From the December 2005 issue of Investment Advisor • Subscribe!

Client-Focused

Offering comprehensive financial planning and a whole lot more, Schultz Financial Group may be living the advisory business model of the future, today

Anyone who thinks the advisory profession is strictly about financial planning and managing money is probably still living in the last century. Cutting-edge advisors these days still help their clients plan their financial futures and manage their assets, but they're also likely to provide a range of other services from bill paying to lifestyle consulting to estate planning. One firm that exemplifies tomorrow's attitude today is the Schultz Financial Group, a fee-only advisory firm in Reno, Nevada.

Sure, principals Russell and Vicki Schultz and their team of 14 other professionals offer comprehensive financial planning and the usual range of investment options. But they offer much more. For clients who want to dive into the real estate market, SFG can find investment properties around the country, or they can arrange and oversee any kind of construction project. Clients who are interested in the volatile energy market can of course purchase stock in companies like Exxon/Mobil or energy-related mutual funds, but Schultz clients can also invest directly in natural gas exploration or in-ground reserves or mineral royalty interests. The firm also runs its own fund of funds to offer clients easier access to the hedge fund space. For services they can't provide in-house, the firm has a database of top-notch providers ranging from tax attorneys and CPAs to psychologists and interior decorators.

The firm was founded in 1982 by Russell Schultz in southern California and moved to Reno a decade later. In the interim he hired and then married Vicki Schultz and both felt that Reno provided a better environment for raising their daughter. In the first few years, the majority of the firm's clients remained in southern California. Today the customer base is pretty evenly split between the Reno area and southern California, with a smattering of individuals in other parts of the country. Client net worth ranges from $3 million to $30 million with the average between $5 million and $10 million. Most tend to be between the ages of 50 and 70. "We do have some younger clients, too, mostly professionals, like doctors," notes Russell. Not counting real estate assets, Schultz Financial Group has about $125 million under management.

"Our core competency, since we started, has been comprehensive financial planning," says Russell Schultz. "All we've done is listen to our clients for 23 years and build the business around those clients and their needs."

Different Definitions of Capital

Listening for more than two decades, he says, has caused the company to focus on three different aspects of their clients' lives: financial capital, physical capital, and psychological capital. It's also been the inspiration for what the company describes as its core beliefs and a series of behaviors associated with each.

Client committed behavior means hiring the best minds available within and outside the firm, charging fees without conflict, taking fiduciary responsibility, and empowering clients through education and communication. Innovation entails encouraging an independent, creative atmosphere populated with an eclectic group of professionals with a wide variety of talents and fostering an atmosphere where it's okay to be unconventional and a leader rather than a follower. Service heart is simply attempting to anticipate the client's needs and delivering exceptional service.

"The core beliefs and behaviors are really to remind us of the direction we should be going and that we should remain client-centered," explains business manager Holly Evers, who was charged with putting the firm's philosophy into words. "They seem really simple, but everything that we do stems from them.

"We take those core beliefs as differentiators, but we also reflect them internally," she continues enthusiastically. "We treat each other to a certain extent as clients, with a service heart. And when we're committed to each other, it really does help us provide great service to the client."

Getting Centered

This client-centered focus led to the development of the family office services that Schultz Financial Group offers. Depending on the individual client's needs, the firm can aid in family strategic planning, as well as developing business plans and strategies. SFG can provide the family with a chief financial officer, provide tax preparation and coordination with an outside CPA, handle bill paying and bookkeeping, arrange the purchase of homes or automobiles, provide secretarial or personal assistant service, or act as the owner's representative in real estate transactions. The company even has a principal, Eric Miller, who is a Microsoft Certified Systems Engineer; in addition to handling the firm's technology systems, Miller can coordinate the client's in-house and outside technology resources.

Many of the services that Schultz Financial Group offers are similar to what other advisors provide; Schultz Financial just seems to take it a little further. Many advisors hold educational events with guest speakers for their clients, but most of those events are product-oriented with the speaker making a sales pitch in the guise of education. "We hold a client forum each year that's very much a differentiator between us and other firms," says Russell Schultz. "That client forum is strictly for our clients and it brings in people to speak to different areas."

"The nice thing is that because it's for our clients, it's strictly educational," adds Evers, who puts the program together each year. "Nobody's selling any product, so no one's pitching anything."

The speakers at this year's client forum included Shirley Neff, formerly chief economist for the U.S. Senate Energy and Natural Resources Committee and an adjunct research scholar with the Center for Energy, Marine Transportation and Public Policy in the School of International Affairs at Columbia University, who spoke on energy policy. Another speaker was Dr. Yoon Hang Kim, dean of integrated medicine at Acupuncture and Integrative Medicine College in Berkeley, California. The 2005 program included a lecture on bonds, a talk by a psychologist who spoke about mindfulness, and a financial professional who talked about the bond market. The day-long session also included an organic lunch, followed by an exercise session using a form of Tai Chi.

"It allows us to provide education for our clients and remind them that we are a resource for many different things," explains Evers.

