Clean Machines

Like any other rep, Ron Carson, whose $870 million practice rates him as one of America's top brokers, is vulnerable.

This is the conclusion he drew from a 2002 incident in which he was hit with a $12 million complaint. He was accused of a garden-variety transgression — failing to diversify the complainants' concentrated stock position. But here's what pushed the incident into worthy-of-note territory: “They weren't even my client during the time at which the loss occurred,” he recalls.

Still, Carson (see his profile on page 41), who is based in Omaha, had to go through a cumbersome arbitration process, which resulted in an award of $50,000, of which he was responsible for $10,000.

The experience was long enough and painful enough to convince him that there's no such thing as keeping records too meticulously — if only to have the goods to prove that a claim is frivolous or without merit.

“If I have a significant conversation, I dictate a memo saying what was discussed, what they're supposed to do and what we're supposed to do,” he says. “This way, they can notify us of something we need to do, and they also know exactly what they thought we talked about.”

Carson's experience isn't atypical. Many advisors face some sort of complaint at one time or another. Currently, 3.3 percent of all registered reps — or about 20,000 total — have received a recent complaint, according to the NASD. (Those numbers are all the more significant given the fact that only an estimated third of the nation's 600,000-plus registered reps are active in the financial advisory business.)

Because of heightened scrutiny, advisors have to be hypervigilant when it comes to record-keeping and keeping abreast of new regulatory developments.

This is no less true for advisors who comprise Registered Rep.'s third annual list of Top 50 Advisors (see page 51). Not all of these advisors have spotless records, but their ability to build such huge practices speaks to how astute they are in avoiding the sorts of complaints that can bring an advisory to its knees.

There are a couple of approaches common to these superstars. First, they tend to be proactive in responding to client fears, which helps pre-empt the freak-out phone calls that can so frequently act as a launching pad for complaints. Second, this group generally goes above and beyond when it comes to independent audits, extra registrations or investment policy statements. Further, very few of them have lost arbitration judgments, and that's attributable to the desire to head off small problems before they become larger problems.

“We are very anal about dotting the I's and crossing the T's,” says Bernard “Bud” King, who manages $1 billion in assets at UBS Securities in St. Louis. (King is profiled on page 42.) “We take very seriously every directive the firm gives us. If they ask me to sign something that is too broadly worded, I have a conversation with the lawyers and we sort it out. We have a lot to lose.”

Many top advisors say the best way to protect themselves and their business is by becoming ultracompliant — even more so than their firms or regulators require. King, who has a clean U4, points out that he's registered under the Investment Advisers Act of 1940, which means he acts in a fiduciary capacity for his clients.

That's not required of all the reps at the major wirehouses, but it has the advantage of putting him on an equal footing with fee-only financial planners.

Other reps say what separates them is advanced designations and new-client processes that are heavy on the upfront preparation, including an investment policy statement that puts the statement of risk in the forefront.

“I can't remember the last time I had a nonoperational complaint,” says one large Smith Barney producer, who requires investment policy statements for all of his clients. This, he says, “removes ad-hoc decision-making. People stick to their plan, and emotional and behavioral aberrations get out of the equations.”

Still, Sometimes, Things Happen…

This doesn't mean top advisors never receive those hacked-off calls from clients. When clients lose money, many of them will start looking for someone to blame, and the advisor usually draws the first pointing finger.

But there are ways to minimize the number of screaming phone calls. One rule of thumb is that client interactions should have an inverse relationship with the markets: When stocks go down, the number of reassuring phone calls should rise, says Doug Lockwood of Harbor Lights Financial Advisors in Manasquan, N.J.

“Around January-February of 2001, we instituted a corporatewide policy that every client gets a monthly conference call from a partner,” says Lockwood, who, with his partners, manages more than $250 million in assets. “We got too many calls from clients afraid to open up their statements. We wanted to nip that in the bud — we didn't want to let that fester. It's not a happy conference call, but it's something we felt made us better as a firm.”

