Here’s a quick quiz. Of the following two individuals, which one is the independent financial planner and which one is the Merrill Lynch broker?
Planner A is a self-described numbers geek. He has a master’s degree in economics, swears by asset allocation and a hands-off approach to rebalancing, built his own software program to back-test portfolio performance before Morningstar Principia Pro ever came along, likes to talk about being “in the same boat as the client,” and throws around terms like Sharpe ratio, alpha, beta, and Efficient Frontier in casual conversation. He’s an independent kind of guy, too. He single-handedly manages the mutual fund portfolios in which his and his partner’s clients are invested, drives a 10-year-old car and doesn’t care who knows it (despite the fact that some of his clients have millions), and once spent three years backpacking and working his way around the globe, from St. Louis to Seattle, Austria to Australia, Fiji to New Zealand, all by himself.
Planner B, on the other hand, works in an office he doesn’t lease himself, has a cookie-cutter Web site he’s not at liberty to change, and receives commissions on some of the mutual funds his clients own. He tosses around words like “broker” and “book of business,” has a compliance officer right down the hall, and garners most of his new clients through direct-mail brochures advertising dinner seminars in local banquet rooms.
Well, duh, right? How obvious could it be? If you said B was the Merrill Lynch broker, you get a gold star for the day. But hold your horses. If you said A was the Merrill Lynch broker, you’re also correct. Planner A and Planner B are the same person.
Surprised? Kent Akins of Winter Park, Florida isn’t–and he shouldn’t be, since he’s the guy who fits both descriptions. But you might be, especially if you entered the profession back when the lines in the industry were more clearly drawn.
Granted, among the wirehouse crowd there are still slick, back-slapping, churn-happy product-pushers breaking a sweat as they shout sales pitches into their phones. And among independent planners, there are still one-man (or one-woman) shows who insist on doing everything their own way and doing it entirely themselves, thank you very much. But as wirehouses embrace financial planning, reward brokers for gaining professional designations, and promote fee-based programs, and as independent planners look to form and formalize partnerships with other professionals, share resources, and utilize third-party services, the sharp divisions between the two worlds are becoming increasingly blurred.
Some independent planners have a near-allergic reaction to the mere words “Merrill Lynch”; Merrill is Big Brother and King Kong and Goliath all rolled into one. But Akins doesn’t fit the old broker stereotype–he’s reserved, serious, academically minded–and he’s not dumb, either. If he’s still at Merrill and has no plans to leave (he doesn’t), there must be reasons. Rather than brushing him (and his tens of thousands of Merrill compatriots) off, perhaps it’s more instructive to stifle those allergies and find out what he’s up to, and why he’s still there.
What’s the Fuss?
Akins, for his part, thinks the fuss over independent practices versus wirehouse practices is much ado about nothing. “I have independence in what I do here, so why would I need to ‘go independent’?” asks the 42-year-old planner, sounding genuinely puzzled. “Everything we do here in this office is something that we have created. Merrill doesn’t say, ‘You have to do X, Y, and Z.’ They don’t tell us what to do, and they don’t try to.” Rather than feeling hampered by the company, he and his business partner, Robert Harvie, 43, consider their association with Merrill a plus. “They provide us with a framework so that we don’t have to go out and create it,” he says. “I don’t have to go out and find office space. They provided us with an assistant, who we’ve had for seven years and whom we’ve had a very good relationship with. We don’t have to handle payroll.” It may come as a shock to some, but Akins also likes Merrill Lynch’s company culture. “Everyone here seems to really care,” he says. “The emphasis isn’t on how much they’re making; they’re concerned about how their clients are doing, and trying to help them achieve their goals,” he says.
There’s also the matter of name recognition. While some independent planners may shudder at the name, at least most consumers have heard of Merrill Lynch–not something you can say about Nancy Smith’s Horizon Capital Wealth Planning Management Advisory Solutions Group & Associates (or any three-word combination of the aforementioned terms, which will yield the names of most independent planners’ firms). A familiar name makes for easier marketing; since many consumers don’t know the financial services terrain well enough to have developed an aversion or attraction for one firm or type of firm, their tendency is simply to choose a name they know.
Akins also believes that planners working for large firms afford clients a certain protection. If something goes wrong and the client has a valid reason to sue, a small practice can close up shop, change its name, and disappear, he says. With a major brokerage house, however, there’s still someone left to fork over the dough. “For the individual, it’s better to have that protection,” he says, “and if I were an investor, I would prefer to have it.”
Of course, Akins hopes none of his clients will ever need to turn litigious, and he doesn’t think they will. He works hard to run “a very clean shop,” and he’s also got that compliance officer down the hall, an individual who also handles compliance for five other Merrill Lynch planning practices. Rather than balking at having someone peering over his shoulder, poring over every piece of client correspondence that leaves his desk, Akins believes the extra pair of eyes is a good thing. “Maybe if we were pushing on the edge [of what's legal], it would be a problem, but we aren’t,” he says. “Heck, if I’ve got something there that shouldn’t be there, he knows the law better than I do; I’d rather have him tell me, ‘Hey, you can’t do that.’ Really, what he’s trying to do is protect us legally.”
