Savvy financial advisors, citing market fears and investor dissatisfaction with brokers and money managers, are gaining new business.
RegentAtlantic Capital in Chatham, N.J., for example, added 98 new clients last year, and 28 in the first quarter of this year, says the company's investment committee chair, Brian Kazanchy. Assets under management, despite a slight dip in March, ballooned from $1.51 billion at year-end 2006 to $1.89 billion as of April 30.
One catalyst besides performance: Existing clients are invited to bring friends to as many as three seminars annually. Its office size limits attendance to 50 persons. But its January seminar-on asset allocation-was repeated seven times! "We'll have a bigger office next year," Kazanchy says.
Other seminars have focused on baby boomer retirement, endowment investing and nonprofit investing. RegentAtlantic Capital sends a blast e-mail to members of the media on a relevant topic every month. One example: How high-yield bonds perform in different market environments. "About a month ago, we moved 10% of our bond allocation out of inflation-protected bonds into high-yield bonds," Kazanchy explains. "There was clearly an opportunity created by the credit crunch."
The amount lower-quality companies must pay above Treasurys rose dramatically-from a low point of 2.7% above Treasurys toward the end of 2007 to more than 8% over Treasurys at the high. Kazanchy attributes the company's 90% average client retention rate over the last few years to performance, which clients see on quarterly statements. In May, the firm was keeping 20% of client portfolios in alternatives-7% were in commodities, 10% were in hedging strategies and 2% were in real estate. For commodities, RegentAtlantic uses vehicles that track a commodity index, which includes some gold, but has a heavier weighting in energy and agriculture. In 2007, it gained additional flexibility by adding structured notes in different asset classes.
Although prospective clients get a presentation, there's no heavy marketing. Rather, the firm's wealth managers concentrate on knowing the client's goals and objectives. Client portfolios get a target for each asset class. The goal is to review it daily-which likely is a lot more frequently than many advisors do it, Kazanchy says.
Say a portfolio has a 10% target for hedging strategies. RegentAtlantic Capital will set its software to a range of 8% to 12%. "If it goes above 12%, our software gives us a recommended trade to bring it back to the 10% target. If it falls below 8%, it gets reviewed by us. It's a built-in philosophy to sell things when they're high in value and buy when low." The company has avoided problematic auction-rate securities and mortgage securities.
Smaller advisory firms, meanwhile, are reporting that they may have actually benefited from the recent turmoil, in which the market dropped nearly 20% from the last quarter of 2007 through the first quarter of 2008. These firms have been busy networking, seeking referrals and building relationships with investors who have become dissatisfied with their stockbrokers. New money materialized from shaken clients fearful of going it alone in tough economic times. And a new emphasis on succession planning has been drawing additional relationships as well.
If you did a spot-check with financial advisors, you'd find that they had lost little business except for the slight dip they suffered during the market decline and liquidity crunch earlier this year. Instead, several reported growth-amid reports that brokers were pressuring clients to take margin loans to bridge liquidity gaps.
"There was a presumption of liquidity in the marketplace for a lot of different investments-mortgage-backed securities and regular corporate bonds," says Peter Wernau, president of Wernau Asset Management Inc. in Boston. "We didn't invest in any of those for our clients' cash. We've been using money market funds."