"We're exposing them to things that they've either never thought about or they've thought about but they don't know how to get to," adds Vicki Schultz.

The entire forum is videotaped and a DVD of the proceedings is then sent to clients who are unable to attend.

Alternative Investments

When it comes to investments, the planners at SFG try to construct a broadly diversified portfolio of investments with a great deal of attention paid to the client's risk tolerance and tax situation. As with most advisors, a range of equity and fixed-income vehicles, including mutual funds, managed accounts, limited liability companies, and private investment funds is available, but that's really only the starting point.

Hedge funds are certainly the most talked about alternative investment these days, and the fund of funds concept has allowed investors to participate without putting up $1 million or more. While Russell Schultz liked the idea of a hedge fund of funds, he was uncomfortable with the extra layer of fees his clients would have to pay to an FoF manager. So he started his own. "It's basically for access and transparency," he explains. "We're out there buying the best brains."

What he looks for is a successful manager who may have an investment minimum of $1 million or $2 million. While that would be more than he would counsel clients to put into any one fund, it can easily be achieved by pooling money from a number of different clients. This allows clients to have access to from six to 10 hedge fund managers following different strategies and a great deal of diversification. "They don't have the layering of fees with all of this," he says. "We do not charge any fund of funds fees. It's strictly an access vehicle."

Surprisingly, Schultz says that many of the hedge fund managers the firm invests with allow him to see their trades on a daily or weekly basis, a level of transparency not usually available. "The bottom line is that we are not in competition with them," he continues, "and because of what we're trying to do for our clients, they're more apt to open up to us and provide that, or we won't do business with them."

Real estate is another area where SFG is different from the typical financial planning firm. Anyone can buy REITs for their clients, but how many advisors can help their clients build their dream home by finding the property, hiring the architect, engineer, general contractor, and interior decorator, securing the bank loan, and then overseeing the actual construction. The firm is also extremely active in the commercial real estate arena and has handled projects ranging from a small 7,000-square-foot freestanding building all the way to 150,000 square feet of retail or office space.

The Schultz Financial Group's real estate team includes Jeff Ostomel, an attorney who manages acquisition, development, and construction services; Kristina McCabe, a Certified Shopping Center Manager who is working on her CFP, is responsible for commercial leases, accounting, and real estate portfolio management; and Paul Holland, who has more than a dozen years of construction experience and is scheduled to get his general contractor's license in January. Although Russell Schultz doesn't like to use the term "developer" because of its negative connotations, essentially that is what his group does, but strictly for a fee and in the client's interest.

Although Schultz Financial Group offers a range of services beyond the scope of most advisors, there are no current plans to expand the in-house skill base. "We probably just want to get better at the things we do," says Vicki Schultz. "With our accounting department, which is fairly new, I think we've got what we need. We don't want to do tax returns. We want to be good at planning. We don't want to do taxes. We can outsource that and have an outside resource to go to with complicated tax questions."

Preaching into Practice

At Schultz Financial, the external values are the same as the internal ones. Just as they work with their clients to develop their various capitals, they encourage staff to do the same work on themselves. The kitchen in the company's office is stocked with organic snacks. There's gym equipment on site adjacent to bathrooms and changing rooms.

To develop the staff's mental capital, each person is expected to read a non-fiction book of their choice, on any subject (paid for by the company), each quarter. The books are then discussed at a team lunch and each reader also writes a short book report, made available to members of the other teams. "Over the course of the year, that adds about 80 books to our collective knowledge base," points out Russell Schultz.

The principals at Schultz Financial are also quick to acknowledge that no one has a monopoly on good ideas and they're not shy about appropriating one (with proper credit) if they come across it. One is their "Crazy Day," which was borrowed from fellow NAPFA member Richie Lee of Lee Financial in Dallas.

Russell Schultz and Holly Evers semi-secretly planned the event, and shut down the office for a day to take the staff on an outing. This year, it was a trip to a resort in the Sierras, where a guide and naturalist took them on a hike and pointed out the natural wonders as well as some unusual outdoor skills like being able to recognize the still extant wagon wheel tracks from the crossings into California in the 19th century.

After almost 25 years in the business, Russell Schultz is getting close to his original goal, which was to create a company that would put him out of a job. With the staff and organization that he's got in place today, he says that while he thoroughly enjoys being the CEO, the company is not strictly dependent on him to keep functioning. "I got into this business to help people," he says. "When I started, I thought I was going to make everybody's life perfect. When you're in your 20s, that's how you think. Then you understand that all you can really do is be a good resource to provide investment advice and assist them the best way possible."

"I like knowing that I'm making a difference in peoples lives, not only financially but in the other capitals," adds Vicki Schultz. "It's exciting when I know that we've helped someone."

"We're not just here to see how much money we can make, we really do care about the clients," says Russell Schultz in conclusion. "Those are small things, but to us they're important things. It's not just the money. Money's important, believe me, it's very important, but we also have a care beyond that and that's what's best for the client."

Managing editor Robert F. Keane can be reached at bkeane@investmentadvisor.com.

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