Like anybody who had skin in the investment game in 2008, the folks at Wescott Financial Advisory Group felt stressed as the financial markets crumbled around them. The firm had experienced solid growth since it began in 1987, but then the downturn gave it pause, forcing it to re-examine what it was doing and how it could do it better.
"We knew that our business development efforts were going to be difficult at best," recalls Grant Rawdin, Wescott's founder and CEO. "And we said, 'Let's just spend [time] internally to look for weaknesses and make the firm stronger so that when we come out of this we can grow on a strong trajectory.'"
They brought in an industrial organizational psychologist from a human resources assessment company, Caliper, to evaluate their operations. The consultant, Harold Weinstein, did a complete analysis of the firm's procedures and spoke with employees to assess their roles. "The idea was to do a diagnosis on where we weren't as aligned as we should be," Rawdin says. "It was a way to address the stress of the times and remove the friction-not between people. But between projects moving between people."
The resulting company tune-up, Rawdin says, created an organizational structure that has improved the flow of communication and ideas among the firm's various committees. Everything the company does has a point and purpose, such as company meetings that are highly organized affairs with an agenda, a structured discussion and post-meeting minutes.
In essence, Wescott takes a proactive approach that doesn't leave anything to chance. "It's necessary if you want to maintain and grow a fast-moving, client-centric organization," Rawdin says.
Rawdin liked Weinstein's handiwork and brought him onboard as the firm's chief operating officer to help keep things shipshape. "We look very different today than we looked three and a half years ago in terms of how people are talking, how they're meeting, how we organize our plans, what we look at and accomplish annually," Weinstein says. "I think we're far more organized around that today than we were three and a half years ago. But at the same time, we're nowhere near where we hope to be."
What's In A Name
Based in Philadelphia, Wescott's roots began in 1985 when a 25-year-old Rawdin started a financial planning group as an ancillary practice at the Philadelphia office of Duane Morris LLP, a prestigious national law firm. Two years later, Rawdin's financial planning group spun off from Duane Morris and became an independent company. "I didn't have a lot to lose, nor did I need a lot of sleep back then," Rawdin jokes.
Today, Wescott has 309 clients, $1.6 billion in assets and 25 employees in three offices, including two in Florida.
Wescott's diversified, fee-only business serves both individual and institutional clients, with roughly two-thirds of the firm's revenue coming from the former and one-third from the latter. Its focus includes wealth management and family office services, as well as trust services and investment management. The latter is provided on a subadvisor basis.
The name "Wescott" might sound like it belongs to somebody deeply rooted in the city's tony suburban Main Line. But it's actually made up. Rawdin didn't want his name on the door, and he went through the alphabet looking for something that sounded like a stable financial institution while evoking a family name. "It took me an unconscionable amount of time to find the right name," Rawdin says.
When he got to the W's, the word "Wescott" struck his fancy. He presented it to the partners, and one of them, a man of impeccable breeding and background, saw the name and said in an aristocratic tone, "Oh, Wescitt." "I never would've thought to pronounce it that way," Rawdin says, "but it sounded so elegant when he said it that I knew we had a winner."
While the company's name is pronounced without the upper-crust accent, the firm's wealth management clientele is a wealthy lot requiring a $2 million minimum-the average retail account is closer to $5 million. The typical Wescott client is a senior executive, doctor, lawyer, accountant or business owner who gets the firm's advice on myriad financial planning topics from portfolio allocation to structuring partnership agreements.
Fees are 100 basis points on the first $3 million, and follow a sliding scale until they diminish to 25 basis points on any amount more than $7 million.
Each Wescott client is assigned a primary advisor, along with a secondary advisor who provides backup and support. Some of the firm's advisors have a specialty with particular client types. Catherine Seeber, for example, has a focus on people-particularly women-in transition.
