John LaPann, Federal Street Advisors: There was just one burning question Wealth Manager editors had for the number-one ranked firm in this year's Top Dog survey: Where did you come from?
How is it that Federal Street Advisors--with close to $4 billion in total assets under management and AUM per its 74 clients of almost $66.9 million--had not appeared in any of our seven previous rankings?
The answer, as founding principal, president and chief investment officer John LaPann explains it, is something of a "Catch 22:"
"We built the business to focus on the clients to such a degree that we ended up with clients so satisfied that they told other people about us, and we were effectively growing the business that way. Then we thought, maybe we should tell other people about us. It's time to stop being a secret!"
LaPann--one of the firm's four principals and the principal owner--was a senior vice president at Gannett, Welsh & Kotler when he made the leap to independence in 1991. And it was a leap. For the first few years, the business was just LaPann and "some good quality assistants." In fact, he says he often felt "like Evil Knievel jumping over school buses on a motorcycle. Before you know it," he laughs, "you're up in the air and just hoping to hit the ramp!"
His goal then, as it is now, was to provide institutional depth advice to individuals, families and family foundations...from advisors "who really understood asset allocation and could find good managers." Moreover, the business had to function on a fee-only basis--in his opinion, the only way for wealth manager and client to be on the same side of the table.
"Once I got past the 'how am I going to cover payroll phase?' I thought if we could get up to $5 billion in assets that would be a good place. But then I had to decide whether to slow down at $5 billion or was there room to grow? Ironically," says LaPann, "we decided we needed to grow, to reinvest actively in both advice and service, to maintain our objectives."
At comparable firms, LaPann points out, his three fellow principals would not be dealing with clients on a day-to-day basis; they'd be the bosses of people dealing with clients!
But that hands-on attitude does not apply to concierge services. "We stay away from household-type things, even bill paying," says LaPann, "although we have advised on whether to buy a plane or a fractional share. And we counsel clients' kids when they come of age."
By the same token, Federal Street doesn't play in other professionals' sandboxes. "Obviously, everyone here has a good knowledge of income and estate taxes, for example, but there are good reasons for sticking with investments," he says. "We're very good at working with other professionals, and we'd rather be part of a team."
Liad Meidar & David Ford, Gatemore Capital Management, LLC
Gatemore principals Liad Meidar and David Ford want their firm to grow--not to be the biggest, but to be the best. With just seven clients after three years in business, there's not much danger of the former. However, with average assets under management per client of more than $65.5 million, Gatemore easily held on to the second place it earned in last year's Top Dog rankings--making it undoubtedly among the best in the business.
Meidar and Ford--both 33--have known each other since 4th grade at the Haverford School outside of Philadelphia. While they could hardly be called inseparable--Meidar went to Princeton, Ford to Amherst--both gravitated toward Wall Street careers in finance.
"We're not wealth managers per se, a lot of whom come from the brokerage and sales side," says Meidar. "We started in finance, investment banking, private equity and hedge funds--experience which serves to differentiate us. What really separates us," he adds, "is our ability to understand these alternatives."
Early in their careers, Ford and Meidar recognized that they wanted to have their own firm. "It's a real privilege," Meidar reflects, "to focus entirely on our client relationships and not on climbing the corporate ladder."
From the boutique firm perspective, 2007 was a year of significant growth for Gatemore. Although AUM per client dropped from more than $78 million to $65.5 million, total AUM rose to $459 million from $392 million last year. The firm took on two new clients, going from five to seven, and added two professionals for a total of four--one a research analyst.
"Our goal is to add one or two families a year," Meidar explains. "We're just a small organization, focused on that segment of the market everyone wants to market to: the upper end."
Gatemore also focuses quite narrowly on the services it provides. "We do everything to do with our clients' investments, all the administrative aspects, but it starts and ends there." Concierge services, for example, are out of the question, unless you count mentoring younger members of client families.
"Our clients are with us for a reason," says Meidar. "We'll work with their accountants and attorneys; we're serious about their portfolios and don't want to be distracted from that. We have a very long-term outlook," Meidar adds. "Our business is about decades, not years."
And speaking of decades, where does Gatemore see itself in 10 years?
"As a firm that sets the standard for how high-net-worth families should be managed," says Meidar. "And as a firm that has never lost a client."
Evan Roth, BBR Partners
BBR Partners, the $3.6 billion firm that rose from number four in 2007 to number three this year, may be located in the heart of Manhattan, but its own heart is in a very different place.
"We're not a stereotypical New York firm," says Evan M. Roth, one of three founding partners and a director of client services at the eight-year-old firm. "We're here because it's the hub of the financial world, but we are deeply caring about our clients and deeply caring about our staff, too."
"This city has a lot of people who do care," the soon-to-be-38-year-old Roth continues, "but we're the ones who hold doors open for people."
It's an apt metaphor as well as a physical fact. BBR clients are families or individuals in search of a holistic, full-scale, multifamily office. While quarterly meetings are standard operating procedure for successful wealth managers, BBR uses them to go a step beyond portfolio review.
"The large advantage to quarterly visits is getting to know what's going on in our clients' lives, so if something warrants a change in their portfolio--or even an advisor change--we know about it," Roth explains. "You try to help them achieve what they want with their wealth...to stay a step ahead."
Last year, BBR managed average assets of just over $60 million for its 60 clients--a significant jump from $57.6 million in 2007. The new dollars came from new clients--all referrals from existing clients satisfied to see good returns in otherwise bad times.
