The offices of Advisors Capital Management may be liberally sprinkled with dinosaur bones, shark’s teeth, ammonites, orthoceras, and other specimens from Chuck Lieberman’s collection of fossils, but the firm is far from a financial dinosaur. Industry consultants are constantly telling advisors that to be successful in the future, they need to determine what they do best and make that the focus of their business.
The principals at Advisors Capital Management have already done that soul-searching and know that what they do best is asset management. That’s the only service the fee-only Paramus, New Jersey, firm offers to about 100 individual clients and some 40 advisors for whom they manage the assets of another 300 or so clients. In addition to its substantial client base of other advisors, the firm stands out because they eschew the typical mix of mutual funds from the various style boxes that passes for diversification at many practices. Instead chief investment officer Lieberman, along with the other asset manager, his eldest son, David, constructs individual portfolios for each client that allow the investor to actually own a diversified group of securities at a lower cost than would be possible using mutual funds or other pre-packaged vehicles.
Charles Lieberman began his career as a university academic, put in time with the Federal Reserve and on Wall Street and spent a dozen years as chief economist first with Manufacturers Hanover, and then as a result of mergers, Chemical Bank and Chase. Eventually, he says, he got tired of the politics and decided to strike out on his own, opening up a firm he called Lieberman Asset Management.
Around the same time, Kevin Kern started his own business, called Advisors Financial Center. “What was interesting about our two firms was that I could manage money, but I didn’t have the infrastructure to market the firm, to deal with the legal issues or the compliance. Kevin was doing all of that stuff, but he didn’t have a money manager. He read a paper that I wrote and got in touch with me to see if I might do asset management for him and we ended up basically combining the two firms after a couple of years. I never did really like the name Advisors Financial Center so we modified that to Advisors Capital Management, which I think does a better job of describing what it is we do.”
True Separate Accounts
Kern, who had been designing wrap accounts and doing marketing in the retail brokerage channel, was, like Lieberman, disenchanted with the way he saw the business of investing being practiced. “What I was trying to do, was get beyond what I saw as the flaws in mutual fund wrap accounts,” he explains. “They’re just layered in fees. When I got to know Chuck, I realized his investment style was perfect for what I wanted to do too, which and was to find a pure, clean way to invest with not a lot of trading, not a lot of layered fees and let the portfolio grow of its own accord.”
Kern points out that because of the firm’s non-traditional investment philosophy, a lot of what he, and a second Lieberman son, Michael, do is educate their clients, both individuals and advisors, about this approach. “The thing that we have to break through with advisors is to teach them what a real true separate account is, not what they’ve seen out there,” he says. “We call the separate accounts that are being provided by the big firms as mutual funds in drag. Literally, it’s just your name on a mutual fund. We have to show [advisors] the deficiencies in that and say there’s something better out there and it can be done.”
“We don’t use any packaged products whatsoever because we can construct what’s in a mutual fund or what’s in a packaged product and do it at a lower cost to the client,” explains Lieberman. “We use fixed income, we use equities, whatever’s out there that works for the client’s objective. So some clients that require income will use some mix of real estate investment trusts, of bonds, of high-yielding equities, all depending upon the risk parameters of the client and the income needs of the client relative to the size of the portfolio. It’s easier if the portfolio is larger, obviously because that gives us more flexibility to use fewer bonds or fewer REITs or fewer master limited partnerships, and go into more stocks, and put more growth into the portfolio.”
“But using equities or bonds or whatever, we have no conflicts of interest,” adds Michael Lieberman. “We have nothing to sell. It’s specifically what’s best for the client.”
“It’s strictly fee-based and Mike’s point is a very, very important one, because the only way we get compensated is from the client’s fee,” agrees his father. “We accept no fees from mutual funds, we don’t sell any packaged products, no commission-based products, no markups on bonds, no commissions. The only way that we get paid by is the client through the management fee. Therefore we are absolutely motivated to try and do what’s best for the client.”
Two Different Clients
Advisors Capital Management differs from most firms because it has two distinct client bases–individual “retail” clients and advisor “wholesale” clients, for whom the firm provides outside asset management.
Because the needs of the two types of client are different, there are also two different fee schedules. An individual investor, with a minimum of $250,000 to invest, will usually pay a management fee ranging from 1.5% to 2.25%. That is the only fee the client pays, regardless of how often she may call with questions or meet with an advisor. “We don’t charge per meeting,” explains Lieberman. “We don’t want the client to be inhibited from asking questions about their financial situation. We want them to know that anytime they have a financial issue that could have an impact on them, they can come to us and get an opinion on that. If we can’t offer an opinion because it requires more specialized information, we’ll refer them to someone like a lawyer, CPA or estate planner who can handle it.”
For advisors, who handle the actual client service, the management fee is reduced to 80 basis points, although it’s up to the advisor what the actual charge to the end client will be.