Fast Track: Lipper turns his hand to advice but needs focus

Just because A. Michael Lipper no longer works at the mutual fund tracking firm he founded more than 30 years ago, don’t expect him to retire to Florida anytime soon.

At age 65, the fund guru plans to focus his efforts on Lipper Advisory Services, an already sizable financial advisory firm in Summit, N.J.

But despite managing about $1 billion in client assets, few mutual fund outsiders know about the firm.

Mr. Lipper had put zero effort into marketing the company. In-stead, his efforts had been focused on expanding Lipper Inc. – that is, until he was forced out in January by Reuters Group PLC, which purchased the fund tracker in 1998.

It is uncertain whether he’ll be as successful at developing Lipper Advisory Services beyond its current size, however. Some industry experts see Mr. Lipper having a hard time building the company – they view him as a great idea man, but not a good marketer.

They argue that the financial advice world is overcrowded and that, while his famous name will get him some attention, most customers will probably stick with what they already know.

Challenge

Mr. Lipper admits that the investing world is different now than when he started Lipper Inc. But developing the adviser business will basically require the same strategy – finding the right focus and hiring the right people.

The problem is that Lipper Advisory Services seems to lack focus. Its clients include wealthy families, the city of Milwaukee and the National Football League, all of whom have different needs.

“Each relationship is different, and that’s why it’s been interesting,” Mr. Lipper says. “On the other hand, it’s quite difficult to grow the business and create manufactured products [at the same time].”

In terms of finding a product, he’s still searching for the right one.

Mr. Lipper did come out with a hedge fund that invests in financial services mutual funds and stocks. From its inception in July 1999 through the end of that calendar year, the $17 million fund returned 36.5%. Not bad, considering many mutual funds during that period were underwater.

The hedge fund, however, probably won’t be the focus around which Lipper Advisory Services grows, Mr. Lipper says.

“To a significant degree, we have to create some more standardized products and start to have a standardized performance approach,” he says. “I’ve resisted that because, as I’ve said, each account’s different. But if you’re going to grow, and you’re going to have other people represent you, they’re going to need more of a manufactured product.”

Mr. Lipper says that such products could involve transferring wealth between generations or salary savings vehicles such as 401(k)s. After all, he says, we’re seeing one of the biggest transfers of wealth between generations, and 401(k)s are immensely popular.

Mr. Lipper is most excited about creating a product that marries sectors such as biotechnology or telecommunications to a mutual fund core.

Flexibility

But some industry experts say that building a financial advisory firm around a product isn’t the best way to sell advice. Instead, flexibility is the way to go.

Mark Hurley, president and chief executive officer of Undiscovered Managers LLC in Dallas, says advisers that are not tied to a product can serve investors better.

“What Mike Lipper is incredibly good at is evaluating the quality of medicines,” says Mr. Hurley, who has studied the mutual fund and financial planning industries. “But the real issue is customization, getting the right medicine to the right person. The more you use standardized templates and that kind of stuff, the less customized the information is.”

For his part, Mr. Lipper says he is looking for a product that only his clients will find useful. He says he won’t shoehorn them into something that is not suitable.

“You build it around the needs of the client,” Mr. Lipper says. “We hope that the clients will come to us, and we’ll then figure out what’s best for them. It’s more client driven than product driven.”

Getting those clients, however, will be the biggest test. Mr. Lipper admits that he may have to narrow his target market and actively market his company. He says he hopes to find the right people to do that.

Louis Harvey, president of Dalbar Inc., a financial services research firm in Boston, says he believes that if Mr. Lipper is serious about marketing his firm, Lipper Advisory Services should develop.

“Mike inherently isn’t the marketer; he’s the thinker,” Mr. Harvey says. “He needs to get effective marketing, and I think with that he can be enormously successful.”

Matt McGinness, an analyst with Boston consultancy Cerulli Associates Inc., agrees that with a good marketing effort, Mr. Lipper can develop his financial advisory.

He disagrees, however, with other experts who call it a bad idea for Mr. Lipper to develop a product through which to expand his business.

“It sounds to me like [Mr. Lipper] might be casting around for a product to contrast him from a lot of the other wealth managers or advisory services,” Mr. McGinness says.

“The people who are on the cutting edge in the industry are looking to do things like folios. They’re dealing with a lot of [exchange-traded fund] products, and of course they’re working with other institutional money managers, people who are running separate-account programs.”

Whatever Mr. Lipper chooses to focus on, however, he says he doesn’t plan to gauge his firm’s success by assets under management.

Success, he says, will depend on whether he and the other principals can move on and leave the company in good shape.