Wealth management is a phrase with many meanings whose consensus definition continues to evolve. "The basics would be the integration and the coordination of ongoing investment management and financial planning," explains Tom Orecchio, one of the firm's two principals. "We're going to look at all of your financial issues up front and deliver a comprehensive financial plan--then help you implement that plan over time. We tell our clients, 'Anything that touches your financial life, we want to help with it.' That's key to us. If they have questions about the sale of their home, if they should lease or purchase a car, what it would cost to buy a second home, or about the sale of their business. Certain areas are outside the realm of our expertise, so we will work with their other professionals, or if they don't have one, we will coordinate the efforts to bring in other professionals."
Toward that end, the firm has pretty strong relationships with several accounting practices and law firms in the area that specialize in trust and estate work and tax planning. "We also have a CPA and an EA (Enrolled Agent) on staff," says Orecchio, who counts the CFA, CFP, ChFC, CLU, and AIF designations among his credentials. "We have specialists in retirement and taxes, insurance, and alternative investment structures as well as traditional investments."
The biggest issue these days for most of the firm's clients is the ability to maintain their standard of living during the retirement years, but retirement per se isn't the issue for the firm. "We don't look at retirement as the issue so much as being financially independent," notes Orecchio. "We define that as being able to maintain your standard of living, whatever the standard is that you choose, throughout the rest of your life. Whether they choose to work after that, to volunteer their time, or whatever else, that's their choice. Our focus is on helping them maintain that financial independence and achieve their goals."
A Model That Works
Tom Orecchio got into the business right out of college with a firm, Heritage Financial Group, that offered financial planning tied to product sales--mutual funds and insurance products, especially variable and fixed annuities. He worked in that part of the business for about five years, all the while thinking that there must be a business model that would allow him to offer financial advice that wasn't built around selling something that would pay him a commission. Someone who worked in the same firm told him about a planner named Gary Greenbaum who had an office just up the road and was looking to bring on another planner.
At that point Greenbaum had been running his practice for about 12 years. For the first 10 he only wrote financial plans and did no asset management. By the time Orecchio came on board, he had eight clients and $10 million under management. Ten years later, Greenbaum and Orecchio boasts 151 client relationships and $265 million under management.
Orecchio had already received his CFP and ChFC certifications before partnering with Greenbaum, and it was during his studies in these programs that he began to look for a new business model. "What I was learning in those programs and in classes was different than what I was delivering," he recalls. "I was eager to find a place that was delivering financial planning and investment management on a fee-only basis that was focused around process rather than product. That's what attracted me to Gary."
Today the firm bears the names of both partners who have equal stakes in the company. "We've split the duties," explains Orecchio. "He does most of the technology, compliance, and workflow management. I do most of the client acquisition, client management, and staff management. Of course, there's some overlap. I get involved in some of the technology issues and Gary has a couple of client relationships that he maintains."
Orecchio's duties however, extend beyond the areas he mentioned, among them serving as head of the firm's investment committee. "We have several committees for the different services we offer to clients," he explains. "All the wealth managers sit on the committees, but those with specialties head up the committees." His partner, who is certified as a Chartered Alternative Investment Analyst (CAIA), heads the alternative investment committee, and another advisor oversees the financial planning committee.
The firm's average client is in his late 50s to early 60s, is retired or thinking about retiring, and has a couple of million dollars worth of investable assets. "My average client size is $3 million, the same as my partner, but we have clients who have $1 million with us. Our minimum investment is $1 million, but our typical client is somewhere between $2 million and $10 million." There are also a handful of clients in the $750,000 range--leftovers from when the client minimum was $500,000.
Typically, wealth management clients pay a percentage of the assets under management as a fee that covers all asset management and financial planning services. For clients with fewer assets, investment counsel is provided on an ongoing basis and financial planning is done on an hourly consulting basis. The same is true for family members of existing clients who need a financial planning session.
