Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Practice Management > Building Your Business

Billion-Dollar Service

Your article was successfully shared with the contacts you provided.

“We are the world’s best high-net-worth wealth advisory firm.”

That’s the elevator speech of Eric Kramer, founder and principal of Crestone Capital Advisors LLC in Boulder, Colo. That confidence isn’t just marketing spin. Crestone’s average client has around $50 million in net worth and new clients must have a minimum of $25 million to invest.

Crestone Capital Advisors was founded in 1991 as The Eric J. Kramer Company. After a lot of “refined experimentation,” and some help from the telecom and tech booms in the ’90s, the firm has grown to $1 billion in assets under management, and advises 40 clients. Kramer attributes part of his firm’s growth to an influx of “sophisticated, wealthy families” in Boulder.

“That really turbocharged our growth and really helped us cement the value proposition,” he says. “You know, at a level, the industry was really was pretty incipient at that point in time. You didn’t know if people would pay for these services or not. It was a philosophical choice and a value proposition that had to be proven as a viable business.”

The business has proved to be viable, and today, Crestone makes its mark as a high-service firm for the super-rich. “I think the thing that is unique about us that is hard to really put your finger on is our unique culture in terms of our high-service approach,” Kramer says.

“Our clients make money. We are focused on that effort, yet at the same time, at a service level, from our clients’ perspective, it feels like the Ritz Carlton all the time.”

This commitment to service differentiates Crestone from the competition. As recent economic woes have made abundantly clear, the markets don’t always play nice. “We know there will be a day when big investment results aren’t great,” Kramer acknowledges. “We won’t look brilliant and we know that relationships stick with people who provide great service and treat clients with appropriate respect.”

In fact, when Lehman Brothers closed in September 2008, kicking off an unprecedented recession, Crestone immediately jumped into action. “We knew enough about our clientele and our business to know our people were going to need to talk,” Kramer declares. Kramer and his partner Michael Sherman hosted a Friday afternoon conference call with all their clients, promising two things: “Number one, we were going to stay on the line until every person had been heard about anything they wanted to talk about. If we were on the line until midnight, that’s fine. Number two we were going to do it every Friday at 2:00 until the all clear sign so nobody would be losing sleep over the weekend.”

The repercussions of the recession were “exhausting,” Kramer admits, but by taking on the stress themselves, they were able to relieve stress for their clients. Those Friday conference calls continued every Friday for five or six months, Kramer recalls; now, they are a monthly event.

Due Diligence

While Kramer and his team reacted to the recession with extra support for their clients, a proactive approach to due diligence prevented any unnecessary fallout. Crestone approaches due diligence with the presumption that they will say “no”, Kramer says.

“We are very comfortable missing good opportunities because something just didn’t feel good enough,” Kramer claims.

“We look at so many opportunities between in-person meetings, phone meetings; we dig at least a thousand shallow holes a year on managers and we might put money with fifteen new managers a year,” he says.

Crestone has enough capital to hire private investigators and research managers to help dig those “shallow holes,” and Teams of interns help scrub files. Kramer recalls notes on Bernie Madoff in 2004.

“Our file notes said, you know, it looks like he’s doing something at best unethical, maybe illegal. It just smelled wrong.” That gut feeling, Kramer says, comes from informed business judgment and an understanding of the strategies being used. “It’s the business judgment that you only get by turning over a lot of rocks,” he says.

Investment Philosophy

“We are managing money like a NASCAR driver,” Kramer explains Crestone’s outlook on positioning client assets. “We’ve got the foot halfway on the brake and half on the gas.”

The firm is depending on several different trading strategies, Kramer says, but while the economy has affected some of the “nuances,” the firm’s major investment strategy is unchanged, Kramer insists.

“At the nuance level, it’s pay more attention to bonds and interest rates,” Kramer says. “It’s take some changes in how we approach hedge funds and deal with the current environment. They are more tweaks than major changes.”

“We don’t know what the financial markets are going to do. We don’t pretend to know those things,” Kramer says. Credit risk and high debt have put Crestone on the defensive regarding the economy. Structural challenges and doubts about the central banks’ and world governments’ abilities to “engineer a recovery” suggest to Kramer that low growth in global GDP could last for three to 10 years.

Furthermore, “there’s risk associated with [yield instruments], but not much yield being paid to take that risk and not much upside in the form of potential further decline in interest rates,” Kramer laments. “We think interest rates aren’t going to go below zero. While possible, you don’t want to bet too much on that.”

There are opportunities in the Internet, biotech and emerging economies, though, and Crestone tries to “find creative ways to take advantage of those opportunities and risk mitigated areas.”

“I’m bullish on trading strategies because we’ve done well there. But because I think that–I don’t think, I know–we are seeing a lot of talent leave the investment banks right now.”

The Good Life

It may be easy to write off the ultra-wealthy as pampered brats–in fact, Gerard Aquilina, vice chairman of Barclays Plc’s wealth management unit, recently said as much at a conference in Zurich, according to Bloomberg–but Kramer disagrees. While Crestone doesn’t offer a lot of concierge services, he says, the firm makes every effort to help clients with special requests.

“When a client calls up and says ‘can you get me this or that’ I say we will do our best. I think there’s a handshake. They don’t abuse that.”

Crestone maintains close relationships with clients and Kramer says “a lot of them are very close friends.” These tight relationships can be helpful when working with an almost exclusively referral-based marketing plan.

“One of the challenges in leveraging [a predominately referral-based business] is that the fixed-fee kind of business implies a fairly homogenous clientele,” Kramer says. “People’s needs need to average out over time for the value proposition to work out for all the clients. I think referrals work really well that way because people tend to know other people who are similar to themselves.”

While Crestone clients are generally self-made millionaires, there are still intergenerational issues. Whether meeting with clients four times a year or 12, Kramer says there’s a common theme to family meetings.

“If you get a family to sit down for two hours, we’re lucky if we can get them to talk about their portfolio for 15 minutes,” Kramer says. That doesn’t mean they’re wasting an hour and 45 minutes talking about the weekend, though. Kramer says his clients expect financial results, so meetings are spent discussing important intergenerational wealth issues.

“Maybe it’s a testament to how well we do on the investment side. But we spend a lot of time talking about a lot of other matters. …It’s substantive matters: when do I tell the kids about the money, and when do I turn over some money to them, when do we involve them? What about this problem with this child, or this marriage, or this deal, or this tax problem? It’s all of that stuff that dominates our client conversations. It’s astonishing how little we talk to our clients about their portfolios.”

“You’re talking about $25 million, $30 million. It’s all the other stuff that is all the focus of the conversation. I think that’s probably the litmus test about where they see the service value proposition.”

John Sullivan can be reached at [email protected]. Danielle Andrus can be reached at [email protected].


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.