When a new client walks into Laura Pedroncelli's office seeking financial advice, the first thing he or she is apt to do is pull out a spreadsheet, says the 45-year-old financial advisor. "It comes naturally to them," she says. "Most of them are engineers. They have their theories about investing and saving, and I offer mine, and we usually meet somewhere in the middle."
Pedroncelli is a fee-only advisor for the Sonoma, Calif., branch of First Tech Federal Credit Union, a large credit union with branches up and down the West Coast, and across the South as far east as Atlanta.
Sonoma, located among the sprawling vineyards at the northern end of San Francisco Bay, is not your typical town. It's home to many of the people who work in Silicon Valley's companies.
Pedroncelli comes to First Tech from a merger early last year when it joined forces with her employer at the time, Addison Avenue Credit Union. Addison, which is still the name of the wealth management unit of the combined credit union, had been the employee credit union for Hewlett-Packard Co., one of the early high-tech success stories that gave Silicon Valley its name. (Some branches of the credit union, including the one where Pedroncelli works, still carry the Addison name).
Addison Avenue Investment Services itself began in an office on the same street in Palo Alto, at the other end of San Francisco Bay, where HP founders Bill Hewlett and David Packard began their company in Packard's garage.
And even today, Pedroncelli says, most of her more than 500 clients are current or former HP employees, or employees of the HP spin-off Agilent.
"Ninety-five percent of my clients are from HP or Agilent, " says Pedroncelli. "I have engineers and I have regular production workers from HP too, because HP over the years did such an amazing job of giving stock options to their employees, and of teaching people to save - including their production people, many of whom have quite significant savings."
Having that kind of clientele can be a challenge, but it also often makes her job easier. "It's about 50/50," she says. "Some of them can be easier to explain things to, because I use a lot of technical analysis in my investment decisions, and they can understand it when I try to explain my approach. But others think they know it all."
She says, "My clients tend to have pretty good savings, so I don't have to worry about trying to build up their assets quickly. A lot of my time is spent finding out what their risk tolerance is," she says. "It usually turns out that it's a lot less than they thought. They tend as a group to have a lot less downside risk tolerance, particularly after they have retired."
In general, she says her professional clients are "focused on their careers," and so their attitude is that they want to hire an expert to manage their finances for them so that they can pursue their careers.
An advantage, she says, is that because she works in a credit union, "there is a built-in sense of trust. It's their credit union, and they trust it, so they trust me." About half her clients are referred to her by credit union staff, with the other half coming through client referrals (credit union staffers have incentives in place to refer members to her).
Pedroncelli, a Sonoma native, graduated with a degree in finance from Sonoma State University. She worked in commercial banking at several small banks and at Bank of America before going to work for a small broker-dealer called Legacy Financial Services, where her responsibility was going out and explaining 401(k) plans to employees. She moved to Addison Avenue five and a half years ago.
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She says at First Tech it can be hard to tell her clients' financial condition from their appearance.
"My wealthiest clients are often the ones you'd least guess were rich. They're frugal, and often come in for appointments wearing flip-flops and jeans. The ones who come in looking showy can turn out to be spenders who don't actually have much money to invest."
Her biggest clients are a couple who came in with a typical set of IRAs for her to invest in 2009. "I handled their investments for four or five years," she recalls, "and then they told me they had these three family trusts, set up by their grandparents back in Virginia, where they were being administered by Bank of America." They complained that they were unhappy with the fees they were paying and at having to deal with the trust administrator by phone. "They asked me if Addison Avenue could take over the trusts," she says.
Getting the trusts moved proved to be difficult. First Tech didn't have a trust unit, so she initially turned to Santa Fe Trust, which did the due diligence and tried to transfer the trusts.
"But Santa Fe Trust didn't have an office in Virginia and the state denied the transfer," Pedroncelli recalls.
One of the challenges, Pedroncelli notes, was the fact that Virginia has some "archaic trust regulations."
Fortunately, the credit union's broker- dealer, Raymond James, has a trust unit as well as offices in Virginia. So she turned to them for help.
"Raymond James, with trust specialists in each state, was able to move the three trusts. They worked with my clients' attorney in Virginia, and so in September, we got the whole $3.3 million in assets moved here," says Pedroncelli.
That was a significant addition to her book, where her average client brings in about $250,000 in assets. "My clients are much happier now," she says. "They can meet with me anytime, in person, they aren't forced to invest in any proprietary products, and the fees they are paying now are half what they were."
Her job is to manage the trusts' assets. Under the trusts' terms, her clients, who are in their sixties, can draw on the income of those assets, but not the principal, which is reserved for their children.
Pedroncelli says when she was first asked by her clients to take over management of their family trusts, she had only "cloudy" knowledge of trusts. "Now it's all very clear to me after going through all this," she says. "I don't have any other trusts, but I'm certainly going to be doing some marketing to say we can do that kind of work, now that I know how it's done." She adds, "I would say to any bank-based advisor: Make the effort to ask the question about trusts of your clients, and get to know your bank's trust department, or if your broker-dealer has one, their trust department."
She says that trust departments, whether at the broker-dealer or the bank, offer a valuable service (trusts are common for clients with significant assets, as they can help heirs avoid probate delays and can also help shelter income from taxation). "The client also needs to hire a trust attorney," she adds.
She also notes that even though her client base is almost all HP and Agilent employees, current and retired, it has been growing at a rate of 20% a year for the past three years. In addition to relying on referrals to grow, she says she actively works with the credit union's loan officers "to help people restructure their assets properly."
Most of her business is managing people's IRA and 401(k) assets for clients who tend to be in their fifties and sixties. "My typical investment strategy is fairly conservative," she says. "I work with people who for the most part have reasonable expectations. They don't expect to be taking 10% to 15% out of their savings every year, and they've saved enough that they don't have to take a lot of risk. I don't seem to attract people who are pushing me to pick the next great stock."
She generally likes to put together a "good mix" of stocks, bonds and mutual funds. "If the market is showing signs of going down, based on my technical analysis, I will move assets out of equities, but when they seem low, I will try to get my clients back in the market," she says. She doesn't like to do a lot of stock trading, but says that because most of her clients do own HP and Agilent stock, she does have to "work with that."
Until 2008, she says she was basically a "buy-and-hold" investment advisor, but now she has to be more agile as markets move much more quickly. For now, she says she is sitting tight. "I haven't moved out of the market for four years," she says, "and I'm not advising people to move out now."
Name: Laura Pedroncelli
Bank: First Tech Credit Union/Addison Avenue Investment Services
Location: Sonoma, Calif.
TPM: Raymond James
2011 production: $500,000
2010 production: $300,000
2011 AUM: $90 million
2010 AUM: $60 million