Have you heard the one about the financial advisor who built up a practice of 350 clients, and then gave away 300 of them? He said he wanted a more "uniform" client base.
And the real punch line: It's no joke.
Ryan Beal, a financial advisor at CME Federal Credit Union in Columbus, Ohio, says that after a couple of years of developing his book of business, he decided he most enjoyed working with active and retired police officers and firefighters. It was members of this very same service community who had founded the credit union some 75 years ago, and who still represent about 30% of the membership of the institution. (CUSO Financial Services is the TPM for CME).
"I had to identify where my business was coming from, and also who I really worked well with," he says. "And about two years ago, it came to me, that it was the cops and the firefighters. So I found another advisor who could focus on my other clients, and shifted them over to him, and I kept about 45 to 50 who were the police and firefighters."
Was it hard to do? Not really, he says. "It was a leap of faith, but it also made sense. About 50% of my business was coming from those people, and I was feeling spread too thin." Besides, he adds, "I really relate to these guys. My personality works well with theirs. These are people with thick skins and blunt senses of humor, and I have a thick skin and a blunt sense of humor too. We get along. We have good conversations, and joke a lot. I've even gotten to ride on their fire trucks."
So even though narrowing his client list so dramatically initially cut his production numbers in half, it gave him a more focused base to build on.
Of course he couldn't just dump clients who had been handed to him when he signed on to take over what had been an existing investment program. "We had to make everyone comfortable. I assured my clients that we were transitioning and that I would still be around," he says. And in the end everyone was comfortable with the move to a new advisor.
A UNIQUE PROPOSITION
Management at the credit union and at CUSO had to be sold on his plan too, of course. Was that hard? "Well, yes and no," Beal says. "I went to them with a 30-page PowerPoint presentation to explain my plan. It was a succinct presentation and I eventually got buy-in from both places. I explained that we could offer our police and firefighters something unique inside the credit union."
Still, he says, two years after the scale-back of his book, "I will say that every time I have a bad month I still get questions like, 'Hey, is this still working out?'"
The numbers say it is. He's already back up to 122 clients-all uniformed services personnel-and is looking to add an operations person to his staff so he can expand further.
In 2011, the year he gave away 85% of his clients and half his income, his production was $321,000. By 2012 it was back to $460,000. Assets under management were $10.5 million in 2011, but were already at $33 million and counting as of the start of October this year.
Beal says firefighters and police make good clients because "while they may not get paid all that well, they get treated very well in retirement." Also, he says his clients have developed a sense of trust in him-something that with this particular group of people doesn't come that easily. "The thing is, I have more respect for these people than any other group of employees," says Beal. "I remember the Sept. 11 media coverage in 2001, where you saw the people pouring out of those burning buildings and the police and firefighters heading in and up the stairs. I tell my clients, 'You do a job I could never do, and I'll do a job that you don't want to do.'"
It turns out that in his particular advisory niche, word-of-mouth referrals are everything. "You know, people don't realize it, but firefighters and cops spend a lot of their working life sitting around and talking, until there is some emergency they have to deal with. So if I have one guy as a client and do a good job, he'll tell other guys about me and that means something. If a battalion chief says, 'I've worked with Ryan, and you should go see him,' they will come and see me. But the other side of that is I cannot afford to drop the ball with anyone. This is a tight-knit group of people. If I do something that makes someone mad, that will get around too."
That's one reason Beal says he's not trying to grow his client book too quickly. "If I grow faster than I can handle it, I won't be able to deal with people as personally as they want, and it would all start crumbling down as fast as it grew."
Interestingly, Beal says that while police and firefighters "take major risks every day, facing people with loaded guns or running into burning buildings," at the same time "they are ridiculously conservative when it comes to their investments."
This can make it hard because they are also people who often end up retiring as early as their 40s because of either the stress or because of injuries on the job. So an advisor has to come up with ways to ensure that they, their often still young children, and their spouses, who often are not working, are financially secure for an unusually long time.
"They're very long-term investors with very short-term views," he says. "They tend to look at how their investments are doing every day, and so I have to do a lot more hand-holding than my colleagues with other kinds of clients have to do. I mean, I've had a retired firefighter come in and say, 'Ryan, I lost $12,000 this week.' And I'll say, 'Yes, that's true, but you have $800,000, and that $12,000 is just 1.5%.' I have to change the perspective, so that they can think in percentages instead of dollars and cents. Then I'll have a retired detective come in and he'll want to know every little detail about his portfolio. So I have to know how to enjoy all of that."
Women cops and firefighters present a different challenge, he says, noting that while there are a number of female cops in his client roster, he has only one female firefighter. "These women are very direct, very blunt," he says. "They want to know everything, and their questions can sometimes even seem offensive."
He says the male cops and firemen tend to go with gut feelings when they are discussing investment plans. "With the women, it's a much more arduous process. They want to know, to every penny, how I get paid. And they'll ask things like, 'What would be the reasons why I would fire you?'"
His answer to that one: "I'll admit the first time I got that, it set me back, but I said, 'I set high standards. If I don't deliver on those, I would expect you to fire me. I would fire me.' That was the answer she wanted. It's not about performance. Performance happens. It's about how we deal with it and with the clients."
He adds that he doesn't bother with social media or even newsletters for communication. "These are people who like things to be face-to-face," he says, "or at least on the phone. "These are not people who shop online or go to AutoTrader.com. They go to a store or a dealer and they shake hands on a deal."
So, how to grow client assets when the clients are so risk-averse? "First of all, I have to see my role as educator," he says. "It's about setting the proper level of expectation. I try not to give an expected return, but I'll say we'll try for 6%. It's below the historical return on bonds. If we do better, or double that, great."
There are, of course, tax considerations to deal with. For example, he says, if someone retires at 45, they have to be careful about avoiding the 10% penalty on early withdrawals from IRA plans. The IRS grants a waiver for uniformed retirees who draw directly from public pensions, he notes, "but you have very little growth if you have your money in those plans." So the idea is to find a "balance point," taking some money for family expenses from the pension without penalty, and some from the IRA, allowing the rest of those latter assets to continue to grow.
Beal says his clients favor conservative portfolios, for example 50/50 or 60/40 equity and income. He will also put a small portion of portfolios into alternatives, including ETFs, investment trusts and especially structured products-things like money management platforms.
"What my clients truly want-the majority of them-is a portfolio that grows steadily and doesn't have dramatic drops," he says. "That's what I try to give them."
Name: Ryan Beal
Bank: CME Federal Credit Union
Location: Columbus, Ohio
TPM: CUSO Financial
2012 production: $460,000
2011 production: $321,000
Current AUM: $33 million
2012 AUM: $24 million
2011 AUM: $10.5 million
No. of branches: 5