Partners put all their assets in a single basket

R. Griffith McDonald and K. Larry Hastie had kept their separate practices for years even after they had joined forces as partners in Retirement Income Solutions Inc. But the decision to roll all their operations into one earned them the top position on the InvestmentNews Fast Movers list.

Today, Retirement Income Solutions has about 685 clients and adds about $50 million a year in assets, Mr. Hastie said. Its minimum fee is $1,000, or 1% on $100,000.

The Ann Arbor, Mich.-based firm grows largely through word of mouth among professors at the University of Michigan and executives at regional companies such as General Motors Co.

The firm's partners, who met while students at DePauw University, started out on their own, said Mr. Hastie, who founded Pattern Recognition Management in 1990. Mr. McDonald had already set up shop as Integrated Financial Strategies in 1982.

In 1992, they decided to go into business together because they knew many of the same people and had “the same philosophy and the same investment app- roach,” said Mr. Hastie, now 67.

He said he found that running a jointly owned business in addition to his own made it easy to decide how to serve clients the two advisers attracted together.

But after nearly two decades of running their own firms and Retirement Income Solutions, the two decided that rolling them all up “made sense, even if it was administratively challenging,” Mr. Hastie said.

The biggest benefit of the combined firm, the two advisers agree, is that there is now a deep pool of talent in one place. “The biggest motivator was succession,” said Mr. McDonald, 68. “We didn't want to hand three pieces over to the next generation.”

The junior members of Retirement Income Solutions include Mr. Hastie's son, Brock, as well as three other advisers who may assume more-senior roles when the partners retire.

Jim Guy, chief marketing officer and a member of the board at Cambridge Investment Research Inc., an independent broker-dealer, said that consolidations like the one devised by Retirement Income Solutions make sense.

“If you have an ensemble, rather than a "star' adviser, clients come to understand they're dealing with a firm, rather than just one person,” Mr. Guy said. “The biggest pitfall is clash of cultures.”

That has never been a problem at Retirement Income Solutions, Mr. McDonald noted.

“In all of the years we've been together, we've never had a confrontation,” he said.

Indeed, the two men approach investing in much the same way.

For example, they pay close attention to such technical indicators as the market's moving average convergence/divergence, a technique used by many traders.

They also follow many of the investing tenets found in the Stock Trader's Almanac by Jeffrey and Yale Hirsch (John Wiley & Sons Inc., 2010), which identifies seasonal and other market patterns.

THE BIG PICTURE

At the same time, they also pay close attention to the big economic picture and ignore technical signals and seasonal patterns from time to time.

For example, noticing a “sea change” in the market with the onset of the subprime-mortgage crisis, they reduced clients' exposure to equities to a typical minimum of about 35% to 40% in March 2008, Mr. Hastie said, and kept it that way until April 2009, when they boosted it to a maximum of between 65% and 70%. As a result, they captured much of the stock market's rebound from its low in March 2009.

Recently, Mr. Hastie and Mr. McDonald reduced equity exposure to minimum levels, due to concerns over higher inflation and interest rates, Mr. Hastie said. They put the money into short-term debt and commodities-based investments.

“At some point, we're going to move from abnormally low to abnormally high inflation and interest rates,” Mr. Hastie warned.

E-mail Hilary Johnson at [email protected].