At this point, the firm has scaled back the frequency of conference calls, partially because the market improved, and also because Lockwood didn't want those calls to devolve into a monthly discussion of the previous month's performance. Clients who wanted to maintain that frequency, however, do so through the firm's communications director, with partners rotating into calls every few months.

Nancy Lininger, a compliance consultant based in Camarillo, Calif., who works with independent advisors, says the best advisors make this type of proactive communication their top priority — and asking for feedback can be even more helpful.

“Sometimes it's as simple as sending a client satisfaction survey once a year,” she says. “Some might send a bunch of kudos — but hopefully you get some complaints. In this case, a complaint is a gift. Take it to heart, the areas where someone has taken the time to say, ‘You asked for it, and here it is.’”

Carson takes this even further, maintaining an eight-person client advisory board that has grown so popular he's increasing its membership. He meets with them once a year, and says he's glad to have people out there “really critiquing what we're doing.”

Lockwood also recommends having a compliance consultant come in to do an audit of record-keeping procedures on an annual basis, even though his firm gets an audit from his broker/dealer, Royal Alliance. He says such audits have helped Harbor Lights realize its filing systems weren't as extensive and organized as they need to be should complaints come up. And, besides, any advisor with a growing business should undertake the occasional audit, Lockwood says.

“Having someone on the outside that does this 24/7 is critical to the success of a larger firm,” he says. “If you're getting bigger, both in terms of assets and number of clients, there are certain things you should do to protect your business.”

Independent audits for advisors registered under the 1940 act would look specifically at their Form ADV — a comprehensive disclosure statement filed with the SEC annually that explains an advisor's business practices, fees and ownership structure, among other details. (The SEC estimates that the ADV takes more than nine hours to complete.) Consultants would examine an advisory's ADV, checking to make sure an advisor's verbal and marketing descriptions of their business matches that form, says Jennifer Aracri, vice president at National Compliance Services in Delray Beach, Fla. Such audits also consider an advisor's method of compensation, documents that attest to whether particular investments are suitable and the advisor's fee structure.

“In general, any good financial person is documenting and disclosing,” Aracri says. “Unfortunately, representatives always ask, ‘How much paper do we have to give the client to sign?’ and the answer is, ‘As much as we have to give you,’ so that the client doesn't come back when the market drops and says he was not aware of what they were doing.”

Learning From Complaints

One fee-based Morgan Stanley advisor says he hasn't been immune to complaints, even though he takes numerous steps to prevent them. On one level, he says it's a learning experience — because it disabused him of the notion that it couldn't happen to him.

“It's the best thing that happened to me,” he says. “It trains you to know that it's important to not be pigheaded and think, ‘It's not going to happen to me.’ No matter how good you are, it's going to happen at some point.”

That being said, it doesn't mean complaints are fun, and as a result, this Morgan broker is careful now to take the sections of prospectuses and proposals that deal with fees and risks and read them to clients.

Tom Gau of Oregon Pacific Financial Advisors in Ashland, Ore., says he goes so far as to explain statements to clients for this reason.

“A lot of people think they know what statements mean,” says Gau, also one of the top 50 advisors. “It's like a doctor saying, ‘Here's your lab results.’ That's why you go to a doctor, so they give you what you need to get better. I'm a financial doctor.”

Advisors such as Carson and Lockwood are in agreement, however, that sometimes the best way to protect your business is by occasionally “firing” clients and staying away from those who seem like troublemakers. Carson says he can spot them right off: those who have ended relationships with other b/ds bitterly, with lawsuits or otherwise; people who have unrealistic expectations of what their investment return should be and can't be dissuaded from it; or, similarly, existing clients who want to adjust their risk profile in a way that Carson disagrees with.

The latter are the toughest clients to get rid of, advisors say, because until then, the relationship could have been mutually fulfilling. Some advisors will adjust their risk profile, but Carson says he often won't.

“If they, for example, are a growth-and-income investor, but want to become aggressive, and we think it's not appropriate or we know their tolerance better, we'll tell them to transfer out, and we won't be a part of that,” he says.

Lockwood says handling that is often sticky, however — but he usually initiates the process with a formal letter telling clients that they should transfer their assets within 30 days.