"I was a divorce planner prior to joining Wescott," says Seeber, a principal and financial advisor. "And I just had an empathy towards women who were stranded with very little knowledge of how to move forward after a life event. So it became more of an empathetic process than a career track, if you will. It empowered me to try to teach other people how to be more proactive before an event happened and they were stuck in a particular situation and it was too late."
Wescott's steady growth has been fueled in part by referrals from existing clients. But the firm's business development officers actively mine centers of influence-accountants, attorneys and the like-for fresh leads. "That's where most of our sales efforts are focused," Rawdin says.
Some of that includes tapping into his former employer, Duane Morris, which retains a passive interest in Wescott. "There's not a lot of overlap between Wescott and Duane Morris," Rawdin says, adding that only about 20% of Wescott's clients have come via the law firm.
And the firm's extracurricular community service work, which includes bringing financial planning to the masses and helping the needy, pays off in ways that go beyond providing psychic satisfaction. "When you sit on [charitable foundation] boards you're sharing your expertise and sitting with all of these other professionals around this boardroom who are CEOs of major corporations," Seeber explains. "They gain an appreciation for what you're doing, your thought process and your expertise, and that leads to their own personal needs. So that's another really useful snowball effect."
But Wescott hasn't expanded in willy-nilly fashion. "We have very focused expansion efforts, and they come in a few different ways," Rawdin says. One has to do with geographic expansion, which happened in 1998 when the firm entered the Florida market (it now has offices in Miami and Boca Raton).
Wescott initially set up shop in the Sunshine State so the firm could work with its Northeastern clients who either wintered or retired there. But the move eventually motivated the firm to expand its business beyond wealth management. "We needed to have a trust solution, particularly for our Florida clients," Rawdin says.
To do that, Wescott affiliated with National Advisors Trust, a federally chartered entity that administers more than $7 billion in assets across all 50 states. Estate planners hire Wescott to manage the investment assets of a trust, while Wescott Trust Services, which gets back-office support from National Advisors Trust, acts as trust agent. Rawdin says Wescott has about 20 trust clients.
Wescott's business development opportunities might have slowed during the Great Recession, but the company was hardly foundering. When Weinstein took the Wescott consulting gig, he says he saw a company with a great set of values and a good business model that was very clear about who its clients were.
"And I sat down after the assessment with Grant and [some of the other principals] and I said something like, 'This is really a pretty nice organization. It's pretty sweet,'" Weinstein says.
Sweet or not, his marching orders were to help the company systematically grow to the next level, and one of Weinstein's conclusions was the need to bring the company's departments closer together.
There are five departments-operations, marketing and sales, administration, advisory and the investment research group. As per Weinstein's suggestion, the firm formed a management committee made up of people from each department that meets monthly to ask the following five questions: What are we doing well? What do we need to keep doing? What should we do more, better or different? Who will do what by when in order to create accountability? And who else needs to be in this conversation?
"We began to build a practice around those five questions, and we ask those all the time," Weinstein says. "We ask them in every meeting that we have. We ask them once a year when we establish our annual plan. It's an issue of continuous improvement."
Weinstein's focus is to keep the communication flowing. "Most of my energy is around facilitating and being a catalyst around the organization itself, making sure that the organization is communicating well, that our values and our tasks are clearly defined, that people are getting feedback, that our different functional groups are talking together, that they're aligned around a common set of values, goals and objectives per year," he says.
One example of this is how Wescott is handling the creation of the firm's new CRM software, which it's doing in-house. This would normally be the turf of the operations department. "But they'd miss a lot of the nuances of the design and look and feel that would be important to advisors," Rawdin says, adding that at least one person from each department is involved in the project to offer input from his or her department's point of view.
One of Wescott's strengths is its in-house investment management team, a four-member staff led by executive vice president and chief investment officer Lydia Sheckels. The firm constructs its own model portfolios based on a diversified investment approach, then hires outside money management firms to handle specific parts of its portfolio allocations.
