From the May 2003 issue of Investment Advisor • Subscribe!

May 1, 2003

North by Northwest

Terry Welsh uses his three offices in two states,

If, like most of us, your mental images of Alaska come primarily from Jack London, the 1990's television series "Northern Exposure," and documentaries on puffins and polar bears, you could perhaps be forgiven for thinking that Alaska planner Terry Welsh treks to work in snowshoes, has his office in an igloo, and mushes to see clients on a dogsled pulled by fluffy white huskies. And while you'd be wrong on all counts, the reality still wins plenty of points for originality.

Just trying to get to Welsh's office provides the first indication that this is no ordinary planning firm. Alaska Financial Associates is based in the small town of Ketchikan (population: 14,000) on a tiny, mountainous island in the Alaskan Panhandle archipelago. While most planners knock themselves out to be geographically accessible, no roads lead to Ketchikan; you can only get there from here by plane or boat. And once you arrive, don't expect a suburban office building ringed with blacktop and traffic: Welsh's office is built right out over the ocean on wooden pilings; when he steps out his door onto a sunny waterfront deck, he's greeted by the lapping and creaking of fishing boats bobbing in the waves, and bald eagles are sometimes perched atop the masts. Through the picture window to the left of his desk, Welsh has a breathtaking view of 3,000-foot Deer Mountain rising from the water; to his right is an expanse of ocean against a backdrop of misty mountains, a panorama sometimes dotted with yelping sea lions diving in search of herring, or eagles wheeling high over the water.

And you thought your office was cool.

It's the kind of place that seems better suited to a kayaking outfitter than a financial planning firm, but it suits Welsh just fine. Once clients see his office, he has trouble getting them to leave, he says with a laugh. And if they can't make it to the office, he'll find a way to get to them. At a dock just a few hundred yards from his office, Welsh can hop on a floatplane--a moth-sized plane with waterski pontoons instead of wheels for landing gear--and go soaring off over pine-covered islands and peaceful inlets so stunning, he says, that they could give the fjords of Norway a run for their money. The plane can land right on the water at any island town, cutting significant time off a trip that might take hours by ferry. He recently took such a plane to nearby Metlakatla, where he consulted with the local Native American community about their tribe's finances. On another trip, he flew to the small island town of Craig to visit a client couple at their home. He doesn't have his own pilot's license just yet (he has to charter the floatplane for now), but that's definitely on his to-do list.

Keeping One Step Ahead

Southeast Alaska is better place to troll for clients than you might think--or at least it was when Welsh founded his firm in 1987. Commercial fishing brought great wealth to the region in the 1980s. Welsh, 48, says he remembers a client who "made $100,000 in a matter of hours" fishing for herring. As a former commercial fisherman himself, Welsh had a natural "in" with the seafood crowd, too. But even then he realized he needed to practice what he preached to clients about diversification. Rather than hook his fortunes entirely to a fishing clientele (and, by extension, the vagaries of the fishing industry), Welsh established a branch office several hundred miles to the northwest, in a city with a population 20 times the size of Ketchikan. "As I saw the economy declining and the government stepping in to exert greater control over the resource-based economy that we have here," he says, "I decided it made sense to diversify, and open an office in Anchorage." While there are two administrative staffers in Ketchikan, there are none in Anchorage; the office simply serves as a place to meet with clients.

More recently, Welsh diversified yet again, joining forces with a friend and fellow planner, Duncan Frazier, to open a third office in Anacortes, Washington, a city with a burgeoning retiree population. "I'm always trying to think ahead in a business sense, and think about how to modify my business to adapt to the changing economic environment," he says. "Anacortes is the gateway to the San Juan Islands, and a lot of older folks are flocking to the area."

Staying in Touch

With three offices several hundred miles apart and minimal staff, it's a good thing Welsh likes to travel. He splits most of his time between the two Alaskan offices, and then every six weeks or so, he spends a week at the Anacortes office. (He and Frazier share the ownership of the Anacortes office equally, while Welsh owns the two Alaskan offices himself.) His cell phone and laptop are indispensable in such a setup, and he also depends heavily on his computer software system, Client Data Systems (from E-Z Data, www.ez-data.com), to help him access client information from any of his offices, the airport, or even his seat on Alaska Airlines while he waits for takeoff. "I have a contact database that I've been entering information into since 1987, and it has every investment transaction ever done for a client, every letter written to a client, every phone conversation or meeting with a client," he says. "So I could be in China and I'd have every piece of information I could need about a client." He's not kidding: Last year, after a float trip down the Yangtze River, he was able to do business from Shanghai with only his laptop and a wireless modem.

