Pittsburgh can be considered the epitome of blue collar America. Located at the confluence of the Ohio, Monongahela, and Allegheny Rivers it was an ideal place for the development of the steel industry. Individuals who toil in the giant steel mills and in the coalmines that feed those enormous furnaces know what it is to work for a living. It's also a place where that same work ethic is put into practice in sports, football in particular.
That blue-collar work ethic and passion for football also comprise the background of advisor P.J. DiNuzzo, who founded DiNuzzo Investment Advisors in Beaver, Pennsylvania, in 1989. Like many of the industry's pioneers, DiNuzzo came to the advisory profession as a second career. In his case however, he was only 29, but had spent two decades working in his family's restaurant.
Family and Football
All four of DiNuzzo's grandparents, from Italy and Poland, left their homelands for the promise of a better life bought with sweat in the steel mills. As tough as life in the mills may have been, he says it was definitely better for his grandmother than the job she had as a teenager in Italy, where she worked in a quarry, making big rocks into little rocks with a sledgehammer.
DiNuzzo's father, after 25 years in the steel mills, craved to be his own boss and put his life savings into a buffet-style family restaurant with a small lounge and hotel. In grade school, P.J. started working there afternoons and weekends, when he wasn't playing or practicing football. He went to college on a football scholarship to Indiana University and also played one year at the University of Pittsburgh. Following his college football days, DiNuzzo went back to work in the family business, while continuing with his education.
DiNuzzo speaks fondly of the years he spent working alongside his parents and his brother in the restaurant, but he was aware at a young age that it probably wasn't what he wanted to do for his entire life, especially if he wanted to spend time with his own fledgling family, outside of work. "It's a real meat grinder of a business, seven days a week," he says with the voice of experience. "People talk about the hours they work, but 60 to 70 hour weeks are the norm in the restaurant business and you can go years without taking a week's vacation."
His father had always been a saver and had a few brokerage accounts but really didn't understand stocks and bonds or the principles of investing. Surprisingly he found that his teen-aged oldest son did and turned to him for investment guidance. With the knowledge that this was something for which he had a knack, P.J. began planning his transition from the family restaurant business to the advisory business.
After finishing his BA, he continued his education because after all the lessons he had learned in football about game preparation, he wanted to be sure that he was ready before he started to play.
"I may have gone a little bit overboard, he says of the 10-year period in which he got his bachelor's degree in business administration, two masters degrees (finance and tax law) and passed the C.P.A. exam, all the while continuing to work in the family business. He also got married and fathered three sons in that time.
One of the things that hasn't changed for DiNuzzo since starting his advisory firm is working with family. His brother, Mark, is executive vice president and a firm principal. Mark's wife, Jackie, is the firm's office manager and assistant compliance officer. And his mom, in her 70s, works there part-time, three days a week, as she has done for more than 10 years.
"Maybe I overestimated the competition," he says of his intensive self-preparation, "but we always ask in the restaurant business, 'Are you selling the steak or the sizzle?' A lot of people in this business sell the sizzle.We're pretty much 100% steak, although we've been adding a little sizzle in the last few years."
Building His Own Path
A lot of advisors begin their financial services careers with American Express or Merrill Lynch or some other large firm. Starting with a company that is well known and can provide some clients, a regular paycheck, and on-the-job training makes that route extremely attractive. He says maybe he didn't know any better, but DiNuzzo did it the hard way and has been a fee-based independent from day one. Starting out that way, with zero dollars under management and no client base, DiNuzzo says, made him appreciate his clients all the more.
"There was no minimum at the beginning," he recalls. "When you're just starting off, you're looking to establish a name for yourself and do the right thing. You're building it account by account. If you get someone with $2,000, or $5,000 or $10,000 in an IRA, that's a good thing."
Launching a single-person independent advisory firm, particularly when DiNuzzo did in the early days of the profession, is not an undertaking for the weak of spirit. For the first three years of his practice the majority of DiNuzzo's clients were family members. "I didn't draw a salary out of the practice for years," he says. "People just forget about all the heartaches and all the obstacles and hurdles that you had to get over early in the business," he says. "It takes forever to get to the first million dollars, and then five million, and ten million. Once you get to the size where we're at now, it gets a little easier. We had a day a couple of weeks ago [in early July] where we were up over $2 million just by the organic growth of the portfolio without bringing in a new dime that day. It starts to take on a life of its own."
When DiNuzzo launched his practice he was trying to use the best passive investments available. "I was customizing portfolios using Vanguard indexes and the best replicas I could find," he says. A few years later when Dimensional Fund Advisors launched their family of funds, DiNuzzo says he found they were just what he had been seeking, and he became one of the first 100 advisors in the U.S. to offer them. But like many other things in those days, it wasn't easy. When he first became associated with DFA DiNuzzo couldn't get his custodian at the time to make them available on their mutual funds platform because he was one of only two advisors on the platform using them.
