Why do some in the media still see the "real" financial advisors as pushy
Will financial advisors ever outgrow the tired
stereotype of pushy salespeople? Probably not in the media, which
insists on categories and rules of thumb: private bankers and money
managers (professionals) on one side, financial planners (pushy
salespeople) on the other. Yet there are encouraging signs that those
in the trenches know who they are.
On January 3, Jonathan Clements' "Getting Going" column in The Wall Street Journal carried this headline: "Don't Get Hit by the Pitch: How Advisers Manipulate You." Clements wrote, "unscrupulous financial salespeople can often persuade even well-educated folks to sink huge sums into rotten or fraudulent investments." Worse yet, "Even ethical financial advisors use these tricks." Clements seems to suggest that there are two kinds of planners: the savage brutes who see their clients as easy marks, and those who understand the difference between right and wrong but just can't help themselves when they see dollar signs.
No mention of the new breed of financial advisor who provides customized, high-touch service based solely on the client's needs. For example, Maria Elena Lagomasino left J.P. Morgan Private Bank, where she was chairman and chief executive, to operate an advisory business that put clients first. In November 2005, she became chief executive of Asset Management Advisors, an independent multifamily office serving 360 families with $10 billion in assets from headquarters in Palm Beach, Fla. She sees her career choice as an example of "leaving the financial services industry behind" to work for the "un-bank" or the "un-brokerage," providing clients with advice rather than products. "All of us here and all of our clients are refugees from financial services," she says.
Lagomasino is certainly not the first refugee from financial services. But why is it that the bottom feeders who are left behind as the definition of "financial advisor" changes are seen by folks like Clements as the real financial advisors, while high-powered executives like Lagomasino are called by some other name. Why aren't high-caliber people like Lagomasino viewed by the press as financial advisors?
Many advisors planned from the starting gate to become financial planners. They are not former used car salesmen or real estate agents who drifted into planning, as Clements suggests. Take, for instance, David Osborne Jr., chief executive of McCormack Advisors International in Cleveland. Osborne had some experience as the family representative for his own family's financial affairs, and he knew he wanted to do something to make his community better. "Providing holistic financial planning is a great way to help people," he says. And Osborne trained hard to do that, becoming a certified public accountant and graduating from the University of Pennsylvania's Wharton School with an M.B.A. in 1980.
At that time, he was dubious of the CFP designation. "A lot of insurance people were migrating into that space," Osborne says. "It got a lot of CPAs very nervous. In those early years, you thought CFPs were just insurance salesmen." Which seems to be the way many journalists still see them today.
Twenty-seven years ago, Osborne decided against the Wall Street route that many of his CPA classmates at Wharton took, to become a financial planner at a boutique planning firm in Cleveland that looked a lot like today's multifamily office. The firm focuses on providing the best possible personalized service for its ultrahigh-net-worth clients. For example, a client called the other Wednesday and said he needed three Chevrolet Avalanches delivered by Saturday, licensed and insured, because Saturday was his birthday and he was giving the SUVs to three friends. Osborne says his firm's strength is this type of customized service. "That's where we shine."
But Osborne's boutique advisory firm had a secret weapon: It operated as an arm of IMG, the biggest sports agency in the world, representing golfers like Tiger Woods and Jack Nicklaus as well as tennis stars and entertainers. IMG was built by Mark H. McCormack, the legendary sports agent who signed Arnold Palmer in 1960 when he was a young golfer. In 1973, McCormack set up a financial services arm for his clients called Investment Advisors International or IAI. Osborne joined IAI as a financial planner in 1980 when IAI was a dedicated resource, providing financial services for clients of IMG. Today the firm Osborne heads, which is called McCormack Advisors International or MAI Wealth, is the biggest provider in the world of financial services to sports stars and entertainers.
In 1984, Osborne was asked to move from the advisory firm to go inside and work in the corporate finance department of IMG, the parent company. He worked for IMG for 20 years, becoming treasurer, installing the first budget system and later leading a team to install a company-wide software system. In 2000, McCormack sold 50% of IAI, the advisory boutique, to Merrill Lynch; it was renamed McCormack International.
The partnership with Merrill Lynch didn't last long, ending in 2002, largely because of the conflicts between an independent, fiduciary firm and a large company that produced and sold products. Osborne was named president and CEO of McCormack International. Today, the financial advisory firm that Osborne runs, MIA, is a fee-only, highly-customized independent firm that sometime works with IMG and sometimes doesn't.
Osborne would be as likely to manipulate clients or "hit them with a pitch" as he would be to ride a motorcycle on a high wire at the circus. Providing customized service and advice for clients is what he was trained for and what he does. It is his business. He believes that one of the strengths of his firm is its strong base of CPAs. "With most of our clients, a lot of what is demanded is current tax knowledge." The firm operates differently from other multifamily offices in that Osborne's firm uses client reps who are CPAs and CFPs rather than investment people.
The advisory boutique, which is now called MAI Wealth Inc., has 400 clients who pay $12,000 to $100,000 in annual financial planning and asset-based fees. Assets total more than $1 billion. The average client has been with the firm for 15 years. MAI employs 55 people; 85% of professional staff hold professional designations such as CFP, CPA, CFA and M.B.A.
Six top people have worked together at the firm for 20 years. Osborne says the ability to hold onto these top people is one of the keys to long-term success. "It's hard to keep top people together," Osborne says. "You constantly have issues about employees leaving to create a dedicated firm." The only way to keep them is to "develop equity plans that are challenging," he says.
Until 2004, MAI had its own internal insurance group, but Osborne made a decision to move them out. "We had an in-house insurance department, which is good, because they offered fee-only, independent advice," he says. The problem was developing a career path for these people. Osborne says he couldn't do it. Without a career path, he says, you can't keep good people.
Since 2004, he has rented office space to a group of insurance people who are part of Hub Insurance. "They act on our client's behalf," he says. "Hub is not exclusive. We will work with other agents as well."
Osborne expects to see other advisory firms following this path. "I think we're in the perfect spot for what's going on in the marketplace today," he says. "Lots of people are going to retire and they want an independent advisor who manages both sides of the balance sheet." Clearly MAI is not the only one that offers the multifamily office model. But many firms make the mistake of trying to scale services "so you can use the same employee base and the same services and offer them not to 500 people but 5,000." That will not be the route MAI takes. Osborne sees stability among staff and clients and continued high-level customized service as the keys to growth.
Is Osborne a financial planner? He says so. Yet he certainly doesn't fit the mold of the advisors we read about in the media. Will the real financial planner please stand up?
Mary Rowland has been a business and personal finance journalist for 30
years, a half dozen of them as a weekly columnist for the Sunday New
York Times. Her six books include two written for financial advisors:
Best Practices, and In Search of the Perfect Model.