Some supergrowth
advisors share their secrets.
When I read last month's cover story, it was
interesting to see the rankings of firms that grew assets under
management fastest-interesting but lacking an important detail: how
they did it. So I called a few of the supergrowth advisory firms near
the top of the list and asked them about the magic they worked.
As the owner of a company that's grown at least 30%
annually for the last five years, I know the hell success can be.
Growth means change, and people-clients as well as employees-often
don't like change. The challenge was met with ease by the owners of the
supergrowth firms who spoke to me, and I learned a lot from talking
with them. Here are some of their stories.
Investors Capital Management
Rich Chambers, 60, worked for 3Com until 1999. He
was a software engineer there, working on Ethernet network adapters,
and toward the end of a 16-year tenure he managed a group of eight
engineers. On January 1, 1999, after leaving 3Com, Chambers opened his
advisory firm. He now manages $106 million.
Chambers says he has always been interested in
investing-an interest he inherited from his father-and so it just made
sense for him to sell his 3Com stock, worth in excess of $1 million,
and start offering investment advice out of his house. He had sold his
3Com shares at the top of the market and put the cash into a portfolio
of funds, and he offered to do the same for friends and relatives.
"My friends always seemed to be losing money when
they invested and I was always making money," says Chambers. By the end
of his first year in operation, Chambers was managing $3.7 million. But
it wasn't all so easy; 2000 was a tough year.
"I had made the classic mistake of putting more than
we should have into the New Economy," admits Chambers, who was as
candid an interview subject as I've ever known. "Some of my clients
back then already had too much of the tech stocks before they started
working with me, so I couldn't do more harm to their portfolios. But
other clients were advised by me to pour more into those stocks."
Around that time, another advisor told him about
Litman/Gregory Companies, which publishes No-Load Fund Analyst, sells
its research to retail investors and advisors, and also sells client
communication materials. "I went with Litman/Gregory and began to model
most of my money management against their style of tactical asset
allocation," says Chambers.
Despite the losses in the market, 2000 was an OK
year for asset growth and Chambers managed $4.4 million at the start of
2001. However, having learned a lesson in the growth-stock crash of the
millennium, Chambers adopted a more diversified approach. Most of the
mutual funds he recommended to clients were those recommended by
Litman/Gregory. "That firm has been a major contributor to my success,"
he says.
In early 2001, Chambers made what now appears to
have been another prescient decision that would fuel his swift ascent:
He affiliated with Garrett Planning Network (GPN), a network of
independent financial advisors and planners who offer hourly, as-needed
financial planning and advice to anyone, regardless of income or net
worth.
There are about 250 GPN members and, based on the
idea Sheryl Garrett came up with about ten years ago to become the
McDonald's of fee-only financial advisors, GPN members have made a
significant impact on the independent advisory business.
The idea of creating a business model around hourly
financial planning advice broke new ground. It attracts an ideological
planner dedicated to doing what's best for a client. Most of the GPN
members do not manage money. They only work on an hourly basis, and
taking a percentage of clients' assets for managing their money on an
ongoing basis is looked on unfavorably by some GPN members
Chambers is not one of them. He found that offering
hourly financial planning advice made a lot of sense for his clients,
and he also found that many of the hourly clients wanted ongoing asset
management. In 2001, after joining GPN, Chambers says he added 50 or 60
new clients. He had stumbled into something that worked in bringing in
hourly clients who would become prospects to his money management
services.
In addition, Chambers also became a member of the
National Association of Personal Financial Advisors. NAPFA, whose
influence over the industry is far greater than its membership of 1,200
would imply; it has exerted enormous influence over the past two
decades in moving the industry to fee-based and fee-only services. It
is pushing advisors to embrace their role as a fiduciary, a platform
that could allow NAPFA to change the industry in years to come as it
did with its fee-only stance in years past. Chambers credits NAPFA's
referral network with keeping a steady flow of prospects coming his way.
