From the September 2006 issue of Investment Advisor • Subscribe!

September 1, 2006

Native Sons

The Villeres have practiced in New Orleans through good times and bad. They--and their planning firm--aren't going anywhere

The Villere family has been in New Orleans as long as nearly anyone. Jacques Phillipe Villere was born near the city in 1761, son to King Louis XV's naval secretary for Louisiana. He served first as an officer in the French army and later as a major general in the American territorial militia. He was also the second governor of the state of Louisiana, not to mention the first to be native-born. It was his son, Gabriel, a major in the militia, who warned Andrew Jackson that the British had captured and were encamped on the Villere plantation, prior to the Battle of New Orleans, the final engagement in the War of 1812.

Flash forward almost 100 years to 1911 when St. Denis Villere founded Villere & Co., an investment firm that was a member of the New Orleans Stock Exchange and involved in public underwriting and brokerage of local stocks and bonds. Fifteen years later he was joined in the business by his son Ernest, who as time went on became increasingly engaged in investment counseling. Ernest's sons, St. Denis (Sandy) II and George, joined the family business during the 1960s. Today those brothers have welcomed into the business a fourth generation--George Villere Young and St. Denis Villere III, known as "Sandy, Jr."

With that kind of history, it's easy to understand why the Villere family is so strongly devoted to New Orleans and were not about to let a little thing like a hurricane, even one as ferocious as Katrina, uproot them and their advisory firm for long. Their story is one of perseverance to the business, kindness from partners who are far from strangers, and devotion to clients, to family, and to their city.

Disaster Strikes

By the time Katrina made landfall on Monday, August 29, all four partners of Villere & Co. and their families had evacuated to Houston, but like many New Orleans natives they'd been through hurricanes before and thought they couldn't possibly be out of their homes for more than a few days. The storm's reality soon blew that optimistic assessment out the window. As the scope of the disaster became apparent it was imperative that the firm get back up and running as soon as possible. Surprisingly, with a little help from some friends, by Tuesday, August 30, Villere & Co. was back in business from Houston, where they would remain until almost Thanksgiving.

Initially the partners worked out of a Charles Schwab retail office in Houston. "We've got about two-thirds of our assets custodied at Schwab, and they were generous enough to give us an office in which to sort of huddle," explains George V. Young of the first few days post-Katrina. "That didn't fit 100% for a variety of reasons, but then we found space through a friend starting on Friday, so we were up and running pretty quickly."

Villere & Co. has always taken a long-term approach to investing, so when the storm disrupted the Gulf Coast the partners didn't have to spend a lot of their energy moving clients' money around. "Our primary goal was to get in touch with each of our clients and let them know we were okay, and that their money was okay," says Sandy Villere Jr.

Of course, getting in touch with clients was a task more easily spoken of than actually accomplished for a number of reasons. First, just as the Villere & Co. principals and their five-person staff had to evacuate New Orleans, so did their clients. Then there was the problem that area code 504, the primary one for New Orleans, was entirely out of service. "One of the first things we did was to go buy new cell phones with a Houston area code and put up on www.villere.com all of our contact information so people could get in touch with us as quickly as possible," recalls Villere.

The biggest problem that the partners faced, after they discovered that they were going to be unable to return immediately to their offices, was getting their hands on the firm's computer server, still located in those offices on the eighth floor of a building with no power for elevators and air conditioning. They asked a friend who was still in the city to retrieve it for them, which he did on his way to Baton Rouge, where Sandy Villere, Jr., was able to pick it up, but that wasn't accomplished until mid-September.

While Villere & Co. was able to operate remotely, the partners did face a number of challenges that they hadn't anticipated. Some of it amounted to long-distance hand-holding for clients, but it was important to let those clients know that their assets were secure. Some of it was of a much more concrete nature.

"There were requests to wire money here or there," says Villere. "People were just scared and wanted more money wired into their checking accounts."

"That was something we hadn't really had to do before but we got involved with that and [did] address changes, ordering checks," adds Young. "Most everybody who left the city thought they were going for two or three days; of course it turned out to be a lot longer. So they didn't bring a lot of the things that they needed. The good thing about our business--and we learned this pretty quickly, and it's not unique to Villere & Co. but to all investment advisors--[is that] it's a very portable business. You don't have inventory, you don't have raw goods that you have to produce. It's a service business. As long as your data is stored in a safe area, which ours was, we were able to pluck the data out [and continue operating]."

Regular business, of course, did take a little while to get back on track. For example, the company issues rolling quarterly statements to each client at the end of every month. According to Young, the August statements were about a month late, and the September ones about two weeks behind schedule.

While the firm's four principals were together in Houston, the rest of their staff was scattered far and wide. Of their five back-office employees, one went to Lafayette, Louisiana, one to Mississippi, two to the Florida panhandle, and one to Miami via Arkansas. "What we were eventually able to do was set up our office manager in Baton Rouge with a house/office, so she could temporarily live and run accounts there," explains Young. "We had a couple of employees who didn't do anything for a couple of months until we knew what we needed from them, so a lot of it fell on the office manager's shoulders, which she handled wonderfully."

While Hurricane Katrina has changed New Orleans forever, its actual impact on Villere & Co.'s business has been negligible.

