for all the cold callers...

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CALI123's picture
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Hou-Sear team applies Goldman Sachs marketing approach in second year as RIAs
Luminous Capital uses intensive cold-calling and a breakaway strategy to augment giant referral flow

Tuesday 2/16/10 
by Brooke Southall  


tags:

David Hou
|

Mark Sear
|

Merrill Lynch
|

wirehouse
|

Advent Software
|

Luminous Capital

While most
22-year-olds are catching a couple more hours of sleep, three young men
in Los Angeles are turning off alarm clocks in the pitch black of
winter’s early hours, and hopping out of bed.

This trio are recent graduates of the University of Southern California, UCLA
and University of California at Berkeley, respectively, and their new
bosses at Luminous Capital like office arrivals at 7 a.m., or earlier.

The
three young men were chosen by the registered investment advisor, which
has more than $2.7 billion in assets under management, from 600
resumes, 100 interviewees and 40 finalists.

Getting the jobs
at Luminous, where they started in September, may have been the easy
part. Playing a telemarketing role almost unheard of at an RIA,
the new hires are making about 50 phone calls a day – not including
ones for take-out pizza. From the 250 calls they place each week, they
are expected to generate 25 new leads.

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That
would be difficult under any circumstance. But these men are assigned a
list of the 3,000 to 4,000 wealthiest individuals on the West Coast.
Many of the people on the list are successful entrepreneurs –serious
people who don’t love chitchat with strangers.

Mark Sear, managing partner of Luminous Capital, is under no illusions about what he is asking.

Hardest job

“It’s the hardest job you can imagine,” he says.

He
and his partner, David Hou, expect the hard work to yield a tremendous
reward for Luminous in terms of asset growth. That growth is a sequel
to an already compelling tale of success.

The principals of
Luminous Capital made history by becoming one of the largest teams ever
to break away. They left Merrill Lynch & Co. to form their own RIA. Read: Part 1 of 3: Merrill Lynch Stars take a leap of faith to independence — and a new office

In
May 2008 Sear and Hou led their employees from the 12th story of a Los
Angeles skyscraper down to new offices on the third floor, in a
dramatic half-hour of whirring fax machines and instant career changes.
There were 20 members of Luminous including five partners.

The
breakaway was not the final objective of these two entrepreneurs. The
formation of Luminous Capital merely set the stage for Hou and Sear to
get on with their real task – building a bigger, better advisory
practice. Luminous now has 24 employees. Its assets grew by a $1
billion since departing Merrill Lynch, despite the rough economy and
poor market conditions.

For much of the first year, their
attention was focused on consolidating their gains and making sure that
all the assets that they managed at Merrill Lynch transferred to
Luminous.

Now the company is back on offense with new strategies for gathering assets.

Average of $20 million

Its
cold-calling program manned by the three young associates has a low hit
rate. Luminous seeks to only add 15 clients annually to about 225
clients that it currently serves. Each one of these young callers is
projected to generate four clients with an average of $20 million of
assets.

This makes the net haul more than worthwhile.

“That’s
$80 million of assets and $400,000 in fees,” Hou says. The callers get
paid a trailing commission in the year after the assets are transferred
to Luminous.

One cold call has already produced a $50
million client and another one netted a $100 million prospect in Las
Vegas, according to Hou, managing partner of Luminous.

Though
these young employees are placing cold calls, they are not of the
variety made famous by the movie Boiler Room. The script they use is
more of an invitation to become part of a relationship rather than a
transactional idea.

It’s an approach that Hou and Sear used
successfully at Goldman Sachs where they were trained and initially
developed their own books of business, Hou says.

Goldman Sachs factor

“Goldman
Sachs taught us how to be a successful solicitor,” he says. Hou and
Sear worked at Goldman Sachs until 1997 when they left and took $1
billion of assets to Merrill Lynch. At the former investment bank, Hou
says his scripts centered around, for example, setting up annuity
trusts rather than a hot investment idea.

Of course, it’s extremely difficult to reach people in the age of voicemail. “We leave a very detailed message,” Hou says.

The
three young marketers at Luminous were chosen for their grade point
averages but special attention also was paid to whether they had to
ability to build relationships – in or out of business.

The
idea behind having what are essentially telemarketers employ such a
high-charged sales strategy is to bring what’s successful in the
wirehouse channel to the world of financial planners.

“We’re
trying to cross-pollinate the growth-oriented brokerage firm/investment
banking methodology with the fiduciary structure of an RIA,” Hou says. “And it’s working.”

What
they do separates it from much of the industry. Virtually every study
churned out about RIAs shows that these financial advisors rely almost
exclusively on a single strategy for growth – referrals.