This combination of offering hourly services and
responding to NAPFA referrals took some time to take hold. By the start
of 2002, Chambers was managing $7.1 million and he had come up with a
way to better serve the type of investors attracted to hourly services
and sought referrals from NAPFA.
Chambers started a self-directed account service.
Almost all of the advisors I know who have done this have failed. But
the type of people who go to NAPFA for a referral and who seek hourly
advice may be perfect candidates for this type of service. My guess is
people who would seek out a self-directed account service are
price-sensitive and smart. They're investors who have a good deal of
knowledge-they're confident enough to be in charge of their own
money-but they want some advice and they want to do it on the cheap.
Not long after starting the self-directed account
service, Chambers made another key decision. He moved from
Litman/Gregory toward Dimensional Fund Advisors. DFA is famous for its
low-cost efficient market philosophy and value tilt on index fund
investing. Now, all of his new clients have portfolios comprised of DFA
funds and most of the older clients have been switched to DFA.
So look at what Chambers has developed here: He has
a steady stream of prospects coming from NAPFA. These are investors who
are not going to friends for referrals, because they're either not all
that wealthy and don't have friends with money or they are reading the
consumer financial press, which has long embraced fee-only planning and
investment advice. These are price-sensitive, informed investors.
To meet their needs, Chambers is offering managed
portfolios comprised of DFA funds for 80 basis points for accounts of
less than $500,000, with a 60 basis-point fee on assets of $500,000 to
$1 million and a 40 basis-point fee for assets above $1 million. His
nondiscretionary service, which involves disseminating portfolio advice
in e-mails and uses institutional funds available through Schwab
Institutional, carries a 20 basis points fee for the $500,000. The fee
drops to 15 basis points on between $500,000 and $1 million and to 10
basis points on assets of more than $1 million.
With a steady stream of referrals from NAPFA seeking
low-cost services, an hourly approach to financial planning, and a way
to meet the needs of investors typically attracted to NAPFA and GPN
with a low-cost investment strategy that can be scaled easily,
Chambers' business boomed. At the start of 2004, he had almost $22
million under management. It climbed to $34 million by 2005. In 2005 he
had a breakout year, and all the planning and strategy paid off: The
nondiscretionary advice product attracted $40 million and his
discretionary assets ballooned to $66 million, bringing his assets
under management to $106 million by the start of 2006.
Managing the growth has not been difficult, Chambers
says. He took in a partner in 2001, Julie Schatz, and then another
partner last year, Jennifer Cray. Both were students at a financial
planning course Chambers was teaching at the local college for CFP
candidates. They each own one-third of the firm's goodwill-for its
planning and trademarked methods-but they don't share revenues
generated on investment fees.
Each partner gets his or her own investment fees
based on clients they bring in and service. Chambers says 80% of the
assets under management are his clients today, but he expects that to
change in coming years. At 60, he says he has no plans to retire and
will likely work another ten years, at which point the partners have
five years to pay him for his share of assets under management in the
business.
Chambers is a true entrepreneur who blazes his own
trails. As a programmer, he was able to design his own rebalancing tool
because he finds that rebalancing across portfolios in Schwab
PortfolioCenter does not work well enough for him. So now he exports
the data out of PortfolioCenter into an Excel spreadsheet he coded to
automate rebalancing.
The most inventive aspect of his practice is serving
clients with hourly financial planning but offering them low-cost
ongoing management of their money. It's great for clients and is a
promising business model other advisors can aspire to copy.
My guess is that Chambers will invent some other new
products and grow. He seems interested in offering his money management
services to hourly-compensated planners who want to outsource
investment services, and his PortfolioCenter add-on programs have the
potential for helping many advisors if he decides to sell them and make
software development and support part of his business.
F&D Advisors LLC
Most CPAs are totally lost when it comes to setting
up an asset management and financial planning practice. They view the
business as a way to generate some side income from their tax practice.