“Advisors are often afraid to give up a source of revenue, but if you get rid of the clients that are keeping you the busiest, you free up time to do other things,” he notes.

With the market treading water, and the regulatory environment remaining hot, the need to pay strict attention to compliance and client concerns isn't going to abate. As King gravely notes: “The legal environment is, to some substantial degree, a creation of our own industry, and we need to live within the boundaries of what that is.”

Cornhusker Makes Good:

Ron Carson

Firm: Carson Wealth Management (affiliated with LPL)

Location: Omaha, Neb.

Age: 40

Assets Under Management: $870 million

Years in the Business: since 1983

Years With Current Firm: 15

Business Specialty: Comprehensive wealth management.

IT MAY SOUND odd, but Ron Carson's interest in finance came out of living and working on his family's farm in Tekamah, Neb. He would watch his mother hedge the family harvest with soybean futures contracts. That curiosity sweetened a desire to get a job in which he had to wear a shirt and a tie — instead of “sweating all the time” laboring on the farm.

After a stint selling universal life insurance, Carson got a Series 7, and spent four hours a day thumbing through phonebooks to win appointments — appointments that often didn't show. The tedium of building a book from scratch got so intense that, around this time, Carson had a temporary bout of nostalgia for the simplicity of manual labor.

“I still remember the day in Omaha,” Carson says. Annoyed at having been stood up yet again, Carson saw a workman jackhammering concrete. “On this particular day, I was waiting to make a left turn, and I looked over, and there's this guy just sweating, jackhammering cement out of the median, and I thought, ‘I envy him.’”

Carson began to realize that his approach to the securities business was similar: He was blindly jackhammering the phonebook until he struck pay dirt.

Instead, he started to focus, prospecting for clients who had similar interests — wine, golf, college sports, flying — and calling them at times other than when he wanted to pitch his services. Then Carson started holding seminars that combined a bit of finance and fun, such as golf or a football game. His existing clients started to bring him referrals. Today, Carson has two dozen people working for him, including several financial advisors, at Carson Wealth Management, based in Omaha and has $870 million in assets under management for clients, making him the largest producer in Linsco/Private Ledger's network of 5,500 affiliated advisors.

Like many advisors on the Top 50 list, Carson specializes in the complex needs of wealthy investors. To do so, over the last several years, he brought in-house several types of professionals — tax attorneys, accountants, long-term-care specialists. He also invested heavily in account aggregation software, using eMoney Advisor software to store pertinent documents, from estate plans to wills to insurance agreements. This type of software, he says, may be a good shortcut for advisors who can't afford to have all the specialists in-house.

Four years ago, deciding he needed more input from his clients, he formed a client advisory council of eight clients willing to share their views.

Most of his clients' exposure to stocks is through some combination of individual securities, closed-end funds and ETFs. Carson is clearly an Omaha man. He quotes Warren Buffett, and, although he isn't an aggressive investor, it suits his clients. “Most of the people I work with didn't come to me to get rich — they already are,” he says.

He cautions clients to be patient. “The capital markets are income relocation centers — they relocate capital from the impatient to the patient.”
— David A. Gaffen

King of All He Surveys:

Bernard “Bud” King

Firm: UBS

Location: St. Louis

Age: 46

Assets Under Management: $1 billion

Years in the Business: 22

Years With Current Firm: 22

Business Specialty: Equity and fixed income for individuals and institutions as well as financial planning for individuals

WHEN BUD KING got into the brokerage business, he was a 24-year-old kid from tiny (pop. 2,900) Plainfield, Ill., with a new MBA and some work experience at Anheuser-Busch.

He knew that any success he was going to have would hinge on how well he could build a book, but for a newbie with few professional contacts outside the beermaking world, the task was a daunting one.

“I was panicked,” recalls King, now 46, laughing. “Referrals are how you grow, but I had a fundamental problem: You could take the whole of my friends and my family and their friends and it wouldn't make one decent securities account.”