"This is the kind of market that differentiates advisors," says Roth. "In good markets, it's easy to get good returns; in bad markets, you have to know which managers to avoid."
Investment-wise, says Roth, "we're a manager of managers. We don't run any money in house; we don't do any commission-based business." And when a new client comes in with an unfamiliar manager, the firm does full-scale due diligence.
"It may just be that they have outgrown their previous advisor or lawyer or accountant," Roth notes, "but we've even redeemed money from prior advisors. And we've been known to play 'bad cop' to professionals who have given them bad advice."
BBR is "hungry" to grow its business, he adds, "--but in a smart way. We don't believe in growth for growth's sake."
Meanwhile, its 50 directors, professionals and support staff continue to enjoy an atmosphere that is anything but Wall Street-like.
"Most of us are in our 30s," he says. "but even those with 15 to 20 years' experience think of themselves as being in their 30s, too. There's such a high level of energy running through the office--an exuberance. It's an energetic place to work."
Rhona Vogel, Vogel Consulting
According to Rhona Vogel, the Horatio Alger story is alive and well in the Midwest. Vogel bases her assertion on the very successful niche business her Brookfield, Wisc.-based firm has established over the past 15 years.
"Our niche is the family office space," says Vogel, whose number-four firm in the rankings grew from 50 to 78 client relationships last year. And most of those client families started with a patriarch--or matriarch--who founded a closely-held business that became an empire, passed down through the family or sold on the open market.
In fact, much of the firm's growth last year--from $3.1 billion in total AUM to $3.5 billion--could be called organic.
"We added a number of families to the mix, and some of our existing family clients went to multi-generations--even as many as four--some of whom want to be handled separately," she explains.
An entrepreneur herself, Vogel started her career as one of the first women tax partners at Arthur Anderson, one of the "Big Five" accounting firms. When she found her clients--primarily closely held family businesses--asking for more personal financial planning, she proposed the idea to Anderson. Her superiors, she says, were not interested. The result was Vogel Consulting, founded in 1993, which today manages an average of close to $44.9 million per client.
And almost 100 percent of the firm's revenue comes from hourly fees.
"We're one of the few in the industry whose sole compensation is hourly," Vogel says with obvious satisfaction. "We offer new clients a choice of a fee based on a percentage of assets, an hourly fee or a retainer. When we price it out, 98 percent of clients have chosen hourly fees, which," she believes, "are the fairest from the family's point of view.
"One of the keys for us is having the ability to always sit on the same side of the table as our clients," she adds, "so any cost savings we negotiate go back to the family."
And unlike other firms among the Top Five Dogs in the WM ranking this year, Vogel and her staff of 33 professionals and nine support people spend a lot of time at that table.
"We do the bill paying, the cash reconciliation, insurance matters--even some specialty things like private planes," she says.
To facilitate the hiring of personal assistants--a service they've performed for many client families--the firm keeps an in-house HR person who acts as a resource and screener.
What keeps Vogel at the top?
"Everyone here," she says, "has a personal commitment to our families. Over time, you care about all the components of having a relationship with people you like and respect."
Ted Neild, Gresham Partners
Gresham Partners jumped from seventh place in last year's Top Dogs ranking to fifth this year without adding to its number of clients. What's the secret?
"There are very few firms that generate the returns we have been able to generate for a long period of time," says Edward F. (Ted) Neild, Gresham's president and chief investment officer. "Over the past year, our equity-only clients were up 14 percent to 16 percent, while the S & P was up just 5 percent! We've made a business out of investing with small, closed managers, that enables us to provide both investment performance and integrated wealth management," he adds.
And it doesn't hurt that while Gresham classifies 60 percent of its clients as families of public or privately-owned business leaders, 25 percent of the firm's clients are professional investors--"private equity people, people in the buyout business, people who run hedge funds. They may be very good at what they do," says Neild, "but they need professional [money] management." The relationship rubs off on Gresham's investment policy, even though the firm is adamantly conflict free.
"If we're trying to figure out how to invest in Japan, for example, some of our clients are experts. We can't invest in them because that would be a conflict of interest," he adds. Ironically, when the firm meets with these experts initially, "We have to ask ourselves if it makes more sense for us to work for them or for them to work for us! "
"To be conflict free, there is no gray area," says Neild. "It's black or white. We charge our clients a fee because we have no proprietary asset management and we don't receive any other form of compensation."
The firm's commitment to its principles was one reason for early thoughts of succession, an issue that would not usually arise after just 10 years.
"As firms grow, they become so valuable that they are difficult to transition. For us," Neild continues, "it was important to figure out how to remain private, independently owned and client-focused."
Last November, Gresham Partners announced that it would use an innovative funding option offered by New York City-based Asset Management Finance (AMF). The plan provides capital in exchange for passive, non-voting revenue sharing interests over a limited period of time.
"By the nature of who we are and what we do, it's difficult to grow fast," Neild says. "You have to get to know your clients, you have to constantly build additional talent, and you have to do it over a very long time frame."
Neild believes that the AMF plan--of which clients were made aware--will enable Gresham Partners to remain a conflict-free, client-centric, independently-owned business "based on trust and measured in decades, if not generations."
To see the full listing of all 478 firms and their vital statistics, Top Dogs By the Numbers and the ranking methodology, please click on Wealth Manager's 2008 Top Dogs in the Associated Charts section at the end of this article.
Nancy R. Mandell is managing editor of Wealth Manager.