Many
firms don’t even have a formal plan for harvesting referrals. They
network informally with their own clients and a few standby accountants
and lawyers about town.

Cold calls are anathema

In other words, cold calls are anathema to many RIAs and not even many warm ones get placed.

Even
at Luminous, of course, the referral strategy is still a mainstay. When
Sear and Hou broke away from Merrill Lynch, about $1.7 billion quickly
followed them. By the end of 2009, their ADV
showed assets of $2.7 billion, according to Sear. The growth consisted
of $350 million of investment performance. The other $700 million
resulted from new client acquisition.

Much was generated by referrals.

“In
my 20 years of doing this — ” Sear says, then pauses. “It’s off the
charts. We’ve had more swings at the plate than at any time I can
remember, times three.”

Hou and Sear attribute the growth in part to the way they are able to allocate their time as financial advisors under their own RIA. They estimate that they have 30% more time to spend with clients.

The
time is often spent in settings like a lunch, dinner, a sporting event
or golf, according to Sear. And that, in turn, means winning more
referrals.

Merrill Lynch sent them to two-day meetings –
often in places like Florida. The emphasis was on learning products and
the travel chewed up time.

The week is shot

“The
week is shot,” Sear says. “So much of your time is sucked up with
nonsense. Think of how much time has been freed up [by turning
independent]. That’s paid big dividends.”

Besides more
aggressive referral seeking and a cold-call program, another leg of the
Luminous growth strategy is to bring aboard more financial advisors.
The targeted advisor has a book of business that generates about $1
million of revenue.

“A Merrill Lynch office with $3 billion
[of assets under advisement] is looking for 10 people,” Sear says.
“We’re looking for one.”

Interestingly, Luminous is not paying signing bonuses or offering an increased payout to new employees.

“I don’t want people coming to Luminous for a check,” Sear says.

Staggeringly successful

Luminous
is setting a low bar for itself in this recruiting in one respect. “If
we get six new people, that will be staggeringly successful,” Sear
says. He believes the company can bring aboard one or two advisors
annually.

Luminous is looking for financial advisors who
want to operate in a success-oriented environment, but who want to put
the clients first.

B24's picture
B24
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These guys are pikers
 

CALI123's picture
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i love "its the hardest job in the world"

Squash1's picture
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CALI123 wrote:i love "its the hardest job in the world" Do you disagree?

joelv72's picture
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Squash1 wrote:CALI123 wrote:i love "its the hardest job in the world" Do you disagree?
Well, I guess I'd rather be hung up on by a guy with $20MM in investable assets, than calling the night time deli manager from a cubicle in Arizona and getting the same results.

B24's picture
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Wouldn't it be nice if you could cold-call for a year and end up with "only" one new client at $50mm!
 
Granted, they probably only earn 10-20Bips on that type of account, but it's still sweet.

joelv72's picture
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B24 wrote:Wouldn't it be nice if you could cold-call for a year and end up with "only" one new client at $50mm!
 
Granted, they probably only earn 10-20Bips on that type of account, but it's still sweet.

“That’s $80 million of assets and $400,000 in fees,” --50bps

chief123's picture
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Joined: 2008-10-28

They must be attempting to call executives at work(though I am not sure on how 25 calls/day that works well)..

Otane's picture
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Probably well planned out calls with an expensive list. I wouldn't doubt if these guys were just dialers to see if they reach gatekeepers and the times when these people arrive or stay late.

I don't see these guys saying one frikkin thing to the prospect.

WarRoom's picture
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Otane wrote: Probably well planned out calls with an expensive list.

Wow, insightful.

Otane's picture
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WarRoom wrote: Otane wrote: Probably well planned out calls with an expensive list.

Wow, insightful.

Yeah genius. I am sure you are doing well yourself. Or you take the moronic way and just frikkin dial 200 calls a day and get your 10k prospect - Idiot.

jackofalltrades's picture
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The problem w/ this article and the guys they have hired is analysis... IMHO these guys seem more apt to analyze every detail of how they call and why they do it, splashed w/ a quick explanation of how they aren't like the movie Boiler Room...WTH? Why don't they throw in they aren't like Madoff, they likely do some of the same things, investment wise, he did... I guess what I am saying is I am baffled at how this industry frowns so much on cold calling, but putting a fish bowl at Olive Garden that says "Win a free lunch" is deemed prospecting. and 50 dials a day??? they should be analyzing the fact that if 50 dials a day brings in 50mm that 200 dials would bring in 200mm. This is the issue I have w/ every guy I hire w/ an MBA, they will sit down w/ a stack of leads and figure out how many they need to call, fine tune their script, and ask a bunch of questions about what a guy may possibly say, all before making 1 dial. Look, I am not against setting goals and understanding what your prospecting work can provide but just get on the phone. to the OP thanks for posting this... I have been telling my guys that the more phones are gonna start ringing in the executive offices soon. More firms will follow suit, because it works.Best,Jack

newrepd's picture
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This is the FIRST thing that had me
 
