It’s 7:45 p.m. and you find yourself finishing yet another client house call. You haven’t eaten dinner at home regularly for weeks now, and in 15 minutes your daughter will take the stage in her first ballet recital.
You say your goodbyes confident that you’ve landed a new client and get back into your car. As set off, you realize you still need to finish up some paperwork at the office. Frustrated, you turn left instead of right, and resign yourself to the fact that you’ll have to miss another family event.
It’s not uncommon for advisors to get caught up in the daily grind of implementing marketing strategies designed to find the right clients for their practices, not to mention running the office and managing the accounts of existing clients. But being dedicated to your work doesn’t require that you sacrifice other parts of your life. In fact, an advisor in Sacramento, California, has found a solution to the balance problem that has worked for him and his partner for more than a decade.
There’s another sacrifice he’s chosen to avoid: Instead of constantly seeking to add high-net-worth clients and winnowing his client list of smaller, less profitable accounts, Scott Hanson has several thousand clients, most of whom have fairly modest portfolios. Despite, or Hanson might argue, because of those self-imposed limitations, the bottom line is quite healthy for Hanson McClain Retirement Planning in Sacramento, thank you very much. And Hanson, his partner, and his practice’s employees are quite happy with this philosophy.
Limiting his time at the office to four days a week, Hanson, co-founder of Hanson McClain, believes he is more focused on and truly dedicated to his clients than if he espoused a more traditional burn-the-candle-at-both-ends approach to building a practice. “When I’m here, I don’t want to waste any time,” he says. “We don’t make house calls and we don’t do evening appointments. If I have free time, I want to spend it with my family. And I think my clients appreciate that.”
With eight advisors in the practice, Hanson and longtime business partner Pat McClain cater mostly to local retirees, more than half of whom are former employees of SBC Communications, the local telecommunications company. “When we started 11 years ago, we had only a handful of clients. Today we have 30 employees and are the largest independent advisory firm in Sacramento,” he says, smiling. “So things have kind of worked out.” The firm serves about 2,500 households and has close to $800 million in assets under management.
Finding His Clients
Like many advisors, Hanson stumbled across a group of potential clients who he realized weren’t being served locally and effectively. “I already had a client whose spouse had a retirement offer from the phone company,” he says. “At the time I didn’t have many clients and I saw that there were a lot of those people in the Sacramento region. I thought if I learned what those people’s needs were, I would probably get a lot more clients.” And he did. After relentlessly marketing to retired telephone company employees, he discovered that their biggest fear is simply running out of money after retirement. Now, Hanson says he’s captured 70% of those who’ve retired from SBC and live in Sacramento. Most are over the age of 65 and have an average worth of $320,000.
But don’t be mistaken. Despite the absence of high-net-worth clientele, Hanson has a very strict screening process when selecting his clients. There is a $100,000 account minimum to work with his office, and advisor and client must have a friendly relationship. “If we think we can’t provide the right kind of service for someone, then we won’t,” he says. “You can invest on your own with an E*Trade account or with Charles Schwab online. It would be less expensive than paying an advisor, but it may not be more profitable. Someone must be willing to take our advice or it’s not going to work.”
After a three-year stint with Lincoln National Life Insurance Company in San Ramon, California, performing financial planning and selling insurance and investment products, Hanson felt the focus was too product-centered, especially on products that paid big first-year commissions. “I needed more control and less hand-holding [from my employer],” he says. “But I learned a lot and worked with some really great people.” Then 26 years old, Hanson and McClain left Lincoln National to start their practice in 1993. “Back then we used to be called ‘the boys,’” he laughs. “But I haven’t heard that in a long time.”
Spreading the Word
Not only do Hanson and McClain have a growing practice, but Hanson, now 37, writes a weekly financial advice column for The Sacramento Bee newspaper (www.sacbee.com). He and McClain also host a call-in radio program called “Money Matters” every Sunday on NewsTalk 1530 KFBK in Sacramento. “We don’t take ourselves seriously at all and we joke around a lot,” Hanson says of the show’s format. “But when someone calls in with financial questions, we delve in deep.”
Nine years ago, after just two years on their own, the pair began cold calling program directors of three radio stations in town. “We told them we had a great idea for a show,” Hanson remembers. “Back then, there weren’t many financial programs on the air.” Finally, one of the smaller stations agreed to their proposal. A year later they moved to a bigger station in the area and have been there ever since.
“It’s funny, because I think the media tends to believe its own hype,” he laughs. “Once we were on the radio, The Sacramento Bee thought we were these two bright young managers or something.” From there Hanson began his Q&A column, which he’s been writing for the last seven years, and they both work with the local ABC affiliate offering advice on television.
