Stand by the Man

It's a fact: The biggest financial advisors, in terms of assets under management, are wirehouse advisors. Actually, when we began this top advisor list back in September 2002, only a couple of spots were filled by regionals (Legg Mason, for example) and registered investment advisories. This domination by wirehouse reps has continued, so much so that we now break the list into three catergories: biggest wirehouse advisors, biggest independent advisors and biggest RIAs. This strikes us a more equitable way to toast those who have built big books of business.

So why is it that the biggest of big advisors tend to work at the large, national brokerages? If you ask the wirehouse firms, of course, they'll tell you it's their brand — and all that stands behind that. Charles Johnston, president of Smith Barney's global private client group, says it's all of the capabilities offered by a wirehouse platform, from the firms' capital strength and reputation (guess the research scandals are forgotten), to comprehensive product offerings and global reach. Johnston says brokerage houses have great asset management platforms, including alternative investments, strong lending capabilities both for individuals and businesses, and corporate services for exercising stock options.

“When you go to the full service firms, in my opinion, you get all that in one place, and that provides, in my opinion, for consistency of the offering, and it also provides for accountability,” Johnston says. “Whereas if you are an independent, you have to go to eight or 10 different vendors to piece all that together. You don't have the same consistency or control that you have under the Citi umbrella as an example, and I think clients recognize that.”

The wirehouse firms have certainly got part of the equation right. Brand is a big part of it, and so is scale. But there are other reasons the biggest advisors stay too: the golden handcuffs and enormous transition packages; the inertia and comfort that comes with staying in one place for years — knowing who to talk to, and how to get what you want; the ability to focus on clients, and not worry about running a business.

Brand Me

Every single top wirehouse producer we talked to mentioned brand and scale when asked what makes him stick with the wirehouse model. It is attractive to young advisors, and it is also a major reason why they want to stay put after they've made it big. Rick Peterson, president of recruiting firm Rick Peterson & Associates, says the gigantic wirehouse brands represent a certain kind of safety for reps. And reps think safety is something clients crave, he says, particularly with the sub-prime credit mess jarring investors and the tech boom and bust still a relatively fresh memory.

Indeed, advisors say wirehouse brands provide credibility in an industry where trust is essential — ultimately it's what you're selling to clients. Alan Whitman, senior vice president at a Morgan Stanley branch in Pasadena, Calif., says he looked at the independent gig, but ultimately decided against it. Whitman, who started with Dean Witter in 1971 and stayed on when it merged with Morgan Stanley in 1997, has grown a book of 750 relationships, some 2,800 accounts and $1.3 billion in assets under management. He likes the confidence and comfort of knowing he has a large corporate structure behind him. “I like the association with the large firm. I think it brings a level of credibility, and I believe, in some clients' minds, a level of stability as well,” he says.

Steve Bloch, with over $1 billion in AUM ($350 million of it retail), says he's never even considered moving to another firm much less going independent. He credits the safety and security of dealing with Morgan Stanley (or any other major wirehouse for that matter). After getting his break in 1972 with Reynolds & Co., a small national brokerage, he stuck with the firm through its mergers and acquisitions with Dean Witter, Sears and finally Morgan Stanley some 35 years later. Bloch says he likes where he is. “I know what's behind me; I know that I'm not alone. I get good research, I get questions answered. I have a lot of things supplied to me as far as information and technology,” Bloch says. He continues, “I have somebody who makes sure the statements are correct; I have block traders that can handle every kind of position that I need; I have inventory for whatever I need, and quite a bit of product,” Bloch says. “If I ever speak to a prospect, if he's dealing with an independent broker, we eat him for lunch.”

It's hard to know for sure whether the assertion that wirehouses have the best product, the best tools and the best service offering is perception or reality. Everyone agrees that this was the case 10 years ago. But things have changed dramatically since then with open architecture wiping out the primacy of proprietary products, and technology making it simple, and cheap, enough for smaller firms to offer a vast array of investments and tools on a single platform. For now, it's a question without a final answer.

