advisors share their secrets.
When I read last month's cover story, it was interesting to see the rankings of firms that grew assets under management fastest-interesting but lacking an important detail: how they did it. So I called a few of the supergrowth advisory firms near the top of the list and asked them about the magic they worked.
As the owner of a company that's grown at least 30% annually for the last five years, I know the hell success can be. Growth means change, and people-clients as well as employees-often don't like change. The challenge was met with ease by the owners of the supergrowth firms who spoke to me, and I learned a lot from talking with them. Here are some of their stories.
Investors Capital Management
Rich Chambers, 60, worked for 3Com until 1999. He was a software engineer there, working on Ethernet network adapters, and toward the end of a 16-year tenure he managed a group of eight engineers. On January 1, 1999, after leaving 3Com, Chambers opened his advisory firm. He now manages $106 million.
Chambers says he has always been interested in investing-an interest he inherited from his father-and so it just made sense for him to sell his 3Com stock, worth in excess of $1 million, and start offering investment advice out of his house. He had sold his 3Com shares at the top of the market and put the cash into a portfolio of funds, and he offered to do the same for friends and relatives.
"My friends always seemed to be losing money when they invested and I was always making money," says Chambers. By the end of his first year in operation, Chambers was managing $3.7 million. But it wasn't all so easy; 2000 was a tough year.
"I had made the classic mistake of putting more than we should have into the New Economy," admits Chambers, who was as candid an interview subject as I've ever known. "Some of my clients back then already had too much of the tech stocks before they started working with me, so I couldn't do more harm to their portfolios. But other clients were advised by me to pour more into those stocks."
Around that time, another advisor told him about Litman/Gregory Companies, which publishes No-Load Fund Analyst, sells its research to retail investors and advisors, and also sells client communication materials. "I went with Litman/Gregory and began to model most of my money management against their style of tactical asset allocation," says Chambers.
Despite the losses in the market, 2000 was an OK year for asset growth and Chambers managed $4.4 million at the start of 2001. However, having learned a lesson in the growth-stock crash of the millennium, Chambers adopted a more diversified approach. Most of the mutual funds he recommended to clients were those recommended by Litman/Gregory. "That firm has been a major contributor to my success," he says.
In early 2001, Chambers made what now appears to have been another prescient decision that would fuel his swift ascent: He affiliated with Garrett Planning Network (GPN), a network of independent financial advisors and planners who offer hourly, as-needed financial planning and advice to anyone, regardless of income or net worth.
There are about 250 GPN members and, based on the idea Sheryl Garrett came up with about ten years ago to become the McDonald's of fee-only financial advisors, GPN members have made a significant impact on the independent advisory business.
The idea of creating a business model around hourly financial planning advice broke new ground. It attracts an ideological planner dedicated to doing what's best for a client. Most of the GPN members do not manage money. They only work on an hourly basis, and taking a percentage of clients' assets for managing their money on an ongoing basis is looked on unfavorably by some GPN members
Chambers is not one of them. He found that offering hourly financial planning advice made a lot of sense for his clients, and he also found that many of the hourly clients wanted ongoing asset management. In 2001, after joining GPN, Chambers says he added 50 or 60 new clients. He had stumbled into something that worked in bringing in hourly clients who would become prospects to his money management services.
In addition, Chambers also became a member of the National Association of Personal Financial Advisors. NAPFA, whose influence over the industry is far greater than its membership of 1,200 would imply; it has exerted enormous influence over the past two decades in moving the industry to fee-based and fee-only services. It is pushing advisors to embrace their role as a fiduciary, a platform that could allow NAPFA to change the industry in years to come as it did with its fee-only stance in years past. Chambers credits NAPFA's referral network with keeping a steady flow of prospects coming his way.
This combination of offering hourly services and responding to NAPFA referrals took some time to take hold. By the start of 2002, Chambers was managing $7.1 million and he had come up with a way to better serve the type of investors attracted to hourly services and sought referrals from NAPFA.
Chambers started a self-directed account service. Almost all of the advisors I know who have done this have failed. But the type of people who go to NAPFA for a referral and who seek hourly advice may be perfect candidates for this type of service. My guess is people who would seek out a self-directed account service are price-sensitive and smart. They're investors who have a good deal of knowledge-they're confident enough to be in charge of their own money-but they want some advice and they want to do it on the cheap.
Not long after starting the self-directed account service, Chambers made another key decision. He moved from Litman/Gregory toward Dimensional Fund Advisors. DFA is famous for its low-cost efficient market philosophy and value tilt on index fund investing. Now, all of his new clients have portfolios comprised of DFA funds and most of the older clients have been switched to DFA.
So look at what Chambers has developed here: He has a steady stream of prospects coming from NAPFA. These are investors who are not going to friends for referrals, because they're either not all that wealthy and don't have friends with money or they are reading the consumer financial press, which has long embraced fee-only planning and investment advice. These are price-sensitive, informed investors.
