Creating an enduring financial advisory business: Lessons from Fisher Investments

Since its founding in 1979, Fisher Investments has grown to become the nation’s second largest registered investment advisory firm, according to InvestmentNews Research, with approximately $70 billion in assets under management and more than 2,100 employees worldwide. Some 29,000 U.S. high-net-worth clients account for half the Camas, Wash.-based firm’s AUM base; more than 170 institutions constitute another 40+% of the total, and growing European HNW and 401(k) businesses comprise the remainder. This year, 65-year-old founder Ken Fisher — a Forbes columnist since 1984 and author of 11 books — handed the CEO reins to Damian Ornani, 42, who joined the firm in 1997. At this milepost in Fisher Investments’ history, InvestmentNews Content Strategy Studio Executive Editor Evan Cooper spoke with the two about the essentials for success in the wealth management business, why succession planning should be organic, and how other advisers can profit from the experiences of the firm.

InvestmentNews: The size and scope of Fisher Investments is atypical in the RIA business. What insights can you share with much smaller RIAs firms, whose business practices are probably much different from yours?

Ken Fisher: Well, I’ll agree that most RIAs don’t do things the way we do, but that doesn’t mean they couldn’t do some or even many of them. It really depends on the way a firm’s principals think of their business — which is at the core of a book I wrote, “The Ten Roads to Riches.”

IN: What lessons can financial advisory firms learn from the book?

KF: Fundamentally, it’s for any business, and it requires answering five questions: What part of the world can you change? Will you create a product that’s new or will you innovate an existing one? Will you build a firm to last or one to sell? Do you need outside funding or will you bootstrap? And are you going to stay private or eventually go public? Those questions should be thought through early on, because they are essential to differentiating yourself. Also, if you go down a path that’s a blind alley or is inconsistent with what you eventually want to be, you have to backtrack, which is very painful.

Damian Ornani: And, to be clear, it’s not simply a matter of deciding “big” vs. “small.” If you want to be a sole practitioner in a small shop with few or no employees, that’s fine as long as you’ve thought it through and it’s consistent with your goals. No matter how you answer those basic questions, pretty much everyone you come into contact with — potential clients, employees, funders, vendors — will want to know your answers, whether they ask directly or not.
IN: You mentioned differentiation. Why is that so important?

KF: Creating distinction for your business is always crucial because otherwise why would any client hire you over the guy or gal down the road who offers the same thing? You also must remind clients of your differentiation regularly so they don’t decide to go somewhere else.

IN: Many advisors believe that your differentiator is marketing. Do you agree?

KF: Actually, while our marketing is visible, I’ve never thought of it as our differentiator. It’s one of the many functions of our business, and I see any business as a set of different functions where success is the result of the compound multiplication of how well you’re doing in all functions. Since you’re always going to score less than 100% on each factor, you’ve got to be as good as you can be across all the business disciplines to achieve the highest total compound number. For advisors, that means doing well at portfolio management, sales, marketing and customer service. Even in factors where you’re not the very best, you’ve got to be pretty good due to the effect of the compounding.

DO: To build on Ken’s point, the most important factor for RIAs is client services, followed by portfolio management and sales and marketing. Sure, people know us as a direct marketer, especially within our U.S. private client business, but we consider ourselves as much of a leader in client services and investing as in marketing. In fact, our customer services team is ten times the size of marketing in terms of head count, and portfolio management is three times bigger than marketing. Portfolio management, client acquisition, client services and research are essential factors for us — and they all have to be very good.

IN: If business success depends on excelling at so many things, what skills should advisory firm principals develop?

KF: Let me answer that based on my own experience. Our business went nowhere fast for a decade until I finally learned that I had to delegate the things that weren’t my highest value added. I realized that a founder CEO has to be a “quitter” — someone who gives up sequential functions in order to concentrate on those with the greatest value. It’s so logical, but it took me a long time to learn that I could have more of a life and more of a business if I organized myself out of essential activities. Could I have done that by having a few partners? Maybe, but you don’t really get the full-scale benefits of a business unless you start thinking through all its different parts, creating specialized functions and building something that takes on a life of its own. At some point in that process, it’s time for the CEO not to be the CEO anymore. At our firm, we’ve been planning that shift for some time, and it’s been a natural consequence of the founder/CEO quitting functions.

IN: So is Damian a younger version of you?

KF: No. Except for sharing my vision and values, I wasn’t looking for a clone; I was looking for somebody to be better than me, which Damian is, in terms of managing people, managing all the functions of the business and being able to juggle five things at once.

IN: Why did you decide to go from small business to enduring business?

KF: Because it’s fun. It’s really fun to see people succeed, and to do things that you never thought you could pull off. It’s fun to try new areas. And it’s really fun to hire young kids and watch them grow into powerful, capable, professional and skillful human beings. At my stage of life, I often get teary-eyed when I look at people who have been with us a long time and marvel that I’m surrounded by them.

DO: A lot of what we’re talking about is Business 101. But for investment management practices or advisory firms it’s somehow strange or unique, probably because so many people in the business start off thinking of it as a craft. Also, many people in the RIA realm believe that bigger is worse. Our experience shows that the exact opposite is the case. Our size has produced tremendous benefits for our firm and for our clients.

IN: So what would you say to a small RIA firm that claims it can offer more personal attention and better service than a giant?

DO: Some small firms do offer great service, but that has nothing to do with their size. It’s a matter of commitment to service as a core function, and then devoting the necessary resources to building that capability. In our case, size is a huge advantage because it allows us to pour a tremendous amount of resources back into our service offering and the wide range of communications, personal touch, educational events, and proactive outreach we provide to our clients. I would put up our client service capabilities in all ways against any firm, any day. We’re very proud of our service and strive to make it better all the time. In fact, I would say that customer service is the one factor of all those Ken mentioned where we’re closest to performing at 100%.

IN: What’s next for Fisher Investments?

DO: Our 401(k) business is small, but growing. Our institutional business—which includes organizations like the Employees Retirement System of Texas, the State Board Administration of Florida, and the Canada Post Pension Plan—is expanding globally, and over the last decade we’ve retained about 98% of those assets. We’re also expanding our non-U.S. HNW services business, and whether it’s in Britain or Germany, Belgium or Italy, Scandinavia or Spain, we’re finding that people are people; we operate almost identically country to country. This year, we expect to attract more than $1 billion in Western Europe alone. Looking out 20 years, I can’t see a single reason why we don’t have $1 or $2 trillion under management.

For more information on the firm, please visit Fisher Investments online.