Most CPAs giving investment and planning advice don't bother to learn
about the different business models-becoming an RIA versus a registered
rep-and never go beyond the basics of investing, learning about modern
portfolio theory and that there are products beyond mutual funds. They
are the most frugal (I mean incredibly cheap) of all advisors in the
business. F&D is a rare exception.
F&D started out in 1998 as an affiliate of
Atlanta accounting firm Frazier & Deeter. The three principals of
the advisory firm, all now in their mid-thirties, have created a
business model for affiliating with multiple accounting firms and
providing the CPA firm's clients with mortgage and insurance advice as
well as investment and planning services.
As Doug Liptak, a founding partner, explains it, at
the end of 2002 F&D had achieved at the level of many successful
advisory practices affiliated with a CPA firm and depending on the CPA
firm for referrals, managing $153 million. But Liptak, along with Jeff
Peller and David Fisher, were building a base for an operation that
other CPA firms could join. At the end of 2003 they managed $190
million, a year later $394 million and by the end of 2005, F&D was
running $643 in assets. The firm has now affiliated with a second CPA
firm-O'Sullivan Creel LLP, which has offices in Pensacola, Fort Walton
Beach and Destin, Fla. F&D now manages more than $800 million
and expects that this year alone it could see new-client inflows
topping $200 million. In addition, there's average annual revenue over
the past three years of $650,000 on F&D's mortgage business, and
$700,000 on insurance sales.
In a 90-minute interview, Liptak explained what has
made the firm so successful. He gives credit to the Strategic Coach,
Dan Sullivan's brilliant program for entrepreneurs that many advisors
praise, for teaching him to segment his time into free days, focus days
and buffer days. He says Sullivan's concept of focusing on your unique
abilities-what you love to do and what you're great at-and building a
team around you to do what you're not good at, has been helpful. Liptak
has focused on marketing, strategic partnerships and rolling out new
products, like mortgage brokerage and insurance, while Fisher, a
35-year-old Chartered Financial Analyst, focuses on investment
decisions and Peller, also 35, on strategic planning, technology and
implementing processes.
Liptak spoke at a conference for CPAs in 2000 about
how to add wealth management to a CPA practice, and that was how the
O'Sullivan Creel relationship began. With an 11-employee wealth
management branch in Florida now implementing systems and processes
used by F&D, and sharing a Web-based technology platform, F&D
seems poised to add other CPA affiliates.
One impressive move over the past year is creating
wealth management teams. At the direction of Stephanie Dewees Bogan of
DP Group, a Redwood, Calif., management and marketing consultant,
F&D has structured its service teams into four jobs: relationship
manager, financial planning associate, investment analyst and client
services associate, who are dedicated to every client. The advantage of
this is that clients have multiple contacts they can call to get
service.
Internally, dedicated teams are a big improvement,
Liptak says, over the previous system where any planning associate
could be assigned to any partner leading the advice team. Before
implementing the new team system, a planning associate might be working
with several partners, and if two partners asked the planning associate
for help, the planning associate would not know which partner to work
with first.
Moreover, the team system has provided a career path
for staff. There are three levels of planning associate, for instance,
and then a staffer could become a senior planning associate. Senior
planning associates could become team leaders. In addition, senior team
members can be given jobs at the "hub" corporate level, where best
practices and processes are planned and implemented by the "spokes" at
the team level. The team system would seem to provide a structure to
support continued growth.
Another big help in managing F&D's growth,
Liptak says, has been using Junxure, a customer relationship management
software application. What Junxure does well, but is often not used
for, is to help advisory firms manage workflows across a team. Liptak
says Peller spent about six months inputting the firm's workflows and
processes into the program. He says it would probably take about a
month for a partner familiar with F&D operations to do this full
time, but Peller worked on other projects throughout this time period.
The effort was worthwhile because Junxure now supports the firm's team
approach.
Liptak says F&D has hired corporate psychologist
Gary Sperduto of Atlanta to conduct assessments of job candidates.
