One day last month, while the Dow Jones Industrial Average was sinking over subprime-mortgage concerns, financial adviser Frank McGovern was relaxed, and the phones of his McLean, Va., office were quiet.
One day last month, while the Dow Jones Industrial Average was sinking over subprime-mortgage concerns, financial adviser Frank McGovern was relaxed, and the phones of his McLean, Va., office were quiet.
Convinced the United States isn’t going to be thrown into a recession, this adviser of 23 years talked about issues that do keep him up at night.
“The biggest challenge being on my own is thinking about running the business, not just producing,” said Mr. McGovern, who bought out a business partner to create Capitol Wealth Management Inc. a year ago.
Having to worry about telephones, rent, marketing and the 800-pound gorilla — compliance — were a bit overwhelming.
Recognizing he needed support, Mr. McGovern hired Adviser Compliance Associates LLC, a company that helps financial professionals meet federal and state rules and regulations regarding communications and other processes.
The Washington-based firm helped Capitol Wealth Management develop internal policies and procedures for e-mail, trades and even disaster relief.
Test the plan
“Once a year, we actually have to test our disaster relief plan,” Mr. McGovern said. Firms’ compliance obligations “have gotten to the point of being almost unfair,” making it difficult for smaller businesses to complete requirements and run their business, he said.
After this first year in business, Capitol Wealth Management oversees about $70 million, and its 60-year-old leader is thinking about growth. In fact, Mr. McGovern is looking to double the firm’s assets under management in three years.
As part of his growth strategy, he is forming relationships with local banks to market his services. The firm will pay a finder’s fee for referrals, because such an alliance “never works as well as when there’s a profit motive.”
Mr. McGovern is talking to officials of his local branch of Baltimore- based Provident Bankshares Corp., where he knows vice president Paul Frank from years of working together on the boards of the McLean Chamber of Commerce and the McLean Orchestra.
“When I have a customer with financial services needs beyond what Provident Investment Corp. can provide, I send those people to Frank,’’ Mr. Frank said. For example, an affluent client with complex situations involving a former wife, businesses or real estate might need tax advice to maintain and pass on his wealth, he said.
Another growth approach Mr. McGovern is considering is the acquisition of a small financial advisory business, such as one that doesn’t do planning. Another possibility is buying the trust department of a bank, he said.
Before starting Capitol Wealth Management, Mr. McGovern worked as an adviser for American Securities Investment Advisors Inc. and Professional Planning Association Inc., both in McLean. He has an undergraduate business degree from George Washington University and a master’s degree in public administration from American University, both in Washington.
Being active within the business and arts communities in McLean, an affluent Virginia suburb of Washington, has helped Mr. McGovern meet potential clients.
Ensuring retirement
About 40% of Capitol Wealth Management’s clients are business owners. Most are in the 45- to 65-year-old range and are looking to secure their retirement.
Mr. McGovern tries to extend the life of their assets and considers strategies such as pulling money out of life insurance policies to delay tapping assets in 401(k) plans and individual retirement accounts.
He also thinks that clients should have 20% to 30% of their assets in variable annuities or another guarantee- type program so the rest of the portfolio can be more aggressive.
“I tend to be optimistic about the market and a fan of equities versus bonds,” Mr. McGovern said. He also is an enthusiast of exchange traded funds, believing the investments are a good way to diversify at a low cost.
Investment diversity is important at Capitol Wealth Management, where about 25% of stock portfolios contain international equities and up to 5% of that amount is in emerging markets, such as China.
Capitol Wealth Management is a fee-based firm that requires clients to have $250,000 to open an investment account, although an affiliation with a broker-dealer enables it to buy variable annuities and other investment products for clients with smaller sums. Two other advisers work for the firm.
Mr. McGovern, a tennis and golf enthusiast, called the market turmoil last month a hiccup, noting that U.S. markets haven’t had such a spell since the 2000 technology bubble burst. Confident that he had successfully explained his long-term investment strategy to clients and wouldn’t need to assuage client fears, Mr. McGovern planned an afternoon tee time on a recent August day.
“My clients are pretty well trained,” he said.