Nonetheless, Kidder Peabody in St. Louis saw something in King and hired him in 1982. At the time, interest rates were surging and King hitched a ride on the wave as a bond salesman. By 1987 he was the largest retail municipal bond salesman at Kidder Peabody. He now heads a team of 12, with $1 billion in assets under management. King describes his crew as “fundamental stockpickers…organized specifically by duties, with the basic philosophy being that high-quality people can do almost anything.”

That said, he and his partner are the primary portfolio managers, with three other advisors working on corporate accounts and 401(k) business.

King's group manages about 300 client relationships, with client accounts ranging anywhere from six to nine figures. “Each client has a designated FA that they speak with, and we're all on a callback schedule depending on the personality of the customer, he says.”

King makes a priority of face-to-face meetings, often flying his own plane (a Piper Malibu with a 1,400 mile range) to client meetings.

But for all his success and experience, King still remembers how elusive those first customers could be. He also remembers to remind his younger team members of how he attained his current position: “Bottom line: Successful people enjoy working with and helping young, ambitious people get on their feet,” he says.
— John Churchill

A Rare Bird:

Walter Meranze

Firm: Wachovia

Location: Yardley, Pa.

Age: 63

Assets Under Management: $865 million

Years with the firm: 35

Years in the business: 35

Business Specialty: Stocks and bonds, with a side concentration in 401(k) business.

WITH CONSTANT REFERENCES to his “Woodstock ethic,” a look best described as “Grizzly Adams meets Warren Buffett” and a method of choosing clients that boils down to, “If I don't like ‘em, I don't want ‘em,” Wachovia's Walter Meranze is far from your typical broker.

But the typical broker surely would love to have Meranze's business — and probably his life. Meranze's practice is a straightforward one, based mainly on equities and bond investments, with a side business of 401(k) plans for corporations. Though his office manages about $865 million in assets, he handles it with a team of just five.

That's it, that's all and it's that simple, he says. It's the same with his personal life; he has been with his wife, Arlene, for 45 years, calling her the spirit of his life. And if there's one thing Meranze, with his loud, boisterous laugh and unconventional ways, doesn't lack, it's spirit.

Meranze first became interested in the securities business in 1968, when, fresh out of Temple University, he rebalanced his parents' portfolio for them.

“After a year or two, I didn't want to work with them anymore,” he says. He ended up at Drexel Burnham, focusing on bonds and stocks.

Drexel was sold to Prudential in 1988, which was sold to Wachovia last year. Meranze initially found the Wachovia culture jarring, but once the firm got used to his eccentric ways — he once visited the home office wearing a suit jacket, tie and khaki shorts — he and the firm meshed splendidly.

Meranze says the key to his business is understanding his own “insignificance in the vastness of the universe” — a realization he says he has every time he goes on his many climbing trips.

“Wall Street has a tendency to inflate one's ego,” he says. “A lot of that ego, frankly, is not deserved.”

He boasts of not promoting any product or selling any kind of annuities, unless his clients “beg for it,” and even then his team will often pass the client on to another broker better versed in those products.

The key, Meranze says, is just to think of one's self as an employee of the client — no matter what size that client's assets are. Meranze has 1,100 clients, and he says, the one he spends the most time with is a high school Latin teacher, with assets of about $40,000.

“I'm just the little guy who tries to serve my client,” Meranze says. “It's a very humbling business, which is just one of the many reasons I love it.”
— Will Leitch

The Retiring Type:

Lori Van Dusen

Firm: Smith Barney

Location: Rochester, N.Y.

Age: 43

Assets Under Management: $2.5 billion

Years with the firm: 18

Years in the business: 18

Business Specialty: Comprehensive financial planning for institutional customers and high-net-worth clients.

LORI VAN DUSEN'S indoctrination to the business began when she was 12 years old, though she didn't realize it at the time.

The occasion was a brief encounter with her grandfather in which the older man tossed an annual report at her with a friendly challenge: “Whaddya think of that?”

At the time, her answer was simple: not much. Then a student at the prestigious Eastman School of Music in Rochester, N.Y., Van Dusen envisioned a life as a professional singer. In college, however, she found the business world spoke to her, and she followed the voices to a Harvard MBA.