To meet their needs, Chambers is offering managed portfolios comprised of DFA funds for 80 basis points for accounts of less than $500,000, with a 60 basis-point fee on assets of $500,000 to $1 million and a 40 basis-point fee for assets above $1 million. His nondiscretionary service, which involves disseminating portfolio advice in e-mails and uses institutional funds available through Schwab Institutional, carries a 20 basis points fee for the $500,000. The fee drops to 15 basis points on between $500,000 and $1 million and to 10 basis points on assets of more than $1 million.
With a steady stream of referrals from NAPFA seeking low-cost services, an hourly approach to financial planning, and a way to meet the needs of investors typically attracted to NAPFA and GPN with a low-cost investment strategy that can be scaled easily, Chambers' business boomed. At the start of 2004, he had almost $22 million under management. It climbed to $34 million by 2005. In 2005 he had a breakout year, and all the planning and strategy paid off: The nondiscretionary advice product attracted $40 million and his discretionary assets ballooned to $66 million, bringing his assets under management to $106 million by the start of 2006.
Managing the growth has not been difficult, Chambers says. He took in a partner in 2001, Julie Schatz, and then another partner last year, Jennifer Cray. Both were students at a financial planning course Chambers was teaching at the local college for CFP candidates. They each own one-third of the firm's goodwill-for its planning and trademarked methods-but they don't share revenues generated on investment fees.
Each partner gets his or her own investment fees based on clients they bring in and service. Chambers says 80% of the assets under management are his clients today, but he expects that to change in coming years. At 60, he says he has no plans to retire and will likely work another ten years, at which point the partners have five years to pay him for his share of assets under management in the business.
Chambers is a true entrepreneur who blazes his own trails. As a programmer, he was able to design his own rebalancing tool because he finds that rebalancing across portfolios in Schwab PortfolioCenter does not work well enough for him. So now he exports the data out of PortfolioCenter into an Excel spreadsheet he coded to automate rebalancing.
The most inventive aspect of his practice is serving clients with hourly financial planning but offering them low-cost ongoing management of their money. It's great for clients and is a promising business model other advisors can aspire to copy.
My guess is that Chambers will invent some other new products and grow. He seems interested in offering his money management services to hourly-compensated planners who want to outsource investment services, and his PortfolioCenter add-on programs have the potential for helping many advisors if he decides to sell them and make software development and support part of his business.
F&D Advisors LLC
Most CPAs are totally lost when it comes to setting up an asset management and financial planning practice. They view the business as a way to generate some side income from their tax practice. Most CPAs giving investment and planning advice don't bother to learn about the different business models-becoming an RIA versus a registered rep-and never go beyond the basics of investing, learning about modern portfolio theory and that there are products beyond mutual funds. They are the most frugal (I mean incredibly cheap) of all advisors in the business. F&D is a rare exception.
F&D started out in 1998 as an affiliate of Atlanta accounting firm Frazier & Deeter. The three principals of the advisory firm, all now in their mid-thirties, have created a business model for affiliating with multiple accounting firms and providing the CPA firm's clients with mortgage and insurance advice as well as investment and planning services.
As Doug Liptak, a founding partner, explains it, at the end of 2002 F&D had achieved at the level of many successful advisory practices affiliated with a CPA firm and depending on the CPA firm for referrals, managing $153 million. But Liptak, along with Jeff Peller and David Fisher, were building a base for an operation that other CPA firms could join. At the end of 2003 they managed $190 million, a year later $394 million and by the end of 2005, F&D was running $643 in assets. The firm has now affiliated with a second CPA firm-O'Sullivan Creel LLP, which has offices in Pensacola, Fort Walton Beach and Destin, Fla. F&D now manages more than $800 million and expects that this year alone it could see new-client inflows topping $200 million. In addition, there's average annual revenue over the past three years of $650,000 on F&D's mortgage business, and $700,000 on insurance sales.
In a 90-minute interview, Liptak explained what has made the firm so successful. He gives credit to the Strategic Coach, Dan Sullivan's brilliant program for entrepreneurs that many advisors praise, for teaching him to segment his time into free days, focus days and buffer days. He says Sullivan's concept of focusing on your unique abilities-what you love to do and what you're great at-and building a team around you to do what you're not good at, has been helpful. Liptak has focused on marketing, strategic partnerships and rolling out new products, like mortgage brokerage and insurance, while Fisher, a 35-year-old Chartered Financial Analyst, focuses on investment decisions and Peller, also 35, on strategic planning, technology and implementing processes.
Liptak spoke at a conference for CPAs in 2000 about how to add wealth management to a CPA practice, and that was how the O'Sullivan Creel relationship began. With an 11-employee wealth management branch in Florida now implementing systems and processes used by F&D, and sharing a Web-based technology platform, F&D seems poised to add other CPA affiliates.
One impressive move over the past year is creating wealth management teams. At the direction of Stephanie Dewees Bogan of DP Group, a Redwood, Calif., management and marketing consultant, F&D has structured its service teams into four jobs: relationship manager, financial planning associate, investment analyst and client services associate, who are dedicated to every client. The advantage of this is that clients have multiple contacts they can call to get service.