True, the company’s compliance concerns are also what prevent Akins and Harvie from tweaking their Web site. Of the bare-bones template provided to them by Merrill, they’re only allowed to change the information in their personal biographies. But Akins doesn’t seem to mind. “It’s sort of like having a billboard up; I don’t think [the site] is necessary at all,” he says. “This might sound funny, but we really believe that our knowledge should be the real reason people work with us, not some Web site or something of that regard.” His plain office decor bears out that belief. Other than the golfing picture and the photos of his wife and dog, the only other personal items in Akins’ office are diplomas and certificates–one for his MBA from Rollins College, one for his master’s in economics from the University of Central Florida, and one for his CFA designation. “Although part [of the reason for the lack of knickknacks] is that I’m very cheap, too,” he adds with a quiet chuckle.
Getting Down to Business
In Merrill Lynch parlance, every broker serving retail clients is part of the Private Client Group. Because of their professional designations and the fact that they have a number of million-dollar clients, Akins and his partner are also termed “wealth management advisors,” although they don’t get too hung up on calling themselves that. “Basically it just means we’ve been here long enough to know what we’re doing,” says Akins.
Akins started his career in financial services in 1985, working in the brokerage department at Barnett Bank, a regional bank. The fact that he only had a degree in forestry didn’t keep things from sailing smoothly–at least until 1987, when everything ground to a halt. “The crash of 1987 impacted me a tremendous amount, not financially, but in terms of making me aware that I really didn’t know much,” says Akins. So he decided to learn. By 1990, he was enrolled in an MBA program, studying for his Chartered Financial Analyst designation, and working full-time to boot. Before his jam-packed schedule pushed him completely over the edge, he decided to quit work for 12 months and wrap up his studies. He then returned to the brokerage business, this time at Merrill Lynch.
Akins’s soon-to-be partner joined Merrill at about the same time, and the two men began working together, Akins focusing on investments and Harvie on financial planning. From the very beginning of their partnership, Akins took a technical approach to investing, even going so far as to create a software program that functioned more or less like Morningstar’s Principia Pro, albeit a clunkier, more time-intensive version. Interns slogged through the mind-numbing but necessary task of entering the performance statistics for all the funds in question into the program, and Akins then used the results to analyze and build portfolios using modern portfolio theory. “I would calculate the alphas on clients’ portfolios, the betas, the Sharpe ratios–things that clients had never seen before. And then we would take what was happening in their portfolio and compare it to our [model] portfolio, and we could show them whether or not we could create value for them,” he says. “And if we couldn’t, we’d say, ‘We can’t help you,’ which was little bit different–most people just say they can help everybody.”
Akins and Harvie use a similar process today. During an initial free consultation, they test the client’s portfolio against the firm’s model portfolio of funds and draw up a thumbnail financial plan to give the client an idea of what services they can offer, including estate planning, trust services, college planning, and insurance. Sometimes the meeting simply serves as a confirmation that the prospect has her financial affairs well in hand, and she goes on her way. If not, clients sign on for a $250 financial plan, which Harvie creates in time for their second appointment and henceforth updates on a CD-ROM, and for investment services provided by Akins.
Most clients are put into C shares of mutual funds, which generate level load commissions, or trailing fees, usually of 1% per year. “That 1% is based on the account value, so if the accounts go down, you’re paid less, and if the accounts go up, you make more,” says Akins. “We’re heavily geared toward that. We’ve always said we need to be in the same boat as the client.” The 1% fee is much like the fee an independent RIA might charge, except that the funds charge it and send it to Merrill Lynch, which takes a portion for itself and sends a portion on to the planners. A potential drawback of this type of fee is that it can get lost in the shuffle and escape the clients’ notice, but Akins maintains that all costs are fully disclosed.
Akins builds client portfolios from a relatively small collection of his favorite funds, both because it’s more efficient to monitor 20 funds than 420, and because his primary focus is on asset allocation. “The main thing we’re interested in is the structure of the portfolio, not the names of the funds,” he says–noting nonetheless that none of the funds in his clients’ current portfolios have “Merrill Lynch” in their names, in case you were worried. Akins gravitates to funds with 10-year track records, a large asset base, consistent style management, and positive alphas. (An alpha of 1.05 means that a fund is expected to rise 5% in price when the market is flat-lining; an alpha of 1.25 means a fund would rise 25% in a stagnant market.) And the perfect portfolio, he says, is one that doesn’t need changing until the client’s risk/return profile changes. “We try to let the markets do the rebalancing. If we do make changes, it’s because the client has given us new money to invest; we’ll look at our percentages and put it where we’re weak, into the worst performers. And if they need money taken out, we’ll take it out of the area that’s doing the best.” His primary research tools are Capital Asset Pricing Models provided by Merrill Lynch, and Principia.
