Arthur Anderson refugee Mark Feldman has built an advisory firm that's a billion-dollar boutique success.
The founder of one of the larger independent
financial planning firms in the United States, Inlign Wealth Management
LLC of Phoenix, is the first to admit the firm's astounding growth rate
is somewhat deceptive.
Inlign increased its assets under management by a phenomenal 82% in 2005 to become one of a handful of advisory firms in the nation to top the billion-dollar mark. The company now manages $1.7 billion in assets for 170 clients, most very high net worth, and was founded not even five years ago by its principal owner, Mark Feldman.
The numbers are "a little misleading, because it looks like we started from zero a little more than four years ago and now we are a more-than-$1-billion firm," says the 44-year-old financial advisor. "But the fact is, we were part of Arthur Andersen and when Arthur Andersen disappeared, we took our staff and clients and started our own firm."
Even with that running start when it was founded in June 2002, Inlign has grown from 15 staff members handling 75 initial clients with $400 million in assets under management to 45 staffers handling its $1 billion plus in assets, and it is still growing.
The beginning was not without its problems, but it was more because of where they were coming from than where they wanted to go. Feldman describes the initial few months, while Arthur Andersen LLP of Chicago was imploding and staff members at all levels were wondering what kind of futures they had, as the "fight of our lives."
At Arthur Andersen, Feldman was a partner located in the Phoenix office. He was one of 5,000 partners worldwide in a company that then employed 85,000 people, before it was brought down during the winter and spring of 2002 by the Enron debacle and resultant federal indictments. Feldman was responsible for the Phoenix-area private client services group within the tax division, which involved handling investment income and estate planning services for corporate executives and family groups. Arthur Andersen had approximately 20 offices with private client groups, so Feldman was one of about 20 people with those responsibilities.
He also had regional responsibilities for overseeing Arizona and California offices and was in charge of the firm's U.S. investment advisory practice resource center, which involved standardized tools and methodology for the Andersen offices. He also was in charge of financial planning for partners of a computing consulting company, Accenture, a service provided by Arthur Andersen.
But all that began to fall apart when the Enron scandal hit. "At that point, I was highly worried," remembers Feldman. "But it is important to understand that you could not tell clients or the people you were working with that things were going to hell in a handbasket. You had to put a different face on it during the day, while your after-hours job was to try to secure you own destiny."
He acknowledges that it was a frightening time, "but the challenge was a wonderful experience. The people at Arthur Andersen were saying the firm would take care of us, but in its own way. I could go to one of the other big accounting firms or I could go to a bank, but I did not feel like that was my destiny. Wherever I went it would be a tax-led organization or an investment-led organization, but it would never be a wealth management firm."
Feldman's father, Allan Feldman, who was retired at that point, had previously owned his own financial advisory firm and told his son he would never have a better opportunity than at that moment to do the same, if that is what he wanted.
"My father, my wife and my kids were all instrumental in telling me to do this," Feldman says, despite the fact that at the time he was in debt to Arthur Andersen because partners in the firm were required to buy their partnerships. However, clients he handled at Arthur Andersen also were quietly encouraging him to strike out on his own.
"There were a lot of late-night phone calls and secretive conference calls. I got one call from a client who said he did not know what might happen, but that he did not see any outcome at Arthur Andersen being fortuitous for me and that he would assist me. When I hung up, I thought, 'That was an intriguing call.'"
That call was made by David Reese and, at that point, Feldman started making a business plan, although technically he was not allowed to do that under the agreement he had with Arthur Andersen. Reese and Bill Andrew, both clients of Feldman at the big accounting firm, agreed to invest in the new firm, and to retain small equity shares in the company.
"I felt guilty because I enjoyed working at Arthur Andersen, but we all had to make a gut call. By April or May of that year, all the European firms (of Arthur Andersen) had walked and I went from guilt to desperation. Then I progressed from concern to hope mixed with anxiety, but no more guilt. The whole time, I was getting wonderful calls from clients, saying they wanted me to know I could count on their business. Those calls put a little more stride in my step. So, at that point, I had the support of my family, of colleagues and of clients."
Making The Move
Feldman gathered about 15 of his co-workers in a room and told them the group could continue to work together and start their own firm by buying their clients from Arthur Andersen, and Inlign was born. What may have been an even more difficult phase then ensued, as Feldman negotiated his own buyout for what he describes as a low-six-figures sum and began setting up an office, putting down payments for leases and equipment on his own credit cards.