Having hired ten employees in the Atlanta office in the last 18 months,
plus an additional group of new staff for the Florida branch, Liptak
says all senior-level employees are evaluated before they're hired.
Gerstein, Fisher Inc.
Gregg Fisher has been adding about $100 million in
new assets annually for the past three years, and about 50 to 75 new
clients. The success of this Manhattan, firm, which now has 15
full-time employees and manages $500 million, is tied to a few key
decisions by Fisher and plain, old-fashioned,
roll-up-your-sleeves-and-stay-late hard work.
Fisher credits his father with teaching him about
the importance of customer service. When he was a boy, Fisher worked in
his father's men's clothing store in Astoria, Queens, and he recalls
his father "spending 30 minutes to have a cup of coffee and speak with
a customer who was buying a $30 pair of pants."
"So much of this business is about customer service," says Fisher. "Plus, I love helping people."
But apart from his deeply rooted worked ethic and natural sales
ability, Fisher has made some key strategic decisions. Fisher says that
about five years ago he realized that in order to grow his business he
would have to stop working with clients one on one. He would have to
stop picking up the phone when a client called.
"That was really difficult for me," admits Fisher,
"because I was scared that clients would think, 'Well, I guess Gregg is
getting too big for me because he is not taking my calls anymore.'"
Fisher, who is 35 and has been in business for
himself since graduating from college, had gained enough wisdom about
business to know that clients would understand if he stopped taking
their calls. "In reality, clients know that if I am answering their
calls and meeting with them whenever they come into the office, then I
probably could not be managing their money properly," explains Fisher.
So Fisher set out to build a team. Growth is all
about hiring the right people, and he is always searching for them
everywhere-including places you might not expect. For instance, Fisher
and his wife play a lot of tennis. The young lady at the tennis club
who booked the court for them was always courteous and extremely
attentive. Impressed by the way she always called to confirm
appointments, greeted them and asked about their two children by name,
Fisher complimented the woman about her professionalism.
When he learned she was about to graduate from
college, he offered her a job. She now works in client service for the
firm. Fisher says he is always looking for good people, and keeps in
his desk drawer a folder filled with resumes that is labeled "People I
Want To Hire."
Fisher, whose staff of 15 includes 10 professionals, has an operations
officer responsible for technology and back-office processes,
accounting and other operational chores. In addition, the professional
staff includes four CFPs, two advisors with law degrees, a CPA and
staff who have an M.B.A. The result, he says, is that clients get
excellent service and that brings in referrals. Referrals are the main
source of his firm's growth, he says.
The other big benefit of developing his team is that
Fisher, a Chartered Financial Analyst, says he can spend 75% of his day
researching investment ideas that are applied across all client
portfolios, and devoting the rest of his time to strategic business
planning. Fisher designs model portfolios comprised of stocks, U.S.
Treasury and municipal bonds, ETFs and mutual funds, and positions are
customized to each client's needs. Along with two other members of the
firm, Fisher has a formal investment committee assisting with portfolio
design.
Fisher believes that many advisors get caught up in
wealth after building their practices and do not reinvest in their
companies. "I get the impression that a lot of advisors drain their
business by taking a large salary and living lavishly instead of
reinvesting in their firms," says Fisher. "I've been careful not to get
caught up in that."
Fisher says he had a business coach, Julian Cohen,
LL.B., of Lee, Mass., that he worked with for six years. While he
stopped working with the coach three years ago, Fisher says he
recommends him to advisors. Fisher says he has hired many other coaches
and consultants. He gets something from all of them. However, what may
be as important in educating him about running a small business, he
says, is his penchant for listening to books. Fisher estimates he has
listened to 200 books in the last couple of years while commuting in
the car.
Andrew Gluck, a longtime writer and
journalist, is CEO of Advisor Products Inc., a Westbury, N.Y.,
marketing company serving 1,500 advisory firms.