period in which he had many brokers knocking on his door in hopes of the gaining access to his clientele. Yet a relationship with a brokerage never materialized because he and his partners weren't comfortable with the "here today, gone tomorrow" objectives that they felt the brokerage companies were following.

"They'd sing one song one day and another the next day," he says, noting that his accounting firm, Thomas, Doll & Co., began to investigate a transition into investment management during the zenith of the bull market in 1999. "We have very long-term relationships with clients. We could not afford to make a mistake."

Doll says the decision to hook up with BAM came when firm representatives gave a presentation at an AICPA financial planning conference in Las Vegas in 1999. He says the firm's investment rationale, combined with the fact that the firm was run by accountants, for accountants, immediately "clicked" with him and his partners. "Teaching clients to have long-range plans, rather than focusing on the hot stock or the hot sector of the moment, really appealed to us," he says.

Since starting Capital Performance Advisors in Walnut Creek that same year, Doll says the firm has grown to serve about 250 clients and has about $140 million in assets under management. Through the bear market of the past three years, he says the firm's clients have, on average, stayed about even or seen some slight growth in their portfolios.

The key things BAM brings to the firm, he says, are the back-office services and the training, which includes an annual conference and periodic advanced training sessions, he says. "We could probably do it cheaper in-house, but I don't know if we could duplicate it," Doll says. "I'm not sure we could replace the training, marketing help and the bond-trading services we're getting."

Zimmerman says that clients of BAM are not required to use DFA funds or to follow a passive path in their investment management, but virtually all of them do. "They wouldn't use us for their back office if they really wanted to do half of their stuff on the active side," he says.

Buckingham and BAM, meanwhile, are expanding the breadth of their services. One recent addition has been the creation of a third firm, Bemiston Insurance Services, which Zimmerman says is of particular value to BAM clients who have had to hand off clients to outside insurance agents on estate matters. The firm already has a custodial relationship with Charles Schwab and Fidelity, and offers trust services through an alliance with Santa Fe Trust.

As for growth, Zimmerman and Schweizer feel their window of opportunity is unlimited, particularly when it comes to the future of BAM. Zimmerman notes that BAM has only scratched the surface in a market comprised of about 30,000 accounting firms. He also says investors are more apt to seek out accountants as trusted advisors after getting beaten up by the bear market.

"It's almost universal that our clients plan on doubling their assets or come close to that by the end of the year," he says.