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Portfolio > Investment VIPs

Serving the Underserved (Millionaire)

By Bob Keane

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There was a time not too long ago when the big Wall Street brands, such as Lehman Brothers, Merrill Lynch, SmithBarney, and many other names we all know well, carried an aura of prestige. These were successful firms that made money, for themselves and their clients, year after year after year, and association with them provided a halo effect of credibility and trustworthiness to their broker and advisor employees.

What a difference two years can make. While no one with any knowledge of the industry realistically expects the wirehouse channel to disappear (after all, tarnished reputations or not, 2009 didn’t end so badly for many of the largest Wall Street firms), the investing public has begun to realize that their wirehouse “advisors” don’t always put the client’s interest first.

That in turn has caused more and more advisors within the wirehouse sphere to take stock of their own situations and consider a change. For Ben Marks, who headed up a six-person wealth management team for UBS Financial Services in Minneapolis, the financial crisis and accompanying scandals provided the perfect opportunity to set up his own registered investment advisory firm. In November 2008, after 24 years working for industry giants, he set up Marks Group Wealth Management in Minnetonka, Minnesota.

“As you recall, that was a pretty tumultuous time in the financial markets,” he says with more than a touch of understatement. “While others in our industry were hunkering down, we made a decision that it was an appropriate time to find a better business model. We hear from our clients that they want to receive their investment advice from a firm that is independent from the financial institutions that are creating the product. We think that this is a trend we’re on the front end of. The old model of traditional Wall Street firms is broken; I think we’re going to see a lot of change as those firms evolve over the next 10 years.”

When Marks left UBS he took along the other five members of his team (two of whom are partners in the new firm), about 95% of their clients, and more than $300 million in assets. The group had been somewhat autonomous within UBS and has always managed their clients’ portfolios internally. “I believe that leads to a higher level of client loyalty,” says Marks. “Our core value proposition–and I think this is what differentiates us–is that we offer experienced, objective, conflict-free financial advice to our clients. We do it by developing and executing a customized strategy that provides complete transparency through utilizing investment vehicles that have daily liquidity. Investment decisions are made locally in-house by our firm by the advisors that have the personal relationships with our clients.”

Making the Break

Although his retention rate demonstrates the strength of his client relationships, Marks says that when he made the move for many of them the big question was, “Why?”

“I’ve been in the business since 1982 and I’ve always been affiliated with a large Wall Street firm,” he replies, noting that he started his due diligence on the RIA platform in 2007 because he felt that was the natural transition. Once the decision was made to launch an independent RIA firm, the next step was to look for good partners. Ultimately he chose LPL Financial as his custodian and broker/dealer because of its hybrid platform, an arrangement he calls “a perfect fit.”

“Liberating” is how Marks describes the experience of working in his own firm. “For one thing, some of the restrictions and conflicts that we had to deal with by being an employee of a major Wall Street firm that also had an investment banking business, and an investment management business, are removed,” he says.

The removal of those obstacles has made Marks more aware of the demand for financial counseling and advice. “The majority of our business is our investment advisory business, which is a fee-based business based on assets under management. That represents far and away the largest part of our business,” explains Marks, “but we’re finding more demand and interest in services where somebody just wants to be able to come here and know that they are getting completely independent objective advice for a fixed fee.”

These consultations, which the firm terms “projects,” could be for someone who wants a full-blown financial plan, a second opinion on their current investment strategy, retirement income planning projections, or, for an institutional or private foundation client, the development of an investment policy statement. The client is billed a flat fee for the project rather than an open-ended by-the-hour arrangement, and that’s true whether the individual is an asset management client or an outsider.

“Sometimes they’re a good fit and they become a client,” says Marks. “Other times they just walk away with more peace of mind, knowing that someone gave them a second opinion that your current advisor is doing a good job.”

The Underserved Market Everyone Wants

At the end of 2009, the Marks Group had about $300 million under management for 220 individuals or households. Pursuing an investment strategy that relies primarily on a portfolio of individual securities, the firm has targeted a client base with between $1 million and $10 million of investable assets.

“We think that’s in some ways an underserved market and that we offer an excellent alternative to what else is out there, through our objective, conflict-free, personalized approach,” he argues.

