As it does with its own staff advisors, Hanson McClain requires its network advisors to become experts on the pension programs of AT&T Inc., now of San Antonio, and the regional telephone operating companies that were spun off from the old Ma Bell in 1984. The firm's expertise about the nuances and details of complex phone company pension plans is what encourages former employees from this industry to roll over their retirement accounts to Hanson McClain once they stop working.
The niche is so well researched and systematized that the firm was able to sell its approach through the Hanson McClain Retirement Network to independent reps in 40 states. While the network has been successful, there have been royalty payment issues with some advisors, Hanson admits, so the emphasis going forward will be to concentrate efforts on the network's top producers.
The focus on telecom retirees seems like a brilliant stroke today, almost two decades after the partners launched the firm. But originally, the motivation was simply that they had to eat, and so they went where the money was. Back in 1993, when Hanson and McClain launched their firm, the telecommunication industry was in flux. Hanson gave 50 seminars a year to telephone company employees. The model proved critical to the firm's success, as well as that of its network. "It's worked well for us. Back then, Pacific Bell had a retirement offer allowing employees to take a lump sum in the Sacramento area, and there were hundreds who were interested. So I dug up about six or seven clients. I was 25 at the time and [was] amazed people trusted me. Some of our clients referred to us as 'the boys,'" Hanson laughs. Frankly, some folks might still call him that now that he's age 41.
The two also began hosting a two-hour radio talk show on Saturday mornings on KFBK-AM in Sacramento and recently added Talk 910 AM in the Bay Area. Their firm's advisors also are doing a regular Q&A session on local TV. Hanson recently wrote a book, Money Matters: Essential Tips & Tools for Building Financial Peace of Mind (from Marketplace Books). "We're juicing up marketing and taking a systematic approach to what channels work and which don't," Streetman says. "We want to get a groundswell going out there, so people know who we are."
By 1994, the company had broken even, and by 1995 it was starting to prosper. At that point, the firm started paying its advisors on a salary basis only. Although the business has grown tremendously in the past 13 years, the company still largely serves a blue-collar client base. "A lot of advisors out there like to work with clients in the $10 million to $20 million range," Hanson says. "Both Pat and I come from very middle-class backgrounds. I'd rather have 20 $1 million accounts than one $20 million account. We can be very efficient serving our clients and we don't have the huge fee compressions in a $1 million account that other advisors do."
Today, the firm has 6,000 clients. The median account size is $430,000 and the median client age is 57. "We target these folks to help them transition to retirement," Hanson says. "We give them free retirement feasibility reports and then stay in touch with them, in the hopes that they'll sign with us. We find that if you provide great service to them, they've never experienced anything like it. They're not used to it, and they rave about it. It's why more than 50% of our business comes from referrals."
Currently, about 85% of the business at Hanson McClain is fee-based. For its planning and investment management services, the firm's fees start at 1.25% and decline depending on client assets. The average client at the firm is paying about 82 basis points.
Building a deep team of salaried advisors is also critical to the firm's success and client well-being, Hanson maintains. Because they are salaried, "our advisors can be blunt and straightforward with clients and not talk them into anything that doesn't fit," Hanson says. "Our people aren't worried about commissions or quarterly bonuses. They can do the right thing without worrying."
That creates peace of mind for clients and preserves a culture that centers around putting client service first. "Our operating philosophy is simple. We say: We're going to work for clients up front for no money and not pay advisors based on their productivity. It sounds crazy, but it works," Hanson says. "I find so many brokers who are so short-term focused. They can't be bothered unless there is a payoff in the next six months. We don't mind investing the time with a client. We find that the future value of a client is the same whether they sign with us today or three years from now."
The firm's advisors grow to like the salaried approach too, even if they're tentative at first. For Barbara Healy, who spent more than a decade at Merrill Lynch, there was some trepidation about coming to a firm where she wasn't firmly in control of her earnings. "I was fearful of having someone else control my income, but what I found here was that when you add value to the firm, they recognize you monetarily and in other ways, as well," says Healy. "It creates a conflict-free environment for everyone." Healy has been with the firm three years. "In my past life I would have been wary about being away from clients or turning them over to another advisor. Here the trust level and team approach makes that routine."
Beyond the high level of technology, trust and knowledge at Hanson McClain, Healy likes the way she is encouraged to think outside the box. "I don't have a box here. Of course, I go to my boss with ideas. But it's a wonderful freedom to know I can add value." Through grassroots efforts and meeting and seminar outreach, Healy and another advisor have started courting retiring Pacific Gas & Electric employees. "We've had excellent word of mouth and won clients as a result," says Healy. "We said let's educate them. Let's learn their pension plan inside and out and all the rules affiliated with it. Then, let's invite them in five years before retirement. We review their 401(k) plans and investments, discuss their finances and debt and provide a retirement feasibility report at no cost or obligation to them."