One hundred firms make up AdvisorOne’s 2012 Top Wealth Managers, as measured by assets under management per client, with data as of 12/31/11.
Here we present a profile of the crème de la crème of the Top Wealth Managers—those 10 firms that topped the list in in our 2012 survey.
View the list of all 280 firms in our 2012 Top Wealth Managers survey.
At the time founder and President John LaPann launched Federal Street some 20 years ago, he says no one was really doing what has developed into open-architecture wealth management for individuals and families. “There were financial planners and big institutional consultants, but nobody was really addressing the needs of institutional-sized families,” he says. “That was the original concept.”
Putting the client first and conveying service and advice in a way that would make sense to clients were other objectives. Such principles gave the firm a “first-mover advantage.” While it may not sound like an objective when most others are constantly looking to expand to the largest size possible, LaPann adds that keeping Federal Street boutique-sized was another objective, “because we felt we could be the most responsive, nimble and creative if the demands of the organization are few and client concerns are addressed first.”
The formula seems to have worked, with organic growth and clients coming in mostly through word of mouth from existing clients whom LaPann says the firm has “made … so happy with work we’re doing for them.” Staffers now number 26, with four client-facing principals, a director of research and a research team so that the firm has “the depth of an institution with the creativity of a boutique.”
(In the Top Wealth Managers survey, as of Dec. 31, 2011, Federal Street reported it had 27 staffers.)
“Our short term is longer”
If 2008 did anything, it demonstrated a need to re-evaluate accepted beliefs and practices. Sometimes that vindicates a firm’s approach. Says LaPann, “I don’t think any firm that went through the period of 2007, 2008 and 2009 and came out successfully on the other side didn’t take the opportunity to evaluate the way they formed advice, and we’re no exception. We actually ended up reaffirming our practices.”
Among other things, the firm evaluated its use of a long-term perspective and its practices of looking at investing rather than trading, its method of choosing managers, the way it kept its clients informed and how it set good expectations.
LaPann says, “All those, we were happy to see, are sort of fundamentals for us, but we I would say the shifts we made really were more in terms of taking our long-term perspective and sort of laying over it a shorter-term perspective. Our shorter term, which is three to five years, is actually longer than most other firms’.”
“When I started business 20 years ago I had to explain to people what we did,” LaPann says when asked to define his firm. As a result, “It’s something we talk about all the time. The way the business describes itself is the way we conceptualized it 20 years ago.”
While “a lot of our competitors use exactly the same vocabulary—open architecture, best-of-breed managers,” he says, “it’s important for us to differentiate ourselves today.” One way the firm does that is in the size of the clients it serves: ultrahigh net worth, ranging from $50 million up to several hundred million. Another is in the type of client: individuals and families make up about 75% of the firm’s list, while midsize foundations and nonprofits and freestanding family foundations make up the other 25%. Another distinction is that every client works with one of the firm’s four principals, and that the people with knowledge and experience are the ones working directly with clients. “If they were with a larger institution,” he says, “[the principals] would be the boss of the person or the boss of the boss that works with the client, so [the principals] came here because they want to work directly with the client.”
Independence is also important, he says. Clients pay fees only; there are no hidden charges, and “every dime of revenue is paid to us directly by clients for advice and service. When a client comes here, they know what their costs are, and they know that our only incentive is to make the client happy.”
A refuge for employees
While senior management are the owners of the firm, LaPann says that the intention is to increase ownership among members of the firm. That said, he adds that the firm is “a refuge” for its employees; “the reason they come here is that they like to work in a place where there are no conflicts, and where the lion’s share of their time, virtually all of it, can be focused on working with clients—and where there’s a collegial environment.”
If the firm adds clients largely by word of mouth, it does the same for its staff. The key, says LaPann, is “to always be looking,” so that when an opening presents itself, the firm is already aware of potential candidates to fill it. The firm also promotes from within as much as possible. While there is no rigid hierarchy at the firm, a succession plan is in development.
Two late-night concerns
Because of the size of the clients Federal Street caters to, LaPann says, “we all get to see … the biggest, thorniest client issues.” So if sleep is slow in coming, he finds himself reviewing these issues—which, he adds, are of a “delightful level of complexity.”
The other issue on everyone’s mind is “how do we get better at what we do?” Pursuing the rate of return needed by the firm’s clients in a difficult environment that does not offer that rate of return is a challenge, but LaPann says, “we know that we have the depth and creative resources to attack that question”—and without bureaucratic or corporate restraints on what they can do. The quest is at the same time a challenge and a responsibility, but, says LaPann, “that’s what I love about this business.”
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