"I started sending out contracts to clients from my house, using one of those little combination printer-fax-copier-scanner machines. I had a guaranteed payroll at that point, but no guaranteed revenue. The job then was to convert the Arthur Andersen clients to be my clients," Feldman says. "We had about 75 clients, 60 of them were investment clients, and we had assured them the transition would be seamless, which is easier said than done."
Some 98% of those initial clients are still with Inlign. Bill Andrew and his family were one group of clients that successfully made the move, at the same time that Andrew invested in Inlign to help it get started. He retains a position on the firm's advisory board, which determines what makes the best business sense for the practice.
"On many different levels, I consider Mark a friend, a colleague and a mentor. I respect what he does for families," Andrew says.
Three generations of the Andrew family, which made its money in the telecommunications industry, were in the process of moving their family office from Chicago to Phoenix when Arthur Andersen got into trouble. Arthur Andersen had done compliance work, estate planning and tax returns for the family. Now the family office is managed by Inlign.
"We are still intimately involved in the process of asset allocation, but Inlign does the due diligence on each asset class. They present the best options to us and review the performance of each of the money managers," Andrew says. "Of the 40-some people in their office, 90% of them touch our account in one way or another. There is no way we could manage that operation as a stand-alone family office, nor could we get together that group of talent or have access to those types of resources on our own."
Inlign handles asset allocations, tax preparations, estate planning and management of the family office, and then puts a "holistic wrapper" around the entire operation. "Inlign is helping us preserve the family wealth, but it also is helping to grow the wealth, and not just the financial wealth but the human and social wealth as well," Andrew explains. "It is a holistic approach to family wealth because the financial capital of an organization is just a tool to preserve the social capital."
That holistic approach is the key to successfully serving clients' interests at Inlign, according to Christina Burroughs, relationship manager, who started her financial career with one of the largest multifamily offices in the New England area before moving to Phoenix and joining Inlign.
"Often the alternatives that exist in the community today for investing are banks or large brokerage houses, but their services are often not designed for the complexity of the wealthy multigenerational family," Burroughs says. "Most, though not all, of the clients we advise are taxable, so we are building an investment strategy for them based on heightened tax awareness. The fact that our clients have substantial dollars to invest creates access to different investment strategies."
The firm uses mutual funds, separate accounts, and investment partnerships to invest in a broad spectrum of asset classes, including diversifiers such as high-yield bonds, commodities and real estate. Hedge funds and private equity are used for those clients who want to further reduce risk, enhance return and do not need immediate access to that capital. Inlign advisors pride themselves on integrating the entire financial strategy and developing a specific plan for each client.
"If someone goes with a provider who does not integrate the entire picture, they either end up being the quarterback themselves or they end up in a situation where no one is examining the impact of one part of their financial picture on another," Burroughs says. "We have seen situations with new clients who missed opportunities because no one was looking at their investment, tax, estate and philanthropic situation all at once. As an example, if they had a broker focused on investment selections and an estate attorney who hasn't been called in years, there is a chance the client missed what we call the 'low hanging fruit'-combining sound investment decisions with estate planning structures to accomplish the client's objectives. Inlign's recommendations are based on defining each individual client's goals and aligning the wealth management strategy to accomplish those goals. We base our wealth management services on a great deal of research."
That research is brought to the table by senior professionals such as Chuck Carroll, Inlign's chief investment officer, who worked with Feldman at Arthur Andersen but spent three years at a large financial services organization before rejoining Feldman at Inlign in September 2005.
"I think our niche is our client-centric focus and objectivity, which allows us to bring solutions from across a wide spectrum," says Carroll, who specialized in research for the nationwide investment advisory practice at Arthur Andersen. "New strategies are continually being developed in the investment world and the fact that Inlign does not 'manufacture' any proprietary products allows us to devote our time to evaluating a wide variety of approaches to meet our clients' needs. The fact that we are a smaller organization allows us to make decisions without a lot of red tape."
In fact, the flexibility to make a variety of types of investments is one of the advantages Feldman has found in his current position, compared to his life under Arthur Andersen.
