From the February 2007 issue of Boomer Market Advisor • Subscribe!

February 1, 2007

Wealth management team players

Advisors headed for the independent world are taking some wirehouse best practices with them. One strategy, the team approach to managing high-net-worth clients, has long been a staple with many Wall Street firms -- and is now growing in popularity among smaller independent practices.

"Our fee-only business model was predicated on serving clients in teams," says Allan Zachariah, managing director of Harris myCFO in Redwood City, Calif., which manages individual portfolios valued at $25 million to $1 billion. "It's an old model that has been basically brought forward to a new model. This model has been around for several hundred years and is really a European private banking model that was brought to the United States."

At the highest level, a team of specialists may include:

  • A client service director
  • A tax specialist
  • An estate and wealth-transfer specialist
  • A philanthropy specialist
  • An expense management and financial reporting specialist
  • A risk management specialist

"We serve our clients in what we call an integrated wealth management platform," Zachariah says. "This is also known as a family office environment. Clients have a team of professionals from the various disciplines that serve them. So we have the investment piece of our business, we have the income tax planning and compliance piece -- in areas of wealth transfer planning and philanthropy. We also function in the area of actually paying their bills -- what we call expense management. And we produce reports."

The team approach enables firms to manage every aspect of a family's financial picture -- from shutting down under-performing accounts to funding new real estate acquisitions. Experts expect the team approach to wealth management trend to continue among smaller firms as technology capabilities increase in the industry.

Some smaller firms are using teams with subject matter experts in such areas as estate planning, tax management and investing. The use of experts in these areas enables superior investment and management decisions. For example, FirsTrust - Private Wealth Management in Daytona Beach, Fla., has just nine employees but assembles a team of two to four specialists to meet with every new client. The firm manages $150 million in assets for 135 to 140 clients. Clients generally have portfolios in excess of $1 million.

"When a new client comes to us, we initially assemble the planning team -- with two, maybe three, or four specialists -- to discern the needs, circumstances and family dynamics for each client," says Bill Kearney, the firm's executive officer. "We do a mapping out of what they need and what they hope to accomplish. And then in conjunction with our trust and estate design team, we have people who will integrate the estate issues, the multi-generational issues if that is a concern, and then after all of that foundation has been created, our investment team will take the output of that research and put it to work. All three of those components continue to work together in the decision-making process. Each client is a client of the firm. Everyone works together and supports each other, which ultimately benefits the client."

John Ritter with Ritter Daniher Financial Advisory in Cincinnati, Ohio has taken a similar approach. His firm is eight years old, has three advisors and one administrative person. Together, they manage around $90 million for 100 clients.

"The team approach is one of the key areas we touch on with every new client, Ritter says. "They will work with the entire team. One of our [advisors] specializes in estate planning -- he is a former trust officer and a certified trust financial advisor. I take the lead on the investment side of things. And our third advisor specializes in tax work."

Everyone at Ritter Daniher is a salaried employee. They have profit-sharing distributions based on the overall profits of the company. Clients pay a retainer fee that is adjusted based on services required. Any incentive not to work as a team is thereby removed.

"I've seen this trend in portfolio management take hold only very recently. We are on the fee-only side of things and we talk with a lot of the NAPFA firms, and we are seeing more and more teams develop there. It used to be much more of a lone ranger approach. But we are seeing much more collaboration inside of firms -- and even between firms. We have a NAPFA study group in town that meets once a quarter, and we are constantly sharing ideas with other NAPFA members," says Ritter, who will co-chair the NAPFA National Conference in 2008.

Zachariah also says this trend in portfolio management is strong -- and spreading quickly. Increasingly, he says, more and more companies will organize and manage accounts in this fashion.

"My personal opinion is that the industry, at large, will have to go in this direction. The advisory model is the model of the future. For an advisor to really do his job, he needs to get his head around the entirety of a portfolio. And I expect to see more firms also taking on subject matter experts -- often in the areas of tax planning, estate planning, philanthropy and risk management."

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