On a recent Thursday, advisor Howard Sontag had his first client meeting of the morning with a hedge fund manager and his wife who had come in to review their investment portfolio and to discuss setting up a trust for a college-age child. Next, it was a sit-down with a 70-year-old couple with two grown children to go over family planning goals and wealth transfer issues. Then came a session with a CPA retired from one of the big accounting firms and his wife to go over in painstaking detail each of their investments as well as to review overall asset allocation. The final client meeting of the day was with a partner in a large law firm, in his mid-40s with a bonus from last year to invest and a desire to see what it would take for him to retire in five years.

In each case Sontag provided what he likes to call “old-fashioned investment advice.” Those four words combined with dedication to providing a high level of client service and accepting fiduciary responsibility are at the heart of this advisor’s approach. “The business model insists on our keeping the client’s interests at the forefront of what we do,” he says. “We’re independent and we’re not driven by short-term greed, we’re driven by the long-term alliance with the client.” Being able to retain that independence to serve his client’s best interests is what ultimately made Sontag choose to sell his practice to National Financial Partners in August 2005.

Howard Sontag had four years experience as an advisor with Lazard Asset Management when he launched Sontag Advisory in 1995 with a staff consisting of himself, his secretary from Lazard, and an assistant fresh out of college. While his asset management experience was just a small part of his resume, Sontag’s skills also derived from his years as a corporate tax lawyer and employee benefits consultant, something that has been most reassuring to his clients. “I’m not going to sit and provide tax advice on some complex problem, but I will know when there is a tax issue,” he says of his approach. “The law school training allows me to read people’s wills and trusts and tell them what they say and allows me to understand much more readily changes in the trust and estate tax provisions and explain them to clients. I think [tax issues are] woven into almost every meeting that you have with a client.”

Immediately before moving to Lazard’s asset management group, Sontag spent a decade heading up that company’s tax and benefits departments. Since his group handled all the tax and benefit issues for the firm’s partners, he became involved in the peripheral issues that are at the heart of the advisory business–family planning issues, personal tax planning issues, insurance planning issues, and retirement planning.

Going It Alone

While Sontag found himself thriving on the client service side of the business, he realized that the business model at Lazard, which was primarily geared toward institutional investors, had limitations. “My concept, and this was 11 years ago, was simply to be attached to the client, take the client’s best interest into account, and serve the client,” he recalls. “It was a very simple concept–open architecture, best of breed, trying to find the best management available for whatever asset class you were thinking about–but it was not a concept that the world had embraced yet.”

In setting up the model for his own practice, Sontag analyzed what had made him successful at Lazard. “It wasn’t because I knew more than anyone else in terms of which stock to buy or which manager to hire,” he recalls. “It was very clear that it was the service model. Clients trusted me, liked the idea that I had experience in benefits and tax and family planning issues, and they were making use of that expertise. It was clear to me when I left to form my own firm that it would have to be based on the service model side, not on the product side. Clients wanted the one-stop shopping. They wanted one person or one organization that was their go-to person or firm that would deal with integrated financial issues. That was really the key to the whole business.”

Sontag’s New York-based firm has a pretty broad range of clients including widows and people who have had a liquidation event, such as the sale of a business, the death of a spouse, or a divorce, and people who realize that they have accumulated a certain amount of assets that they don’t have the competency to manage on their own. He does point, however, to one subset that represents a substantial and profitable niche. “Probably 20% of our total clients are partners of larger law firms in Manhattan and elsewhere,” he says. “We find [lawyers] to be an excellent group of clients. In large part they are thoughtful about the advice you provide, they make a decision about whether they trust you, and if they do, they listen and follow that advice. We’ve found that to be an excellent relationship on both sides. We bring a lot to the table for them and they are a very good group of clients for us to have.”

Courting Junior Partners

In terms of which clients are right for the firm’s business model, Sontag says he likes to be flexible. A full service client would probably have in excess of $1 million in assets, although he notes that the firm can handle and do a very good job for clients with only a few hundred thousand dollars, although at a lower level of service. Interestingly, there’s also a group of clients who get the full-service treatment despite a lack of megabucks–junior partners in major law firms.

“The junior partner model actually offers a high level of service but with a low initiation fee, because we are believers in our lawyer relationship model and how well it works for both sides,” says Sontag of what looks like a pretty smart investment. “Young partners at law firms have something that not many people have–pretty good job security and fairly reasonable and predictable earnings streams going forward. One can look and, in many cases, know that earning stream is going to grow over time. On the other hand, when they’re young they have a lot of needs to fulfill–housing, children’s education, capital in their firms–so normally a lawyer four or five years out is just beginning to start to save money. That is a client we would definitely want to have and a client that definitely would like to have us. So we make that a full-service model even though the assets that may be available are not very large. It’s a good value and long term it pays off very well for us.”