“You're dealing with history, and you're dealing with capable people who grew up in an environment which, 10 or 20 years ago was the best for them,” says Schwab Institutional's Barnaby Grist, managing director of strategic business development. “But they've all been in the business a long time, and they may not be aware of what has happened outside of their environment.”

Home Sweet Home

That said, there is a fundamental difference between the independent and wirehouse worlds — who runs the business. A number of top wirehouse producers say the fact that the wirehouse firms take care of the business and compliance details, and do so comprehensively, allows them to concentrate on what they feel is the most important part of being a financial advisor: serving the client well, and building a book. Take Raj Sharma, a 20-year Merrill Lynch veteran, and number 13 on our list. With about $4 billion in assets under management (about 65 percent is retail), Sharma says he has little time for anything other than serving his clients. He has about 150 clients, most of them entrepreneurs. “I can focus on my clients, I don't have to worry about opening up my shop every day, I don't have to worry about paying rent, I don't have to worry about legal, compliance, technology, platform and other issues,” Sharma says. “I can just purely focus on my client, and work to meet the needs of our clients.”

And industry analysts say that kind of focus is what makes for a productive and successful financial advisor. “When we look at best-practice advisors, those are the ones who really thought long and hard about what the best use of their time is, and I think where most of those guys end up is that the best use of their time is spending time with clients, and trying to find more clients, getting to know their clients and marketing to prospective clients, etc.,” says Bing Waldert of Cerulli Associates. “So the wirehouse model lends itself to freeing up those advisors to spend time doing that.”

Of course, for some top reps, the wirehouse they work for is the only b/d they've ever known. It's comfortable; they know who everyone is and how everything works. They get a lot of respect and attention, and they are obviously making good money. Why change? Joe Montgomery, for example, has been with Wachovia Securities since he began his career in the business 32 years ago, and he and his team have amassed $11 billion in assets. “Everything works real well right now,” he says. “Do we lose some of this ease if we step away? I really believe there is value where I'm sitting, and I have great access; I've been here a long time; I know all the players.”

Indeed, Andre Cappon, president of New York-based comsulting firm CBM Group, says the only reason very high-producing advisors leave a wirehouse firm is “if they're pissed off at branch management, or if they're pissed off at their bosses.”

And in general, at least these days, branch managers and wirehouse executives do everything they can to keep the biggest producers content. Although the wirehouse firms have long had a reputation for being stiff, faceless and bureaucratic, things seem to have changed. Sharma says, for instance, that management is very flexible about meeting unusual client needs, and this is one of the major reasons why he enjoys working at Merrill Lynch.

A couple of years ago, Sharma had a major client who wanted a take out a loan against some illiquid assets, something that his firm Merrill doesn't usually do. But the firm made an exception in his case, he says. Another time, he had a client who had just completed an IPO. The client couldn't sell his stock for at least a six-month period, but Sharma was able to advance the client a line of credit so that the client could meet certain obligations prior to that. “What I find with Merrill Lynch is that although it is a very big firm, it is also in many ways a small firm. It is quite a bit decentralized, and as top producers we have access to the decision makers of the firm, so to me that's important, going a step beyond,” he says.

Alan Whitman, the advisor with Morgan Stanley in Pasadena, echoes this sentiment. Whenever there is a technical or operational snafu, for example, Morgan Stanley management steps in directly to address his clients. “We've had senior management at almost the highest level on the phone with those clients reassuring them that these things will be addressed in a timely fashion,” says Whitman.

Money Talks

Of course, another reason the top dogs stay in wirehouse-land is the promise of future riches: golden handcuffs and massive transition packages. “The [wirehouse] transition packages have gotten so astronomically large these days that even if a financial advisor wants to go independent, they can't turn their back on those deals,” says Mindy Diamond, a columnist for this magazine and president of Diamond Consultants in Chester, NJ. “It's funny, every broker says it's not about the money, but it is.”

