From the December 2004 issue of Investment Advisor • Subscribe!

The Gift of Yourself

Mark Axelowitz thrives as a hands-on wirehouse advisor and charity booster

It's a sun-splashed fall day and the upper reaches of Manhattan's Central Park are beckoning from across Fifth Avenue. Inside the stone and red-brick structure housing Boys and Girls Harbor, a 67-year-old educational institution serving children in East Harlem, a classroom full of crisply uniformed kids are giving their undivided attention to their fourth-grade science teacher as Mark Axelowitz peers through the glass door to check on the day's lesson. With a satisfied smile, Axelowitz moves on to cast an admiring glance at the daycare center, say hello to a teacher in the Latin music program, and run a quick status check with the director of a pregnancy prevention program.

For Axelowitz, this is more than a labor of love. A kid who grew up in straitened surroundings on Long Island after his father, a retired Internal Revenue Service agent, lost his nest egg in the 1969 stock market crash, Axelowitz has climbed the ladder on Wall Street over the past 17 years to become a major-league advisor at Morgan Stanley who pops up in the people pages of the New York Post and rubs elbows with the likes of Tom Brokaw, Harvey Weinstein, and Gwyneth Paltrow. For the last 14 years, however, Axelowitz has also focused his energies on creating a legacy that involves returning to society some of the rewards it has provided to him--and getting others to follow his example. At Boys and Girls Harbor, where he has become a major financial contributor, he can be found keeping the directors' books as board secretary when he is not patrolling the halls. "What do I get out of this?" he asks about his charitable work. "A lot. I'm doing something positive for my community, plus I get the opportunity to teach my kids a valuable lesson about giving back. I believe that if you are taught this at an early age, it becomes part of your life."

Creating room for volunteering makes for long days and nights--Axelowitz, who will sometimes run uptown at midday to attend to Harbor business, arrives in his Sixth Avenue office not long after 7 a.m., and clients say they can still reach him at work 12 hours later. But he feels his volunteer avocation can be as remunerative as his day job. "Even though you're helping others, you're really helping yourself," he says. "You always get more out of it than you give."

Enthusiasm On the Job

Clients say that Axelowitz puts much of the same enthusiasm into his advisory work. Harvey Kelley, a longtime client whose relationship with Axelowitz began with a cold call in 1988, now trusts the Morgan Stanley advisor with the bulk of the fortune he earned after selling his engineering business in 1999. Axelowitz visits Kelley and his wife at home annually and checks in with the retired entrepreneur by phone nearly once a week. While he is frequently courted by independent advisors, Kelley says he remains true to Axelowitz. "I prefer to be with a big firm located in New York or Boston with a big team of people who are constantly monitoring things," he says.

Indeed, that is the hallmark of Axelowitz's advisory practice. Unlike many wirehouse brokers, whose income is driven by the amount of trading commissions they generate, Axelowitz heads a five-person group practice (three advisors, one associate advisor, and one client service associate) that resembles many independent advisor shops and is based largely on fees. A certified investment management analyst, or CIMA, Axelowitz constructs portfolios for his high-net-worth clients that are based on asset allocation and are composed of managed equity and fixed-income accounts, hedge funds, and managed commodity futures. This approach is not for the hoi polloi: Axelowitz's minimum account is now $5 million, although clients' family members can get in with no minimum and friends of clients need have only $2 million to get started. He declines to discuss his fees, except to say that what clients pay is well within industry averages for wrap accounts.

Blue Chips Pay Off

Axelowitz got his start in the business in July 1987, when he left a six-figure job selling telecom equipment for a job as a Smith Barney trainee earning a quarter of his former salary. Like the majority of new brokers, he hit the phone. Unlike many, he found he was able to open one to three accounts a day. Then came October and the stock market crash. What he feared would be the worst career move of his life turned out to be the best, however. He had started his practice by recommending high-dividend blue chip stocks, and after the market tanked he kept on buying. As his choices rebounded along with the market, his reputation for savvy stock-picking, along with his roster of clients, expanded.

By 1992, Axelowitz was settled in at Lehman Brothers. He picked up an associate, Todd Kauffmann, whom he had met while mowing lawns in school and who still works side by side with Axelowitz as an associate vice president at Morgan Stanley. Soon, the two-man team was producing $2 million in annual revenue at Lehman trading stocks for clients. But Axelowitz says he was trailing the market--and growing increasingly unhappy as a result. Looking for an alternative, Axelowitz made his first move into managed money. He decided to get his clients into Lehman's "10 Uncommon Values" portfolio, a strategy, now 55 years old, that relies on the firm's equity analysts to choose stocks they think will outperform the S&P 500 in the coming year.

Axelowitz still was not satisfied. He says he realized that if he was going to make the move from being a stocks and bonds salesman to investment consultant, he needed to get serious about asset allocation, which he feels provides the vast majority of returns. In addition, his father's stock market losses, which ended a comfortable retirement from the IRS and sent his father back to work as a New York State tax investigator, made Axelowitz hypersensitive to losing money for clients. So the Hofstra grad went back to the classroom to earn his CIMA. That taught him two valuable lessons: Don't try to knock the cover off the ball, but do try to wring as much risk as possible out of a portfolio.

Life-Changing Events

Axelowitz moved to Merrill Lynch in 1995 and to Morgan Stanley in 1999. Today, he is long past cold calls, relying instead on networking with current clients and, occasionally, CPAs, for referrals. Many of his new clients come to him after what he calls a life-changing event, such as the sale of a family business or a venture capital deal bearing fruit.

