When it comes to client services and financial planning, Mike Leonetti believes two heads are better than one. In fact, his firm goes so far as to include all 10 of its advisors on every client portfolio decision. “We think the knowledge of a group together is going to be stronger than an individual’s,” he says.
Leonetti, founder and CEO of Leonetti & Associates, Inc., in Buffalo Grove, Illinois, began his fee-only practice in 1982 following post-college stints at insurance, brokerage, and financial planning firms. Fee-only planning seemed like a more ethical and professional way to conduct business, he says. So after building up a client base, he formed his own firm. His commitment to the fee approach of compensation also led Leonetti to help found the fee-only National Association of Personal Financial Advisors (NAPFA) in 1983.
In the early 1980s there was a movement around the country toward fee-only planning, he recalls. “We were advisors over and above what other people in the industry were doing,” he says. “We felt we were being more effective because we weren’t selling a product and our compensation wasn’t a function of buying an insurance policy, mutual fund, or partnership. We were just getting paid for our advice; that was it.” NAPFA was developed as a forum for other planners who felt this way, he continues, and to help move the financial planning profession forward. The association’s first-ever vice president of ethics, Leonetti remains an active member of the group.
Leonetti serves a wide variety of clients across the country and is in the midst of opening his first office in Las Vegas, the fastest-growing city in the U.S.
Although his firm’s account minimum is $200,000 for privately managed portfolios, it also does mutual fund modeling for much smaller accounts (see “Model Portfolios” sidebar on page 88). “It was almost a necessity [to offer that service] because our bigger clients had family members [that needed a financial plan],” he says. “If we wanted to work with the whole family, we had to have ways to address all levels.”
Leonetti spends most of his time on the management side of the business and doing planning for the firm’s largest clients, who boast an average net worth of $17 million.
His practice, which manages about $360 million and advises on close to $1 billion, is structured a little bit differently than most successful planning firms.
“Most financial planning firms are structured into what I like to call silos,” Leonetti explains. Similar to traditional accounting practices, a planner gets an assistant, and the planner’s clients are always his clients. The result is a firm composed of separate pods. “Our planners are the main relationship managers to their clients, but the whole department works on a case,” he continues. “A planner will work with a client and answer any questions they might have, but we have regular case status meetings where all of our planners review and discuss the work they are doing.” If one planner has an issue [with the client] or is not the right fit for a client, he can hand things off to a planner who is, Leonetti says. “We work as a team.”
Expertise and Experience
Two of Leonetti’s advisors are estate attorneys, three of them are CPAs, one has a master’s degree in taxation, and two are CFAs. Leonetti argues that the combination of such expertise and the staff’s longevity makes his practice unique. “Our client services department [which is different from the planning department] keeps in contact with our smaller-account clients,” he says. They stay proactive and handle all the basic paperwork of those accounts, much as a planner’s assistant would in a more traditional firm. “I want people to know they are coming to a firm rather than to a single person,” he adds.
Leonetti proudly shares with anyone who will listen that he’s never faced a lawsuit from a client, and has never lost an employee to a competitor. He attributes these successes to a strict pre-hiring screening process for his employees, and a commitment to hiring self-motivated people.
“We hire people who like this kind of work,” he laughs. “If they like it, then they don’t need a lot of incentives and will be good at the job.” Plus, he does everything he can to keep his people happy. “There is a bonus and reward plan in place and we try to be flexible with schedules,” he says. “But it’s more about creating an environment where people like to work, and building a good team atmosphere where we’re all friends.”
Leonetti’s planners are not required to maintain a certain number of clients or assets under management. Planners come in a lot of shapes and sizes, he says. “There are those who are good at business generation, and those who are really good technicians. Occasionally you get someone who’s both.” The rainmaker planners have a different compensation system than those who are staff planners, he explains (see “Bonus Plan” sidebar, page 90). And business is handed off within his practice from one planner to another so that no single planner is overloaded.
In addition to the 10 planners, the firm has three client service representatives, two portfolio managers, a marketing coordinator, a portfolio accountant, an internal accountant, a compliance officer, and a receptionist.
Many planners are scrambling to obey the SEC’s new compliance regulations that take effect this fall, including naming a chief compliance officer and publishing a compliance manual. But Leonetti’s firm has been ahead of the curve. Believing that compliance is the safety valve of every practice, Leonetti hired John O’Brien, formerly of Dean Witter, as his full-time compliance officer in 1997. “You want to make sure you are doing things right,” Leonetti says. “And it is not just for my benefit, but also for our clients’ benefit.” However, O’Brien’s responsibilities go beyond those of a traditional compliance officer: he monitors the firm’s marketing process, rechecks all performance figures on 10 to 30 randomly selected client statements monthly, approves all advertising, and proofs the firm’s two weekly electronic newsletters. “When you have all these planners [and processes] in place, everything has to be checked and rechecked,” argues Leonetti. “I think letting clients know that you have a commitment to making sure things are done correctly makes them feel more comfortable.”