At any of the major five wirehouses, the average heavy hitter advisor with around $750,000 in production, is looking at a transition package with anywhere from 80 to 135 percent up front, in addition to bonuses generated by assets brought over to the new firm (production bonuses), says Peterson. When you throw in deferred compensation, that total climbs to between 200 and 235 percent, he says.

Many of the firms have also begun offering more deferred compensation, and lengthening the number of years after which it vests to between eight and 10 years in an effort to make sure the best advisors stick around.

The flip side — at least for now — is that wirehouse advisors don't have much of a payday when they decide to leave the business. Most of the wirehouse firms allow a retiring advisor to pass his book on to a younger advisor while still collecting a percentage of the revenues from his book over a period of years. But that's not the same as building a thriving business, and cashing out with tens of millions for your golden years.

Indeed, one top wirehouse advisor, who manages several billions, says that's the only part of the wirehouse equation that's missing as far as he's concerned: “I think it is imperative that the firm devise a method to create a business environment for the financial advisor,” he says. “The reason for staying where I am is that we have been able to provide the services clients want. But longer-term, there are needs related to being sure [my practice] really is a sustainable business. It's only a business if it outlives you.” Still, he's optimistic: “They'll figure out some way to monetize it,” he says.

How the Firms Stack Up

The Stock-Picker

William Kay Blount, UBS

Firm: UBS

Age: 77

Location: Portland, Ore.

AUM: $2.4 billion

Time with firm: 49 years

Time in the business: 49 years

Business specialty: Portfolio growth.

Bill Blount hasn't changed the way he's done business for 50 years — he buys good companies and keeps them, period. “It's really a John Templeton-type philosophy; it doesn't matter where the company is domiciled, as long as it's honest and the price is right,” he says.

Honesty is the cornerstone of Blount's practice: He tells all new prospective clients that the Blount Group — which includes one of his two sons, his daughter and two other advisors — already has too many clients and too much money. The team manages the accounts of 1,700 families, and no client is too big or too small.

And it's not just the size of Blount's practice that's atypical. The 77-year-old Portland native picks all his own stocks, charges only commissions, and doesn't rebalance portfolios or do asset allocation (he owns no bonds except for short-term munis for parking cash). He also doesn't touch mutual funds, annuities, hedge funds or derivatives. It's all too complicated, too expensive or affords too little control over the investments, he says. But he's clear about his intentions: “My goal is for my clients to double their money every four years.”

Every client's portfolio has 50 to 60 stocks, and he rarely sells. He bought his first shares of Royal Dutch Shell in 1958; to this day, he has never sold a share. He likes companies with global businesses, especially energy and pharmaceuticals. He likes land and timber too. “I'd even buy water, but it's very difficult and mostly owned by municipalities,” he says. He calls the biggest mistake he ever made selling 10 shares of Berkshire Hathaway. He bought them for $100 in 1958, and sold them a year later (for $100) to help pay for a washing machine for the house he and his wife had just bought. “Do I cry? No, I had clean shirts,” he says.

He doesn't use any formulas to pick the stocks (“They're irrelevant”); instead he likes to talk to executives, visit factories and chat with analysts. “Every security is an economic equation. I look at it as an enterprise, and then I ask myself if its price is fair,” he says.

“It's that simple. Some people like to change their wives every now and then, but that can get very expensive,” he laughs. “Investing,” says Blount, who's been happily married for 50 years, “is about buying a business you'd like to be married to.”
— JC

The Markets Geek

Mark Curtis, Smith Barney

Firm: Smith Barney

Age: 51

Location: Los Angeles

AUM: $17 billion

Time with firm: 26 years

Time in the business: 26 years

Business specialty: Wealthy private clients; endowments, retirement plans.