Before Axelowitz gets down to investment details, however, he puts prospective clients through a screening process. A new client is asked to bring whatever financial information he or she can gather for an initial analysis, and to complete an eight-page estate planning questionnaire describing goals--leaving a legacy to family members or charity, say--as well as hard numbers. Axelowitz notes that while many new clients already have estate plans in place, some don't. In that case, he asks Morgan Stanley's estate planners to make recommendations.

Unlike many advisors, who start clients afresh after they roll over a balance from a 401(k) retirement plan, a typical new client of Axelowitz's tends to come aboard with a hefty investment portfolio, sometimes with a large concentrated equity position that has a low cost basis. "When a client starts a relationship with us, the portfolio is often a mess," he says. "Eight or 9 times out of 10, they were taking more risk than they needed." Before he starts to tinker with an existing portfolio, Axelowitz takes a cue from endowment and foundation practices and crafts an investment policy statement, something he finds most new clients lack.

10 Questions

After working that up, he moves on to asset allocation, which he says he bases on a client's goals and wants. Using a software tool from SunGard's Frontier Analytics (www.online.sungard.com/frontier/) that has been customized for Morgan Stanley, Axelowitz asks a new client to complete a 10-question form to try to assess his or her tolerance for risk. He says he finds that while most clients tell him they are willing to handle risky investments, more often than not they are actually ultra-conservative. When he actually crafts the investment strategy, he follows the asset allocations of the Harvard and Yale endowments as guides (he says he obtains them through Morgan Stanley connections), but then tones them down, especially in the area of alternatives.

After a couple of client meetings, Axelowitz is ready to offer up an allocation plan, but not before handing out biographies of his team and their mission statement in a brochure called "The Team Approach." He says he bases his investment philosophy in part on a lesson he learned from motivational lecturer Tony Robbins, with whom he studied: "In order to master investing, you have to master your emotions. Our clients are looking to us to help them think twice before reacting immediately to market changes." Indeed, he tries to temper his clients' expectations with this in mind. His method? "Talking to them and being clear about what is realistic and what isn't. We are very straightforward."

Axelowitz's model asset portfolio, which he rebalances at least once a year and, in some cases, two to four times annually, starts with a hefty slug of fixed income--20% to 50%, composed of municipal and taxable bonds, high-yield debt, convertibles, Treasuries, and agency credits. Last year, seeing interest rates headed higher, he trimmed his fixed- income allocation about 10 percentage points, but bonds nonetheless remain a cornerstone of his strategy. To bonds, he adds 10% to 15% for alternative investments, including individual hedge funds and funds of funds, real estate investment trusts, and managed commodity futures programs--such as those run by Boston Red Sox owner John Henry--a strategy he has been employing since 1996. The remainder goes into equities, with an emphasis on value stocks in the large-cap, mid-cap, and international categories, which he thinks offer lower levels of risk than large-cap growth.

No Fear of Firing

Rather than build individual positions, as he once favored, Axelowitz sees himself as a consultant who relies entirely now on a stable of separate account managers for both equities and bonds. While he declines to discuss specific equity or fixed-income managers he uses, he notes that they come from Morgan Stanley's approved list and are chosen after a rigorous due-diligence process. Before selecting managers, he likes to look at their 3- and 5-year track records, as well as their shorter-term performance, and says he feels no pressure either to use Morgan Stanley's own managers or to refrain from firing someone who doesn't meet his expectations.

Noting that his team sees all his clients' positions custodied in Morgan Stanley's coffers, he says he makes a special effort to insure that trades are handled with tax considerations in mind and that managers are not working at cross purposes.

Axelowitz and Kauffmann also go out of their way to keep in touch with clients. The extra work is appreciated: The day after 9/11, for example, with Manhattan virtually shut down, the two were in their midtown office fielding calls from clients around the country who were asking if they were okay.

Axelowitz approaches charitable work with the same personal attention as his financial endeavors. He first got into hands-on work after attending a gala held in 1992 by the Robin Hood Foundation, an antipoverty organization in New York that is supported by many traders and hedge fund managers. The fundraiser led him to check out East Harlem Exodus House, a school for underprivileged fifth through eighth graders, where he ended up teaching a course on money and investing skills.

He then followed Exodus House's co-founder, Hans Hageman, when he moved on to become executive director of Boys and Girls Harbor. Although he remains active in fundraising for the Robin Hood Foundation, the Harbor is his focus. Housed in a former orphanage two and a half miles north of Rockefeller Center, the Harbor offers kids programs that take them "from womb to college," as one graduate puts it: daycare, a primary school, college prep classes, and a world-class music conservatory, among other things. The cheerful halls of the Harbor are presided over by Hageman and Anthony Duke, a World War II hero and descendant of the founder of Duke University, who founded the program as a summer camp on Long Island and remains active today at age 87.

How to Make and Spend It

While Axelowitz no longer teaches, he works closely with Hageman and Duke on strategy and fundraising, and seems to know everyone on every floor. "He's a man in finance who's advising people on how to spend their money as well as make money," Duke says of Axelowitz. "Having someone who can sell the Harbor to new people--I needed that more than anything. There should be more Marks."

Axelowitz says he would love to go back to teaching, but that "running my business, having three young children, and the Harbor board together is more than a full-time job," However, "I have found that you can be highly effective with a little determination and a lot of organization, and that's true whether in investing or in life." Advisors frequently complain that they haven't enough time to accomplish what they want. Here's one who manages that challenge and is leaving a legacy, to boot.

Editorial Director William Glasgall can be reached at bglasgall@ia-mag.com.

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