Partnership is a cornerstone concept at Harbor Lights Financial Group. First there’s the equal partnership of the three principals–Ken Roberts, Rob Tendler, and Doug Lockwood. Then there’s the partnership between the firm and its broker/dealer, LPL Financial, and a more recent one with Two River Community Bank. Finally, there’s the partnership between the firm and the 650 households that make up its client base, where the success of the firm is dependent on clients being able to realize their financial goals.
Headquartered in a building they own in the Jersey Shore community of Manasquan, Harbor Lights was founded in 1994 by Roberts and Tendler, who were joined by Lockwood two years later.
Like the triumvirates that ruled ancient Rome, it’s the differences among the partners that make their union so strong.
Tendler started his career in accounting with the then Big 8 accounting firm of Coopers and Lybrand specializing in taxation and auditing, but after about two years was recruited by the Wall Street firm Donaldson, Lufkin and Jenrette where he was responsible for investment strategies, among other things.
Roberts (who was out of the country at the time of Investment Advisor’s interview) began his career as a financial analyst for a couple of Fortune 500 companies and was also an insurance agent before realizing that providing comprehensive financial planning and advice was the professional direction he wished to take.
Lockwood, on the other hand, started off in the wirehouse world with Dean Witter in 1994, but after two years left because he was more interested in offering comprehensive financial planning and thought he was much better suited to life as an independent advisor.
“There was a Forbes magazine cover in the 1980s of a monkey dressed in a suit that read, ‘Anybody could be a financial advisor,’ and I said, ‘I could be that advisor,’” Tendler says with a laugh. “So I got started when financial planning was in its infancy. We always wanted to set our firm up to be independent advisors, not having somebody telling us what we had to do or what products we had to offer, and to this day we’ve kept to that. I think it’s the only way to go.”
“The unique thing about Harbor Lights and the principals is that we’re a leveraged group,” adds Lockwood. “Rob, and Ken, and I collect the same paycheck. We’re not a silo practice, to use the industry terminology, so everything we do is cohesive.”
Although they’re not there yet, the firm’s goal is for compensation to be strictly based on fees for assets under management. “We are 50% recurring revenue and 50% commission still,” explains Lockwood. “In 2003 into 2004 we had zero recurring revenue and we began the transition process. At this point in time any assets that we accumulate are 100% recurring revenue. We’ve got some older assets that we just cannot convert yet, but we have a plan in place to have them converted within three years or sooner.”
When asked about the minimum account size for new clients, Tendler and Lockwood glance at each other and smile. “We battle with this as our counterparts probably do as well, and we just literally went through this process,” answers Lockwood. “We don’t base it on account size, we base it on revenue–$5,000/year. If you want to tag that to a $500,000 account size you probably can. We’re not there yet, but we’re looking to get there.”
“It’s something that’s part of ongoing discussions,” Tendler adds. “We have meetings on a weekly basis, like our own board of directors meeting, to sit down and discuss firm policy. Because of the way we’re set up, we want to make sure that we’re doing things in a uniform fashion and we’re not just going rogue. Doug’s not doing his thing and I’m not doing my thing. We’re doing it in concert with each other.”
Each of the principals started with his own book of business, but since all revenue is shared equally, the clients are really the firm’s. As a result, every client gets to know at least two of the three owners. “It’s important for folks’ peace of mind when they join a firm, no matter how big or small, that they know there’s going to be continuity, if something happens to the ‘planner,’” says Lockwood.
“I think that a lot [of clients] like that they’re dealing with an owner of the company, as opposed to going to a wirehouse situation, where you’re working with an advisor who may be there in five years, or may not be there,” adds Tendler.
Although the partners operate as a team, each has specific responsibilities in addition to handling clients. Tendler is responsible for compliance, Roberts for marketing, and Lockwood for public relations. The key to making it all work, say the partners, is the fact that they have what Lockwood refers to as “a commander-in-chief” in the form of COO/CFO Steve Catapano. “He’s very quiet, but he’s the glue that keeps it all together. We dream the dream and he kind of produces the results for us.”
Having a manager like Catapano in place lets the principals use their time and energy in a way that makes the most of their individual strengths. “What we’re trying to do is make use of this leveraged group and build out the larger clientele, a million and north, by using some of our talents to attract a higher asset client base,” Lockwood explains.
