From the June 2006 issue of Investment Advisor • Subscribe!

Build It and They Will Come

Deep in Iowa, Don DeWaay is building his own field of dreams, and it has nothing to do with baseball

Don DeWaay has a vision that he's certain will bring swarms of visitors to a field in West Des Moines, Iowa. Unlike Kevin Costner's character in "Field of Dreams," DeWaay doesn't admit to hearing voices, he isn't building a ballfield, and the visitors he's expecting aren't the 1919 Chicago White Sox. What the 46-year-old Iowa native envisions instead is a financial services office park that will provide his clients with comprehensive one-stop shopping for all their financial needs.

He likes to call it the Mayo Clinic of Money. While that indeed sounds ambitious, so does everything else he's done so far. DeWaay has more than 1,000 clients and $500 million under management, but until a year ago was the sole advisor in his firm. With the addition of three more advisors he expects to add between $175 and $200 million of new business this year. "And we're just hitting stride," he says with his typical energetic enthusiasm.

DeWaay says that from childhood he had an entrepreneurial bent and was interested in making money, although pursuing an undergraduate degree in history isn't often considered the first step on the road toward fame and fortune. After college, like many other advisors, he went to work for a large financial services firm, in his case American Express, that was primarily interested in selling its products and services. He says he got some good training and met a lot of people, "but ultimately I knew that you can't really do what's right for the client in a captive company." That led him, in 1987, to start his own firm, DeWaay Capital Management.

One of the reasons DeWaay feels he was able to operate as a sole practitioner for so long is that he's identified a specific client base and geared all of his efforts toward best serving them. "We've found a very comfortable niche in this business," he says. "There are a lot of advisors out there who chase the people who are worth north of $50 million. We have clients like that, but our niche, truly, is that single-digit, low double-digit millionaire. We bring to them a level of coordination and a level of sophistication that they are not going to get anywhere else, in particular, here in the Midwest."

What DeWaay tries to provide for his client base of retired executives, professionals, and business owners is a coordinated approach to their financial lives that includes a stable of professionals from other fields such as attorneys specializing in estate planning or asset protection, or CPAs, who are available as needed. "The common themes among our clients are that they have complicated lives financially and they haven't received the kind of service that they would expect, or hope to get, from other providers. They like the coordinated approach. They're basically affluent people that want their lives to be simple. They want somebody to take care of them."

Two-Way Education

Education is the foundation of DeWaay's approach as evidenced in his weekly radio show, "The Profit Zone," which ClearChannel carries on stations in about 40 states, in educational sessions for clients and the public, as well as in regular one-on-one meetings and conference calls with current clients.

"We go to exhaustive lengths to make sure they understand why we do the things that we do," says DeWaay of new clients, most of who come by way of referral from satisfied existing clients. "We want to make sure they're on board with us from soup to nuts. We don't want anyone to come in and be confused about what we do and why we do it. We want to build really strong, long-term, and hopefully multigenerational relationships."

First the clients educate DeWaay about who they are, what's important to them, and what they hope to achieve. Then DeWaay educates the client about what his firm can provide to help them realize their goals. "When it's necessary, and it often is, we bring in some of our strategic partners--attorneys and CPAs. We're trying to bring recognized experts to the table so there's total coordination across the spectrum of the client's financial concerns."

Although DeWaay has 40 support people on staff, many of whom interface with clients at various stages of the relationship, at some point the firm founder still meets with every client. "I'm probably going to sit down with a new client from four to eight times in that first year," he says. "People often ask, 'How do you manage 1,000 clients like that?' The way it works is that after a year or so, they have fully embraced why we do things philosophically and what we're doing and they know we're not going to do anything that's going to compromise them. Every decision that I make reflects back, not on a brokerage firm, but on Don DeWaay, because it's DeWaay Capital Management. So the frequency of the face-to-face meetings starts to decline rather rapidly. These people will still come in and if there's a need to sit down with me face to face they will. They'll still see me typically once or twice a year, more for some people. They'll also see me at all sorts of events. They also get acclimated to the idea that these other staff people are very intelligent people with a great deal of experience. They have a lot of comfort that these people are getting their marching orders from me. And they understand the philosophy, so they don't have to sit down in front me all the time."

In addition to seminars and regular conference calls, DeWaay Capital Management sends out regular communications, such as "Spare Change from the Profit Zone," which DeWaay describes as "stuff that comes out of the day-to-day practice. It's short, powerful points that they need to contemplate and that often bounces them back either to the radio broadcast or to the Knowledge Zone [at www.theprofitzone.net] so that they can get more information."

Those are the among the standard practices that can make clients feel secure, but DeWaay wants to make sure that they all feel special as well. "We sit down every quarter and for days on end we go through every client file and every client statement. You can imagine what it takes to go through 1,000 client files," he says, "but it's probably the best thing that we do."

A review team is put together, consisting of everyone in the firm who has client contact. As each client's file is reviewed, the individual team members can share what they know about the client's current personal and financial situation. "Then we send out a personalized note, a portion of which is hand-written, believe it or not, to each one of those clients saying, 'We need to get together because?? 1/2 '"

DeWaay concedes that such personalization can be labor intensive but insists it's worth the effort.