Mark Curtis has had two branch managers in 26 years. Not many brokers can say that. It's one of the numerous points of good fortune he credits with having enabled him to be so successful. And successful might be an understatement when you consider that he has $17 billion in assets under management. He also credits his father, another financial advisor, for being a great mentor and role model. “My father was a huge influence on me. Growing up, we spent a lot of time around his clients. I couldn't wait to have a client.”

He certainly has quite a sophisticated client list today. His book of business includes corporations, endowments, foundations and retirement plans on the institutional side and wealthy private clients on the retail side. “I have a foot squarely planted in both the institutional and retail businesses,” he says. In fact, his assets are split almost evenly between the two.

Curtis started at E.F. Hutton in 1981 (later acquired by Smith Barney), where he cut his teeth with managed accounts and mutual funds, products he still uses today. He says he is product agnostic, but there are some products he avoids altogether: “I have a bias against products that are illiquid or that have a long time horizon, like private equity for example. Or anything that has a front-end or back-end load.”

Curtis is a self-proclaimed financial markets geek who says he put in longer hours than his peers in his early years, and it really paid dividends later in his career. “I liked knowing that I was better than the guy next to me because I wanted it more,” he says.

The one thing he enjoys more than dispensing investment advice, and creating a financial plan is basketball. At age 51, he still gets out on the court for pickup games, but he leaves the killer crossover dribble to his two sons, both of whom play for their high school teams.

Curtis says good clients are another reason for his success. In a world rife with big egos, he is genuinely a guy who is thankful for his accomplishments, and for those who helped him along the way. His favorite quote is a John Wooden classic: “The main ingredient of stardom is the rest of the team.”
— KB

The Bond Barn

Bill Gurtin, Morgan Stanley

Firm: Morgan Stanley

Age: 47

Location: Rancho Santa Fe, Calif.

AUM: $6.5 billion

Time with firm: 9 years

Time in the business: 22 years

Business specialty: Discretionary management, high-grade fixed income; UHNW individuals.

Bill Gurtin does bonds, and he does them very well. Gurtin and his team work exclusively with ultra high-net-worth individuals, primarily family offices, and manage only the fixed-income portion of their portfolios. “We won't oversee an entire portfolio, and we don't want to,” says Gurtin. “Either you're overseeing a portfolio and outsourcing to managers, or you're just the manager. Otherwise, you're naturally conflicted.”

Unlike most wealth advisors, he and his 10-person team manage all of their clients' investments internally. They are discretionary asset managers and so are held to the standards of the Investment Advisers Act of 1940. As a result, they can't invest in any products or securities from Morgan Stanley's inventory, so they do their own trading.

Gurtin admits to having an unusual model for a wirehouse advisor. But that works to his advantage, he says, because he can focus on what he does best. Gurtin got started in the business in 1985, in the private client group of Goldman Sachs, where he managed fixed income. In 1995, he moved with a group from Goldman to Morgan Stanley. Then in 2002, he and three assistants created The Gurtin Group, his current bond management team at Morgan. Since that time, his assets under management have more than tripled from $2 billion to $6.5 billion. Today, the group has around 130 to 140 clients, an average client portfolio of $25 to $50 million and a client asset minimum of $5 million. “But some portfolios run to the hundreds of millions,” he says. “We have a number of clients who are billionaires.”

The secret to dealing with these kinds of clients, Gurtin says, is making sure you are accessible — on their terms. “It's our job to satisfy their requests, and to do so in a timely fashion. If someone needs to talk to me, I'm always available on my cell phone.” Great returns, of course, help. The Gurtin Group can provide clients with audited statements of historical performance based on a series of fixed-income strategies they have developed. “Audited statements add a level of credibility,” he says.

Gurtin says his group is not done growing. “If you're not ambitious, and you don't grow, then the business begins to stagnate. And you want to create opportunities for the people that work with you,” he says. He hopes the business will double or triple over the next five years. There's some healthy ambition for you.
— KF

The Dream Catcher

Tom Keegan, Merrill Lynch

Firm: Merrill Lynch

Age: 49

Location: Fairfield, Conn.