Marketing From Every Angle
Unlike most planning firms, Leonetti’s largest source of referrals isn’t only from existing clients (although that is a contributor), but from other advisors. “I’ve found that presence of mind is the most important thing,” he explains. “You have got to be in front of people all the time, and then when there is an opportunity for it, people will think of you first.” To achieve this, Leonetti’s marketing strategy is threefold:
First, his office distributes a quarterly printed newsletter and two weekly electronic newsletters internally, but also makes them available to clients as a resource. “We use a lot of individual stocks, and we will talk a lot about those companies,” he says. “But as each newsletter goes out, information on each stock is broken down into a database that [both clients] and [other] planners can access.” Clients can access the information directly from the firm’s Web site (www.leonettiassoc.com), while planners go into the firm’s database. Using that database, planners can call up a specific stock, read the research and performance data, and get a feel for what Leonetti’s firm was thinking from beginning to end on that particular investment.
Second, his marketing coordinator subscribes to ProfNet (www.profnet.com), an online newswire that brings together expert sources and journalists, to get a list of publications and writers along with what they are looking for in terms of financial articles.
“We see if we are a good fit for a specific article, and then approach the publication or writer and tell them who we are and what we do,” he says. Just using ProfNet, says Leonetti, gets the firm covered “four to seven times a month in different places.”
Third, Leonetti seeks out different groups and associations that fall in line with his practice’s values and ethics. Half of his planners are women, and all of his planners range in age from the early 30s to late 50s. “We look primarily for estate questions, women’s groups, and retiree groups, and then offer to give a talk,” he says. “We make ourselves available.”
Three Categories of Clients
Although Leonetti says he does not market to a specific demographic, his clients tend to belong to one of three categories: widows and divorcees with little or no experience handling finances; medical specialists, such as orthopedic surgeons, neurosurgeons, and anesthesiologists, who own their practices; and retirees with larger estates. Though these groups appear different, Leonetti says their members share a common fear: That they will run out of money in retirement. “They want to know that they can continue to live a certain lifestyle later in life, and want to make sure their surviving spouse is taken care of by someone they trust,” he says. “They need everything to be organized, and to be communicated with clearly.”
With that in mind, Leonetti works hard to match each client with the right type of planner, based on the client’s needs and temperament. “A very detail-oriented person needs a detail-oriented planner,” he says. So there is a lengthy screening process new clients must go through before being assigned to a specific planner.
First they fill out a general financial statement, and then they answer a series of questions regarding their objectives and expectations.
Sound like every other financial planning firm? Maybe so, but Leonetti then takes it a step further, using a risk assessment tool developed by Fina-Metrica, an Australian-based company, to help determine a client’s volatility tolerance. Then clients complete a scorecard with a series of opposing statements. For example, the client must respond to several questions about the same issue, like debt or risk, but each question will be worded differently. This allows the firm to get a true assessment of the individual’s goals and expectations. Couples fill out separate scorecards to determine how close or far apart their goals are. After that, a meeting is set up, but only if Leonetti feels his firm can help that potential client. “I remember going to a meeting with a husband and wife, who were both attorneys and both previously married,” Leonetti says. The funny thing was that neither one wanted to divulge their financial information in front of their spouse. “I finally had to walk out and explain that they would never be able to do joint planning if they couldn’t share that information. They needed to deal with that and were really flabbergasted–I guess no one had ever spoken to them that way before.”
These preliminary interviews are usually conducted by one of five people in Leonetti’s firm: Leonetti, one of his three “networking” planners, or the president and director of financial planning.
After becoming a client and having her needs and expectations evaluated, the portfolio is created. Leonetti says he does not offer “cookie-cutter” investing solutions, but instead selects investments on a case-by-case basis. Unlike the mutual fund models Leonetti builds for smaller clients, for his larger clients, “We start with a model, but no two portfolios are ever alike in the end.”
While he focuses on U.S. large-cap growth stocks, Leonetti nevertheless invests in all cap sizes and styles. He also doesn’t neglect bonds or other investing vehicles. “We will use all types of fixed-income vehicles, and have been in real estate through REITs or privately,” he explains. “We are doing some hedge fund research now, although that area still scares me. It’s so unregulated that I am afraid people are jumping into it because it was the hot thing when the market was down; I tend to move very slowly.”
At age 49, and with more than 20 years in the business already, Leonetti isn’t planning on going anywhere soon. A devoted family man, he spends much of his time away from the office with his daughter, siblings, and long-time friends, and attributes his career to the encouragement of his late father. “He was my mentor and really got me into the financial industry,” he says. Now he conducts many of his meetings on the golf course (while alleviating some stress) and maintains a light-hearted approach to every aspect of his life. Perhaps that approach has helped yield professional success for Leonetti and contentment among his teammates.
Freelance business journalist Megan Fowler can be reached at firstname.lastname@example.org.