Watch List

Over the past five years, the focus has shifted for the independent advice community, a shift that has been reflected in the IA 25, our annual subjective listing of the most influential people in and around the investment advisory universe, now in its sixth year. In those years, we’ve highlighted pioneers of the profession and the theorists who have provided the investment framework for that profession. We brought to the fore the companies with whom independent advisors must partner, such as RIA custodians and broker/dealers. We foregrounded individuals who were dragging along their advisor peers in their wakes by their leadership in practice management and compensation, and those whose regulatory mission would contend and conflict with advisors’ own missions. In no other year, however, has a single job change captured the zeitgeist of the profession: Mark Tibergien’s move from revered consultant and industry observer extraordinaire to running a custodial firm for RIAs, Pershing Advisor Solutions. That’s because while there may be many gurus who promise to give struggling advisors a foot up on their competitors, the hands-down leader in helping advisors turn their practices into well-run, profitable businesses is now in the position of being the most-watched leader of an advisor-related company in the business.

Part of the fascination is with the ironic switch of a consultant to many firms becoming the leader of a single firm himself. Part of the watchfulness is the competitive issue: How quickly will PAS come to threaten the hegemony of Schwab Institutional and Fidelity Institutional Wealth Services? More significantly, the industry is holding its collective breath to see what hath Tibergien wrought–will all that brain power create a wealth management firm for the future that will use the heft and global reach of The Bank of New York Mellon, with its offices in 37 countries, $20 trillion in assets under custody or administration and $1.1 trillion in AUM, to, as Tibergien says, “help growth-minded advisors service sophisticated clients with complex needs?”

Tibergien argues that Pershing is the only custodian “not subject to conflicts,” and that in providing solutions “to our partners…our global capability is deeper and richer than any of our competitors; we not only think globally, we act globally.” It’s an advantage to have such a worldview, Tibergien says, particularly when the U.S. “marketplace is suffering.” One big example of that global reach is that the family office of the Bin Zayed Group of Dubai is now a PAS client. Greystone Financial Services, a big British wealth management firm recently acquired by Focus Financial Partners, is another PAS client. How will PAS compete with Schwab and Fidelity? “Part of our theory it that it’s difficult to be a generalist and compete,” Tibergien says, so “we’d rather have a higher touch for a few than a lower touch for many.”

A solid Midwesterner whose brilliance is sometimes masked by his deadpan delivery, Tibergien believes that “the Federal government has some fundamental issues to think about,” but that instead, “Republicans and Democrats view the contest between them as a football game.” Referring to the political parties and showing his demographic bent, Tibergien laments that the parties “tend toward demagoguery and populism,” and that our tolerance of their antics “might be a symptom of the boomers; we’re self indulgent,” which is reflected in the parties’ take on taxes: “Democrats are tax and spend; Republicans are borrow and spend.” As for the profession itself, it’s back to demographics and leadership. The average advisor is getting older, Tibergien points out, but says the profession is not replenishing its ranks with younger people. That, he says, “is where the associations have fallen down,” in failing to address the human capital issue, then suggests that Pershing will be “one of the leaders to address that,” through a “human resources institute.” In his disarmingly honest way, Tibergien says Pershing’s motivation for such a project is “part enlightened self interest; part is for the community.” Stay tuned to see how the Tibergien watch progresses, and read on for the 24 other women and men who constitute the IA 25 for 2008.–James J. Green

Rudy Adolf

The biggest challenge facing the investment advisor community today is demographics: advisors are skewing older and looking for an exit strategy while demand for their services is growing in tandem with those aging boomers. Moreover, nearly every advisory firm is looking to add the term “wealth management” to its roster of services, if not to the very title of its name. Rudy Adolf’s Focus Financial Partners is one of the more intriguing answers to that challenge. Since its launch in January 2006, Focus has acquired 15 advisory firms with total assets of about $26 billion. These are wealth management firms that offer clients trust, objectivity, and transparency, says Adolf, 45, and “we are investors in successful wealth management entrepreneurs.” The most recent deal is perhaps the most intriguing: Greystone Financial Services Ltd., a U.K.-based firm with $1.6 billion in assets. In addition to adding the assets, the acquisition gives Focus Financial diversification and entr?(C)e to the international wealth management industry, particularly in Britain, where the SEC equivalent, the Financial Services Authority, is taking big steps toward fostering a fiduciary standard. Adolf won’t rule out additional acquisitions overseas, but stresses that the U.S. is still Focus’s focus.–James J. Green

