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.”
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