Today, her 12-member team in Penfield, N.Y., manages $2.5 billion for a few dozen clients, about two-thirds of whom are institutional. She's seen a 1,000 percent increase in assets in 10 years. She learned early on that the best approach to building a practice is to choose a niche and work it hard.

In 1987, she teamed up with an estate-planning lawyer and began conducting seminars. “I made sure no one left the room without giving me a filled out evaluation form, and the next morning I was on the phone. I never let it get cold.”

As she built her client base, she won two referrals that changed her practice — a board member of a college endowment and a very wealthy individual. Her team today is organized around those two segments (institutional and high net worth). She oversees both, but concentrates on the institutional clients (along with two advisors from the practice). Two other advisors handle the day-to-day activities of the high-net-worth clients. A pair of tech-support professionals and five assistants round out the operation.

“Our business is an asset-based consulting business,” she says. “We charge a fee and everything is disclosed to the client. If there are any other fees involved, like if we use a Citi alternative investment product, we waive it. If we can't waive it, we make sure they know about it.”

Other than choosing a good niche, Van Dusen says establishing a good team is the most important part of building a mega practice.

“The team is the most significant change in the industry,” she says. “You can't do anything well in this industry today and be a one-man show.”
— JC

(Multi) Family Man:

Peter ROHR

Firm: Merrill Lynch

Location: Philadelphia

Age: 40

Assets Under Management: $1.4 billion

Years with Firm: 17

Years in the business: 17

Business Specialty: Multifamily office.

PETER ROHR DOESN'T know how he jinxed the market, but he did it somehow.

As a fresh-faced college graduate, he showed up for his first day of work at Merrill Lynch one morning in October 1987, expecting to begin preparing for his Series 7 examinations. But things didn't go as planned that day: the Dow plummeted 22 percent, or 508 points, and Rohr ended up manning a desk that day, taking messages from clients and forwarding calls to four different advisors until 10 p.m.

The brokers he was working with “didn't panic, and to see that was a wonderful experience,” he says. “It was bad for the market, but overall, as time would prove, it was a buying opportunity — so for me, it was a great day.”

In the intervening 17 years at Merrill, Rohr has managed to take advantage of many opportunities. His practice has evolved from selling investments into a full-fledged multifamily-office practice, serving approximately 50 families. Along with five other professionals, the Philadelphia-based rep has about $1.4 billion in assets under management.

Early in his career, Rohr had the will to innovate his business, but not the way. One of his superwealthy clients eventually called him on that. He wanted to talk about something “that wasn't a stock or a bond order.”

“I wasn't prepared,” says Rohr. “I always wanted to be in this space, and now I had to take a big gulp and say, ‘What do I do next?’”

What he did was immediately delve into getting more degrees, specifically the CFP, the CIMA, and the Certified Investment Strategist degree through NYU-Stern School.

Over time, he adopted many of the practices that are now common in the industry — holding annual and quarterly client reviews, writing investment policy statements for all of his clients prior to investing.

Without the CIMA, which he received about four years ago, he wouldn't have this ability. His ability to quantify goals and risk tolerance through a lengthy upfront process has made investing less emotional for his clients, which is what he wants.

In addition, it's enabled him to build a business around something other than the end investment, a departure from how he approached clients earlier in his career.

“At the beginning, I just wanted to make people happy,” he says, adding that he thought multiple meetings were intrusive. “I didn't want to bother anybody. Now, I start with two meetings — and if people aren't willing to engage in that kind of discussion, they're not going to be good clients down the road. That's become the cornerstone of what we're doing.”
— DAG

America's Top 50 Advisors

The following rankings of financial advisors are based on a combination of objective and subjective factors, including production, assets under management and tenure at current firm. We also polled brokerage firms, brokers, asset manager wholesalers, consultants and various securities-industry gurus. As part of our information-gathering process, we promised to hold production numbers in confidence. However, we have listed assets under management, and some basic payout math using the AUM number will yield a decent ballpark production figure.