AUM: $12.8 billion

Time with firm: 27 years

Time in the business: 27 years

Business specialty: Ultra high-net-worth, executive compensation programs.

If someone offers you a job cleaning toothbrushes at Merrill Lynch, you take it. That was the sage advice Tom Keegan received when he was just a young buck trolling for his first job on Wall Street. It proved to be some of the best advice he ever got. While his first gig at Merrill required a lot of grunt work, he was able to move up the ranks quickly to become a financial advisor.

Twenty-seven years later he serves 220 wealthy clients, some of whom are top executives at Merrill, as part of the firm's largest private banking team. Keegan is the top producer in a group of 12 private wealth advisors and 18 other team members, each with their own area of expertise. And the cost of running the practice isn't cheap. “We went out and hired the bodies, and brought in the consultants,” Keegan says. “We have a $10 million payroll.”

A lot of his clients are self-made individuals with top jobs at public companies, he says. Others are investment bankers, private equity partners and hedge fund managers. His team handles investment management, financial and estate planning. They also manage executive compensation programs such as stock options, deferred compensation and Section 16 officer execution. “Our investment focus includes wealth preservation, and generational planning techniques,” he says.

But it doesn't stop there. Keegan also does financial planning for assets held with other firms, as well as hard assets, including airplanes, art and real estate. A student of Warren Buffet, Keegan says that he's been fortunate to have such intelligent, sophisticated clients: “We learn more from our clients than they do from us.” Keegan attests that “just by being good listeners, we've added years to our investing acumen.”

Keegan is also an antique automobile collector, and his favorite car is a 1941 Packard V-160 red convertible that once belonged to Lucille Ball. His passion for vintage autos closely rivals his zest for the advice business. “I love what I do for a living. I'm living the dream,” Keegan says. Inspiring words from a true company man.
— KB

The Innovator

Joe Montgomery, Wachovia Securities

Firm: Wachovia Securities

Age: 55

Location: Williamsburg, Va.

AUM: $11 billion

Time with firm: 32

Time in the business: 32

Business specialty: Institutional cosulting and wealth management for HNW clients.

Joe Montgomery has come a long way. When he first started in the business, his only criterion for accepting clients was whether or not they could “fog a mirror,” he says with a laugh. Today, new clients must have a minimum of $5 million in assets to invest, but he continues to offer robust service to long-time clients with less, he says. Clients must be looking for a long-term relationship. “We tell clients we want to have a relationship for a lifetime.”

Montgomery says his 12-person team provides institutional service and investments to its high-net-worth clients. After all, the team manages about $10 billion for institutional clients, and is able to carry that skill set over to the retail side's 400 client households, which represent the other $1 billion. While the asset balance is heavily skewed toward institutional, he says the bulk of clients, and the bulk of time spent, are on the retail side.

An openness to change and innovation get credit as the source of the team's success. Montgomery began using financial planning long before most advisors — back in the 1970s — when he first got going in the business. His team also converted to fee-based planning 20 years ago, and integrated lending and insurance into its offering early on. “I'm a huge creature of habit,” he says. “But we've been fortunate to accept change and innovation early.”

Montgomery is a great believer in the wirehouse model. “We have the scale and scope to do everything we need to do for clients. The real genius of the Wachovia Securities system is that you're not falling into the abyss trying to figure out how to get this stuff done,” he says. “And when you're dealing with us, if anything happens to the client, you have the resources of Wachovia Securities for support. If you're out there at Jim Bob's Financial Planning, you don't have that.”

Things could have turned out quite differently. Montgomery started out with the Philadelphia Eagles after college, and planned a long career with the NFL. But the NFLdecided otherwise, and when he ran into a guy from William and Mary (where he went to college), he was offered a job at Wheat First, now Wachovia. “And here we are today. It turned out to be the greatest break of my life.”
— KF