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Stanford Financial expanding despite contracting economy

Firm may hire 100 advisers next year and open New York office

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By Charles Paikert

December 14, 2008 6:01 am ET

While many wealth management firms are hunkering down in a brutal market, the Stanford Financial Group is swinging for the fences.

The risk, of course, is that the privately owned Houston-based firm could also strike out.

Stanford may hire as many as 100 advisers next year as it considers adding up to eight offices, including one in New York, according to Jason Green, president of Stanford's private-client group.

This year, Stanford began to expand from its Southern and Southwestern base, adding four new rented offices and 45 new advisers, bringing to 23 its total offices and 250 advisers. At this time, the company is not buying additional property for the private-client group.

Even though other firms are contracting in a bleak economic environment, Mr. Green defends Stanford's aggressive expansion.

"The market [for advisers] is definitely playing in our favor," he said. "Supply [of available advisers] is outstripping demand right now. I fully recognize this is a window, and I want to take advantage of it before it closes."

"Organizations that have the financial wherewithal and stomach to expand and take advantage of the turmoil during 2009 could benefit," said Steven Levitt, managing director of New York-based Park Sutton Advisors LLC.

Stanford does, however, face a challenge from well-capitalized independent-wealth-management competitors such as Convergent Wealth Advisers of Rockville, Md., which may be able to outbid Stanford for the services of highly sought-after wealth managers, he cautioned.

Others believe Stanford will hold its own in the dismal economy because it is privately owned. "They can take a long-term perspective because they don't have to worry about turning a profit quarter-to-quarter," said Jeff Spears, principal at San Francisco-based Sanctuary Wealth Services LLC.

Advisers hired this year by Stanford managed about $5 billion in assets at their previous firms, which included UBS AG of Zurich, Switzerland, and Wachovia Corp. and Bank of America Corp., both based in Charlotte, N.C. Stanford has $20 billion in assets under management.

But one highly respected wealth management insider charges that Stanford is merely "buying assets and revenue," and not adding true value to the company.

"That's far from the truth," Mr. Green responded. "We don't want people on price; we want them to be convinced this is the best place for them to grow their business."

Upfront payments for advisers who join Stanford are less than those from the wirehouses, "but the total package can equal or exceed a wirehouse package," Mr. Green said.

Stanford pays 60% to 100% on the front end and 60% to 100% on the back end, he said. But the back end, he said, is a payment based on "the current trailing 12 [months] versus the original trailing 12."

That was especially attractive because "the average adviser increases his revenue growth by 30% in their first year," Mr. Green said.

Industry headhunters say Stanford's reputation for deep pockets distinguishes the company from its competition and is in fact attracting wealth advisers.

"Stanford is viewed as a safe haven," said Rick Peterson, president of Houston-based recruiter Rick Peterson & Associates. "They've shown they have enormous financial strength. They're also very adept at telling their story, which is primarily based on their balance sheet, ownership and high average production per broker."

"Stanford spends twice the amount their competitors do in each office. It isn't a retail organization, and that appeals to advisers, who are given the opportunity to treat clients the way they want to be treated," said Tim White, a partner in executive recruiting firm Kaye/Bassman International Corp. of Plano, Texas, who has worked with the company.

But Stanford's free-spending ways have left some competitors scratching their heads.

"I can't figure them out," said a Texas-based wealth manager, who asked not to be identified. "They're very high-touch, but I don't understand their business model. I know what they spend, but I don't know what they're making."

For now, Stanford's spending shows no sign of slowing down.

Steve Trautwein, a 10-year Wachovia veteran who joined Stanford as a managing director in McLean, Va., in September, opened one office for Stanford this year and may open up two more next year in the Washington neighborhood of Georgetown and Bethesda, Md.

"I'm not being asked to deliver a profit next year or the year after," he said. "They're taking a long-term approach."

Nor is any expense apparently being spared to pamper wealthy clients.

Clients are taken to polo, tennis, sailing and golf events. The white-glove approach is "filling a void left by old-school firms like U.S. Trust," Mr. Spears said.

The company's deep pockets start with chairman and chief executive Allen Stanford — grandson of the firm's founder — a multibillionaire who lives in St. Croix, U.S. Virgin Islands, where this year, the company opened a lavish new office complex complete with a 45,000-square-foot aviation hangar.

He also owns stakes in an investment bank and interests in private and commercial banking, real estate services, private equity and a Washington-based research unit.

E-mail Charles Paikert at cpaikert@investmentnews.com.

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