Akins has a few clients in Unlimited Advantage, the Merrill program that supplies clients with asset management and other services for an annual fee, but he hasn’t really embraced it because the trailing fees are what he’s always done and they provide the same result for the client. He reports that he hasn’t felt undue pressure from his corporate bosses to push Unlimited Advantage, either.
Guess Who’s Coming to Dinner?
It has become rather trendy in the financial planning industry to say that all of one’s new clients come from referrals–the idea being that one’s services and charm are so jaw-droppingly stupendous that clients simply can’t help but rave wildly about them to friends, neighbors, or passing strangers. While referrals may or may not truly do the job on their own, it is true that many planners have foregone that standby, the dinner seminar, as the marketing tool of choice.
Not Akins. “We do a tremendous number of seminars,” he says. “That’s how we attract the majority of our accounts.” When he and Harvie first launched their joint practice, they held gargantuan sessions where 250 to 300 attendees were not unusual. “It was unbelievable–we would consistently have hundreds of people,” says Akins. Since then, they’ve refined their approach; now, a seminar they consider successful attracts between 15 and 25 individuals and is held in snazzier surroundings: French restaurants, and, “you know, those little foo-foo steakhouses,” says Akins with a wry laugh.
The dinners are advertised through direct-mail brochures mailed to select families in the Orlando area. With software purchased for the purpose, Akins searches the tax rolls for families living in homes of certain prices, downloads the names and addresses, and e-mails them to a company that handles direct mailings. “We work with a company that actually does almost all of it from there–taking the letters to the post office, sending them, all of that,” he says. The target families live in homes costing more than $150,000 but not enormously more, says Akins; the owners of million-dollar homes are not who he’s looking for. “Our typical clients aren’t flashy, they don’t drive fancy cars, most of them live in moderate homes, they don’t go to the big parties, they’re not in the newspaper. And all their lives they’ve made money by working hard and saving money,” he says. “And that’s how we are, so we’re attracted more to that.”
After the dinner and seminar, during which a guest speaker or one of the two planners will share ideas on investing, an aspect of financial planning, or the economy, the attendees fill out a form and indicate whether they wish to be contacted as a prospective client. “If they say yes, we invite them in to the office; if they say no, we destroy the information,” he says. “It’s very non-confrontational.”
Akins and Harvie also garner clients through the adult education classes they teach at nearby Rollins College, though it’s a much more roundabout process. For obvious reasons, the planners don’t solicit the students for their business, but a surprising number of students seek them out afterward. “We don’t approach them, because we think that’s a conflict,” says Akins. “But we have ended up with quite a few accounts that way.”
Harvie teaches a financial planning class that meets for two hours once a week for five weeks, while Akins teaches a course on mutual funds that meets for two hours once a week for three weeks. “These are courses we’ve developed ourselves, they’re not something we’ve purchased,” Akins notes. He starts his course with the basics of stocks, bonds, and mutual funds, and by the end of the course–which, keep in mind, is only three weeks long–he’s talking about Markowitz. “It gets pretty deep by the end,” he says. “We really get into the statistical side of managing money, and I think the average person tends to learn a lot. They may not understand everything when they leave, but at least knowing the terminology should help them.”
While teaching the course takes time and eats into precious evenings, it has a number of benefits even beyond the obvious edification of local citizens and the potential for new clients. As he teaches adult students how to prepare for their golden years, Akins is also preparing for his own. After wrapping up his career in financial services someday, Akins plans to become a high school teacher. As he puts it–in a fairly amazing statement from a man who spends his days making sure clients can afford to kick back on the golf course from age 65 onward–”I have no desire to ever quit working.”
Merrill Lynch Private Client Group
Sun Trust Plaza
400 Park Ave. South, Floor 3, Suite 300
Winter Park, Florida 32789
Firm Founded: 1991
Number of planners/staff in office: 2 planners, 1 assistant
Number of clients of the practice: 400
Compensation method(s): Trailing fees on C shares of mutual funds for most clients; fee-only programs or back-end load commissions for a minority of clients
Average fee for a comprehensive financial plan: $250
Fee for managing assets: Usually 1%
Hourly rate: NA
Client demographics: Florida couples and families of the Millionaire Next Door ilk, usually age 55 and over.
Education: B.S. in forestry from Mississippi State University, MBA from Rollins College (Florida), MA in economics from the University of Central Florida
Previous incarnations: Regional bank broker. Also spent three years backpacking and working around the world
Professional designation(s): CFA
Outside interests: Golfing, dogs, travel