Independent advisory firms’ outreach pays off for some

Independent advisory firms have stepped up their outreach efforts, and the largest firms continue to open accounts even though their assets under management have dropped.

In fact 37 firms on InvestmentNews' list of the top 50 fee-only RIAs ranked by discretionary assets under management increased the number of accounts they oversaw between Sept. 30 and March 31, many representing new clients.

At the same time, the top 50 firms had an aggregate loss of 14.3% of total assets under management during that time period, representing an average loss of $416 million. In other words, while the firms are picking up new clients, their assets under management — and the revenue they derive from managing those assets — are taking a beating.

“The entire financial services industry had a really difficult 2008,” said Bing Waldert, director at Cerulli Associates Inc. of Boston. “The fact that these firms have been able to acquire clients shows that there is an appetite to be served among investors who are looking for small, boutique style firms.”

Most of the new clients are coming from referrals from existing clients, managers reported. One key to encouraging those referrals, as many firms are finding, is to step up communications with existing clients.

“Last year we spent a lot more time increasing our communications to clients because they needed it,” said Cammie Doder, director of business development at San Francisco-based Aspiriant LLC, which has $3.6 billion in assets under management and serves clients with a minimum of $5 million in investible assets. “We met more often in person with clients and also increased the frequency of conference calls because of the markets,” she said.

CLIENT CONFERENCE CALLS

In mid-2008, the firm began holding conference calls every other month. The calls feature the chief executive, the chief operating officer or the chief investment officer, and clients have the opportunity to ask questions, Ms. Doder said. The average call attracts 150 to 200 callers.

The firm also held events focused on specific topics such as the presidential election and building a family legacy. And they added five new staff members to enhance service clients, Ms. Doder said.

New clients are gained through referrals from existing clients, she said.

With Wall Street at the epicenter of the market upheaval and uncertainty, more investors are reassessing their relationship with their advisers, consultants say.

Many firms are vying for those clients by beefing up their communications with existing clients and positioning themselves at events or sponsoring seminars, or other programs, aimed at wealthy clients.

“Existing clients are more apt to refer a new client if they are satisfied, even though their assets are down,” said Dennis Gallant, president of GDC Research LLC, a Sherborn, Mass.-based consulting firm. “As the quintessential wealth manager, these firms are providing advice and have a deeper relationship with the client. They end up being the trusted guy. That resonates in a down -market.”

The larger firms have also built a practice that can benefit from scale, Mr. Gallant said.

“They can handle the increased capacity and demands of the client base,” he said.

Other firms are picking up new clients by increasing their marketing.

“We increased our public relations and advertising while other firms were pulling in their horns,” said Richard Hough, managing director at Silvercrest Asset Management Group LLC of New York, which has $8 billion in assets under management. “It was risky, but we really got noticed and it helped raise our profile. We've always had a public relations effort. It hasn't been systematic and hasn't been aggressive.”

The campaign included print advertising and public relations, he said.

The firm's average client has $25 million in assets.

Welch & Forbes LLC of Boston launched a marketing campaign for the first time in its history in the fall. The campaign included print advertising, event sponsorships and this year will add radio advertising, said Amy Donovan, chief marketing officer.

Welch & Forbes, which has $2.7 billion in assets under management, has grown by referrals from its clients, who have a minimum of $2 million in assets, she said.

“When times are rough it's a good time to raise the profile,” Ms. Donovan said.

“It's all about communication,” said Howard Schneider, president of Practical Perspectives LLC, a Boxford, Mass.-based industry consulting firm. “The firms who are attracting new clients are being visible in public and working on client development.”

MONEY IN MOTION

Money is always in motion in the investment world, but maybe more so in a down market.

“People are losing their jobs and now their retirement assets are in play,” Mr. Schneider said. “And the issue of trust in certain financial institutions, wirehouses and banks has caused money in motion as well.”

Ronald Blue & Co. of Roswell, Ga., increased its number of ac-counts by broadening its investment strategies. In January, the company introduced a series of objective-based portfolios, three fixed-income portfolios and three stock portfolios.

“We realized that some of our clients had lumped all of their investment dollars in a single diversified account and hadn't really -distinguished the objectives,” said Russell Crosson, president and chief executive of Ronald Blue, which has $4.2 billion in assets under management.

As a result of the change, the firm picked up about 200 new clients over the past eight months, he said.

The idea of dividing investments into different strategic goals, or purpose-based asset management, is a growing trend among advisers, said Louis Harvey, president of the Boston-based research firm Dalbar Inc.

Last year, more traditional strategies of asset allocation and modern portfolio theory failed in the extreme market downturn, he said. Advisers are looking at new ways of managing money, Mr. Harvey said.

“Much of the business growth firms are seeing now is probably due to the dissolution of other firms,” he said. “There has been consolidation.”

But some observers say clients are choosing to move.

An increasing number of wealthy investors are moving to independent advisory firms, said Cerulli's Mr. Waldert.

“Even before 2008 we were seeing high-net-worth clients increasingly drawn to the idea of working with a smaller firm and getting that boutique, hands-on experience,” he said. “This market environment accelerated that trend. The advisers who are doing a good job of serving their clients have a better chance of getting new clients even if the investments are performing badly.”

And it's a trend that will likely continue, according to the Spectrem Group.

In a survey of 750 millionaire households in December, the Chicago-based consulting firm found that only 30% reported they were happy with their financial adviser, down from 65% in the spring. Most said they planned to reassess that relationship once the market stabilized, said Cathy McBreen, managing director at Spectrem.

On average, about 7% to 8% of those surveyed changed their adviser. “We expect that change rate to be 15% to 20% this year,” Ms. McBreen said.

E-mail Sue Asci at [email protected].