An Investment Double Play

When it comes to investing his clients' assets, DeWaay sums up his philosophy in simple terms. "We always want to go where the easiest money is going to be made with the least risk," he says. "We don't stick to any template. We don't slice the pie up and rebalance. We look at what's happening in the economy and in the markets and, simply put, we're trying to get them out of the things that can do them the most harm and into things that we think offer better risk-adjusted return."

For marketable securities, DeWaay's compensation is fee-based. For the many alternative vehicles that the firm uses, the compensation varies according to the project. "Some deals we put together, some we partner with other firms, and some we simply broker," explains DeWaay. "So it can be anything from an upfront commission to a back-end profit sharing arrangement or a combination.

"On the fee-based side, I think the world is our oyster," he continues. "Depending on the size of the client portfolio and their objectives, that can be anything from individual securities--stocks, bonds--and it can be funds, indexing, what have you. We have different model portfolios that we manage on a discretionary basis. It's a tactical allocation model. We're not simply rebalancing. We don't really promise to be top analysts of individual securities. We're very sector-oriented; and historically it's worked extremely well. We've been able to maintain--through some of the worst markets and some of the best markets--a pretty decent margin on the market in terms of performance with a fraction of the risk. That's kept a lot people excited about what we do."

Although DeWaay is not overly enthusiastic at the moment about any individual sector of the domestic economy ("We're more focused overseas than we've been in a long time"), his clients' energy investments have fared well. "We're big believers in energy," he says, "but where we're making our clients money on the energy front is in private placement." Investments have included traditional exploration and drilling for oil and natural gas as well as some investments in hedge funds concentrated in the energy sector.

DeWaay also thinks there's some money to be made by investing in energy infrastructure, such as pipelines and gas liquefaction plants, and in alternative energy sources. "Right now we're looking very hard at putting together some funds that focus on soy, bio-diesel, and ethanol type plants, which are very popular around here and have been very profitable," he says. "What we're seeing more of in the Midwest are green-on-green projects where they're tying in things like wind turbines with ethanol plants to provide the necessary power to get a better conversion. That's a big area coming up.

"Other things in alternatives are collateralized lending and leasing and real estate of all shape and size, although our appetite for real estate has dropped for obvious reasons," he continues. "There are a few ways that we approach it that we still think are exploitable."

Field of Dreams

Commerce Park is Don DeWaay's field of dreams, and although it might sound like the name of a minor league ballpark, it's in fact a financial services office park currently under construction in the Des Moines suburb of Clive. "It is the embodiment of our philosophy," he explains of the project, which will bring professionals from throughout the financial services world into one location. In addition to the 43,000-square-foot building that will serve as the new headquarters for DeWaay Capital Management, the campus will consist of four additional buildings. "Our building will be done in October, optimistically," he says. "November, realistically." He hopes to have the next two completed before the end of March, with the remaining pair of buildings to follow.

In addition to DeWaay Capital Management, the new headquarters will be home to the broker/dealer that DeWaay hopes to launch before year's end. He's purchased an existing B/D firm and is the midst of the NASD registration process, which he hopes is completed sometime in the fourth quarter of this year. "We created a holding company, a subsidiary that will end up being the DeWaay Financial Network," he says. "It will be for high-end financial providers who want the total solution that we offer. What we're offering people is peace of mind and a total solution. If [other providers] want to be able to do the same thing, we're going to give them the platform" to do so.

Among the first outside tenants for Commerce Park is a bank, but DeWaay expects to attract a number of CPA firms, insurance businesses, private equity firms and even a variety of business consultants. "Obviously we're going to have a lot of attorneys that do everything from estate planning to asset protection to business transition to contract law," he says. He thinks there may be one or two law firms that take up residence, but thinks it more probable that it will be a collection of independent attorneys or small practices with specialized areas of expertise.

Although some of the firms in the complex might compete with each other, that's not an issue for DeWaay. "We know there's going to be an element of overlap, but we want to focus on the client. Each one of these firms would have to bring something of specific merit to the property. Just because they would overlap with other firms would not necessarily preclude them from being on the property, although we wouldn't want to have a lot of specialists in the same area."

Among the attractions of the new facility will be a state-of-the-art conference center, which will allow DeWaay to hold real-time sessions with 250 to 300 people in Iowa and simultaneously broadcast to selected locations in cities around the country. Use of the conference center also provides a value-added incentive to prospective Commerce Park tenants.

DeWaay would be the first to admit that his current agenda is a monumental one. "I tend to think big," he says, light-heartedly. "I have a very strong foundation with the people and the resources that I work with. Our relationships with the clients are, frankly, unbelievable. That's what gives me the confidence to embark on a project of this magnitude. You'd think that a project like this wouldn't be in Des Moines, Iowa. You'd think it would be in Chicago or New York or L.A. But then again the Mayo Clinic sits in Rochester, Minnesota. It's not in Chicago or New York or L.A."

Don DeWaay is building his dream in a field in Iowa. With his track record to date, there's a good chance that clients and other professionals will be more than happy to share in that dream.

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

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