If the future of the advisory business–and the future of the independent broker/dealer industry–is all tied up with efficiently providing customized wealth management services through a tight relationship with a key partner, then Dave Root and Carrie Kuntz are living that future now. Many of the family office services that they provide to their middle-class millionaire clients are made possible, they say, through the expertise of their broker/dealer, though their unique approach to serving clients had its genesis in steps they took to make their own hectic lives a bit less complicated.
The two are business partners and co-founders of D.B. Root & Company, a wealth management firm based in Pittsburgh at which he’s the CEO and she’s the president. The firm currently serves about 350 households, with two or three clients per household, and has an estimated $950 million in assets under management.
“Our clients are individuals as opposed to institutions, primarily families. I would say that more and more of our client base would be described as middle-class millionaires, and we would define that segment as families that have between one and $10 million,” explains Root. “In practically all instances we’re managing assets, and I would say that’s our core competence, and it’s been our core competence since we started the firm in 1994, but we’ve branched out from there and now have other disciplines in house that we can offer and bring services to our families.”
Root and Kuntz didn’t start off with a business plan aimed at what Root calls “the working rich,” but when they analyzed client roster it became clear just who they were serving.
“I think it’s just an evolution of how wealth is being created in this country, that the fastest growing class of people in terms of wealth is what we call the mMillionaires–the middle class millionaires,” adds Kuntz (see “The Family Office for the mMillionaire Family,” sidebar, p. 72).
As these clients have accumulated wealth, they’ve also acquired advisors along the way–accountants, attorneys, business evaluators, insurance agents–and what Kuntz says D.B. Root provides for their clients is either all of those services under one roof or at least the services of a professional quarterback to coordinate all those services into one coherent wealth management plan.
A Family Office for Those Who Aren’t Filthy Rich
One of the things that set D.B. Root and Company apart from many other firms that call themselves wealth managers is the range of services available in-house. The firm has had a CPA in its office for 10 years to prepare tax returns and provide comprehensive tax planning. She also serves as the firm’s controller and has created a bill-paying service for clients. Then there’s the in-office attorney.
While many advisors are probably thinking that they just couldn’t take on the cost of adding such services, D.B. Root has found a way around that. “The relationships are unique in that both individuals–the attorney and the CPA–are independent,” explains Root. “They have their own practices. We provide office space and don’t charge for any of their overhead. The agreement is that they provide a certain discounted fee schedule to our clients in return for their office space and support services. We don’t share fees. The arrangement is to benefit the client.”
“It helps us to do our job on the investment advisory side a lot more efficiently, especially with the tax services here,” interjects Kuntz.
“This was all an outgrowth of Carrie’s and my own personal situations,” says Root. “We have built a firm to suit ourselves in a family-office way–accounting and bill paying, estate planning and legal advice–and we are bringing that to our clients in a comprehensive, almost holistic service. We feel that this can be a new paradigm for the industry.”
Root says that although they still maintain relationships with outside professionals, he and Kuntz had often been frustrated with making professional referrals and then not being kept informed about how the matter had been resolved. “Out of that frustration we said, ‘Let’s establish our own in-house relationships and manage it in such a way that it’s more efficient and a better service to the client, because we’re all under one roof and sharing information.’”
“We’re still willing, when a new client comes on board, to work with advisors that they have in place,” stresses his partner. “But we make it clear that we’re going to be quarterbacking the relationship and we’re going to be calling their other advisors. And instead of just referring out, or assuming that the other advisors are going to communicate with us, we take the responsibility to initiate that communication.”
The desire that Root and Kuntz have to simplify things for themselves as well as their clients led them to become affiliated with the independent broker/dealer Commonwealth Financial. “They make our lives so much easier, particularly in the back office–all the basics of trading, account reconciliation, reporting,” says Root enthusiastically. They’re the workhorse behind the scenes.”
“One thing that Dave and I have realized over the years is that if you’re going to run a successful business, you have to be focused and you have to know what your mission is,” says Kuntz. “You have to know what the economic engine is that’s driving the business. Trying to do this on our own would be a huge distraction from what we’re really trying to do.”
The partners are particularly effusive about the technological benefits that Commonwealth has brought to the firm, including providing account aggregation and Web site support. In addition, they mention a Commonwealth project to provide a virtual office for clients, not just of D.B. Root, but of all their affiliated advisors, that would provide a single secure vault to store all important electronic financial documents.
Institutional Investing for Middle-Class Millionaires
D.B. Root & Co. is fee-based, with the majority of revenue coming from asset management fees which range from 125 basis points on the first half million dollars down to 60 basis points on accounts above $3 million. The firm also charges consulting or retainer fees for the financial planning work they do. Including the two owners, there are six planners on staff, all holding CFP credentials.