"It was kind of a non-event," says Young, adding, "If you look at the dollars that came in September, October, and November '05 compared to '04, we were flat. We didn't bring in any new dollars, because there wasn't much marketing we could do while we were in Houston. It did give us pause to consider opening an office in Houston, but that's a very competitive market. Until you've had a presence for some time, it's hard to really show any profit. So that didn't seem to make any sense to us."

"Our [investment] performance happened to be quite good during that time frame," adds his cousin. "So I don't think we were really affected."

Since the firm has returned to its native city, growth has been back on track. "We recognize that we need to be here to have the business grow," says Young. "Being in Houston, a lot of our typical potential clients were not available to prospect."

How the Firm Works

Although there are a number of firms with long pedigrees, Villere & Co. can easily claim to be one of the first fee-based financial advisory firms in the country. "I think it was in the '30s or '40s," says Young, relating the family history, "a client, as opposed to our grandfather, or great-grandfather at the time, came up with the idea and said, 'I've got a novel approach. Instead of you as my advisor being driven by commission dollars, there might be times when you think that nothing should be done with my portfolio. Doing nothing might be the right choice, so I would like to pay you an annual fee to keep an eye on my affairs, just as you would your own affairs, given these certain objectives.' And although that's commonplace nowadays, that was different from what was done at the time."

At Villere & Co. all four of the partners have accounts and client relationships that they manage in addition to operational responsibilities. "Sandy, for example, does more of the Web site maintenance and marketing," says Young. "I do the compliance. George Villere helps with the operations and marketing. Sandy Villere [Sr.] does more of the trading."

Like many other advisory firms, Villere & Co. has raised its minimum account size in recent years--from $500,000 to $1 million. But the partners didn't want to abandon any existing relationships, nor did they want to turn away the friends and families of their current clients. That was the genesis of the Villere Balanced Fund, an independent, no-load mutual fund launched in September 1999.

The mutual fund's investment strategy is identical to that behind the portfolios that Villere manages for individual clients. The investments are primarily a mix of individual equities and corporate and municipal bonds, with an emphasis on long-term capital growth. Turnover is kept low and there are no sales charges or redemption fees.

"Ultimately, what I think separates us is that we're trying to buy what's not popular at any particular time and we're very long-term oriented," says Villere of the firm's investment philosophy. "Our turnover's something like 15%. We're doing a lot of homework on these companies before we invest in them and we stick with them as management continues to deliver on what they said they'd do.

"We're long-term oriented, very tax-conscious, and believe in outperforming an index and possibly even concentrating a portfolio rather than trying to mimic an index."

For a firm that has traditionally used a soft sell and relied primarily on positive word-of-mouth for new business, the mutual fund has provided an unheard-of level of exposure.

"We didn't do any advertising until the mutual fund and the mutual fund started with zero dollars," says Young. "So of course we need to build that up. That's when we really started to advertise. We were advertising for the fund, but obviously some people who heard about us responded on the advisory side." (The Villere Balanced Fund (VILLX) currently has about $60 million invested and an expense ratio of 1.25%.)

The Aftermath

Like most advisors, particularly those who have lived through a catastrophic situation, Villere and Co. now has a much more detailed contingency plan. "Today we have a sort of ridiculous plan about where we're all going to be exactly when the first storm comes into the Gulf," says Villere.

The staff now has the ability to download the contents of the main server to two portable hard drives every Friday afternoon, which the two younger partners can take home with them.

They've also decided to have their e-mail hosted offsite, by a company in Birmingham, Alabama, so that it's accessible from anywhere, regardless of the condition of the main office. The third part of the plan called for an arrangement with a company called EVault to store all their data securely at a remote location. "We'll have the hard drive and a laptop that we can take with us, with all the operating software," explained Young. "If we need to restart everything from another location, we'll be able to do that."

The company finished the final arrangements to accomplish these steps by the end of July, just in time for this year's hurricane season.

All told, the partners at Villere & Co. feel that they got off easy, compared to what happened to a lot of other people. "There wasn't a whole lot of disruption, besides that we couldn't come back into town," says Villere. "George just lives a few blocks from me and we were probably in the 15% or 20% of the city that wasn't damaged by the storm."

The firm's office on the eighth floor of the old First Commerce building on Barrone Street wasn't damaged, but the building that housed it for almost 80 years was beyond repair, so the firm has since moved to new quarters, but overall the partners feel they were pretty lucky. They lost vacation homes in Mississippi, but nobody in the firm lost their primary residence. Not everyone was so fortunate.

"Everybody here in the city has been affected one way or another," says Young. "Some people lost their primary residences and their businesses and maybe their vacation homes. Everybody's been traumatized to a certain degree, but as for [our clients'] financial assets--that snapshot that we have control over--those have not really been affected. I think they're really thankful that they have something stable here."

As most of America might not realize, things are still far from back to normal in and around New Orleans. "Half the people aren't back," says Young. "We hope to be at 75% of where we were pre-Katrina in two years. So there's still a lot of people looking for houses. There's a big demand for apartments. A lot of the public schools aren't open yet. A lot of areas don't have electricity, don't have phones. It's still pretty bad."

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

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