So in July 2010, Shabaker moved her business to Versant. She wasn’t alone. Feldman would leave Genspring in September for another huge Phoenix RIA firm, Miller Russell, where he is now CEO.

Like others after an acquisition, Shabaker had suddenly found herself in an untenable position. Having preached the importance of tax efficiency and controlling expenses through passive investing to clients for years, placing them in hedge funds was antithetical to her philosophy. “They’d been pitched hedge funds for years at Inlign and we’d told them not to do it,” she says.

In retrospect, it appears amazing that senior management at Inlign and Genspring failed to foresee such an obvious conflict before consummating the transaction. After all, these were two multi-billion-dollar firms, not a couple of solo practitioners.

Shabaker’s clients included an Indian tribe and some other large families. After the introduction by the mutual client, Shabaker and Connelly discovered they were very much alike in philosophy, and their skills were also complementary. “On the investment side, he is one of the best in the RIA business,” she says. “I can put together an asset allocation plan, but do I want to be a CIO? No.”

She had a non-solicitation agreement with Genspring and had to turn clients away for a year. But the impact on Versant was immediate and dramatic. Connelly knew he was “crossing the Rubicon” and saying goodbye to his lifestyle practice. In 2008, Versant had about 60 clients and $191 million in assets. By the end of 2010, the firm had $316 million in assets, of which about $75 million came from Genspring. “He realized a lifestyle practice wasn’t very practical,” Shabaker says. “It was his legacy and it [ultimately] wasn’t good for his clients.”

Connelly himself has praise for the training Shabaker and others received at both Inlign and Genspring. “One of the reasons I hired Liz and others is because of the exceptional training they had,” he says.

Today, Versant has 90 families, about $620 million in assets and 15 employees, five of whom are Genspring alumni. Much of the subsequent growth has been organic as Connelly and Shabaker have onboarded some large Arizona families. In 2013, Shabaker became a Versant partner and now serves as chief operating officer.

With her expertise in family governance, Shabaker has provided the firm with another dimension many RIA firms lack. Both Connelly and Shabaker serve as adjunct faculty at the Institute For Preparing Heirs. Shabaker acknowledges that Genspring offers an excellent array of tools for family governance and next-generation education. That was one reason she and other ex-Inlign professionals hoped they could find “a happy medium” with Genspring.

Working with very successful affluent families over the years, Shabaker has found a number of problems that keep resurfacing among different families. “Parents, or the first generation, often create elaborate trusts, but the reason why is never explained to the heirs,” she says.

When family dynamics are introduced to the equation, it can be a recipe for misunderstanding. As modern families become more complex with multiple marriages and different sets of children, even sharing how the money was created can become an issue, she says. “If there isn’t trust or communication and you add a business” into the situation, problems can be expected to proliferate.

Facilitating family meetings is one way to pre-empt future conflicts. Shabaker tries to open a dialogue among family members to head off potential crises. “Most people wait until there is a trigger event and no one is prepared,” she says.

In trying to get clients to think about their wealth, “it’s about way more than the money,” she continues. “It’s about legacy, health, community involvement, the family name and family unity.”

One aspect of working with affluent families that Shabaker finds intriguing is “how people in the same family are so different.” That explains a positive trend she sees emerging in estate planning. “You are seeing more values-based trust language so the children aren’t penalized for making a values-based career choice,” she notes.

Most of the firm’s clients are business owners who either are running or have sold a business. That’s one reason Versant’s conservative investment approach resonates with their client base. Clients want to keep their money.

Since the financial crisis, Versant has found some new investment opportunities for clients in a closed-end Ireland fund, along with allocations to some municipal bond funds that use catastrophe bonds. The firm also used the Third Avenue Value Fund as a way to play the distressed debt and real estate markets. More recently, new investments include small allocations to Greece and Eastern Europe.