Although it seems counterintuitive to describe the client group that the majority of advisory firms seem to be chasing as underserved, Marks says that in fact has been his personal experience. “When you’re in the minus million-dollar range, there’s a lot of competition–everything from Ameriprise to people on the life insurance side,” he explains. “When you get into $10 million-plus, you’re dealing with a little bit different market there as well. And there are obviously fewer households with those kinds of assets, so it’s a smaller demographic.”

The key to his firm’s success in Marks’s opinion comes down to three things–liquidity, transparency, and proximity.

“What I mean by that is we’re in the business of managing portfolios of securities that have daily liquidity,” he says. “We don’t do hedge funds. We don’t do structured notes. We don’t do private REITs. I’m not saying that those investments are not appropriate, but that’s not our area of expertise. Frankly, for most clients in that $1 million to $10 million range, in many cases those less-liquid investment choices are not needed.”

The transparency comes from billing quarterly, disclosing all fees, and as Marks describes it, letting the clients “see all the moving parts” of any and all transactions.

“Third and probably most important in terms of what differentiates us is what we call proximity,” continues Marks, adding that his clients, many of whom are small business owners, tend to be the type of people who want to be close to their money. “They want to be able to sit across the table from the person that is making the actual investment decisions with their portfolio. I’ve found that the more middlemen that you have between you and your money, the higher the likelihood that you’re going to have an unfavorable outcome. We manage the portfolios ourselves and I am the chief investment officer. Our clients find a lot of peace of mind knowing that they can pick up the phone or come in and see us and talk specifically with someone who is knowledgeable about the actual individual securities that they own.”

One Approach, Five Portfolios

Marks’s investment management is based on five portfolios using different strategies. The largest of these is the core equity portfolio, which he refers to as the firm’s “calling card.” It consists of approximately 35 individual common stocks and he has a 15-year track record with it, having originally created it at UBS where he ran it on a fee-based discretionary basis.

“In most cases, that core equity portfolio is our clients’ single largest exposure to the U.S. equity market,” he points out. “Then we complement that with our other strategies.”

Those other strategies include an international ETF portfolio, an alternative strategy ETF portfolio, and a fixed income portfolio primarily composed of individual corporate bonds with A or better ratings and maturities of 10 years or less.

As mentioned earlier, Marks eschews the more esoteric alternative investments but he still wants his clients to have truly diversified portfolios that include holdings that are non-correlated to equities, hence his portfolio of alternative ETFs.

“These are exchange traded funds that are linked to an index that could be bullish or bearish on currencies, commodities, bonds, equities,” but still provide liquidity and transparency, says Marks.

Although it’s his skill in investment management and the quality of the firm’s advice that brings in the clients and keeps their loyalty, Marks says it’s the systemization of everything in Marks Group Wealth Management that’s critical to its success. “We’re very process-oriented–it’s everything from the way we manage money to the way we work with and service our clients.”

Part of that service includes setting expectations at the start of the relationship. “We ask the client, ‘How often do you want to meet with us?’” Though the norm at the firm is to meet with clients twice a year, Marks points out that for some clients quarterly meetings are more appropriate and, for a very few, it’s an annual event.

“With our client service coordinator, it’s a little like scheduling your dentist appointment,” Marks continues. The service coordinator will call the client to set up either an in-person meeting at the firm’s office or a phone conference for out-of-state clients. If the meeting is not face-to-face she will, in advance of the meeting, send the client an agenda and a current review of their portfolio so that at the time of the meeting both the client and advisor are looking at the same information.

“It’s important to have that systematized approach of every three months or every six months sitting down with a client and getting to understand who they are, what their objectives are, what’s changing in their life,” Marks observes. “It makes for a much deeper relationship over time.”

Still Having Fun

Ben Marks has spent his entire life since college in the financial services industry and is still as excited about it as ever. He says “one of the funnest parts” is owning his own business as an RIA and having “the autonomy to make the decisions that are the absolute right thing,” for the client.

“These days what gets me excited is that I feel we have created an environment that is a very attractive alternative for clients,” he says. “We have a very sustainable business model that we plan on growing significantly over the next decade, and the opportunities and challenges associated with that are just invigorating. I got into the business because I had an interest in individual stock selection. It’s become almost second nature, and, as boring as it may sound to some people, my form of entertainment is doing the stock analysis.”

While Marks’s clients might find doing that analysis less than entertaining, they’re glad he doesn’t.

Managing Editor Robert F. Keane can be reached at [email protected].

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