As subprime-related woes continue to disrupt the financial-services industry, financial markets and the broader economy, a Smith Barney team with three advisors and two associates -- the La Jolla Group -- is sitting pretty, despite the fact that it operates in an area most affected by the mortgage mess, San Diego. That's because the group listens seriously to its clients' advice and, about 18 months ago, started getting clients out of real estate before the crisis hit.
And this is just one advantage of running a practice in concert with clients, who -- in this case -- are 62 mid-size business owners with an ear (or two) to the ground in Southern California and typically from $5 million to $100 million in yearly sales.
"That's pretty unique -- having the foresight from [some of] our clients, who are large real estate developers and owners of mortgage firms and companies," explains Neal McNeil III, CFP. "They were telling us that there was a glut of these bad loans sitting out there, and they had an understanding that this would affect the markets next."
This give-and-take style has proven tremendously helpful as the team built its practice over the past eight years. "Being in touch with our clients, getting their feedback, and understanding what's happening at a ground level before things happen at a macro level, where they can blow up, is really important and is a really huge benefit," explains McNeil, 34.
Overall, the La Jolla Group is poised to grow its assets under management from $250 million to $500 million by 2013 and generate strong returns by tightly focusing on the needs of its business-owner clients, diligently working the local market and relying on a select group of business partners (such as CPAs, investment bankers and attorneys). From 10 percent to 40 percent of its portfolios are invested in alternative investments (including hedge funds like Paulson Advantage Plus, private equity, real estate and debt), while the remainder is generally held in ETFs. "Their ability to manage our financial needs is exceptional," says client Willy Ayyad, CEO, United Development Group.
Team RootsAlong with Robert Meyer, CFP, "I came over to Smith Barney in February 2000 to join the Citi umbrella, which includes a variety of business services for business owners," says McNeil. "And ironically, exactly at this time, Ryan Clive-Smith had come over from Prudential. We developed a friendship at that time and later became a team."
The three CFPs work with two registered client service associates, Leslie Oriza and Tiffany Guidolin. McNeil handles the portfolio management, while Meyer tackles the broader financial planning and Clive-Smith does business development. The group members say they take their time on the "front end," often spending two to three years, to get to know their clients -- nearly all of whom are consumed with the day-to-day management of running a business rather than managing their personal wealth -- and to get the mid-size businesses sold.
"I ran an airplane company before coming into this business. I've always had this as a focus area of my advisory practice -- business owners -- because I knew how they thought," says McNeil. "You have no time for yourself; your days are full of nothing else but the company -- and the solvency of the company, as opposed to your benefits and your family's."
Turning this intimate grasp of client needs into a robust book of business does take time, the advisors note, and focus. But the payoffs for both clients and the team, in terms of assets and returns, are materializing handsomely.
"This was a niche market, and I would talk to business owners and say, 'This is what's going on in your life.' And they'd say 'How do you know?' as if I'd been reading their diary. And I'd say, 'I've been there, and so I know exactly what's happening to you.' "
'A Lot Like Consulting' Business owners are different from public CEO, CFO and other "C" people, says McNeil, a SoCal native. "Their focus isn't just on macro issues or financial issues. If you're a business owner, you're worrying about everything -- if you have employees, if you have the right 401(k), the right ESOP, the right buy-sell agreement. This is completely different from those on the public side. They have a lot more needs."
And it's up to the team to zoom in on the one need that's most pressing early on and to get it resolved. "We've found that there's pretty much one thing that keeps business owners up at night," according to McNeil. "Our job is to figure out what that one thing is and help them address that concern, and help them figure out what their ultimate goal for that business is."
That, effectively, means that the La Jolla Group operates a lot like a consulting firm, or a provider of ancillary services for business owners dealing with issues like employee turnover. "We are really the CFO for a business," he shares. "We manage the relationships for them and are only compensated once they sell the business and the proceeds are invested with our team. This is very important. We're unbiased, and our job is to make sure that they fit with the right teams, firms and other business partners that they're working with.
"Our clients look for us to guide them through some of these things, because there's so much information out there and so many people trying to sell them. Our difference is that we don't sell them products; we work with them on the big wealth event, and that's our job: We're consultants," McNeil notes.
Work the Market Still, there are plenty of advisors and other professionals aiming to offer services to mid-size businesses. The trick for the La Jolla Group is to zoom in on meeting a potential client's real need from the get-go.
"What happened to us recently was that Chris Spano, CEO of Traffic Management Inc., got referred to us, and he'd been approached to sell his business by a private equity firm," says Clive-Smith, CFP, a native of South Africa. "He wasn't really prepared to have that conversation. That's really an ideal situation for us, because then we can really help with the making of introductions that can help someone with that process."
And the group isn't making just any introduction. It's aligning the business owner with all the key players he or she needs to sell a business at the best-possible prices. "We got some M&A CPAs involved to do all the audit work and make sure that the company's numbers looked right for the transaction."
In other words, it's about acting like a "quarterback," shares Clive-Smith, 34. The other players on the field, in this case, are investment bankers, accountants, attorneys and the like. "We help them with all those kinds of resources, so they -- the business owners -- can get to a point when they say, 'We see what you're offering here.'"
In the end, that benefits everyone's bottom line. "We feel there's a tremendous amount of value added, because the business owner should have a better understanding of the valuation of his or her company. So, when there's a final negotiation, the business owner is much more prepared than they would have been if they'd 'piece-mealed' the parts together themselves. And this protects their assets."
To best serve its niche market of mid-size business owners, Clive-Smith put together a database of about 800 companies. "That took a long time to put together," he says, and includes firms in technology, manufacturing and a host of brick-and-mortar operations.
And that's only half the work. Clive-Smith works rigorously with about 15 strategic allies or business partners, like M&A firms and attorneys, but he also tries to know the competing firms that can potentially impact the La Jolla Group's clients and their transactions.
"My goal, and the team's goal, is to understand every player in this middle-market space -- every person in town that can help our clients in any possible way. And there are about 50 of those people," he says.
The La Jolla Group's existing partners believe the advisors exemplify "integrity." "When we have completed our assignments, often the client begins a whole new chapter in their life, one that involves substantial wealth. It is very important to us that we have a referral to a firm who can manage our clients' new wealth and who will give personal attention to the needs of our clients," explains Kerry A. Morris, a partner with the investment bank Shoreline Partners in San Diego.
'Own That Number'Meyer's job is to make sure that "new wealth" materializes. "It comes down to all the expenses they may have until they're 90 to 95 years old and to live the way they want to live without every having to worry about their nest egg being depleted," the Southern California native says.
"If I can walk them through this process and this scenario before they begin speaking with a private-equity group, say, in this case, then they are more prepared. They know exactly what that [after-sale, retirement] number means to them," explains Meyer, 38. It's not just floating out there. It really means something, and I help it be as tangible as possible. This way, they can really identify and own that number."
While focusing on business owners as a niche is highly demanding and involves a long sales cycle, it allows the La Jolla Group to generate excellent numbers of its own and beat the market. "The business-owner relationship with our team helps us achieve extraordinary returns," shares McNeil.
"We are lucky to have clients that work in a myriad of businesses and have the ability to reach out to them. They are business owners and really can indicate to us what's happening in the economy. These conversations and this dialogue have really allowed us to have the types of conversations we've had and be as successful as we have been."
Janet Levaux is the managing editor of Research; reach her at firstname.lastname@example.org.