From the July 2006 issue of Investment Advisor • Subscribe!

July 1, 2006

Show Me, Show Them

Stuart Zimmerman's firm shows CPAs the way

The easy thing to say about Stuart Zimmerman is that he's an advocate for CPAs doing financial planning. It's easy because he's prone to say things like "Watch out, the CPAs are coming!" when prompted to share his thoughts on the future of the profession during the first Investment Advisor Leaders' Council conference call in early May. But look more closely at Stuart Zimmerman and you'll see a visionary who's succeeded where others have failed, a strong personality who's nevertheless always talking in the first person plural, and whose principles are firmly rooted in a deep concern for the client. It's why he could also say during that conference call that planners and investment advisors are "going to be doing sensationally well over the next 10 years, because of the demographics--if we keep the best interests of our clients at heart."

That constancy of thought and consistency of application has propelled Zimmerman and the companies he's helped found to the top of not just the CPAs-turned-planners field, but the RIA marketplace in general in just 12 years of business. Buckingham Asset Manage-ment, the RIA co-founded by Zimmerman in 1994, and BAM Advisor Services, the back office for 110 mostly CPA firms that sprouted from Buckingham in 1997, is one of Schwab Institutional's biggest clients. It's also one of the Fidelity RIA Group's biggest clients. It's also one of Dimensional Fund Advisors' (DFA's) biggest clients. Buckingham has $1.3 billion in assets under management; BAM Advisor Services has a collective $5 billion in AUM. Zimmerman, 62, and his partners aren't through. He casually suggests that "our goal is to reach the $10 billion" mark in AUM by continuing BAM's business strategy and adding some new initiatives, including Bemiston Insurance Services. He spoke to Editor-in-Chief Jamie Green from St. Louis in early June.

On how he got into this business.

I come out of a CPA background. I was 28 years with the largest one-office accounting firm outside of New York, right here in St. Louis [RBG & Co.]. I retired at age 50--I had missed the original goals, which were age 30 and then 40. I got together with Bert Schweizer, another St. Louis area CPA, and two of our good friends, Paul Forman and Steve Funk, and the four of us formed Buckingham Asset Management. We got to concentrate on asset management right from the beginning, but we had no clients and no assets under management. So we divided up the responsibilities. Bert and Steve were to figure out how we were to invest the money, and Paul and I were going to go out and see if we could round up some clients. Obviously it's worked pretty well. Twelve years later, Buckingham has $1.3 billion under management. We did discover from the beginning--I'll give Bert and Steve credit for coming up with this--a passive investment approach. They ran across DFA [Dimensional Fund Advisors] early on. So we're taking this passive, diversified, long-term, buy-and-hold, tax-efficient approach to investing. That seems to have had great appeal; the investment approach is clearly part of our success, to the point where we are now DFA's largest client, both institutional and investment advisor-wise. Three years into it, in 1997, we said we know it's a subject that CPAs are talking about around the country. So we showed up at the AICPA Investment Conference in New York in June of 1997; set up a booth, and we formed a second company called BAM Advisor Services, and said if any of you want to get into this business, you can use our back office if you want to do it the way we're doing it.

Nine years later, there's over $5 billion with those accounting firms; so $6.3 billion total. We're also a large client with Schwab and of Fidelity.

On what led him into this particular business model.

We were able to start out fee-only, because that's what CPAs know. Some had gone the way of HD Vest [the independent broker/dealer specializing in CPAs], which was an early entry into the field and took a commission point of view. Generally, the larger the accounting firm, the less likely they were to go in that direction.

We saw early on, and we still see it today, that this is a cottage industry. There are all these little RIA firms out there that, while they're all doing it a slightly different way, are all doing the same thing. What a waste of resources! They've all got their own reporting software, they all put out their quarterly statements, they all buy paper. So we saw the leverage opportunity.

Can any CPA take this approach?

CPAs are lousy salespeople; they do some marketing, but it's not their strength. Their strength is great client service, that's why they always rank highest as being most trustworthy [in surveys of how consumers view the professions].

On the BAM companies.

We have three companies now--Buckingham, BAM Advisor Services, and our newest company is Bemiston Insurance Services on the risk management side--we've got 80 people in one office that support all those companies.

On where BAM finds its employees.

You know that saying, "you should always surround yourself with people smarter than you?" It's always been my philosophy. We have a lot of very bright people, a lot of intellectual capital.

On how BAM motivates employees.

We treat everyone as professionals from the beginning. Yes, they have goals and assignments, but what's important is getting the job done. So hours aren't the issue, it's doing something important, doing the absolute right thing for the client, with the highest ethics.

On why he warns other advisors, "Watch out for the CPAs!"

That's one of my favorite themes. They are the most trusted advisors, so you'd better watch out for them. If half of them do end up in this business, they're not going to send it down the street [to you] any more. That wonderful strategic alliance you formed with the CPA firm down the street? That might not work out.

On whether Americans are getting the help they need for retirement.

They aren't. I think the RIA community does the best, but I'm not at all pleased with what I see in the brokerage houses. They still control the largest percentage of assets. There are a lot of good people there. But are they overall strategic planners when it comes to helping the client long range? They don't even come close.

Will the wirehouses continue to be strong players?

They have the most dollars, the biggest marketing budget. They'll be around for a long, long time. Are they easy pickings for people like us? Yes. That's why I like them. What I'm most interested in is that the end client be well served with intelligent, academic-based evidence, and there is no motivation for the wirehouse to bring the academic evidence to the table, because if they did, people would trade less.

On where he gets his advice.

We're forming study groups for the [advisor] clients who work with us, but we have to continue to be educated. We work very closely with DFA in that respect, we have an investment policy committee [that keeps up to date] on any new academic evidence on the subject. It's not whether this fund or that is good or bad, but what does the academic evidence say, what's coming out of the University of Chicago or the University of Pennsylvania? We need to know that.

On what new services BAM's offering.

One is our third company, Bemiston Insurance Services--about half of the CPA firms are very interested in adding those services. We don't like insurance any more than you do, but you really need it, and you might as well place it in the CPA firm rather than send it down the street. We have a retirement plan services division with $500 million in 401(k) plans, all Web-based, passive lifestyle portfolios using DFA; and the last one is serving small institutions with $5 million to $100 million, such as small not-for-profits with $20 million endowments. Those people are being very poorly served. We see wonderful opportunities, and the CPA firms we're working with, they have many of those clients [as accounting/auditing clients]. We're also beginning to train BAM firms on wealth management.

Editor-in-Chief Jamie Green can be reached at jgreen@investmentadvisor.com.

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