Partnership #2: The Broker/Dealer
When Harbor Lights was launched, the firm chose Royal Alliance as its broker/dealer primarily because Tendler had worked with Royal at his previous firm and had been satisfied with the relationship. And for most of Harbor Lights’ history the firm was satisfied as well. “We, for years, had really enjoyed our relationship with Royal Alliance, but we found that when AIG bought them they promised all kinds of technology to us and they just did not deliver on that,” explains Lockwood. “So early on in 2008 we knocked on LPL’s door and just fell in love with their technology platform.”
“It was very tough for me to let go after 25 years,” admits Tendler of the switch, “but it was definitely the right move.”
“Moving 650 households was a great challenge at the time the market was crashing,” Lockwood continues. “It was stressful when we did it, but here we are growing at a rapid pace, year over year; we see very strong growth numbers going forward.”
Harbor Lights has been affiliated with LPL since September 2008, but Lockwood, Tendler, and Catapano all act like they’re still in the honeymoon period and indicate that they don’t expect those good feelings to change.
“What they do better than anyone else is to anticipate what our needs are going to be, and our needs are really reflective of what our clients are looking for,” says Catapano, who says that besides the technology, he’s been especially impressed by the quality and depth of the management team at LPL.
Lockwood adds that the back-office support and technology assistance that Harbor Lights has gotten from LPL has allowed everyone in the firm to be more productive. “Many firms like ours think they can do it all themselves. I think that we know we can’t,” he says. “LPL has much deeper pockets and resources than we do, so why not use them as that resource?
“Our year-over-year growth is 47% to the positive,” he continues, acknowledging that some of that growth can be attributed to strong market performance. “We do see a 25% growth rate moving forward in our business cycle. A lot of that has to do with not spending time doing things that are a waste of time.”
One of the time wasters that bogged down many of the staff under the old B/D arrangement was dealing with irate clients who had received erroneous statements and then having to get them corrected. Now not only are the statements correct, but the technology has allowed much greater integration of all the client information, which makes managing 650 households much easier. As an example, Lockwood points to a new feature that LPL added in response to advisor requests that allows universal portfolio rebalancing, rather than manually readjusting each account.
He also says that client service is becoming more efficient because of the relationship with LPL. Harbor Lights doesn’t have to hire new people every time it launches a new initiative because help is available from its broker/dealer. One of the projects where LPL is lending a hand is with a client segmentation effort wherein Harbor Lights is attempting to identify those clients in the sweet spot of $500,000 or more in assets.
“We’ve always believed, even when we were with Royal Alliance, if we’re partners with a broker/dealer, then let’s be partners,” says Lockwood, who when we spoke had just returned from an industry meeting in Chicago where he spoke on behalf of LPL. “We put a lot of effort into developing a two-way street, delivering a service to them, which is having a true equity partnership with your broker/dealer. At the end of the day they can help us and we can help them.”
Partnership #3: The Community Bank
One of the ways that LPL has been of help to Harbor Lights was in securing the firm’s latest partnership–with Two River Community Bank (see Partners in the Community sidebar). The conversation with the bank, which had been working with another advisory firm in the area, began because of a personal relationship Tendler had with an executive at the bank (his daughter and the bank exec’s son were both valedictorians in different years and both attend Colgate University). Although the bank approached Harbor Lights about working together, both Tendler and Lockwood agree that the deal would never have been consummated without LPL’s support.
Tendler says that when Harbor Lights signed on with LPL it knew the broker/dealer had a division that provided financial planning services through banks, but never thought the firm would need to call upon it.
For those advisors who may not be familiar with how banks fit into LPL’s business, in announcing record earnings for the first quarter of 2010, LPL Financial’s CFO, Robert Moore, noted that the banking channel is “an important strand of our business model” that represents 30% of LPL’s overall revenue and number of representatives. “Within our financial institution channel,” Moore said, there are 750 institutions, “which gives us the largest market share,” and “we view that as a source of growth,” in part because “those institutions have experienced fairly strong growth” themselves.
When it came time to present a partnership deal to Two River’s top management, Lockwood, Tendler, and Roberts explained what Harbor Lights has to offer their clients and how they do what they do. LPL sent a team from Charlotte, North Carolina, to present along with them.