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   <span id="tags-125236" ="tags noprint"> tags: <a href="http://www.riabiz.com/t/73203" target="_blank">David Hou</a> | <a href="http://www.riabiz.com/t/64157" target="_blank">Mark Sear</a> | <a href="http://www.riabiz.com/t/7018" target="_blank">Merrill Lynch</a> | <a href="http://www.riabiz.com/t/8008" target="_blank">wirehouse</a> | <a href="http://www.riabiz.com/t/63053" target="_blank">Advent Software</a> | <a href="http://www.riabiz.com/t/30116" target="_blank">Luminous Capital</a> </span>

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.

<p>This trio are recent graduates of the University of Southern California, <span ="caps">UCLA</span>

and University of California at Berkeley, respectively, and their new
bosses at Luminous Capital like office arrivals at 7 a.m., or earlier.

<p>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.

<p>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 <span =“caps”>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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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.

<p>Mark Sear, managing partner of Luminous Capital, is under no illusions about what he is asking.</p> <h2>Hardest job</h2> <p>“It’s the hardest job you can imagine,” he says.</p> <p>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.

<p>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 <span =“caps”>RIA. Read: Part 1 of 3: Merrill Lynch Stars take a leap of faith to independence — and a new office

<p>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.

<p>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.

<p>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.

<p>Now the company is back on offense with new strategies for gathering assets.</p> <h2>Average of $20 million</h2> <p>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.

<p>This makes the net haul more than worthwhile.</p> <p>“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.

<p>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.

<p>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.

<p>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.

<h2>Goldman Sachs factor</h2> <p>“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.

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

<p>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.

<p>“We’re

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

<p>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.

<p>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.

<h2>Cold calls are anathema</h2> <p>In other words, cold calls are anathema to many RIAs and not even many warm ones get placed.</p> <p>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 <span =“caps”>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.

<p>Much was generated by referrals.</p> <p>“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.”

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

<p>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.

<h2>The week is shot</h2> <p>“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.”

<p>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.

<p>“A Merrill Lynch office with $3 billion

[of assets under advisement] is looking for 10 people,” Sear says.
“We’re looking for one.”

<p>Interestingly, Luminous is not paying signing bonuses or offering an increased payout to new employees.</p> <p>“I don’t want people coming to Luminous for a check,” Sear says.</p> <h2>Staggeringly successful</h2> <p>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.

<p>Luminous is looking for financial advisors who

want to operate in a success-oriented environment, but who want to put
the clients first.