Investing for Retirement
In line with its overall approach, the firm's investment strategies are built around making sure clients have enough money to maintain their desired standard of living. "We use Modern Portfolio Theory to design broadly diversified portfolios," Orecchio explains. Portfolios start with the traditional asset classes, including large- and small-cap stocks and a wide variety of bonds. "Then we look at overseas markets--international large and small, emerging markets large and small," he continues. "We look at alternatives like real estate, oil and gas, venture capital and private equity, and market-neutral hedge fund strategies. We're currently looking at an investment in water. We've done timber. We're now looking at some alternative energy structures."
There are really no limits to the investment vehicles that Orecchio's firm is likely to use--direct investment partnerships, REITs, ETFs, or mutual funds--as long as they make it through the due diligence process. "We've even used a certain amount of separately managed accounts," he says. "We are exploring [them further] and some clients have asked, but the truth is, most of what we've seen is a little too expensive for what we're trying to achieve. Most of it is in what we consider the efficient space, like U.S. large caps. We don't think they can add a whole lot of value."
For the same reason, the firm doesn't purchase individual stocks for clients.
Energy is an investment sector that Orecchio finds very appealing and one that he has been following since the early '90s. "We like the alternative investments--direct investments--better, because some of them are relatively conservative ways to get into the energy market without any correlation to the stock market," he reveals. "If you buy an energy fund, at the end of the day what you're buying are more stocks and Exxon/Mobil is definitely going to be in there and it's probably the largest holding in the S&P 500. So you're getting higher correlations that way. We prefer to do oil royalties, natural gas royalties--things where the correlation to the markets is much lower."
Marketing & Compliance
Like many firms, Greenbaum and Orecchio relies on referrals to attract new clients, a strategy that can have both an up and a down side. Of the new clients that the firm added last year, Orecchio says about 45% came from existing clients, and 35% were referred by professionals such as attorneys and accountants with whom the firm has a relationship. The remainder came through NAPFA and FPA programs that match potential clients with advisors in their area, and from the partners' speaking engagements.
"We always joke around here that we're not very good marketers, but most of the industry is probably guilty of that," Orecchio says. "Fortunately, we've been blessed to have good growth without someone heading up our marketing, but we think that needs to change. The second half of this year our focus is going to be on trying to set up a marketing department with a director who will implement a realistic long-term marketing strategy."
Compliance is another area that's taken a lot more attention of late. "It's affected everybody in the industry, there's no question about it," observes Orecchio. "We've always been sticklers about our client education, signing off on documents, delivering an investment policy statement that's signed by our clients and by us, and having an agreement and contract with clients. We've always practiced that way. A lot of the new compliance stuff is details for us--like having a compliance manual. We understand we need it, but most of the procedures that are in there, we've been following for years. So it hasn't been huge problem but it definitely has increased the amount of time we spend on compliance."
There's been much talk at industry conferences and in magazine articles about the need for financial planning to develop into a recognized profession. From Orecchio's perspective that can only happen if the individuals in the profession are willing to work at it. "I think it's very important for professionals to be involved in the industry," says Orecchio, who backs up his statements with action. Currently he's NAPFA's Treasurer and serves on a number of the association's committees and points out that his partner is a NAPFA past president. "I think the industry offers us a lot and it's important that we give back to the industry," he says with deep conviction. "I think that if the industry wants to be viewed as a viable profession long term, we need the support of all the professionals within that profession. I think that it's a necessity to work within the industry, whether it's the FPA or NAPFA or any of the local chapters of these organizations or other organizations that do good for consumers or for the industry itself."
Orecchio says that volunteering to serve professional organizations has rewards beyond personal satisfaction. He sits on NAPFA's plan peer review committee, and says he benefits from having the chance to see what other advisors around the country are doing. "We don't have a lock on what's best," he admits. "We get some really good ideas from what we see and we reach out to other planners who have submitted plans to either question the assumptions that went into it or how they're delivering a particular service."
Looking forward, Orecchio hopes to continue the firm's growth, but in a controlled manner, which he believes will allow them to broaden the level of service and expertise offered to wealth management clients.
Managing editor Robert F. Keane can be reached at firstname.lastname@example.org.