One hundred firms make up AdvisorOne’s 2012 Top Wealth Managers, as measured by assets under management per client, with data as of 12/31/11.
Here we present a profile of the crème de la crème of the Top Wealth Managers—those 10 firms that topped the list in in our 2012 survey.
View the list of all 280 firms in our 2012 Top Wealth Managers survey.
Stanford T. Young founded Financial Clarity Inc. in 1992. Since then, he’s been in charge, as “sole principal and sole client interface,” so that “there’s no debate about who [clients are] going to be talking to next year.” That’s just one of the things, says Young, that makes his firm different. Another is the fact that his firm is nondiscretionary.
Young adds that his clients themselves are different. “We have a belief,” he says, “that it’s important for clients to be actively involved in the decision-making, and this fits the profile of our clients”—who are, he adds, typically highly sophisticated and successful investors who count among their ranks “company founders, senior executives, venture capitalists.”
As a result, fee-only Financial Clarity provides advice, when wanted—clients “understand that they don’t know everything about the business, so they need advice”—and handles the processes behind investing, while the hands-on approach to decision-making that its clients prefer is encouraged.
What Makes Financial Clarity Tick
Financial Clarity’s organic method of growth is a factor shared by most of its peers, as is open architecture, a reliance on fees rather than compensation by other means (brokerage fees, commissions, etc.) and a determination to place the client first.
Both client and asset bases are very stable, says Young, with the typical client having been with the firm for 10 years. In fact, the firm does not actively solicit new clients; space, he says, is limited due to the firm’s structure, so clients must have investable assets of $30 million—“actual … assets that we invest, not including a net worth or a balance sheet total.” With the bar set so high, it’s perhaps not surprising that, according to Young, “If we take on one or two a year, that’s a big deal.”
As sole principal, Young says that he has greater flexibility on behalf of his clients than larger firms with more decision-makers and, as a result, a more centralized process for decision-making. “Because I’m the sole principal and in charge of my own risk,” he says, “I can evaluate investments and approve them in a much more expeditious fashion.”
Potential new employees go through rigorous screening. Young says the firm is a great place for new employees to learn the business, particularly since as a smaller firm it offers the opportunity for them to play many different roles. A career path of sorts arises from the fact that it takes three to four years, according to Young, “to learn how to do the job right.” A bonus structure awaits employees who remain with the firm, and so does the potential position of vice president.
While Young says he doesn’t “have to be the sole principal forever,” provisions in case of a catastrophe include measures more designed to keep the firm running till someone else steps in than to replace him directly. If he “keel[s] over or get[s] hit by the proverbial bus,” he says, possibilities include an employee buying out the business or clients being merged into another firm. Because the firm is nondiscretionary, he adds, client assets would not be tied up in such an eventuality; they would be free to move to another advisor if they chose to do so. Still, he vows, “I’m going to be around for a while.”
2008: The Big Test
The financial crisis of 2008-2009, says Young, presented multiple challenges. One was the need to “make sure that clients don’t cash out at the bottom.” Another was that the crisis itself was a wakeup call, in the sense that existing models failed: “You have to rethink what you’re doing with asset allocation, because models that have been traditionally used for optimizing asset allocations that are based on efficient market theories have been exposed by that period as being not valid.”
Equities as a class, Young explains, have become much more correlated in their component parts than they used to be, so instead of thinking “large cap, small cap, international,” other strategies are called for. Illiquid assets might offer more promise, he adds, since they are “still severely discounted in the marketplace” and are less efficient markets, so they offer more opportunity. “But you can only have so much in illiquid assets,” he concedes.
However, while a combination of more-correlated equities and extremely low interest rates together make for a more challenging environment in which to make money, he adds that all of Financial Clarity’s client portfolios are customized, with not a model portfolio in the lot. And opportunities are increasing in the marketplace to gain access to illiquid assets in more liquid forms, through such products as ETFs and mutual funds.
“Business Would Continue”
Asked about concerns for the business that might contribute to sleepless nights, Young says that “most of the time I sleep pretty well.” Still, “during the financial crisis, I had some sleepless moments,” he recalls, “and I remember looking out the window at the big road going by here and seeing all these cars and seeing people going into restaurants and thinking, ‘Don’t they know there’s a crisis going on? They’re actually going out to eat lunch!’” That, he said, “gave me some comfort that business would continue.”
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