Dale Brown

There are three priorities for Dale Brown this year–”protecting 12b-1 fees, gaining regulatory clarity on the application of privacy rules, and fighting attempts to tax financial advisors at the state level”–and the 46-year-old president and CEO of the Financial Services Institute is aiming to mobilize his 13,000 financial advisor members to take the FSI’s message to Congress and the regulators. Brown is particularly concerned about the issue of 12b-1 fees. “As long as the SEC keeps talking about changes to rule 12b-1 that might not be outright elimination of 12b-1 fees but could become de facto elimination of 12b-1 fees, I think the threat’s very real.”

In addition to his second inclusion on the IA 25, 2008 marks Brown’s 20th anniversary as a financial services association executive: first with IAFP, then FPA, and since its inception, FSI in 2003. After two decades of professional advocacy, Brown still gets a tremendous charge out of personally taking his membership’s message to Capitol Hill and the regulatory agencies. “I’m very energized by that process of making our case and trying to influence the outcome of the policy debate both on a big strategic level and then also in the nitty-gritty of some of the rules we work on,” he says.–Robert F. Keane

Kathleen Casey-Kirschling

On February 12, 2008, Kathleen Casey-Kirschling, the nation’s first baby boomer, made history as the first of her generation to receive a Social Security retirement benefit. Born at one second after midnight on January 1, 1946, the 62-year-old received her first Social Security payment by direct deposit, a symbolic leap toward the retirement system’s looming bankruptcy. Over the next two decades, nearly 80 million Americans will become eligible for Social Security retirement benefits with more than 10,000/day on average, according to Social Security Online. Furthermore, in 2011, the first Baby Boomers will turn 65 and be eligible for Medicare, and in 2012, those who didn’t take early retirement benefits will turn 66 and qualify for their full share. The fiscal crisis about to hit the retirement sector of the economy is something Washington has yet to adequately confront, but whether the government is ready for them or not, these Boomers will have a significant impact on American retirement benefits. For advisors, Casey-Kirschling represents the first ripple in what will become a massive wave of boomers who will need ongoing advice as they try to meet their needs in a retirement far different than their parents’. Whether the advisor community is ready for that inundation is an open question.–Kara P. Stapleton

Peng Chen

Back in 2001, when Peng Chen, president and chief investment officer of Chicago-based Ibbotson Associates, would stress an issue like longevity risk and its importance to proper retirement planning, listeners shrugged. Now, Chen’s presentations are, more often than not, standing-room-only.

“People are more and more interested in these issues and are pushing advisors to give them additional tools to look at them,” he says. “Things are dynamic and there are huge developments compared to five or six years ago.”

Chen, 37, has focused his 11-year tenure at Ibbotson upon the importance of holistic retirement planning, which incorporates both financial capital as well as “human capital” (a person’s earning power over the course of their lifetime). The confluence of these two ideas, he says, not only dramatically broadens advisors’ ability to help their clients plan for a complete retirement, but also helps create a diversified portfolio at the appropriate level of risk.

The concept forms the cornerstone of the comprehensive research Ibbotson publishes that drives the company’s investment process by examining a retirement portfolio’s sustainable income levels and the risks of it coming up short, taking into account a range of parameters such as longevity and mortality risk. The research also evaluates the roles of various asset classes and investment strategies, such as principal-protected equity-linked products and variable annuities with lifetime guaranteed minimum withdrawal benefits.

“Different people have different income streams and this has a huge impact on how they invest in retirement,” Chen says. “People tend to ignore the importance of human capital, but the idea is to look at everything and try to think, from investors’ perspectives, how to reach their goal, and what instruments beyond stocks, bonds, and mutual funds make sense for that goal.”

