From the August 2006 issue of Investment Advisor • Subscribe!

August 1, 2006

Financial Kaizen

Tom Hine uses the ancient arts of the East to build a modern advisory practice

Twenty-five years of Shotokan karate training has given Tom Hine an understanding that strength is best harvested through humility, that discipline is more than just patience, and that integrity encompasses a person's entire spirit. He believes it's also what has allowed him to double his assets under management in three years.

"Kaizen" is a Japanese concept that has been passed down to Hine by his karate masters. It calls for constant self-improvement through the elimination of waste--more specifically, the elimination of activities the add cost but do not add value.

It's probable that many successful financial advisors are unknowingly practicing this ideal every day. Hine, a planner from Glastonbury, Connecticut, however, has brought the concept to the forefront of his financial planning philosophy and built a practice around its ideals.

"You need a team approach to your business with the discipline to work harder and do better, every day," says Hine of the lessons he's learned. "You need the integrity to do the right thing. You have to know your clients and the economy, and you need to be dedicated to improving yourself. With the idea of kaizen you're always looking to improve. It's a yearning to make life better for your clients. You want them to sit back and say, 'Wow, I'm so glad I picked the right firm.' This is a concept that I've trusted my entire net worth with. Part of it is a drive to make myself and my team better and the other part is to let our clients know that we're constantly improving and are doing everything possible for them."

Hine made his first financial sale via a cold call in January 1990 while working for a large insurance company, and shortly thereafter had built a base of clients. In 1995, he made the move to independence and formed a partnership with two other people. Five years later the firm had accumulated a book of business worth around $200 million but there was dissent among the partners on how the practice should be run.

By August 2001, amidst disagreements with his partners, Hine decided it was time for the group to part ways and for him to fly solo with his own practice--Capital Wealth Management.

In many ways, Hine says, he was ready for the change--the market was right and he was ready to put his own business philosophy into practice. Like many other advisors in similar situations, he took the leap of faith toward independence with just one other employee, but soon realized that the gap was much wider than he expected.

Hine felt he was off to a good start and had close to $60 million in assets when the unimaginable happened--the 9/11 attacks. "Talk about a first month in business and a baptism by fire," he recalls. "Shortly after 9/11 I rebalanced clients' portfolios, those who gave me discretion--to be more defensive. So right from the start, I was showing clients that the firm was proactive--not market timers--but active, [as in] 'We're not going to sit there and watch your portfolio go down when something big like this happens.' It was a rough time to go through [opening a firm], but in part, being able to manage my clients' money effectively during that time is what solidified why they chose my firm. They had to make a pretty big decision about who was going to manage their money after 9/11."

Everyone dealt with the tragedy in their own way, but Hine says the hardest part for him personally in the days after 9/11 was the conflict of emotions he experienced.

"On one hand, I'm supposed to feel bad for the national environment," Hine says. "On the other, I'm worried about getting my firm up and running. So I felt almost selfish because I had to block out the tragedy from my mind for several days because I thought, 'no matter how serious 9/11 is, if I don't get this firm up and running, I could lose what I'm been working 15 years for.' It was a very tough time for me."

A defensive stance

Hine cites the perseverance and mental discipline he learned from his martial arts training for getting him through those difficult weeks in the fall of 2001. While many other planners were liquidating their clients' position in the market, thereby unsheathing an array of tax issues, Hine remained steadfast in his approach and kept clients invested with defensive positions. When the economic climate began to turn for the better in the following months, Hine says, his clients were glad he kept them in the market in a position to take advantage of the turnaround.

"I got a lot of referrals the next year because of what I had done in 2001," he said. "How many businesses fail in their first year? Now you want to add 9/11 on that? I wonder what the odds were at that point."

Hine is the sole advisor at Capital Wealth Management, but he has a staff of five employees to help him manage close to 260 clients. The firm has around $120 million under management and has a B/D affiliation with Securities America. His practice is in a growth spurt, Hine says. He recently signed a lease for more office space--doubling the current layout--and is looking to hire another advisor to take on an associate wealth management role.

"When you grow in assets, you need to grow in space," Hine says.

For someone who spends his days trying to set up successful retirements for other people, Hine, 45, has no plans of retiring himself anytime soon, if ever. "[Because of my training] I feel healthier and better now than I did when I was in my twenties and thirties. It does sound hokie, but it is true. This business has a lot of stress and taking care of yourself is the biggest thing that I can emphasize. You have to take time to take care of your own body. The good news is that I feel like I'm halfway through my career. I feel I could go to 90 or 120 [years old] at the pace I'm going at now and not be burned out. That's a huge thing, because our line of work is getting more competitive every day."

Capital Wealth Management uses a fee-based approach (95% of firm revenues are from fees and 5% from commissions) and Hine usually puts his clients in no-load funds, index funds, or third-party money managers.

Hine says he has several methods for attracting new clients to the firm. "One of them is giving seminars. I speak at public seminars where I cover our unique process in terms of how we work with clients. One example of a process we use is what I call the trifecta process because when clients come in, I compare mutual funds to index funds to private money managers. I look at all three of them to see which one is best for that client. The fee-based planning has clearly been the shift of the last five to 10 years. We do some commission work but the vast majority of a practice should be in a fee-based environment because there's so much to do today."

Capital Wealth Management has an account minimum of $1 million and Hine uses his public seminars to continually recruit clients although, he says, he's not looking to take on everyone. By the end of this year, Hine says, he hopes to have added $20 to $25 million of assets under management.

"I spend a lot of time with my top clients," Hine says of his approach. "I'm not one of those guys that says I know all the grandkids' birthdays, but I spend quality time, meaning I try to get to them the services they need and the things they like. For example, one of my clients likes the opera and he happens to collect Asian art, so we have a great conversation because of my background in martial arts. The marketing of referrals is that I try to spend enough time to show a client what the added value is."

Hine has an MBA from the University of Connecticut--where he now teaches karate to students--but his very first experiences in the business world came long before his degree was conferred. As a youth, Hine held paper routes, sold hockey decals outside of convenience stores, and worked at a Hostess bakery scraping the floors in a room with triple-digit temperatures, next to a scorching oven, with an instrument resembling an ice pick. He was going to college at the time and understood the value of an education but the blue-collar work experience gave him an extra boost to strive for success, particularly when he saw that some of his fellow employees gave up on their educations so that they could make a few extra bucks working in the factory.

Later on, Hine also worked for a computer company in Framingham, Massachusetts. "Jobs were tough to get then," Hine remembers. "I got a job as a data-entry clerk. At that point, around 1981, I hadn't decided yet that I wanted to be a finance major."

Coincidentally, Hine's father happened to own stock in the same company which had risen in value significantly since its purchase. Although, he wasn't yet majoring in finance, the young student suggested that his dad put a stop-loss on the investment in order to protect the accumulated value.

"Some time later, after he put in a stop-loss order, the stock went down and down and down and I think it went into bankruptcy. He got between $30,000 and $50,000 on the sale and my mom convinced him to make it a down payment on a summer home in Cape Cod. It's not when you buy, it's when you sell. I felt good about it because I was able to add value, even at a young age. My parents return on that house, as of two years ago, has beaten the S&P 500 index over the same time frame. That was my first indication that I may have been good with handling money."

In looking to the future of financial planning Hine says that firms will need to have $200 to $250 million in assets under management and up to15 employees to "really create the synergy to provide FedEx efficiency and Ritz Carlton service." Smaller firms, "those with $100 to $150 million in AUM in the fee-based environment," will need to carefully select clients. "You can't be all things to all people," he concludes.

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