To this day he uses DFA funds as the primary investment vehicle for his clients. "We're built, as solidly as any firm can be built on a strategy of know thy client, do what's best for the client, asset allocation, diversify as well as possible, put as much of the portfolio as humanly possible into passive investments, which are going to do better two out of three times, if not more, over a five or ten year period, which led me to DFA in the first place.
"We lecture our clients and recommend and cajole them constantly to do what the smart money does," he continues. "We tell them, 'the wheel's already been invented.' Institutional money managers invented the wheel decades ago. All we look to do for our clients is emulate the institutional guys as closely as possible."
Of course, since the customer/client is always right, if a more adventurous portfolio is desired DiNuzzo can put it together. He's designed portfolios that use DFA for the core along with complementary asset classes. Other vehicles that he's used include absolute return strategies, commodities, timber, and merger arbitrage. But whatever he does, he wants to minimize the risk to the client. "Our rule of thumb is we will not put anything into a client's account unless there's over $100 billion invested institutionally," he says. "We're not pioneers by any stretch of the imagination. We just want to copy what the smart guys are doing."
There's No Investment Without Planning
DiNuzzo Investment Advisors' compensation comes strictly from asset management fees. Included in the fee which starts at 90 basis points on the first $500,000 and then drops to 75 basis points on the next half million and slides down from there, is any financial planning that the client may need. He says that the firm's objective is to keep total expenses, including management fees and operating expenses for the investments as low as possible.
"We feel that financial planning has an equal weight, at least, in the process to investments," he explains of his approach. DiNuzzo says he can't understand how advisors can talk to clients about investment strategies without first making sure that the client's financial house is completely in order.
DiNuzzo can't help but use football analogies to make his points and tells a story about the longtime Pittsburgh Steeler coach and winner of four Super Bowls, Chuck Noll. "They'd go through a difficult period and people would say, 'Chuck, what are you going to do?' He'd say, 'We have practice scheduled later on today and we're going to go out and work on our blocking and tackling.'
"Everything in life gets down to the basics," he continues. "We start what we call our blocking and tackling with net worth statements, going through assets and going through liabilities and taking a look at everything financial. Then we go through current cash flow and put together a retirement pro forma."
DiNuzzo says that although a lot of advisors are just beginning to talk about the switch from accumulation planning to distribution planning, it's something he's been dealing with for years. "Distribution planning is a whole different ball game," he says. "You really have to have your house in order."
And speaking of houses, the first thing DiNuzzo asks when the question of retirement comes up is--Is your house paid off?
"Some things are really simple," he says, "but there's these mistakes and incorrect assumptions out there, all over the place."
Knowing what questions to ask is often the key to cementing the client relationship, according to DiNuzzo. "It's amazing how many clients we get who have been with big firms and say, 'I'm going to go with you guys, because you're the only ones who asked me if I had a car payment, do I owe anything on my home?' What people come to realize is, that, if you go to an insurance firm, they'll ask a lot of questions, but the answer always ends up, buy insurance. If they're asking a lot of questions and primarily what they sell is variable annuities, the answer is buy variable annuities. We may not be the highest IQ area in the country, but this area definitely has one of the highest common sense quotients."
Common sense is also a major component of DiNuzzo's approach to any problem. "A lot of financial planning's not rocket science. To borrow Woody Allen's phrase, 80% of it is showing up," he says. "It's really showing up and caring, but if you show up and look at their situation in a fair and objective manner, I think you're going to be able to provide solutions. And, of course you have to be knowledgeable."
He notes that even in the distribution phase, clients will be clients for many years. "With the longevity issue, the average client that retires, they've got a 50% probability that either the husband or the wife is going to live to 87, 25% probability that one of them is going to live to be 92. So even if they're in their early 60s, we're still looking at a strategy that has to last us for decades and decades and we really don't run into any invasion of principal in the portfolio for quite a while."
DiNuzzo hopes that much as the members of his family worked together in the restaurant business that the same will continue in financial services. "Our long-range plan is just to grow one client at a time," he says. "I don't literally want to die at my desk, but I love what I do, I love helping people, I love everything that we do that goes into that and I'd literally love to be doing that for the rest of my life. Obviously as I get older, I'd like to do it in a reduced capacity. But I've got three sons, my brother's got three sons. Even if we bat .333, if I can just get one of my sons to come on board and he can get one of his sons to come on board...We think we've really built something special here that's more than the numbers and we'd like to pass that on to the next generation."
Managing Editor Robert F. Keane can be reached at firstname.lastname@example.org