A former Arthur Andersen LLP executive who opened an investment advisory firm for the wealthy last week says his first priority was to learn from the accounting firm's mistakes by creating an independent firm free from any conflict of interest.
Fortunately, he had a loyal group of Andersen clients who followed him and his team into the new advisory firm venture, Altair Advisers. It opened for business advising 75 clients with $600 million of assets. To achieve a conflict-free image, Altair told customers that its only form of compensation would be customer fees.
Steven B. Weinstein, a former executive vice president in Chicago for Andersen's Investment Advisory Services unit, opened Altair in Chicago with 13 former colleagues from Andersen's advisory services unit four months after the auditing firm was indicted on charges that it had destroyed evidence in a potential fraud case involving Enron Corp.
Mr. Weinstein said his group was heavily recruited by accounting firms, banks, and financial institutions after Andersen decided in May to divest its nonauditing businesses. But they felt the best way to keep their wealthy clients was as independent financial advisers.
"We watched what Andersen went through," said Mr. Weinstein, the firm's president and a managing director, "and we realized that we didn't want to be part of a bank or another firm. We wanted to go on our own and focus on investment counsel free of any conflicts of interest."
Mr. Weinstein said there are "countless" small investment advisers nationwide who consider their independence an indication that they are free of conflicts of interest, but Altair took the additional step of limiting its compensation to customer fees.
"From the beginning, we have no fees for outside managers, and we do not accept fees from companies or investments we recommend," he said. "In order to act in a client's best interest, we have to insure that there is no possibility of conflicts of interest when it comes to investment advice."
In an environment of investment scandals, being small, independent, and free of inherent conflicts are keys to luring wealthy investors, according to some analysts.
"This is the model for success post-Enron," said Burton Greenwald, a Philadelphia investment analyst. "Wealthy investors are willing to pay financial advisers when they are certain that that adviser is not tangled up in interests that might not be their best interest."
Another observer, however, Jason Kemp, a Chicago high-net-worth analyst, said that above any concern about conflicts of interest the wealthiest investors demand to be treated well. "Wealthy individuals want to know they are getting good advice, but above all else, they want the best service," he said. "How and if a firm like Altair evolves relies on how they serve their wealthy customers."
Altair began its gestation in January after Arthur Andersen announced that it would focus on auditing. This meant divesting the investment advisory service, which had grown to $3 billion of assets nationwide in seven years. Mr. Weinstein, who opened the Chicago office of Andersen's investment advisory service in 1995, said he had begun talking in February with Deloitte & Touche, a New York professional services firm, and some large banking companies about hiring the Chicago group.
"Our first priority was to preserve the client relationships," he said. "We wanted to maintain our group and maintain the strong base of wealthy relationships we had developed."
And despite the heat Andersen was taking, clients followed Mr. Weinstein's team to Altair.
He said the firm, which had grown 40% a year as an Andersen unit, is positioned to continue growing. The Andersen unit had hired two executives late last year to increase its base of customers, he said, and these two will fill the same role at Altair.
"We have the capacity to double over the next few years without having to add any personnel," he said. "Altair offered us the best platform for maintaining scale. We have an opportunity to grow while remaining close to our clients."