"There were regulatory constraints under Arthur Andersen that we do not have now. We had to make sure every client was being presented with the same picture, as well as meet the SEC regulatory requirements," Feldman says. "Now we can be more discretionary. We can invest in private equity and hedge funds, which we could not do before. By taking discretion we can administrate client accounts more effectively, in their presence or in their absence."
Knowing The Client
The owner of the Arizona Diamondbacks baseball team, Ken Kendrick, is one of the many clients who say they have benefited from Inlign's individualized approach and in-depth financial research. An acquaintance of Feldman's for several years, Kendrick also was an Arthur Andersen client, but did not become an Inlign client until a couple of years ago after he liquidated a significant amount of assets.
"The way my portfolio is established, I am involved in a number of industries and in real estate independent of Inlign, so my portfolio has some gaps in it. But the people at Inlign do a good job of listening to me and of tailoring my portfolio to de-emphasize those parts where I already have investments, and balance the rest, rather than being rigid about what I should invest in," says Kendrick.
Another new client, who asked not to be identified by name to protect his family, engaged Inlign on the recommendation of a friend after he sold a family business for a considerable sum of money.
"I was looking for someone with an astute investment strategy and Mark filled the bill," he says. "I also wanted someone who could step in if something happened to me, and run the investment portfolio for my family and do the estate planning. I went with a large firm for awhile, but I was not happy with them. What I need requires a firm that gets to know the client and their family and builds a relationship of trust. My family is building a trust with different people in their organization, not just with Mark. It makes it much more personal than it is at a large investment bank. It is also important to me that he is not selling any securities or products."
Word of mouth seems to be one of Inlign's most effective advertising tools. Kendrick has recommended Inlign to friends, including a young man whom he mentors on the East Coast, who did not find a suitable financial advisor near him.
Feldman's involvement in the Phoenix community is one of the things that brings him in contact with potential future clients, and much of it is done on a volunteer basis. It also attracts clients such as Kendrick. Feldman began volunteering as soon as he graduated from college, when he joined the Make a Wish Foundation in 1984 and ended as chairman of its board in 1997. He is active on the board of trustees of the Phoenix Botanical Gardens, is on the board of Greater Phoenix Leadership and the Arizona Science Center, and he works with Free Arts of Arizona.
But the project he holds most dear is his fund-raising efforts for the Phoenix Children's Hospital, which saved his son's life after he was born with a hole in his diaphragm. When he was born, it was uncertain how developed his lungs would be.
"The doctors at the hospital operated and now he is a normal kid-except for being a Feldman," says his father. "Hopefully, he'll be part of our family's next generation of financial planners."
Inlign's different clients buy different services depending on their needs. Many engage the firm to handle the family office and Inlign has developed its own computer software to accomplish that.
"We can move data from tax files to accounting to performance, and we can handle multiple generations within a family office. We can slice and dice the data anyway they want, providing an economy of scale and level of governance that they could not have done on their own, while at the same time we can still pursue the goals of each individual of the family," Feldman says proudly.
The multiple-family office and the multiple-generational nature of much of their work brings a good deal of family counseling into the advisement sessions.
"We encourage togetherness between siblings and among other family members to enable them to reach their possibilities and to make good decisions on a family level," Feldman explains. "We try to get families to work together, and yes, that involves some psychology, but it's fun. We address the human, social, intellectual and financial side of financial planning, and try to make the best of it all."
Building On Success
Now he would like to improve even more on what Inlign already does.
"This is a year-by-year process, and we want to do what we already do even better. Arthur Andersen did not enable good process or efficiency. We do that now, but I want to continue to make the process even more efficient and to grow our client base."
Part of that growth will come with further increases to the staff.
"We have to work to attract the best and brightest, which in Phoenix is not always simple. We do not have the wealth of universities here that you have elsewhere in the country to draw from, so getting good people is a challenge. In order to continue to be a success, we also have to broaden our ownership group."
Inlign's success as a boutique wealth management shop in the southwestern United States has not brought Feldman complete certainty that he is better off now than before Arthur Andersen collapsed.
"That question is still out there, because every situation has its benefits," Feldman says. "There are so many efficiencies that size such as Arthur Andersen brings to you. And I always had people in the same situation as me, somewhere, that I could bounce ideas off of. I still have people to bounce ideas off of here, but I don't have partners all over the world, like I did then. But I am happy with where we are."