Merrill Lynch & Co. advisers Scott Macolino and Roger Shaffer had it all - a partnership serving a book full of ultra-wealthy investors with a minimum account size of $5 million.
But it wasn't enough: Their clients had needs the wire house could not meet. So in 2003, after spending a decade building their book at Merrill, they moved with their four assistants to the Alexander Key division of the investment unit at SunTrust Banks Inc. in Atlanta.
The two advisers say they had differentiated themselves at Merrill's Atlanta office with a technique that is now commonplace but was fresh in 1993 - they began holding educational seminars for prospects. "It was a first-move advantage, far better than cold-calling," Mr. Shaffer said. "We also embraced financial planning, which was also new to the business, and we were annuitizing our business from the start by charging a flat fee for professional management, which was also unusual."
They soon found that they closed more deals when they met people as a team, another key to their early success.
Mr. Macolino and Mr. Shaffer brought to SunTrust the lion's share of their book, which currently stands at more than $650 million. They work with about 140 families, whose average net worth is between $7 million and $8 million. Mr. Shaffer said their clients' primary goals are capital preservation, tax efficiency, legacy planning, and cash flow - they have already hit the jackpot, so to speak.
"We can honestly say we're different - we offer true open architecture, and we can use products from all sides of the bank, including private placement deals that would be too small for other firms to bother with," said Mr. Macolino.
Many of their clients are corporate executives with highly concentrated stock positions in their companies.
Over time, Mr. Macolino and Mr. Shaffer helped these clients diversify their portfolios to reduce risk, then helped them create cash-flow strategies. This leads to broader financial planning, estate planning, asset management, and liability management. "When we meet with a new client, we learn about kids, wills, and trusts, and we discuss high-level estate planning," Mr. Shaffer said. "We take a long time on this; we've always taken a holistic approach."
"The only thing we don't do is buy and sell land," Mr. Macolino said.
The team works whenever possible with a client's attorneys and accountants, though they say these advisers have thus far made poor referral sources. Most new business comes from the team's clients through word of mouth, they said.
Doing business with the family members of wealthy clients can produce growth opportunities as well. Mr. Macolino and Mr. Shaffer spend a lot of time in family meetings, which can make it more probable that the heirs will maintain their accounts with the partners when the original client dies.
"We always want to grow new business and to have something in the pipeline, but we don't want to lose the families we meet with," Mr. Macolino said. "Meeting with clients' children is very important to instill in them a sense of responsibility." Since these meetings can get emotional, the partners usually hold them in their office.
Though one partner usually takes the lead in any client relationship, the two together meet with clients and their families. This presents a united front and, equally binding, shows that the two bring complementary philosophies to the table.
They use Monte Carlo, probability-based planning software called FinanceWare to put together plans based on likely market performance, clients' risk tolerance, and their need for cash flow. "We tried putting together portfolios based on what the chief investment strategist told us, and it didn't work," Mr. Shaffer said.
"We have no idea what's around the corner," he said; "so we don't try to predict the next hot asset class; instead, we protect wealth."
Of course, managing a high-net-worth business while insisting on joint meetings would be too much for the two men to handle alone. They credit their four associates - administrator Rhonda Lamb; Rebecca Childress, who specializes in mortgages and securities-based lending; Kimberley Kane, who does probability-based planning, trust work, and insurance; and Perry Newman, who handles derivatives transactions and ensures the accuracy of data the firm buys - for their success.
Though SunTrust pays the assistants' salaries, Mr. Macolino and Mr. Shaffer augment their compensation from asset management fees after SunTrust and the portfolio managers have taken their cut.
Everyday customer service is managed by the whole team with Mr. Macolino and Mr. Shaffer calling the shots and making sure client queries are answered quickly. Because their business model is based on capital preservation, the calls rarely have to do with new investment ideas, a service the team does not provide.
"We won't double or triple their money, so we interview them as they interview us," Mr. Macolino said. "We can't guarantee our clients returns of 12% or 15% per year, but we can help them meet their objectives and tax issues. If that's what they're looking for, we're the right fit."
To reward their best clients, they have found that golfing trips with four or five people work well, both in terms of client satisfaction and referral flow. Larger events do not work as well. Even the seminars have ended. "When everyone started doing them, their effectiveness wore out," Mr. Macolino said.
The team has not lost a customer since moving to SunTrust. Mr. Macolino attributed this partly to the "stickiness" of clients tied to several subsets of the bank. "Advisers shouldn't just focus on investments but on loans and insurance, too," he said. "These are very important parts of the relationship, and when a client is this involved with an institution, it's very hard to up and leave."
Though the partners refer business to other departments in the bank, only an occasional referral flows back to them. As former wire house brokers, they are used to generating business externally. However, access to an increasingly diverse product base throughout the bank, they said, is crucial to gaining business.
"Business is heading more toward the alternative side, private placements, hedge funds, futures, commodities," Mr. Macolino said. "We'll be successful at this; others will be left behind. As far as our team goes, we'll soon need to add more folks, maybe a junior partner, although we won't try to grow at the detriment of the existing model."