As Versant enters its second decade of business as a firm this year, Connelly finds himself wrestling with many of the same challenges as other RIA firms that are growing fast but hardly huge. For a firm with $620 million, Versant has a small head count of 13, but that is partially attributable to the high net worth of its client base. Challenges include managing growth, attracting new clients and developing its professionals. If the last decade is any indication, those hurdles should be surmountable.

A Tour In Public Service
Many advisors are serious about investing. Most of the larger RIA firms have at least one or two CFA charter holders running their investments. Although some may be serious, they may not possess Tom Connelly’s insatiable curiosity.

In late 2006, Connelly turned 50 and embarked on an experience in public service that gave him a perspective into the world of institutional investing that few RIAs have enjoyed. A friend and client recommended to Gov. Napolitano that she appoint Connelly to the Arizona State Retirement System. At the time he formally became a trustee in early 2007, Connelly was a registered Republican. Today he is an independent, but takes a measure of pride in being appointed by a Democrat and being reappointed twice by Republican Gov. Jan Brewer. Arizona trustees receive $50 a meeting, but Connelly waives the fee.

Connelly clearly finds investing fascinating. He regularly attends CFA Institute meetings and is a member of the “Q Group,” formally called the Society for Quantitative Research and Finance. Members of the Q Group include Nobel laureates like Harry Markowitz and William Sharpe. Connelly jokes that among fellow Q Group members he is “a math dilettante,” but admits he reads widely to satisfy his innate curiosity.

Others are more generous in their descriptions. Paul Matson, executive director of the retirement system, calls Connelly one of the most talented academic thinkers outside of academia. “In my opinion, Tom could easily teach investments in any university in the country,” says Matson, who would eventually name Connelly to chair the system’s investment committee in March 2009, a propitious time if ever there was one.

If Versant’s business was holding up during the financial crisis, the retirement system was experiencing rocky times. In 2007, it was managing roughly $25 billion, though that number was starting to bounce all over the place. The state pension fund was employing an equity-rich strategy going into the crisis with approximately 45% of its assets in U.S. equities, 20% in international stocks, 30% in U.S. fixed-income and 5% in real estate.

Matson describes the system’s asset allocation as “not quite typical,” but hardly out of line with other states. “It was equity rich, real estate light and U.S. dollar heavy,” he recalls. That gave the retirement system one disadvantage and two advantages. Moreover, the equity markets were far more liquid than real estate.

As markets began to unravel, the system decided to make major allocations to real estate and private equity. Fortunately, fate was going Arizona’s way. These two alternative investment mandates were only 25% funded when the crisis exploded in September 2008, so it was able to purchase real estate and private equity assets at bargain basement prices over the next 18 months.

The retirement system receives presentations from the world’s leading asset management firms. That means directors get a sneak preview of the latest strategy du jour in the institutional space, strategies like imported alpha and risk parity that typically take 18 months or more to make it to the RIA world. “It’s fun to listen to a presentation from [Oaktree CEO] Howard Marks, [BlackRock CEO] Larry Fink,  [Bridgewater founder] Ray Dalio or [AQR CEO] Cliff Asness,” Connelly says.

Many of these top institutional investors are self-made billionaires but, while they are obviously smart and possess very different personalities, they rarely exhibit hubris, having been humbled by the markets at least a few times in their careers. “You generally don’t find arrogance at the top of very successful organizations,” Connelly says.

Though Versant itself happened to enter the financial crisis light on equities, Connelly acknowledges that they were not seriously overpriced, especially compared with past collapses in 1987 and 2000. By early 2009, they were downright cheap. Yet most of the advice the Arizona retirement system was getting from the institutional consulting universe was to move into alternative investments like hedge funds.

“There was a lot of pressure to get into [vehicles like] long-short hedge funds,” Connelly recalls. “We resisted, stayed in equities and reinforced it a little bit.” The move paid off handsomely, but at the time, it was hardly clear. “We didn’t know if the Fed strategy would work, but we decided the horse was out of the barn,” he says.