From the June 2006 issue of Investment Advisor • Subscribe!

How the Leaders Cope

The IA Leaders on their priorities and the competition

When you ask a dozen advisors for their opinions on important issues you can expect some disagreement. Thus it was in the first IA Leaders' Council, where a survey of the Leaders' concerns and expectations was followed with a wide ranging discussion in a transcontinental conference call. In addition to the friendly disagreements, however, there was some remarkable unanimity on display in the written survey the Leaders filled out in early May and the call that followed May 9.

For instance, when quizzed about their own practices, 11 of the 12 report that they use a written investment policy statement with clients, nine have a written business plan and a written employee handbook/career path, and seven have a written practice transition plan.

Since this conversation was meant to serve as a mid-year checkup and forecast, in the call we asked first about the Leaders' priorities for the second half of 2006. Then we discussed who they considered their competition.

New Clients; More Revenue

Gene Balliett of Balliett Financial in Winter Park, Florida, was one of the four Leaders who placed new client acquisition as his top priority. Why? "Retirement and debt. Over the last five years we've had any number of deep-pocketed clients die, and a number have retired. So we have some vacancies to fill." So how does Gene get new clients? "Client referrals," he says, but adds that there's a problem there, too. Since many of his clients are physicians, when they retire they don't see that many younger doctors who they can refer.

Four other Leaders picked top-line growth as their main priority. "We have a strong budgeting process, and we try to control our costs," said Don Schreiber of WBI Investments in Little Silver, New Jersey. "But because we are trying to grow revenue--from existing clients and adding new clients but predominantly from third-party money management distribution, top-line growth is really important to us. We're not at a stage from a business standpoint where we can focus just on controlling costs."

Surprisingly, no one picked compliance as an area where they expected to spend more time and money. When asked if that meant he had solved the compliance puzzle, Stuart Zimmerman, of Buckingham Asset Management in St. Louis, noted that "because we have the size, we entered into a strategic relationship with NRS who helps us develop our standard materials. Our two lawyers internally review them, and we're ready to put them up onto our Web site and ship them off to the other firms [more than 100 CPA firms doing planning] who want to model themselves after our billion-dollar RIA." Zimmerman thinks "there's a great future for small advisors, but there is a strategic advantage to size."

Raising the issue of compliance prompted Peggy Cabaniss of HC Financial Advisors in Lafayette, California, to say she hoped she'd be spending less on compliance for the balance of the year, but voiced concern that still "many of the rules from the SEC are vague and grey." She talks to other advisors who have been "getting different answers from different auditors," when the SEC visits, so it's difficult to know "how much money and time can we spend on it."

The Competition Is Us

The leading answer to a question about ranking the competition was "other independent advisors." That's because, said Cabaniss, the clients she attracts want a "one-on-one relationship with the same person year after year." Competitors like the wirehouses and private banks may provide some good services, she said, "but as long as it's a different person every six months" providing them she's not worried. Scott Hanson of Hanson McClain in Sacramento thinks the wirehouses and banks could pose greater competition, but as long as their focus remains on selling product, he's not worried.

Percy Bolton of Percy E. Bolton Associates, an advisory firm in Pasadena, sees insurance companies as serious competition in his home state of California, an observation seconded by Lou Stanasolovich of Legend Financial in Pittsburgh. When working with higher-net-worth individuals and business owners, insurance is a big issue, Bolton points out, and "the individuals who know how to advise complex solutions to insurance issues are typically some of the best people in the insurance world." They also tend to be, he notes drolly, "charismatic and persuasive."

Stanasolovich voices concern about "registered representatives of some sort who are trying to sell annuities or another life-type product with a built-in guarantee," stating flatly that "advisors are frustrated in trying to compete against that."

But Deena Katz of Evensky & Katz in Coral Gables, Florida, says that since "our biggest job is to make the peanut butter and jelly last to the end of the sandwich" for those 76 million retiring boomers, "we'll have to find ways of creating income streams." She notes that her partner (Harold Evensky) "would have washed his mouth out with soap to say the word 'annuity' years ago, but 'annuity' is very much a part of creating those income streams. That puts insurance companies in an interesting new position."

Katz, who has written and spoken extensively on practice management, said that planners are getting better at paying attention to their businesses, a trend being driven partly by self-interest: "We're seeing a lot of competition in getting and keeping good staff and compensating them well."

While that's a good development, according to Dan Moisand, of Spraker Fitzgerald, Tamayo & Moisand, in Melbourne, Florida, it's not happening without resistance. "I hear people all the time say that if we're not careful we're going to have real jobs," Moisand half jokes. "It can feel very corporate and bureaucratic if you're not careful." Hanson, however, says that far from being confining, a larger, more business-like practice actually "enables you to have more freedom to focus on what you want to focus on; it gives you more independence."

Zimmerman had the last word on this subject. "It seems to me that a practice should have some vision to it, [but also have] someone holding folks accountable for what they said they would do. But then, I'm just a CPA talking."

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