Three planners have built WMS Partners into an $800 million firm where hedge fund managers and real estae moguls invest.

It's not just great returns that veteran commercial real estate developer Alan Tallis is looking for from an investment advisor. In fact, the former president and director of development at La Quinta Inns and Resorts (and past executive vice president of Red Roof Inns) already knows a fair bit about investing. He's bought and built large commercial real estate projects and run his own successful stock portfolio. What he wants are investments he can't find or build himself and an advisor who is always one step ahead of his needs.
And that, he says, is what he's found at WMS Partners, a sleeper of a firm outside Baltimore in Towson, Md., which manages $800 million-$500 million of it for the firm's family office practice, which works exclusively for 20 families with an average net worth of $80 million. "When it comes to my money, I'm the ultimate control freak," says Tallis, who admits he's tried retirement twice and failed. "When I first started working with the firm, I even generated my own investment reports. It's finally gotten to the point now where I have to call Martin (Eby, one of the firm's three principals), when I want to know my net worth."
Tallis, like the bulk of WMS' clients, says he likes the firm's stellar double-digit returns, "but also that they bring me oil and gas and real estate and structured settlement deals I couldn't afford on my own." At the same time, the firm is proactive and dead-on with his estate planning, he says. "I got a call from Martin the other day and he said, 'These are the things you should think about to minimize your estate taxes.' I didn't ask him, he just called me."
It's not easy impressing senior business executives and professional investors.
What you have to do is offer them investment prowess and service that they can't find easily anyplace else. And according to the clients of WMS, that's what the three young (in planner years) partners of the firm do, with the aid of their staff of 12. Two of the partners, Tim Chase, 44, and Martin Eby, 46, founded the firm back in 1992, after referring clients to each other from their respective planning jobs at a regional accounting firm and an insurance company. Chase's accounting firm was not an RIA, so he worked with Eby to implement solutions with various products. Dave Citron, 46, the self-described numbers geek of the bunch, joined the firm as chief investment officer back in 2001, after renting office space from the partners.
The firm's genesis was as inspired and low-key as just about everything WMS does. "Martin and I were having lunch back in 1992 and we were looking at new no-load products that weren't available to us, and a light bulb just went off," says Chase. "Martin said, 'How can we keep selling commission products when there are better options for our clients?' We started talking about forming our own fee-only firm, and within six months we made the leap."
Today, the firm runs a highly successful family office practice, offering a select number of wealthy families customized investment plans and administrative services. Which is exactly what the two original partners envisioned 15 years ago, before the now much-touted concept of wealth management was even on the profession's radar screen. If you doubt their early wisdom, consider this: WMS is actually the acronym for the firm's original 1992 name, Wealth Management Services. Chase, who is managing partner at the firm and head of alternative investments, says they changed it a few years back because clients didn't want their kids or staff seeing the word "Wealth" on incoming envelopes and documents.
The partners were also inspired by what they didn't want to build-the traditional entry-point financial planning firm that takes on literally hundreds of accounts, each with a couple of hundred thousand dollars, and then uses a cookie-cutter approach to build client portfolios. "More as a result of our own intellectual needs, we knew we wanted to work with a small number of clients that we could know and serve intimately," Chase says. "From the outset, we wanted to be our client's personal CFO. Luckily, we each brought several fairly large clients with us or quickly signed them, so we didn't starve those first years, but it was lean."
It's large-scale investing that gets them jazzed in the morning, Chase says. "If you're working with clients who have $20 million, $30 million or $100 million in net worth, you can do neat things and explore all kinds of investments. With a $500,000 portfolio, you're using cookie-cutter marketable securities. There's nothing wrong with that, but it's just not us."
As a result of managing $800 million with an overall staff of just 14, WMS' net profit margin is a robust 40% to 45%. Revenue growth rates are in the 20% to 25% range. "We're happy with the pace," Chase says. "We don't believe in growth for growth's sake, but we love building an organization. It's the only way to attract top talent."
To this day, the partners say they easily win clients from trust companies and even took what they needed from the concept, discarding the rest, from inception. "What we really wanted to do was be the baby version of a trust company, but without the limitations," says Eby, who directs the firm's family office practice and financial planning services. "What makes us different here is we get to put ourselves in their shoes, as if it were our money, with nothing to cloud our judgment or influence our decisions."
That's the beauty of being independent, says Eby, but also the benefit of wanting, literally, to partner with clients on investment ideas. The firm regularly vets investment ideas fed to it by well-connected clients such as Tallis, who also sits on the firm's board of advisors.
