How can financial advisors grow their practice to over a billion dollars in assets? What are some of the key decisions that successful advisors made to achieve their explosive growth? How did they adjust their business priorities to meet dynamic market conditions?
Three financial advisors, all with over $1 billion in AUM, offered their answers to these questions and more in the Barron’s top advisors panel at the 2016 IMCA Annual Conference. Topics included pivotal decisions that have contributed to success, priorities in running the firm, and a look ahead to the rewards and challenges over the next five years.
Moderator: Sterling Shea, managing director and head of advisor programs at Barron’s.
Panelists:
- Robert Balentine, founder and CEO of Balentine, based in Atlanta. Named Top Independent Wealth Advisor in the Southeast, $2.3B AUM, by Barron’s in 2015.
- Marcella (Marcie) Behman, managing director of The Behman Smith Group (member of Private Banking and Investment Group at Merrill Lynch), based in Boston. Named one of the Top 100 Women Financial Advisors in America from 2010 to 2015 by Barron’s, $1.2B AUM.
- Salvatore (Sal) A. Tiano, managing director of The Tiano Group at J. P. Morgan Securities, $1.5B AUM.
Breakthrough Growth Ideas
The wealth management industry offers tremendous opportunities for organic practice growth.
However, growth has not been evenly distributed across advisors. A small percentage of advisors take the lion share of opportunities. Why?
Niche specialization was a common response from the panel.
Behman invested significant time and effort to become an expert on equity compensation. In the process, she built a seven-person team that is uniquely qualified to advise clients on handling stock options.
After the 2007 market drop, she noticed that technology and biotech executives needed advice on equity compensation. At the time, their equity awards had lost tremendous value, and the coming market recovery held a promise of significant growth.
Many executives did not understand how to incorporate stock options into their overall financial plans. They lacked the expertise and the time to deal with filings, trades, and corporate counsels. Behman became the missing piece.
Lifestyle change was a pivotal point for Tiano. He relocated his practice to South Florida, with its 76 million-strong baby boomer community. He later attended a Barron’s conference and was inspired to build a specialist team that could handle all of his clients’ needs.
Within the next 6 months, he hired a coach and a CIO, and freed up his time to focus on top client relationships and team management. Tiano’s firm specializes in protecting assets, managing both sides of the balance sheet, and transitioning baby boomers’ wealth to the next generation. His firm’s AUM has more than doubled since realigning his value proposition.
“People trust people, even when they lose faith in institutions,” Balentine told us. Business owners, rather than retirees and endowments, is his chosen niche. With many advisors targeting entrepreneurs, Balentine emphasized the importance of creating trust and conveying authenticity to win clients. Transparency and an unyielding focus on clients’ needs have served him well.
Sal Tiano: When it comes to advisory fees, don't read right to left. #IMCA16 @SterlingShea1
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Growth and Multi-Generational Clients
Growth strategies and business management remain Behman’s primary focus. With the goal of reaching more venture capital executives in the Boston area, she is building expertise in that field and educating her team as well.
Behman’s firm currently manages first-generation wealth. Forging a connection with clients’ children is critical for continued success. She has recently brought in a younger partner to stay in continuous conversation with the children of her clients. Her team creates a complete family tree for every client household, leverages Salesforce to accumulate relevant information on each individual, and gives away tickets to sporting events as opportunities to forge stronger connections.
The importance of having more women on their teams came up during the discussion. Balentine estimated that by 2020, women will control more than 60% of liquid net worth in the US. Women advisors may be uniquely positioned to help with long-term asset retention.
@RobertBalentine: Melding the digital age (SEO, web, blogging) with advice is going to continue. Embrace it. #IMCA16
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Technology is a key to creating an appeal with younger clients who expect availability and convenient access 24/7. Balentine’s team engages them with webinars, online document vaults, and portals that make information available to clients on demand.
Fee Compression
All three advisors anticipate fee compression to increase as advances in technology continue to automate more common advisor tasks. Combined with the recent DOL fiduciary rule and the JOBS Act, the trend requires advisors to streamline and simplify business processes.
Sal Tiano: We're going to see more fee compression and more regulation for #advisors in the next five years. #IMCA16
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With instant communication and high liquidity, it is becoming increasingly difficult to outperform the market. A great investment process is no longer a distinguishing factor for clients, noted Balentine. The advisors on the panel have shifted the focus away from performance and towards the value they bring. One way to do that is to do more for fewer people to encompass all aspects of their wealth.
Tiano referred to this as “structural alpha” – surrounding clients with expertise that goes beyond wealth management to encompass all their needs, whether they it is a recommendation for a honest auto dealership or a medical specialist.
Advisor Sal Tiano: Bring a network of experts to the table to add "structural alpha" to your practice. #IMCA16
— fundmaven916 (@fundmaven916) April 20, 2016
I think it is a great approach that can add tremendous value to the client.
Tiano related an example of how the structural alpha approach can pay dividends for your practice as well as improve clients’ lives. His client had recently turned 60, and had been looking for a medical professional to do his annual physical exam. Tiano made the introduction and during an extended examination, the doctor discovered a potentially life-threatening blockage in the client’s carotid artery. The client is set to have surgery in May and credits Tiano with helping to save his life. It will be very difficult for that client to ever leave!
Dealing with Disappointed Clients
The panelists observed that a client’s decision to leave is not usually due to a single or event and does not develop overnight. You should see the warning signs long before the relationship is beyond repair. it is at this point that you must either work on improving it or let the client go.
Tiano recently had to fire an overly demanding, never satisfied client who was tough on his staff. While the initial decision was a difficult and emotional one, it had tremendous impact on staff morale, he reported.
You need a strategy to ground clients when they are disillusioned with their portfolio performance in relationship to the market, Balentine said. Start with an objective look at at downside risk and long-term record. Get them away from tracking an index, and back to their goals and values. This dovetailed nicely with an illustration offered by Carl Richards in another conference session focused on closing the clients’ behavioral gap.
Hiring Great People
Cerulli reports that 43% of advisors are over the age of 55. With over a third of investment advisors poised for retirement in the next 10 years, finding and retaining great young advisors is paramount for succession.
The search can be long and challenging. Beyond technical qualification, you have to go through many candidates to find the right fit for your firm. Interviewing for character is difficult, observed Behman.
The panelists have had success using internships. They also make an investment in coaching, training, and mentoring young advisors to grow within the firm. Tiano encourages new hires to focus on relationships first, and monthly production numbers second, to serve the firm best in the long run.
Takeaways from Barron’s Top Advisors Panel
Here are some of the key takeaways from this panel of billion dollar advisors:
- Put your staff ahead of your clients. The synergy and camaraderie that you create internally will inevitably translate to exceptional client service.
- Understand your firm’s unique value proposition. With continued fee compression and additional needs for transparency, being proud of your fees and the service your team delivers can set you apart.
- Finally, practice what you preach. From budgets to cash flow analysis, top financial advisors become masterful at managing their own wealth first.