Chen, who was born and raised in China, has been working in research at Ibbotson since he finished graduate school in the U.S. “Independent investors and financial advisors need a lot of help in order to make complex decisions,” he says. “Our firm tries to provide solid leadership to the industry in terms of our research, but we also are constantly trying to come up with new styles and new ideas.”–Savita Iyer-Ahrestani

Bob Clark

Other than his monthly column for Investment Advisor, 53-yearold Bob Clark does not have a high-profile position to give his opinions a prominent place on the agenda of the independent advice business. So why do his musings, rants, and not-so-gentle observations about advisors, their partners, and the environment in which they operate resound so loudly? Partly it’s his long tenure of frustratingly observing a profession and its associations that appear, Peter Pan-like, to never want to grow up. Partly it’s his intimate knowledge of the many strong personalities that helped create the financial planning profession and who still people its leadership posts today. Partly it’s his prognosticating skills when it comes to the growing importance of Washington in advisors’ lives, and particularly the drum he’s been beating for a few years now that a major re-regulation of financial services is looming–sounds like Treasury Secretary Paulson’s blueprint fits that bill. Mostly, though, it’s his unwavering belief (charming to behold in a cynical journalist type) that independent advice planners are the principled, other-centered exceptions in a financial services universe littered with selfish snake-oil salesmen, though he worries that in the current Washington environment, advisors’ reputation is not that sterling, and thus may not fare so well under the new financial services world order. In the meantime, however, we’re glad he’s on our side, and yours.–James J. Green

Andrew Donohue

Andrew “Buddy” Donohue, the SEC’s Director of Investment Management, holds a lot of sway when it comes to determining the outcome of several SEC initiatives that could profoundly affect the investment advisory space.

Early this month, he will recommend steps that SEC Chairman Christopher Cox should take in light of the Rand report, which studied the differences between advisors’ and broker/dealers’ practices, and whether investors understand those differences. In a recent interview, Donohue, 57, said advisors’ biggest challenge is not in the legal or regulatory realms, but in their value proposition. “If you’re an advisor, what differentiates you either from your competitors in the same space or folks that are doing similar things at times in alternate spaces?” That’s the challenge that the advisors have: “Why is their model better for an investor than a broker/dealer model?” As advisors and broker/dealers dabble in each other’s businesses, but are still thought of as “separate regimes, what are the benefits and detriments of each one of those” business practices, Donohue asked. “One of the SEC’s challenges, which we clearly have on our plate right now, is trying to sort some of that out on the regulatory side, starting off with the results of the Rand study.”

Donohue is also crafting an overhaul of the SEC’s 12b-1 rule, with hopes of releasing a proposal sometime this summer. “As you know, that’s a hugely complicated area, and don’t be surprised if one element ends up not being happy,” he warned.

Donohue says he’s proudest of his work over the past year with the SEC’s summary prospectus proposal and the re-proposal of Form ADV Part 2–both dealing with disclosure. “The summary prospectus … is hugely important–not evolutionary but revolutionary. If we get it right, I think it will be phenomenal for all parties concerned, but particularly for investors,” he said. Under the re-proposed Form ADV Part 2–the primary disclosure document that advisors present to clients and prospective clients–advisors would have to provide a plain English narrative to explain their services rather than the old check-the-box approach. The SEC “worked with the state securities administrators in the hopes there would be one document so that the 14,000 advisors that are registered with the states and the 10,000 or 11,000 registered with the SEC would have brochures that would look similar and that would be subject to similar requirements,” Donohue said. The comment period on Form ADV Part 2 expires May 16. “We provided a relatively longer period of time for comments because this is hugely important to get right.”–Melanie Waddell

Ken Fisher

One could argue that Ken Fisher deserves to be on the list of the most influential people in and around the independent advice business by virtue of his having grown the largest registered investment advisory firm in the universe, Fisher Investments. You could argue that the 56-year-old Fisher’s ubiquitous–and successful–use of direct mail to attract clients and his highly efficient business model, especially when it comes to the effective use of human capital, could push him onto the list too. But this year at least, it’s Fisher’s decision to pull the trigger on his first RIA acquisition–EconosStrat Advisory Corp. in Bloomfield Hills, Michigan–that makes him an honorable member of the IA 25. “We expect to be an active acquirer of RIA businesses in the coming year and beyond,” Fisher says.