"three young men in Los Angeles are turning off alarm clocks in the pitch black of winter’s"
 
 
 
 

chief123's picture
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jackofalltrades wrote:The problem w/ this article and the guys they have hired is analysis... IMHO these guys seem more apt to analyze every detail of how they call and why they do it, splashed w/ a quick explanation of how they aren't like the movie Boiler Room...WTH? Why don't they throw in they aren't like Madoff, they likely do some of the same things, investment wise, he did... I guess what I am saying is I am baffled at how this industry frowns so much on cold calling, but putting a fish bowl at Olive Garden that says "Win a free lunch" is deemed prospecting. and 50 dials a day??? they should be analyzing the fact that if 50 dials a day brings in 50mm that 200 dials would bring in 200mm. This is the issue I have w/ every guy I hire w/ an MBA, they will sit down w/ a stack of leads and figure out how many they need to call, fine tune their script, and ask a bunch of questions about what a guy may possibly say, all before making 1 dial. Look, I am not against setting goals and understanding what your prospecting work can provide but just get on the phone. to the OP thanks for posting this... I have been telling my guys that the more phones are gonna start ringing in the executive offices soon. More firms will follow suit, because it works.Best,Jack

Exactly...
 
I think the one thing I love about cold-calling, is that competition never lasts long... People try for a day, week , even a month but never stick with it... I love that..

gb0413's picture
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i've had great results from cold calling, and i've never done anything else...no need yet

BondGuy's picture
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This proves that having the right list makes a difference.

Squash1's picture
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BondGuy wrote:
This proves that having the right list makes a difference.

Or that it is just a matter of consistency.... Bond Guy did you check out the two articles referenced here
 
http://registeredrep.com/advisorland/marketing_selling/finance_cold_calling_back/
 
http://www.riabiz.com/a/125236
 
Any thoughts...

Otane's picture
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I loved this typical statement:

A cold call is harder than a face-to-face appointment any time,” says John Graziano, president of Future Financial Planners in Bayonne, NJ, who trains and supervises 120 financial planners in cold calling and other techniques.

Overall that article was excellent. Both articles shared one thing: a focused list and message. There is an FA in my office that dialed 350 a day while he was at UBS for several years. I don't think he ever calls anyone now, since it was such a burnout experience for him. His production is not that great as well.

If you work for a major wirehouse you can't do sh*t. Your only avenues are cold calling, cold walking, and sending out letters. Funny thing is a lot of advisors at my office just sit for the phone to ring. Cold calling is not back - there are more chickensh*ts than ever out there.

Sportsfreakbob's picture
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gb0413 wrote:i've had great results from cold calling, and i've never done anything else...no need yet
Define great results - assets, time frame, average account size?

DodgerDraftpick's picture
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Cold calling a targeted market you  are already in for a sustained period of time is still one of the best ways to genrate business next to client referrals and high impact networking and markeing with COI in certain areas you are trying to break into.  It does take a very long time though and most advisors don't have the stamina to wait two plus years to see results.

Mr.Blonde's picture
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DodgerDraftpick wrote:Cold calling a targeted market you  are already in for a sustained period of time is still one of the best ways to genrate business next to client referrals and high impact networking and markeing with COI in certain areas you are trying to break into.  It does take a very long time though and most advisors don't have the stamina to wait two plus years to see results.

Dodgerdraftpick,
 
I'll bite. What round, what year, and who do you know in the show?

chief123's picture
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This was my favorite quote
"Green, for one, trains advisors to make no more than 30 calls a day, searching for specific gaps — a portfolio with too-risky investments, say — and then encouraging lengthy conversations before finally arranging a meeting."
 
How many people are you really talking to with 30 calls?

chief123's picture
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DodgerDraftpick wrote:Cold calling a targeted market you  are already in for a sustained period of time is still one of the best ways to genrate business next to client referrals and high impact networking and markeing with COI in certain areas you are trying to break into.  It does take a very long time though and most advisors don't have the stamina to wait two plus years to see results.
 
The reason is because most firms require production in the frist 3 months.. No one has time for targeted markets until they have built a book..

DodgerDraftpick's picture
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Correct but it still is something you should have as part of your daily marketing acitivites.  Blonde to respond to you College baseball only always wanted to be drafted by the Dodgers hence the handle.  As for who I know in the "Show" many of my former teammates played professional baseball and several are still living the life in the Bigs!

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