After three years of punishing stock market losses, and more recently fears about war with Iraq, investors are beating at the doors of financial advisers.
But increasingly, some advisers aren't answering.
The rush isn't necessarily translating into bigger paychecks, forcing many advisers to raise their investment minimums for the first time and turn away many potential clients.
"I know it sounds bad, but I won't see anybody with less than $500,000," says Jay Hesselgrave, a fee-only financial planner in Kinnelon, N.J., who broke into the advice business six years ago with considerably lower investment minimums.
"To be honest with you, I'm almost thinking about holding out for more," he confesses.
Mr. Hesselgrave, who oversees about $20 million in client assets, says his investor base increased by 10% in 2002, all through word of mouth.
Ross Levin, a principal at Accredited Investors Inc. in Edina, Minn., which oversees about $221 million in assets, says the number of clients climbed 8.1% to 200 in 2002. Revenue, meanwhile, increased 10%.
Stephen Gorman, president of Gorman Financial Management in Hingham, Mass., says his client base increased 10% during the first two and a half months this year. That compares with a 5% to 7% increase in clients for all of 2002.
"Everybody is scrambling," says Mr. Gorman, who manages about $100 million in assets. "I think many people have simply reached a point where they know they need some sort of
financial planning."
Fewer assets
The flood of new clients doesn't mean advisers are sitting pretty.
With the Dow Jones Industrial Average and the broader Standard & Poor's 500 stock index down 23% and 42%, respectively, over the three years through last Thursday, many advisers are overseeing fewer assets.
Since the profits and revenue of many advisers are tied to the amount of assets they oversee, the blast of new business simply means they are working harder to earn no more than they did a few years ago.
Mr. Levin notes that his firm's revenue increase was not huge, given the additional work required to serve the new clients. Overall, he says, he is working harder for basically the same amount of income.
But any way you measure it, business is booming at many financial advisory shops.
Consider, for example, that 36,000 people logged on to the National Association of Personal Financial Advisors' website or called the Arlington Heights, Ill.-based organization for a referral last year. That represents an 80% increase from 20,000 requests for referrals in 1999.
In addition, the second-annual Industry Attitudes survey by
InvestmentNews (Oct. 28, 2002) found that a whopping 68% of 133 advisers who participated in the survey had garnered additional clients over the previous year.
Also, Charles Schwab & Co. Inc. reports that it made a record 1,500 referrals to advisers through its Advisor Network program last month. That is up from 1,475 referrals in January and from 950 referrals made in December.
Net new assets into Schwab's program, formerly known as AdvisorSource, totaled $380 million last month - also a record.
Robert S. Klapper, a senior vice president who heads the Schwab program, says that referrals are up, in part, because investors are hesitant to deal with advisers at large brokerage firms.
Mr. Klapper blames that hesitation on concerns that some big firms misled investors with faulty research during the 1990s stock market boom in order to win investment banking business.
Another reason, he says, is that investors are scared to death because of continuing losses.
"We are truly seeing people who don't want to open their [account] statements," Mr. Klapper says. "People are starting to realize that it's been three years of this, and that they've got to get more control of their financial lives."
He is so convinced that investors will continue to seek help from advisers that he expects Advisor Network to bring in $6 billion in fresh assets this year, up from the $12.5 billion in assets now in the program.
"We have expectations for the registered investment adviser business," Mr. Klapper adds.
How are advisers handling this new demand for their services? Any way they can.
Balasa Dinverno Foltz & Hoffman, a financial advisory firm with $460 million, is being more selective about the new clients it takes on. The firm, which is based in Schaumburg, Ill., increased its investment minimum last year to $750,000, from $400,000.
"You've got to take care of your current clients and that means holding their hand twice as much as before," says Armond Dinverno, co-president of the firm, which experienced a 10% increase in its client base last year.
"Consequently, you have limited amounts of time to look for new clients," Mr. Dinverno says. "So you've got to be sure you are looking for new clients."
The firm is also looking to hire another financial adviser to augment the team of six that it already has, he adds.
For smaller shops, the influx of new business simply means more work — or focusing less on practice management.
Mr. Gorman, for example, says he is devoting time to new clients that might otherwise be spent on such activities as mastering new technologies or attending conferences.
"Right now, I'm forced to work a little more rigorously," he says. "I'm even working weekends."