As is typical with Fisher, he’s decided to go about the process of growing the already large Fisher Investments by acquiring smaller firms in a unique way. Leave it to other roll-up firms to ensure that the original principals remain with their acquired firm for a number of years to assuage their clients and keep the firm humming along while they’re paid their earn-outs. Leave it to others, too, to hold out the promise of an eventual payout by way of going public to the acquired firms. No, Ken Fisher may like your firm, and will conduct extensive due diligence before buying it to make sure it fits into his overall scheme, but in the end he’s interested in your clients and their assets, not in you. Not such a bad deal for your clients, and for some of you.–James J. Green

Barney Frank

Barney Frank, the brilliant and sometimes gruff veteran legislator from Massachusetts, warned before it was fashionable of the dangers of subprime mortgages before they metastasized, attempting in vain to legislate back in the days when he was in the minority party, specifically through a 2005 bill designed to reduce subprime lending. Now he is the lynchpin in efforts to overhaul the U.S. financial system and help bolster U.S. economic safety. As head of the House Financial Services Committee, 68-year-old Congressman Frank regularly talks with the chairman of the Federal Reserve, banking agency heads, and Wall Street honchos to craft responses to the deepening economic troubles that cascaded after the subprime market collapsed.

Frank is spearheading efforts to help stem the tide of anticipated foreclosures that some warn will hobble the economy, and is working with his Senate counterpart, Christopher Dodd, (D-Connecticut), to pass legislation by the August recess that will dramatically diminish foreclosures, he told Investment Advisor. At press time, Frank was planning hearings in tandem with Dodd. The first step is a plan to allow the Federal Housing Administration to shoulder some of the cost of misguided mortgages and guarantee a new mortgage. If the FHA writes down the principal, “then we have ways to make things flow better,” Frank says. Frank says he will also try to improve the role of Fannie Mae and Freddie Mac through a Senate bill that may soon pass, and also seeing the House’s subprime mortgage legislation passed.

He sees his moves to shore up struggling homeowners as being “pro-market,” not as corporate or individual welfare, in that they bring “confidence back to the market.” People have been “burned,” he says, and “now they won’t buy things they should.” Next year, it will be the financial regulatory system’s turn at bat, according to Frank.

Expect Frank to crack the whip on crafting tighter regulation for investment banks, perhaps requiring them to keep a cushion of capital, he says, as well as create an “enhanced” role for the Federal Reserve. He stresses there needs to be a restructuring of regulation to play the inevitable catch-up with the market, in this case the “new era of securitization,” which has heretofore been unfettered by the rules and regulations of traditional banking. Securitization, he points out, dissolved the relationship between the lender or borrower without replacing it.

“Banks are fairly closely regulated; investment banks don’t have the same rules,” he says, and argues that there should be “capital requirements on investment banks.” Also, the Federal Reserve “should be able to examine them,” he says.

Frank did note he was pessimistic about the passage of strong legislation if, in the event of a John McCain victory, former Senate Banking Chairman Phil Gramm (R-Texas), and a McCain fan, returns to the government’s financial services oversight sector in some capacity.

But Frank, in Congress since 1981, notes he has been involved in a similar crisis before with a Republican administration–namely the S&L crisis of the late 1980s, when he “worked very closely” with the first Bush administration, he recalled. Moreover, he says he believes the private sector needs to cooperate with the efforts.–Elizabeth D. Festa

Greg Friedman

The last year has been a good one for Greg Friedman, who exemplifies the entrepreneurial grit and problem solving expertise shared by many advisors. Among the many accolades for this founder of his eponymous wealth management firm in Novato, California, with about $235 million in assets under management, was winning Schwab Institutional’s prestigious Best-in-Tech Award. That award recognized Friedman, 47, for achieving what many advisors can only wish for: becoming measurably more efficient through the effective use of technology, significantly growing AUM without growing his workforce. In Friedman’s case, that comes from the clever use of Junxure, the CRM software he developed with partner Ken Golding whose latest version, 7.0, was officially released in April through CRM Software. Then there’s Friedman’s evangelism around Your Silver Bullet, the cooperative he helped found that is doing its darndest to make all advisor software, from all vendors, talk to each other. What keeps the frenetic Friedman functioning? “Every firm that adopts our software can serve more people and do a better job for their clients,” he says. “That’s cool; that I’m helping that many more people improve their financial lives.” That’s true when it comes to helping advisors, yes, says Friedman, but more importantly, their clients, too. When asked to list the most important things he’s learned over the past annus mirabilis, Friedman answers quickly: “One is appreciation; the other is humility.”–James J. Green

Francois Gadenne

As founding chairman of the Retirement Income Industry Association (RIIA), Francois Gadenne has watched his vision become a successful reality. So successful, in fact, that Gadenne recently divested ownership in a company he created called Retirement Engineering Inc., to devote himself exclusively to furthering RIIA’s growth.

