Out of the Fire

“If a Category 5 financial storm comes, you better have a plan,” warns Steve Chapman, VP and portfolio manager at Weiss Capital Management, a Palm Beach Gardens, Florida, RIA firm that emerged from the 2008 economic storm not only unscathed but with net asset growth. The firm has seen a 22% increase in net assets since December 2008 and a 37% increase in gross assets so far this year. Due to his Florida location, Chapman knows a thing or two about storm preparation. “You can’t invent the plan in the middle of the storm,” he says. “Instead, you keep the plan on the sidelines until you need it.”

While many advisory firms hunkered down and waited out the 2008 storm, top firms like Weiss Capital began revamping their businesses to meet the changing needs of the marketplace–and positioning themselves to take advantage of the recovery. The firm–which manages investment assets of individuals, pension plans, trust accounts, charitable organizations, foundations, and investment companies–utilizes a business plan, but also remains nimble in order to effectively deal with the changing nature of both the industry and of compliance requirements. “Our investment philosophy allows for flexibility and dynamic decision-making,” says Sharon Daniels, the firm’s president. The Nasdaq drop 10 years ago taught those in the industry many lessons. Weiss put a plan in place then–and, according to Daniels, “has had a decade to perfect that plan.” In 2008, therefore, Weiss didn’t need to make significant modifications to its business plan and product lineup. “We modified some strategies and techniques,” Chapman says, “but we were pretty ready for it.”

As the S&P 500 declined 37% in 2008, many advisors experienced decreased assets under management and declining revenues for the first time in six years. And while advisors as a whole weathered 2008′s market turmoil better than the overall stock market itself–losing only 12%, according to the 10th annual Rydex|SGI AdvisorBenchmarking RIA survey on which this article is based–some advisors like Weiss were not only able to survive but also thrive. WE2, Inc., for example–an RIA firm based in Houston that provides a range of advisory services from mutual fund wrap portfolios to unified managed accounts–raised $121 million in assets in 2008, and an additional $170 million from January to September 2009. Weiss and WE2 are two of what Rydex|SGI AdvisorBenchmarking terms “best practices”–those with AUM in excess of $155 million in 2008, a top-line growth rate higher than 20%, profits in excess of $300,000, and a practice that offered at least four services (two of which were investment management and financial planning).

How did these practices flourish during a cantankerous, to put it mildly, 2008? By using best practices in three areas: operations, client services, and marketing. We believe that 2008 is an extreme example of what types of activities and behaviors separate the best advisory firms from the rest. When the markets are stabilizing, as they are now, it’s the perfect opportunity to create a plan for all environments. Advisors who take the time now to prepare and who follow these best business practices will be able to secure their businesses before other storms strike–and position themselves to succeed in any market.

When it comes to managing expenses, best practices do a better job than average advisory firms–and they reinvest more in their practices. A case in point is c5 Wealth Management in Great Falls, Virginia. Paul Bennett, managing partner at the firm, says c5 recently renegotiated its lease back to 2004 levels. “On the pension side,” he says, “we have also decreased our expenses by 50% by purchasing a third party administrator in January 2008.” PCL Administrators, Inc.–a wholly owned subsidiary of c5 Wealth Management that provides TPA services to retirement plans, primarily profit sharing plans and 401(k)s–”provides each client with the appropriate plan documents, processes the necessary IRS filings, performs cross-testing and manages compliance services,” Bennett says. This purchase has enabled c5 to market to a “closed audience,” he says, and has helped the firm operate more efficiently.

In order to broaden their income stream and increase their referrals, best practices offer a broad range of wealth-management services. Susanna Joiner, president of WE2, says that her firm does not focus on one manager or on one strategy. Rather, WE2 offers a “repertoire of strategies” to its clients, which enables clients to adjust according to what is going on in the economy as well as to what is occurring in their personal situations. Advisors looking to broaden their services might want to consider branching out into executive compensation advisory, retirement planning, and estate planning services.

Successful advisory firms have business partnerships in place that enable them to offer a more robust set of services and bring added value to clients without having to hire additional staff or invest in additional training and education. Buffalo-based Courier Capital Corp., a provider of customized investment management and consulting services for institutional clients and affluent individuals, has an agreement in place with a local accounting firm, says Thomas Hanlon, a partner at the firm who is director of retirement plans and a senior portfolio manager.

By focusing on their core competencies and entering into partnerships with professionals who are experts in other areas, best practices are able to run a more efficient operation, deliver more services to clients, and free up staff time to spend on the most profitable area of their business: spending time with clients.

In addition to fostering business partnerships, top firms take other measures to increase operational efficiency and maximize staff productivity. Hanlon says that Courier Capital consolidated its custodians during the downturn in order to increase staff productivity. It also initiated a statement production system that allowed for consolidation and rebalancing–the system made it easier for staff to get key information for clients and provided a value-add for clients. And because of the new operational efficiency, Hanlon adds, the firm was able to reduce its account minimum.

While staff productivity is important, the best practices view staff development as equally crucial. Bennett of c5 is proud of the fact that all of his firm’s employees are highly credentialed. “There are two things we don’t skimp on: technology and personnel,” he says. His firm pays for employees’ advanced degrees and certifications. In the past few years, one employee at his firm completed her CFP certification, another earned his CRPS designation, and another is pursuing his CFA designation.

Best Practices in Client Service:

Putting clients first and keeping them there

Top advisory firms make client communications a priority during all business environments, and when times get tough, they ratchet up their client communications–and their client services–even more. Staying in front of clients, educating them, and communicating with them are three priorities for WE2, Joiner says. Her firm has 12 to 18 points of touch with its clients. In 2008, WE2 emphasized proactive communications even more than in previous years. The firm held town hall meetings about what was going on in the marketplace, which, according to Joiner, resulted in many new clients. The firm’s additional communications include newsletters, e-mails, birthday and anniversary cards to clients, and a client appreciation event. “You’ve got to show compassion, show you care,” Joiner says. Courier Capital also beefed up client communications in 2008, delving into social networks such as Twitter, Facebook, and LinkedIn and started a blog. One LinkedIn communication resulted in 500 reads, Hanlon says.