Recently, he says, he asked a wealthy prospect who also was being courted by a trust company why he ultimately chose WMS. "He told us it was because we asked him what his passions were, his hot buttons." The investor had sold his business nine months earlier and was getting a little bored, so he was thinking of buying a large parcel of raw land he thought would be a great commercial investment. At the same time, he wasn't sure how to involve his kids in his wealth and was thinking of just giving them money. "We said, 'Why not form a family partnership and have them invest with you in this land?'" Eby says.
The trust companies and wirehouses had, by virtue of their own limits, been naysayers to the investor's land ideas and instead shown him glossy brochures with one-, three-, five- and ten-year mutual fund returns. "We knew the area and the land and the changing demographics, and thought the commercial land partnership would do better," says Eby.
When another very wealthy trust company client with significant wealth from the sale of a business started chafing at the limited, preconceived cookie-cutter portfolio, he tried to buy a stock or two and was told he couldn't. "It wasn't performance that made him jump ship to us, it was the lack of input," says Eby. "We don't really have any marketing materials. We'd rather spend time talking to people. We want to know why they're here."
Refugees from the so-called cookie-cutter firms must feel as if they've won the lottery when they come to WMS. Of course, everbody with brains in their heads will review their clients' wills and trusts. But WMS will find an outside attorney and say: "Hey, if this guy got hit by a beer truck tomorrow, what would happen to his estate? Does this all work the way it's supposed to?" Then the attorney would probate the will and see what would really happen to every asset and with every possible tax situation.
"We find problems all the time, things improperly titled and not written in the will," says Eby. "It's a great way to make sure everything works exactly the way it's supposed to."
As for going beyond the pale of traditional planning services, there is not much that WMS won't do and hasn't done. "As you know, along with wealth comes the ultimate irony; the more one can afford, the more complicated things become and the less time is available to enjoy one's good fortune," the firm's Web site says. "Our goal is simple: to free you from the tedious administrative tasks of everyday life."
Since many of the firm's clients travel extensively, WMS staff will scan their mail, pay all bills and generally "stand ready to help out in any way possible with special tasks and projects," which have included running the construction of clients' homes and buying and selling every type of asset under the sun.
The firm's 150 or so more traditional planning and asset management clients have between $1 million and $10 million invested with the firm.   
What else jazzes the partners and their clients? Finding and creating truly unique alternative investment opportunities and strategies, which today include a number of homegrown funds. They invest in a wide array of interesting instruments, ranging from structured settlements and real estate to secondary-market private equity deals and business loans. These homegrown funds generated annual returns of between 8% and 18% for clients last year. Overall, the firm's clients enjoyed approximately 15% to 16% returns in 2006, every bit as good as the S&P, but with very little of the correlating risks.
"I'd say everything we do here is tilted toward alternatives," says partner Dave Citron. "Wherever things look good and we can manage risk, we'll go."
The result is risk-managed, after-tax returns that top 15%. Don't underestimate the wow factor these returns have, even on veteran investors. Says one five-year client of WMS, a hedge fund manager who asked to remain anonymous: "These guys have the ability to offer me situations with my portfolio that I would never get anywhere near on my own. The local branch of a broker-dealer can't match them. As connected as I am in the financial industry, these guys have structured a portfolio with risk management and returns that lets me sleep at night," the hedge fund manager says.
Believe it or not, some of the most novel and exciting alternatives the firm has created offer investors valuable fixed-income options, using instruments that are under the radar of many investors and, frankly, most advisors.
"Back in 2002, we started looking around at fixed-income investments, and we didn't like what we saw," Chase says. "There was a tremendous amount of interest-rate risk and rates were low, so we just weren't being rewarded. But as planners, we wanted that fixed-income component. Since our primary job is managing risk, we got involved with structured settlements," Chase says.
A structured settlement typically results when there is a legal judgment or settlement from a lawsuit, disability case or personal injury claim. In most cases, the award is paid out to the claimant or litigant over a period of years. For instance, a $1 million award may be doled out in annual payments of $50,000 over 20 years. Often, a big insurer has to pay the claim, but it will usually go to a third-party insurer to buy an annuity to fund the claim. More than $5 billion in these types of structured settlements is created a year.
In some cases, however, the injured party wants to cash out immediately and they are willing to accept a significant discount. That's where WMS gets involved. Working through intermediaries, WMS buys these deals and puts them into a pool, which then pays clients a fixed stream of 8% to 9% annually.