When talking about client assets, Sontag notes that the firm has responsibility for more than $3 billion in assets. He’s not as hung up on the custodial issue. “Unlike many other people in our industry, we do not insist on physically having assets,” he says. “If the assets are doing the right thing where they are, we’d be the first to tell our clients, leave it there, just make sure we get a copy of the statement so we can report on it to you. It is not about harvesting assets, it’s about being responsible for the assets that the client has, which is a huge distinction.

“A lawyer at a firm has between 25% and 50% of their net worth tied up in the firm’s programs,” Sontag continues. “So if you’re a partner at a law firm, you’ve got a significant Keogh plan or 401(k) plan or an insurance-based deferred comp plan. No one can physically have those assets, but the client wants someone who is responsible for helping them think about those assets in a context with what their other money is doing.”

Client Service

The Sontag Advisory business model is built around serving the needs of each client. With that in mind, the doors are always open to clients who wish to meet with their advisors. “The normal rhythm of the business–and it varies according to the needs that the client has–is that we meet in the first year three or four times, and thereafter it’s probably twice a year. However, we send a monthly investment summary out to every client with all of their assets and once they learn how to read it, it allows them in just a few minutes to understand exactly what’s going on with all of their money.” The investment summary includes not only assets placed by Sontag Advisory, but those that may have been placed prior to the onset of the current advisory relationship. It’s a service that Sontag says is generally only offered by large banks, and then only to their wealthiest clients. Each client also receives a monthly letter explaining the current thinking of the investment team and the rationale for what they are doing.

For new clients, the initial meeting is usually with Sontag and another senior advisor (there are six advisors at the firm, including Sontag). That meeting allows the potential client and advisor to interview each other and establish a level of comfort and also consists of going down what Sontag refers to as the list of “good housekeeping issues.” These include wills, life insurance, educational savings, and other planning topics. Subsequent sessions are usually handled by the senior advisor, but Sontag stays involved should some of his particular expertise be required.

One of the questions at the initial meeting is always about how the potential client happened to find the firm. “Almost all of our clients have come from [current] clients,” says Sontag with considerable pride. “We do not have a salesperson. We try to service our clients and hope that what has happened in the past will happen in the future–that they will be so pleased with the quality of the service, the team approach, and the friendly and purposeful nature of our business that when there’s a friend in need that they’ll happily give our name.”

The Acquisition

After more than 20 years in the corporate world, Howard Sontag set out to build his own firm. So what led him to accept an acquisition offer a mere decade later?

“There’s a point in your life where you’ve built up a very strong business and you look around and you ask, ‘How is this business going to prosper going forward?’ At the same time as an individual I’m in the advice business, I’m always telling my clients that they should take some money off the table when there’s an opportunity to do so and to strike a balance between fear and greed,” he explains. “You never know what can happen to your business, and diversifying my own asset mix was certainly a reason to consider this. But I did not want to do anything that jeopardized the message to the clients or that in essence ‘sold out’ my clients. I looked at a lot of models and we would have been an attractive acquisition for many firms, but decided that NFP fit us best because it allowed us to remain fully independent and solved the issues that were confronting me.”

In return for giving up their ownership in Sontag Advisory, Sontag and his partner, Donna Levy, received both cash and stock in National Financial Partners. Going forward they are independent contractors with long-term management contracts to run Sontag Advisory. In addition to the management fees spelled out in the contract there are revenue targets for the firm, which when achieved will allow Sontag and Levy to continue to share in the profits derived from their efforts.

While the Sontag acquisition was one that National Financial Partners had pursued for several years, the growing financial giant didn’t come in with a lot of changes or a cookie-cutter business plan and although clients were all informed in writing of the change in ownership, for them there are no apparent differences. “I don’t see, long term, any meaning to our door saying ‘a wholly-owned subsidiary of NFP,’ or not saying it,” says Sontag. “It’s really a neutral item.”

“In terms of how he services his clients, nothing changes,” explains Elliot Holtz, NFP’s executive VP for marketing and firm operations, about the acquisition of Sontag’s business. “We don’t change what they do for their clients in terms of the services they provide or where their assets are custodied. If somebody is a registered rep with another broker/dealer, we generally do have them change to (the independent B/D) NFP Securities, but the things that change are more about being part of a public company, but those don’t affect the client.”

Holtz further explains that the Sontag practice was pursued because it fit into the NFP strategy of targeting three core markets–insurance and estate planning; employee and executive benefits; and financial planning. “We look for financial planners that have a lot of potential to grow. We also look for firms that are of a significant size today. Howard fit those qualifications. He had built the business. It wasn’t just a single advisor who had hung out a shingle.”

Sontag says he didn’t feel any different the day after the sale went through than he did the day before and six months later it’s still the same. He’s handled his succession and continuity problems, he’s diversified his personal assets, and he’s still doing what he loves, namely meeting people and helping them secure a promising tomorrow. That’s good news for him, for his team, and most importantly for his clients.