Gadenne is now taking cues from RIIA’s diverse membership to help advisors tackle their biggest challenge: morphing into a retirement management professional.

Unlike other associations, RIIA is “not wedded to a lobbying point of view for a specific product or a specific side of the industry,” Gadenne says. Rather, RIIA offers a view across the financial services silos and provides a place where all members of the retirement income industry can come together “and figure out what to do.”

The task at hand is finding an Empirical Validation Framework–the 60% in stocks, 30% in bonds, and 10% in cash guidelines that advisors have used when helping clients in the accumulation phase–for retirement income. “Sixty percent, 30%, 10% doesn’t work in the Empirical Validation for retirement income because retirement income is much more than just accumulation and diversification and risky assets; it also includes insurance, hedges, and other types of risk-free assets,” Gadenne argues.

RIIA members have said that the view across the silos “is the ideal place” to create the equivalent empirical framework for retirement income, Gadenne says. “The way we are getting there is realizing first that what’s happening in the industry is that the financial advisor is being pushed by the clients, who are getting older, to not only be an investment-oriented advisor but to become a retirement-oriented financial advisor. That very much creates a new job description, a retirement management professional, where the personal professional skills required as well as the practice management skills required are not the same.”

For instance, he says, “If you’re a retirement management professional, not only do you need to understand the financial capital situation of your clients, but their human capital (their ability to work in retirement or not), and their social capital (whether they have Social Security, etc.). You need to integrate financial capital information with social capital information with human capital information to put together a retirement plan.”–Melanie Waddell

Bill Gates

Through the company he founded, Microsoft, Bill Gates has revolutionized how America and the world does business and has had an immeasurable impact on the advisory profession, but that’s not why he was chosen for this year’s IA 25. Instead it was for the example set by his remarkable philanthropy, and the donation of so much of his vast fortune to the Bill and Melinda Gates Foundation that was established, as its Web site says, “to help all people lead healthy, productive lives.”

The U.S. is undoubtedly a generous country and in 2006, the most recent year for which figures are available, Americans gave almost $300 billion to charitable causes. That includes $1.9 billion from Warren Buffett as the first installment on his 20-year pledge of some $31 billion to the Gates Foundation (and Buffett still managed to be named this year as the world’s richest man by Forbes). While a huge donation from a well-known billionaire is big news, the impulse to use our money to help others is found in all economic strata, and often grows in tandem with a person’s assets.–Robert F. Keane

Timothy Geithner

More than proving that the global financial system cannot do without a lender of last resort, Timothy Geithner, president of the New York Federal Reserve, has shown that it takes a strong leader who can act fast and provide the necessary guidance, to keep afloat a rapidly sinking ship.

The pivotal role Geithner played in arranging an emergency Federal Reserve loan for JPMorgan Chase’s buyout of Bear Stearns may go down as the move that stemmed what could have become a real disaster for the international financial markets. Some have criticized the Fed for not stepping in sooner, but it is clear that without the central bank’s help, the financial crisis would have spread a lot quicker and gone a lot deeper.

Geithner, who previously served as Undersecretary of the Treasury under President Bill Clinton and helped coordinate the U.S. response to the Asian financial crisis during that Administration, himself has warned about the continuing financial crisis and its possible repercussions and emphasized the need for both policymakers and financial market participants to act swiftly. “Their actions need to be proportionate to the challenges,” he said in his 22-page testimony to the Senate Banking Committee. The Fed’s involvement in the JPMorgan/Bear Stearns deal, he said, was aimed at halting a crisis that could have caused protracted damage to the economy. Whether or not that action could have come earlier is up for debate, but one thing is clear: It won’t be forgotten soon.–Savita Iyer-Ahrestani