"We've bought 500 transactions, over $100 million in payments, since 2002," says Chase. "Because we're relying on the insurance company who issued the annuity, we haven't had a single late payment. They come in like clockwork."

While clients love the predictability of buying guaranteed income streams, what they didn't love, says Chase, was buying a Treasury bond paying 4.5%, and then losing money when rates shot to 5.5%. In contrast, the structured settlement fund is like having a zero coupon bond at a guaranteed 9%.
Are these alternatives a huge profit center for WMS? No, says Chase. But clients appreciate them and have come to demand them. "We charge 1%. A typical hedge fund manager would charge 2% and take 20% of the profits. Frankly, these are an administrative headache and we could just go out and buy PIMCO Total Return and save the trouble. But then we wouldn't be doing all we could for clients," Chase says.
The WMS Real Estate Opportunity Fund that Eby runs has rewarded investors with 18% returns for the past decade, but not without the same type of heavy workload for the firm. "We got in early on senior living communities I like and we've done very well, providing mezzanine financing for apartments and assisted-living communities," Eby says.
Another great investment these days? All the land the national home builders were "land banking" by putting deposits on it. Their revenues are off some 75% in the past year, so now they're forfeiting the deposits and the land is going back on the market. "It's a big opportunity for local real estate investors and builders and us," Eby says. He expects the real estate fund to continue to produce high double-digit returns in the foreseeable future.
For equities investing, "Whatever makes sense and is the most cost-effective way of investing is where we'll be, whether that's individual stocks, mutual funds or ETFs," says Citron, the firm's chief investment officer. Examples of success? Back in 2003, the firm's investment committee (comprising the partners and a few select employees) decided it was time to start stocking up on energy. They bought energy ETFs and more than doubled client money, Citron says. Since May of last year, they started tilting more toward refiners, buying Valero Energy and Frontier Oil (which were up 15% and 25% respectively in the last year).
WMS recently got the same happy feeling about industrial stocks, particularly big machinery makers such as Caterpillar, which since December 2006 has risen 10%. "Pricing in the U.S. might be going through a recession, but we think there's a huge, pent-up demand globally," says Citron. "Caterpillar's Far East headquarters are in China, where they're building infrastructure they've never had."
For larger growth, which the firm is tilting toward instead of value, Citron believes they will capture the market most efficiently with mutual funds, including Marsico 21st Century, Growth Fund of America and Brandywine Blue. "What sets them apart is wonderful, long-term managers and reasonable fees," he adds.
For an aggressive growth account right now, the firm's asset allocation looks like this: 60% equities, 23% equity alternatives (which include hedged equities, balanced funds, real estate and commodities, another fund specialty), 11% income strategies and 5% cash for wiggle room. "A $2 million nonretirement portfolio would probably have about 25 positions and turnover of less than 20%," Citron adds.
Not only is the deep and comprehensive nature of the WMS team's investment prowess a calling card for clients, but it also attracts superior staff. "I can still think back to when I interviewed with the three partners three years ago this month," says Jeff Vain, a senior manager at WMS. Vain was doing wealth management for high-end clients at a larger broker-dealer, but says he just couldn't get his hands on the types of investments he knew they needed. Moving to WMS has solved that problem, he says. "You just won't find people with the drive and passion to build new, uncorrelated, key investments the way these guys do," Vain says. "Martin is always looking for new real estate investments for our funds, which means he's meeting with developers and coordinating all aspects of some projects. The overriding thought is, 'Does this make sense for our clients?'"   
Frankly, many of WMS' clients are like Alan Tallis, entrepreneurially spirited success stories who represent first-generation wealth. And not surprisingly, in many ways that represents the WMS partners themselves. "It's very rewarding dealing with people who are the first generation to earn their money," says Chase. "We represent very little inherited wealth. So there is no sense of entitlement with our clients. They have very strong work and money ethics. They understand what it's taken them to build their net worth in terms of personal qualities and have respect for the challenge of managing money well. For many, we're part of their everyday life."
Is the firm without struggles? The answer is no. Up until 2000, the partners took an eat-what-you-kill, or silo, approach to building the practice, each bringing on and servicing their own distinct clients. They decided it wasn't working and created a team atmosphere so that today clients are clients of the firm, not any one planner's.
The difference has been huge. "The mine-versus-yours thing is not really a healthy model," says Chase. "Now we get to devote time to our expertise instead, which works best for everyone."