With a call-in format, the majority of the prep work is done during the week, he says. “It’s mostly keeping track of changes in finances of companies. I have to keep up to date on the latest financial information, otherwise it would be very embarrassing if someone were to call up and I didn’t know what they were talking about.” Hanson and McClain avoid discussing individual stocks and focus more on financial planning.
While writing a newspaper column and having your own radio program are accomplishments that may seem out of reach for most advisors, Hanson and McClain have created an unconventional approach to advisor compensation and marketing strategies that provides them with the flexibility to handle such duties.
“So often, advisors in one office would be competing [with each other] and chasing the same client,” says Hanson. “The brokers would be working against one another and the clients weren’t being served.” As a result, he and his partner decided to hire an in-house marketing team to become the rainmaker for the practice. “Once someone becomes a client,” he says, she is given what the firm calls “conflict-free advice.” By giving all of the marketing responsibilities to someone other than the advisor, the advisor is left with more time to devote to his clients, to develop his practice, and to spend at home.
In addition to eight advisors, including himself and McClain, Hanson’s 30-person practice includes two analysts, 10 client service reps, three marketing reps, and seven employees in operational support. All of the firm’s employees–advisors and marketing managers alike–are paid a salary. There are no commissions to earn or products to sell.
“Our advisors get paid anywhere from $50,000 to well into the six-figure range,” Hanson says. “My partner and I both receive a salary as a financial advisor and additional compensation from the profits of the firm.” For his advisors, a college degree and at least three years of work experience in the field is a requirement, and once they earn their CFP, they are rewarded with a company car. This pay structure is what Hanson believes helps promote an ethical approach to advising.
“Conflict-free advice is something we offer in two areas,” he says. “First, the advisors are not paid on commission or any sort of asset-based compensation. So it doesn’t really matter to the advisor what we are billing the client.” Second, Hanson McClain does not have any products of its own. “Clients don’t have to worry about us recommending some product because we have it sitting on our shelf and need to move it,” he says. Nor do they have to worry about coming into the office and being sold something, knowing the advisor will make the extra commission.
Hanson McClain’s fee for managing assets averages 1% per year for its clients, based on account size. There are times when the firm conducts commission business, such as bond trades, but when there is a commission trade, the advisor receives no portion of it, Hanson says.
“Looking at what has happened in the marketplace in the last few years, a lot of clients have been burned because they worked with some firms that weren’t conflict free,” he says, citing as one example the Wall Street conflict-of-interest investigations and settlement orchestrated by New York Attorney General Eliot Spitzer.
Rather than investing his clients’ assets in traditional mutual fund vehicles, Hanson invests the majority of their money in C-share funds. “We also do some individual bonds and some managed accounts,” he says, “as well as a little bit of annuity business.”
Hanson first started using C shares when they were introduced in 1994. Prior to that he used no-load funds. “Nineteen ninety-four was a very challenging year. The bond market was having its worst year since 1984, the stock market was flat, and our clients weren’t happy,” he remembers. They felt as though they were paying a lot of money with little return. “The one thing we liked about the C shares was they seemed less expensive than most managed accounts,” he says, while offering similar tax efficiency.
“The fee that is deducted from a C share to pay for [the advisor's] compensation is taken out of the fund before the fund reports any gains or losses,” Hanson explains. “With a managed account, that fee comes out later on so the client does not receive a full tax deduction for that fee.” As a matter of fact, the only time that fee can be deducted is if it amounts to at least 2% of the taxpayer’s miscellaneous itemized deductions, Hanson continues. “For instance, in a C share, if someone with a $100,000 account has a bad year and earns 1%, and gets charged 1%, there is a net gain of zero,” he says. “In a managed account, you have to get a 1099 showing 1% ordinary income or gain that they need to report, and the clients won’t be able to take the deduction for the management fee on top of that. This was a way for us to get the fees down considerably without having to take a big haircut on our compensation.”
Knowing What’s Important
Hanson says that his limited time at the office has helped him keep his priorities in order. “I stay totally focused,” he says. Being proactive with clients is very important. “We have a system to make sure that our clients are contacted periodically. I’ll call them and let them know that I am here for them and that I care for them.” Recently his company spent $50,000 on a new phone system for that very purpose. “You’ll notice that when you call you get a person, not a recorded message.”
Yes, business is important, Hanson says, but it’s less important than his family and his religious faith. “That’s how I arrange my life. People who know me know that about me,” he says.
When asked to pick the one thing he enjoys most about his practice, Hanson finds himself at a loss for words. “That’s like asking me what I enjoy most about my marriage. I don’t know, I have a great wife,” he laughs. “There’s not one thing over the other and the things I don’t enjoy doing I delegated out a long time ago.”
Megan L. Fowler is a freelance business journalist who writes from her home in Fairbanks, Alaska. She can be reached at [email protected]