Steve Kennedy is not a guy to get panicked easily. When the financial crisis hit in late 2008, this TowneBank advisor in Newport News, Va., was a symbol of calm in the storm, a reassuring force for anxious clients.
Kennedy attributes his ability to handle that crisis to his background as a U.S. Army sharpshooter in a unit of the Fourth Infantry Division, based in Colorado, an experience that he says gave him "discipline, mental toughness and the ability to keep your wits when all is going to hell around you."
But Kennedy, who enlisted in the Army straight out of high school, didn't just carry a gun. He also was a member of the division's Army band, where he played the French horn, which also taught him to be careful—albeit in a less stressful environment—as it's easy to hit a sour note on that instrument.
After being furloughed from the Army, Kennedy went through another kind of "basic training"—this one financial—when he joined Dean Witter 26 years ago. "I saw an ad showing a bunch of guys in pastel clothes on a golf course, and after three years of all that olive drab I had been wearing, I thought it looked pretty good," recalls Kennedy, who said he went through Dean Witter's on-the-job broker training program.
There he learned the ropes of being a broker and got his license. Later he became a financial advisor, working first at Sun Trust and then later at a credit union, before moving six years ago to TowneBank. "I went to TowneBank because I didn't like the programs at the big banks, with their centralized models, the pitting of trust departments against wealth management departments, and so on," says Kennedy. "I liked that Towne was a smaller community bank. I kicked the tires there and it really was independent. They bought my book, and I became a staff of one—very low maintenance."
Kennedy says that eventually between a quarter and a third of his clients came with him when he moved.
Kennedy has from the start been a discretionary money manager, actively managing his clients' assets. "A lot of my peers don't like that or aren't comfortable with the idea, but I like it," he says. "I like the challenge of you against Mr. Market." And he adds with that sense of confidence you might expect of an infantry veteran: "My competition doesn't know anything about market theory."
He says that 55% to 60% of his business is fee based.
Kennedy says he uses the Dorsey Wright approach in his investing. Dorsey Wright & Associates is a private investment advisory firm that uses a "point-and-figure" analytic approach to analyze investments, decide when to play offense or defense and assess the relative strengths of investments.
As Kennedy explains it, "I use trend following, relative strength and price. With this, I can put anybody's portfolio in my computer and tell where their strengths and weaknesses are." He adds, "I'm also very big on exit strategies. You know, nobody pays attention to when to get out of an investment."
As an example, he cites the cases of Apple and GE. Interviewed in early October, shortly after the death of Apple co—founder and CEO Steve Jobs, Kennedy said, "I can tell you that stock has been outperforming the market since March 10, 2004, and it's been outperforming its peers for seven years. That's a great trend. Would I buy it now? No, it's overextended at $400 a share. But I would hold it." When would he exit? "When it hits $352 a share." But what about the death of Jobs? "Jobs is the story," he said, "but he's just 20 percent of the story."
As for GE, he says, "Everyone tells me how they have GE shares, but it's been a real strong sell since Sept. 20, 2001. For 10 years, GE has underperformed the market, and it's been underperforming its peers for eight years. Technically the stock has nothing going for it. The stock is at 16, but I'd sell it now or soon. There are better places to invest your money."
He says, "I can do this kind of analysis using the Dorsey Wright approach with any stock or any bond—and I'm big on bonds, big on bond laddering. But I try not to buy bond funds."
Indeed, these days Kennedy says he is playing defense. "Playing defense is a big part of my world," he says. If I sell Apple or GE, I'm raising cash." It certainly worked for him in '08. Back then he had been moving his clients into cash, so that by the time the crisis hit the markets, they were insulated from the crash. "I didn't have any crystal ball," he admits, "but I saw that the risk profiles were out of whack."
Most of Kennedy's clients, he says, are in the 55 to 85 age bracket. "I go where the money is, people with IRAs and 401(k)s. Most of my clients are people who are going through life changes," he explains.
These days, though, he also is spending a lot of time prospecting among the children of his current clients—going as far as developing a program of free generational planning, with presentation titles like "Wills 101" or "Estate Planning 101."
He says other advisors have asked him why he spends time trying to develop relationships with the second generation, most of whom have little in the way of savings to invest.
His answer? "One of my mentors once put his finger in my chest and said: 'What if your top 10 clients all died this year? Where would you be? What are you doing to develop a relationship with the next generation?' That was 10 years ago, and it made me think!"
He notes, "These younger people don't have much savings, and they have a lot of debt, but they stand to inherit a lot, and I've seen a lot of benefit from getting to know them."
He tells the story of one client, a retired colonel, with several million dollars. The man had a daughter who was studying to be a doctor and who was $100,000 in debt from her education. "But she was the daughter of one of my best clients," he recalls.
He says the parents recently began moving their assets, in six-figure sums, into the hands of their offspring, including this daughter, who is now a practicing physician. "Guess who got her account?" he asks rhetorically.
In another case, he says he took on as a client a woman who had parents who both had early—stage Alzheimer's disease. "She was dealing with a multi-million-dollar estate," Kennedy recalls, "and she didn't know a stock from a bond."
He says the parents' assets were in 20 different accounts, including multiple brokerages and annuities. "We spent 18 months getting everything consolidated into two his-and-her trusts and IRAs," he says. When the parents both died, about a year apart after spending some time in long-term care, he says the estate was simple to settle, thanks to the trusts. "The woman came to me after the funeral, in tears, and said, 'I never could have done this without you,'" adds Kennedy.
In the end, the daughter and two siblings inherited the remaining estate, which was still worth several million dollars. She and one sister both are now Kennedy's clients (the third sibling lives far away). He says, "We got those accounts because we built a relationship with the second generation."
Although he lives in a big Navy town, Kennedy says only a small part of his client base is made up of military people, with whom he has an instant affinity. "Of course these are lifers, and I was just in the service for three years," he laughs, "but I can talk the lingo, which helps."
As for music, he says, "I don't play French horn anymore. In fact, one of my only regrets is that in moving from Colorado to Virginia, at a time when I didn't have much money, I sold my horn, which I had still been using after the Army to play school and church gigs, to pay my taxes. But I may take it up again someday."
Tooting your own horn. Now there's a new way to meet potential clients.
Name: Steve Kennedy
Location: Newport News, Va.
TPM: Raymond James
2010 production: $1,210,624
2009 production: $1,014,701
2010 AUM: $151.2 million
2009 AUM: $129.8 million
No. of branches: 17 (1 handled by Kennedy)
No. of clients: 322
Product mix: Fee-based 65%; annuities 17%; stocks/options/insurance 10%; bonds/fixed income 8%