Even the documents that most planners keep only in hard copy are available to him electronically. Welsh has scanned all of the firm's paper documents into his computer system using LaserFiche (), making the office "about as paperless as it can get," he says. When new documents come in, the staff scans them and sends electronic backup copies to a "secure location" (in California, not with Dick Cheney) as per NASD requirements. As soon as the backup files are received, he says, "we start shredding."

Welsh also makes a point to stay connected with other planners, though at times it takes extra effort, such as figuring in an extra day to travel to conferences. First on his calendar every year are the educational conferences of the Planners Network, an RIA firm comprising more than 60 planner shareholders. "The concept [of the network] is like-minded people associating with each other who help each other out and share ideas," he says. The members gather for two conferences each year, and also bring their families to an annual recreational retreat. "We've gone to Hawaii, California, and once even sailed from Cancun to Belize," he says. "We're a small group, so you really get to know each other."

In addition to networking opportunities, the group also provides clout. "Previously, I and many of the other advisors had our own investment advisories, and we discovered we could reduce our costs by joining together," he says. As a group, the planners are able to negotiate with securities and insurance companies from a position of strength.

Senioritis

Welsh's professional life prior to entering planning is more colorful than most: Among other things, he's been a heavy-equipment operator, a teacher, and a commercial fisherman. Born in Montana and raised in Wyoming and Utah, he first came to Alaska as a young VISTA volunteer assigned to work with low-income senior citizens and people with disabilities. "That was pretty cool," he recalls, "because at 21, 22 years old, I was working with senior citizens, and I think that gave me an understanding of the wisdom of the senior population. It helped me to listen better, too."

What he learned as a VISTA volunteer comes in handy these days. Sometimes it's in the off-the-beaten-path knowledge he can offer, such as the guidance he recently provided to an elderly client baffled by the prospect of buying and using a wheelchair. Welsh, who has also volunteered for Special Olympics Alaska for more than 20 years, was able to explain the options available in modern wheelchairs, and help the client find out where to get one. "You can get them as tricked out as you want--they've even got wheelchairs that can go up and down stairs--but he had no idea about any of this," he says. "So we helped him with it. We just want to make our clients' lives easier, especially as they get older."

Welsh's experience with the elderly also proves useful when clients face tough decisions about their care. When an elderly client was diagnosed with cancer, the client's son suggested that she move in with him. Based on his knowledge of the client's personality, Welsh suggested she consider moving into an assisted-living facility instead. "Often seniors want independence from their children" as much as teenagers want independence from their parents, he says. Welsh offered to tour a facility with her just to check it out, and she accepted.

But Welsh's most rewarding experience with an elderly client has to be this: Right before the Crash of '87, a hard-of-hearing gentleman in his 70s came in, understandably upset that his $50,000 portfolio had fallen to $10,000 under his broker's care. In the account statements, Welsh found evidence of churning, and realized that all the man's assets were in penny stocks in a margin account. Before he could resolve anything, however, the market crashed, and the man's $50,000 shrank to $3,000. "At that point, I said, 'Harry, you don't need me, you need an attorney,'" says Welsh. Welsh helped him hire a lawyer, and called the offending broker, who responded angrily, "'Look, doctors don't sue doctors, lawyers don't sue lawyers, and brokers don't sue brokers,'" recalls Welsh. "And I said, 'Watch me.'" Welsh assembled the data the attorney needed to make the case, and in the end, "the attorney got his third, I got paid my [hourly] fees, and Harry's been one of my biggest fans ever since," he says. "I really believe in being my clients' advocates."

Fee for Service

Welsh earns most of his revenues from retainer fees based on assets under management, plus some hourly fees and commissions. Yet the retainer fees are a work in progress, he says. "I've had the AUM model since 1987, and while we provide a lot of other value for our clients [through other services], we don't know exactly how to price that," he says. "I think a lot of other planners are facing this now, too: How do we price what we're providing?"

What he's providing includes comprehensive financial planning, but it also includes "softer" issues. As a founding member of the Nazrudins, the planner group from which "life planning" emerged, Welsh is keenly interested in helping clients explore their emotional and psychological relationships to money. But he's still mulling how best to charge for such coaching. For the moment, at least he's maintaining the AUM model while explaining to clients that their fee covers the varied services he provides. "We characterize the retainer as a fee not only for managing assets, but also for doing all the other things we do," he says.

By embracing technology, networking with peers, going the extra mile for clients, and keeping a sharp eye on the changing marketplace, Terry Welsh is proof that you can have your home office pretty much anywhere you want as long as you're willing to put forth some effort. Then again, maybe you knew that already: After all, making decisions to create the lifestyle you want is what financial planning is all about.

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