From the November 2009 issue of Investment Advisor • Subscribe!

November 1, 2009

Tried and True

Optimism reigned at a roundtable of RIAs who kept the faith while being tempered by the fires of recession, fraud, and volatility

For someone trying to understand the business of providing investment advice to individuals, data that paints a broad, accurate picture of the overall business is highly valuable, but in such an individualistic profession, the experiences of individual advisors are priceless. That's why I was grateful on September 29 to spend an entire morning in discussions with five advisors, thoughtfully brought together for the purpose by TD Ameritrade (though TD had no control over the questions or the writing of this article), to see how they and their clients had weathered the storms, what they had learned from the crisis, and how they were positioning their firms for the future.

What Do They Provide Clients?

For Bob Len of RDL Financial, it's all about giving clients control. "People feel out of control--whether it's finances or personal life--the clients I meet," says Len, "tend to feel that they're more out of control, especially this past year. We as advisors have an opportunity to talk to them about control, about what's going on in their lives, and how they can reach outcomes that they seek. All of us here have seen clients who didn't think they could accomplish certain things, but we look at the situation and say, 'Yes, we think you can.'" RDL grew out of The Wolf Group, a CPA firm based in Washington that specializes in international clients. Len says that as CPAs, "When we started the asset management side of the business one of our concerns was that we would be telling people all the time what they couldn't do, but what we found was that more often or not, they're much more pessimistic than we are, because we have the knowledge and are able to analyze and provide them with a plan. And that plan gives them control. Our goal overall is quality of life, not numbers on a paper."

Gordon Bernhardt of Bernhardt Wealth Management in McLean, Virginia, says his firm first addresses the portfolio needs of clients, using a passive investment approach, giving clients greater diversification, lowering their costs, creating a proper asset allocation based on their goals and risk tolerance, "then we'll address their advanced planning needs--wealth transfer, wealth protection, and charitable planning."

David Frisch started his advisory career in the financial planning practice at Arthur Andersen (where one of his clients was a certain heavyweight boxer with an affinity for ear lobes), and launched his eponymous firm based in Melville, New York, in 1999. A central part of what he offers clients is not just investment management and, "eventually, we get into when I should I retire, should I exercise my stock options, should I buy or lease a car," but getting a buy-in from the client. "What differentiates us is that we deal with co-management--clients are required to be involved in the management of their money, and in their financial plan. Along with co-management comes education."

Greg Finke has worked for Stewardship Capital of Independence, Missouri--the firm his father, Ron, founded--for six years, working mostly in the back office. His praise for TD Ameritrade's Roadmap program comes from realizing that "we didn't have to reinvent the wheel on everything." He recalls a breakfast last year with some financial advisors from various companies, with one Wachovia advisor coming in and explaining he just found out he was employed by another firm. "It's good to be independent, to know that's not going to happen with us, but also to see the financial stability of TD Ameritrade."

The Roadmap program has been particularly helpful in the hiring process at Stewardship, "which had not gone well before." Finke says the firm started in July to replace an employee who was going to retire, and "we said we wanted to have a person in place the day they retired, and it worked. I tried to do something that went against what TD and its consultant suggested, and it turned out my way was wrong, so I'm now a true believer."

RIA Jonathan Krasney of Krasney Financial in Mendham, New Jersey, says he provides "integrity-driven knowledge based on what the right thing is for the client, without having the conflict of commission compensation clouding my judgment."

As an advisor who "grew up in the bond business," Krasney praises TD Ameritrade for giving him access to bonds, in addition to other services such as the Roadmap, an online business planning tool, but for his overall value to clients, he says he provides the "comfort" for clients to "turn over your pot of assets to a guy like me, and to be reasonably comfortable taking an income stream of X, and leaving a legacy value of some kind down the road for your family, and not having to second guess why I'm doing what I'm doing. We're in sync, on the same side of the table, that's what gets me up in the morning." But he admits "we're going through some changes."

How Have Things Changed?

Krasney says that to explain how the world has changed, "the word that comes to mind is dichotomy: nothing has changed, and everything has changed. I am incredulous that I've been in the business 40 years, and found myself sitting in the middle of 200 families while the financial world was coming apart. That was something I never expected, to be in that position. Unnerving doesn't begin to describe it. What was comforting to me was that I had clients asking me how I was doing!"

Now that we appear to have survived the worst of the crisis, Krasney notes that "yields have narrowed again, people are looking for returns and willing to take on an element of risk, and the markets are more or less behaving as we would have expected them to behave." That means, he argues, that "now more than ever, it's become incumbent on me, to preach the virtues of goals-based results rather than financial-pain-centered metrics: not how much pain can you stand, but what do you need to do to get the job done?

