Surf's Up

Eventually he joined with a number of partners in the formation of Worldwide Investment Network, which Manchester recalls as one of the largest independent financial advisory firms in southern California in the early 1990s, complete with corporate jet and full-time pilot. He decided to sell his interest back to his partners, while retaining a base of the clients he most enjoyed working with, and in 1997 opened Sentinel Capital Management. Seven years later he sold that firm to one of the advisors working there, once again holding on to a carefully chosen core clientele. In the time between leaving Sentinel and founding Wave Management he did some consulting work helping a CPA firm in Santa Barbara and an Orange County forensic accounting firm each set up financial advisory businesses.

"I always kept a core group of my favorite clients–never my largest clients, but my favorite clients," Manchester says of his practice. "I always keep them outside of any agreements that I've had. They just follow me here and there because we've had so much fun working together."

That client loyalty helps explain that while Wave Wealth Management is less than a year old, it already has about $30 million in portfolio assets under management and another $20 million in private equity, for around 30 clients.

For those clients he provides wealth management services, which Manchester defines as coordination of all the client's financial activities. He has a strategic alliance with a CPA firm to provide his clients with tax services and for those with more than $2 million in assets, tax preparation is included in the management fee of 75 basis points. Clients with between $1 million and $2 million pay the same 75 basis points for asset management, but must pay an additional fee for the tax service.

When it comes to the management of his clients' portfolios of conventional assets, Manchester is a firm believer in taking a passive approach with an emphasis on low-cost investing. "Over my career I've made and lost money in every possible way," he explains. "Everyone pays for their education, it's just a question of how much."

For Manchester the ultimate investment solution is passive index investing. "Overweighting in value stocks and small-cap stocks is clearly the way to get a little better than your average capital market returns," he says of his approach. "Interestingly enough, that comes with little higher degree of risk. There's always that correlation between risk and return, but when you do it with ETFs and mutual funds and you have a very diversified porftfolio, that mitigates as much of the risk as you can from the capital markets."

While he acknowledges that many money managers do in fact beat the market in any given year, Manchester believes that those who can do it on any kind of a consistent basis are few and far between, and that "market returns are elusive on an active basis."

Client Capacity, Not AUM

During the course of his close to 25 years in the business Manchester has built a business model that goes against much of the industry's conventional wisdom. "The industry churns out a lot of advisors just kind of doing the same thing," he observes. "There're a thousand consultants out there to tell you how to build a practice. None of them would tell you how to build one like I've built."

He has never developed a niche market to exploit his strengths and in fact he has never done any marketing at all. Most of his clients come from referrals, many from people in the immediate area.

Of late a number of clients have come to him as a result of domestic property settlements following divorce. "In fact I've had three walk-ins in the last month, each with a check for $5 million," he says. "That's a pretty nice net worth, although for two of those individuals that represented a pretty significant lifestyle change."

As far as Wave Management reaching its crest, Manchester doesn't see that happening anytime soon. "I'll know it when it happens," he says of any growth ceiling. "It's just that simple. I don't know what the capacity issues are, but I think it's clients, not assets under management, and I know I'm not near it now."