Top Advisors Talk About Their Firms -- And Their Clients --

By Anonymous

The furious pace of growth at the top independent advisory firms is transforming the way they serve their clients. In the interviews that follow, top RIA executives detail how their firms are evolving and what the changes mean for clients.

Shannon Eusey CEO Beacon Pointe Private Wealth Advisors Newport Beach, Calif.

Barron’s: Beacon Pointe has acquired 11 other firms over the past seven years. Is getting bigger helpful for clients?

Eusey: When we acquire, we’re looking to add to our services and talent for the end client.

Our Northern California office, for example, specializes in concentrated [stock] positions. We made an acquisition in Boston several years ago where the principal was formerly with a large family office. He was a chief investment officer with extensive experience in environmental, social, and governance, or ESG, investing. It’s an added tool for us to help clients who are interested in that type of investment.

How much do you plan to expand?

Our goal is to have an office in every key metro area, so we can better serve our clients. We’re already in a number of them: Dallas, Boston, Philadelphia, the Bay Area, and Santa Barbara. We’re looking for great partners in all of these marketplaces.

How have you financed the acquisitions?

It has been [financed] internally, off our balance sheet. We haven’t taken outside money, so we’re not beholden to outsiders, just to our teammates, partners, and clients.

Using our own internal money means we’re more aligned with our clients in that they know exactly who their advisor is going to be, how the business is going to be run, and what the culture of the firm will be. When you introduce third-party money, it comes with an agenda, and that will lead to changes in how services are delivered. The motivation for the business is to serve our end client first and foremost, end of story.

What are clients paying for?

We charge on assets under [investment] advisement, but what we really charge for is everything financially related to your life. We start with holistic financial planning to identify if and how we should invest one’s assets. We really want to be the person [who clients] come to when there is anything related to money, whether it’s better managing their taxes, how their estate plan corresponds to their investments, whether they should pay for their kids’ college education or have the kids take loans, when should they take Social Security, and when should they expect to retire.

Why do you delegate investing to third-party managers rather than handling it in-house?

To me, it goes back to there being an inherent conflict if clients are paying to use your in-house products. When do we fire ourselves if we’re not doing well? It’s also very difficult for one firm to be able to say, “We have the best advice, and we also have the best products.” On the other hand, it’s very easy for us to go out there, look at the landscape, and say, “These are the best managers.” We outsource all of our investment management to who we believe are the best and brightest in all asset classes.

What’s your market outlook?

We’re likely closer to the ninth inning of an 11-inning game versus the sixth inning of a nine-inning game. I don’t think we’re going to see a crash, but we will see a correction. We remain constructive on the economy as it is today.

So many investments are expensive right now. Do you see attractive pockets?

There are pockets of opportunity in the U.S. -- more defensive, cyclical sectors like consumer staples, telecom, and utilities; also, more value-oriented stocks. But we think emerging markets are not priced like the U.S. markets, which are priced for perfection.

As the bull market ages, how are you adjusting your clients’ portfolios?

The biggest change over the past couple of years, with equity valuations stretched and being in the later stages of a bull market, has been having more exposure to the alternatives space. We use some private equity, some liquid alternatives -- assets that aren’t as correlated with the equity markets.

Choosing an advisor can be complex. What advice would you offer a hypothetical Aunt Sally about selecting a good one?

I’d tell my Aunt Sally to make sure they’re a fiduciary. The underlying problem with not being a fiduciary is that it’s so hard to follow the money. With [hidden fees], it’s so confusing to the end client what they’re paying for. -- Steve Garmhausen

Maria Elena “Mel” Lagomasino CEO and Managing Partner WE Family Offices New York, Miami

Barron’s: What are your core offerings?

Lagomasino: We do three things. We serve as a whole family office, soup to nuts -- from diagnostic to planning to governance to investing to consolidated reporting -- so families can track their progress on everything they’re doing.

The second thing we do is support existing family offices. We can do their due diligence, serve on their investment committee, help put together asset allocations, help with access to certain opportunities.

The third thing we do is when a family gives us a very specific project -- for example a family governance issue, like how to transfer [wealth] to the next generation -- we put in place structures and processes to make that happen.

Half of WE’s clients are international. Where do they live?

Mostly Latin America. Miami over the past two years has become the “capital” of Latin America. One reason is that Spanish is the predominant language in Miami. The other thing is that it’s become the airline hub for all the countries in Latin America; often it’s easier to fly from one country to another through Miami rather than directly. Also, [wealthy families] live in very insecure environments -- Mexico or Brazil, never mind places like Venezuela.

What are WE’s aspirations for size and scale?

We want to grow -- if you don’t grow, you start going down -- but we want to grow very, very thoughtfully. When we started the company in 2013, we had about $1.6 billion and close to 50 families. Today we have 72 families and we’re almost at $10 billion.

That’s happened because we’ve been very focused on the type of family we can work with. We also look at where we can add value with these larger, more complex families. All three managing partners are involved with every family personally on a strategic basis. We’re focused on the quality of our service and the culture of our firm.

How does your growth affect the services and pricing that clients will see?

There are some things that are scalable and some things that are not. Our relationship with and knowledge of a family, the customization we provide to them, isn’t scalable. What is scalable are things like technology and due diligence around investment opportunities.

To the extent that our clients are large and we’re a family office, to the extent that we’re talking to an investment manager about an opportunity, the larger we are the more buying power and access we have. And we can translate that into lower fees and better terms for our clients.

Private equity is paying handsomely for stakes in successful RIAs. Would you make a deal with the right partner?

When my partners and I thought about the kind of firm we wanted to build, one of the things we saw was that there were quite a number of people who go out there to build a firm in order to sell it. And yes, we were offered private-equity money.

But our mission is to make families sustainable on a multigenerational basis. That’s inconsistent, I think, with having a capital structure that says I’m going to have a sale in seven years.

We built our firm with a 40-year vision.

You charge retainer fees, while most firms charge a fixed percentage of assets under management each year. Why?

What costs us the most is time. So we charge retainers based on the complexity and time we think we’re going to have to spend with every family on a specific mandate.

If a family is interested in hiring us, we say, “Hire us for 90 days; we’ll do the full diagnostic, looking at every facet of your wealth. At the end of the day we will know you, and you will know us, and together we will know what it takes to work with your family -- and we’ll develop a retainer.”

What are your overall thoughts about the stock market at this stage of its bull run?

We’re invested, but we’re cautious. We think we’re late in the cycle, so we’re suggesting to our families that they hold more cash than usual. We’re also very short on duration in fixed income, and we’re trying to use floating rate [investments] where possible.

Where do you see some of the best investing opportunities in the next few years?

We’re trying to figure out how to play in the Asian market. There’s also opportunity for our clients who can trade liquidity for returns in the private market. Then there’s a whole subset of our clients who are very focused on what some call ESG [environmental, social, and governance investing], which we call values-aligned investing. We’re really seeing a strong trend, particularly with women and millennials. They get cognitive dissonance between what their portfolio looks like and the things they believe in. We have mandates from several clients to gear their investments to their values in a nonconcessionary way so they’re not giving up returns. There’s more and more of that going on. And by the way, this is a great way to get the next generation involved and active, and understanding that they can do right and do well.

-- Steve Garmhausen

Michael Nathanson CEO The Colony Group Boston Firm Rank: 22

Barron’s: You plan to offer a range of nonfinancial services from outside providers -- from concierge medicine and travel advice to education planning and philanthropic coaching. That sounds very ambitious.

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