Internally, dedicated teams are a big improvement, Liptak says, over the previous system where any planning associate could be assigned to any partner leading the advice team. Before implementing the new team system, a planning associate might be working with several partners, and if two partners asked the planning associate for help, the planning associate would not know which partner to work with first.
Moreover, the team system has provided a career path for staff. There are three levels of planning associate, for instance, and then a staffer could become a senior planning associate. Senior planning associates could become team leaders. In addition, senior team members can be given jobs at the "hub" corporate level, where best practices and processes are planned and implemented by the "spokes" at the team level. The team system would seem to provide a structure to support continued growth.
Another big help in managing F&D's growth, Liptak says, has been using Junxure, a customer relationship management software application. What Junxure does well, but is often not used for, is to help advisory firms manage workflows across a team. Liptak says Peller spent about six months inputting the firm's workflows and processes into the program. He says it would probably take about a month for a partner familiar with F&D operations to do this full time, but Peller worked on other projects throughout this time period. The effort was worthwhile because Junxure now supports the firm's team approach.
Liptak says F&D has hired corporate psychologist Gary Sperduto of Atlanta to conduct assessments of job candidates. Having hired ten employees in the Atlanta office in the last 18 months, plus an additional group of new staff for the Florida branch, Liptak says all senior-level employees are evaluated before they're hired.
Gerstein, Fisher Inc.
Gregg Fisher has been adding about $100 million in new assets annually for the past three years, and about 50 to 75 new clients. The success of this Manhattan, firm, which now has 15 full-time employees and manages $500 million, is tied to a few key decisions by Fisher and plain, old-fashioned, roll-up-your-sleeves-and-stay-late hard work.
Fisher credits his father with teaching him about the importance of customer service. When he was a boy, Fisher worked in his father's men's clothing store in Astoria, Queens, and he recalls his father "spending 30 minutes to have a cup of coffee and speak with a customer who was buying a $30 pair of pants."
"So much of this business is about customer service," says Fisher. "Plus, I love helping people."
But apart from his deeply rooted worked ethic and natural sales ability, Fisher has made some key strategic decisions. Fisher says that about five years ago he realized that in order to grow his business he would have to stop working with clients one on one. He would have to stop picking up the phone when a client called.
"That was really difficult for me," admits Fisher, "because I was scared that clients would think, 'Well, I guess Gregg is getting too big for me because he is not taking my calls anymore.'"
Fisher, who is 35 and has been in business for himself since graduating from college, had gained enough wisdom about business to know that clients would understand if he stopped taking their calls. "In reality, clients know that if I am answering their calls and meeting with them whenever they come into the office, then I probably could not be managing their money properly," explains Fisher.
So Fisher set out to build a team. Growth is all about hiring the right people, and he is always searching for them everywhere-including places you might not expect. For instance, Fisher and his wife play a lot of tennis. The young lady at the tennis club who booked the court for them was always courteous and extremely attentive. Impressed by the way she always called to confirm appointments, greeted them and asked about their two children by name, Fisher complimented the woman about her professionalism.
When he learned she was about to graduate from college, he offered her a job. She now works in client service for the firm. Fisher says he is always looking for good people, and keeps in his desk drawer a folder filled with resumes that is labeled "People I Want To Hire."
Fisher, whose staff of 15 includes 10 professionals, has an operations officer responsible for technology and back-office processes, accounting and other operational chores. In addition, the professional staff includes four CFPs, two advisors with law degrees, a CPA and staff who have an M.B.A. The result, he says, is that clients get excellent service and that brings in referrals. Referrals are the main source of his firm's growth, he says.
The other big benefit of developing his team is that Fisher, a Chartered Financial Analyst, says he can spend 75% of his day researching investment ideas that are applied across all client portfolios, and devoting the rest of his time to strategic business planning. Fisher designs model portfolios comprised of stocks, U.S. Treasury and municipal bonds, ETFs and mutual funds, and positions are customized to each client's needs. Along with two other members of the firm, Fisher has a formal investment committee assisting with portfolio design.
Fisher believes that many advisors get caught up in wealth after building their practices and do not reinvest in their companies. "I get the impression that a lot of advisors drain their business by taking a large salary and living lavishly instead of reinvesting in their firms," says Fisher. "I've been careful not to get caught up in that."
Fisher says he had a business coach, Julian Cohen, LL.B., of Lee, Mass., that he worked with for six years. While he stopped working with the coach three years ago, Fisher says he recommends him to advisors. Fisher says he has hired many other coaches and consultants. He gets something from all of them. However, what may be as important in educating him about running a small business, he says, is his penchant for listening to books. Fisher estimates he has listened to 200 books in the last couple of years while commuting in the car.
Andrew Gluck, a longtime writer and
journalist, is CEO of Advisor Products Inc., a Westbury, N.Y.,
marketing company serving 1,500 advisory firms.