Roughly one-third of its portfolios are invested in passive strategies from Dimensional Fund Advisors, and the other two-thirds are with actively managed domestic and international funds from the likes of Janus, First Eagle, Third Avenue, Royce, Baron, William Blair and BlackRock.
"Our asset allocations don't change that much because we tend to have a very long-term perspective," Sheckels says. Wescott's current global asset allocation policy, for example, was formulated more than five years ago when it boosted its non-U.S. equity allocation from 20% to 40%. "We could see that emerging markets were becoming the drivers of the global economy, and we wanted to put that as a formal part of our investment," she says.
Sheckels says Wescott works with managers who have plenty of liquidity and transparency. "We require onsite due diligence visits and we require access to the actual managers, so we tend to stay within the more traditional framework," she notes.
For these and other reasons, Wescott eschews hedge funds. "They tend to be pretty expensive," Sheckels says. Regarding alternative investments, she says the firm shies away from multistrategy funds and sticks to more traditional variations of alternatives such as natural resources and real estate. The latter includes a strategy of passive real estate investment trusts structured by DFA.
Sheckels says Wescott has explored long/short funds, but has opted not to partake. "Sometimes the perceived promise of these investments is that they're not going to lose money, that they're going to win whether the markets do well or not do well," she says. "And I think that sets false expectations for people. We tend to stay with things that aren't going to give negative surprises to our clients."
She adds that Wescott is a big believer in buying low and selling high. "If you really want to be a successful investor, you have to look at down markets as opportunities and you have to make sure you have the conviction to be with your managers during those bumpy times," Sheckels says.
For that reason, she says, Wescott put some client cash to work during the recent August and September market swoons. "We generally rebalance once a year after the year end, but opportunities during the year where the market just goes on a fear trade are a great time to put client money to work, even though it's unsettling for them."
According to Wescott, the 3.93% return on its 30% (cash and bond)/70% (equity) portfolio in this year's first half trailed a series of benchmarks. But the portfolio's annualized performance over three-, five-, ten- and 15-year periods topped the benchmarks by fairly comfortable amounts-culminating with its 8.63% annualized gain over 15 years. The identical pattern exists for its 40% (cash and bond)/60% (equity) portfolio, which sported a 15-year annualized gain of 8.21%.
Wescott has parlayed its investment success into a subadvisory role to create portfolios for various financial entities including trust and insurance companies, as well as financial advisory firms. "It helps give us the financial wherewithal to do what we do on the investment side because it's an expensive area if you want to do it right," Rawdin says.
Despite Wescott's robust client base and its crack organizational structure, Rawdin realizes the firm needs new blood to keep things humming-both in terms of clients and employees.
On the client side, Wescott developed a platform called Entrada (Spanish for "entrance.") Spearheaded by David Lafferty, a principal and advisor at the firm, Entrada provides investment management and some ancillary financial planning services to people who don't meet Wescott's $2 million minimum. "These were the type of clients I was happy to have when I started the firm," Rawdin says. "And those are the clients who, today, are 65 years old with lots of liquidity."
Entrada, Rawdin adds, is a way to bring in the next generation of entry-level clients who hopefully will grow their assets at the firm as they build their careers.
On the employee side, the firm in 2008 began a formal program to groom its next generation of staff by adding one or two new advisors or assistant advisors annually. "We bring in recent grads from undergrad or graduate programs and teach them things the Wescott way," Rawdin says.
Stephanie Curtis, the self-professed guinea pig in this program who came to Wescott fresh out of Saint Joseph's University in Philadelphia, has in three years worked her way up from paraplanner to CFP-certified associate financial advisor and she's now the primary advisor for a handful of clients. She also mentors incoming assistant advisors. "I've been able to do a lot here in three years, and I'm trying to build that kind of experience for the incoming advisors as well," Curtis says.
Rawdin seems pleased with how the new advisors are working out. But again, that's part of the plan. "We have a great career path for them," he says. "It's well set out so they know what they have to do. And it's been very successful, both in terms of the people we've gotten and, most importantly, how the clients have received them."