If you approach people from the point of view of what kind of risk are they willing to accept to get the job done, their job, they become more focused on getting the job done and less on how much money their account gained or lost in a specific year."

Len says he sees the last year as a great opportunity. Hewing to his original theme, his firm focuses on things they can control: "We can't control market performance, but we can control the planning side, how the assets are arranged for our clients, and we can differentiate ourselves now much more than in an up market."

Frisch says that one thing that happened over the past 12 months is that "everybody wanted to put their head in the sand, including the advisor! All of us are guilty of waking up at two, three, or four o'clock in the morning and watching the futures to see what would happen the next day." What's been confirmed for him, more than a change is the importance of clients education. When clients get on board, "they're on board for the long haul, and when they understand things better, it makes for a more dynamic relationship. As the years go on [with clients], we take a less active advisor role and become more of a coach, and we enjoy that relationship better, and so do the clients."

For Finke, the crisis "clarified some things we didn't want to believe...that from the client's standpoint, yes, they do want to reach their goals, but they really want that relationship to be there. So we've been forced to focus on that relationship. We moved from a monthly report to a couple of e-mails each week, saying "this is what happened this week, this is what we're doing about it. So people don't call us now and ask us about some change in the market and how we're going to react. They know what our thinking is on these matters."

Stewardship Capital viewed the last year as a "big opportunity," too, says Finke. Beforehand, he says, "we may have grown in spite of ourselves, so this has helped us focus on the process of building the relationship, that the clients are having the experience we wanted them to have from the onboarding process through the client lifestyle. We know a lot of people are looking to switch advisors, and while we could cry over spilled milk since we haven't grown, adding a lot of new clients, but we've formed a strong foundation from a staff standpoint, from a process standpoint. We've got the people in the right places, and we can make sure that clients get the experience they expect."

Using the CRM software Junxure, Len agreed with the other advisors that his firm sent out e-mails to clients more frequently. "We use Junxure, which has an alerting function that allows us to send out e-mails on demand," but he sounds a note of caution as well. "One of the things I find interesting is that I would bet that all of us preach long-term investing to clients, but yet you're sending out weekly e-mails, others are sending monthly notes, we send out quarterly performance reports. I know I have clients who track their balance every day--we're sending the wrong message to our clients." Many of his firm's e-mails "focused on 'Here's what's going on!' I'm sure at Yahoo! Finance there's some poor guy in a back room that has to come up with sensational headlines every day. This goes back to my comment about control; clients feel that there's all information out there, and if I can capture the information, then I have control.

I'm sure everybody has had client calls where the client says, 'I was reading on the Internet that this stock is going to go up, it's a sure thing.' I had a client call me in August and said there's going to be a correction because everybody agrees there's going to be one. And I said, 'Are they all going to wait until it corrects to start selling down? If everybody believes it, then they would have started selling already! You just want to believe it.' So a big part of our job is to educate clients about the process, and to keep clients out of their own way, emotionally. While I may be emotional about my money, I'm not emotional about theirs. It's a big difference, and it's a lot of what we provide clients."

Frisch jokes that, "pre-August 2008, we went from being 90% advisor and 10% therapist to 90% therapist and 10% advisor. And we're back now to about 70% advisor--I don't know how much below 70% we will be when we get back to quote, unquote 'normal.' He points out that "CNBC doesn't help, to broadcast headlines like 'single biggest Dow drop since last Tuesday.' Clients always migrate from fear to greed. Up until about a year and a quarter ago, they went from greed to fear, and greed is starting to come back because they're trying to make back everything they lost as quickly as they can. People want handholding; clients didn't realize they had more risk when they had more money. People didn't leave because of poor performance last year, they left because they felt they were out in the cold, that no one was holding their hands. It was a wake-up call to many firms."

Bernhardt puts it succinctly: "We've earned our fees for the next 10 years over the past year, with all the handholding we've done." When it comes to clients, he says, "It's about setting expectations, educating them, keeping them disciplined. I feel good about what we've done for our clients. We did a lot of e-mails, and phone calls, and Webinars to keep them informed last year." While he admits that it's "hard to keep them disciplined, because we did, we did a good job. You have to stay true to your asset allocation: you need to rebalance; you need the forced discipline to buy low and sell high." Finally, he argues, whatever communication you have with clients, no matter the medium, it "has to be personal--caring and educational."


Group Editor-in-Chief Jamie Green can be reached at jgreen@investmentadvisor.com.
Reprints Discuss this story
This is where the comments go.