How to find value in the middle

Beck explains their winning strategy: “Most of our clients are in the middle group of investors. There are too many advisors going after high net-worth clients. But the middle group is a huge market. Many have outgrown the advice they were getting at banks and don’t know where else to turn. They’re looking to have all the pieces put together and the investment process explained in real-world terms.”

Complementary expertise

Like most successful partnerships, Beck and Thompson have complementary areas of expertise. The advisors had been working independently in a DundeeWealth Inc. office in Ancaster, Ont., for about eight years when they both happened to upgrade their skills at about the same time. Beck, who always had leaned toward taxation and financial planning, was earning his financial management advisor designation. Thompson was adding the chartered investment manager designation to his repertoire. (Both advisors are certified financial planners, and Beck also is a fellow of the Canadian Securities Institute.)

“We recognized that we could continue as general practitioners and run average businesses,” Beck says, “or partner up and become specialists in specific areas.”

They chose the latter, and merged their practices while still operating under the DundeeWealth banner. Beck handles financial planning and tax duties; Thompson leads the way on managing clients’ investments.

And there were other synergies. As the advisors had worked out of the same office for many years, they knew each other’s existing clients. “We often meet clients together,” Beck says, “to cover all the bases.”

Rounding out the team is executive assistant Colleen Graham, who is licensed to take trading orders over the telephone.

In 2007, Beck’s and Thompson’s new, combined business consisted of about 450 families, with an average investment account of $60,000. “But at that point,” Beck says, “we didn’t have a fixed idea of who our ideal client was.”

A year later, the partners decided they wanted to work with baby boomers who were in the last quarter of their working years — clients between the ages of 40 and 65. “In many cases, the mortgage has been paid off and the children have been educated,” Thompson says. “They can now be more diligent about saving for retirement.”

Now, the clients Beck and Thompson take on have a minimum of $50,000 in investible assets; some have brought in as much as $350,000. And while the partners have watched AUM rise steadily as a result of this strategy, the number of families they serve remains about the same. Says Thompson: “Our aim is not more clients, but more ideal clients.”

Most of their clients live within a 50-kilometre radius of the Ancaster office. “In many cases, both spouses are working and the combined family income is about $100,000,” Thompson says. “In a typical client family, the wife works at Hamilton Health Sciences [network of hospitals] and the husband at Dofasco [Inc.].”

Both advisors are family men. Beck has four children in their late teens and early 20s. Thompson has three children between the ages of nine and 15. The advisors have first-hand knowledge of the financial challenges middle-income families face.

Many clients are health-care workers — nurses and lab technicians — so Beck has developed expertise in hospital pension plans. He and Thompson are part of a team that holds four, hour-long retirement planning presentations every year for Hamilton Health Sciences’ employees.

Prospective clients often don’t know what to ask advisors, Thompson notes: “We tell prospects up front how we’re paid — by the commissions we receive from selling products and by fees for our services. We say that we have to make money because we have to pay our bills, and that our clients have to make money or they’ll go elsewhere.”

Adds Beck: “And we point out our value-added component: they’ll have two experts working on their accounts.”

What resources will provide

Where most of the financial services industry gets it wrong, Beck notes, is in pointing out clients’ inadequacies and then coming up with “solutions” to fill the gap. “We tell new clients what their current resources will provide,” he says, “and help them decide where they want to be.”

For every new client, Beck does an initial net-worth assessment and then turns the client over to Thompson for a “risk tolerance assessment.” Says Beck: “If the client’s number is 6%, [we’ll] put together a portfolio that will produce a 6% return. And I tell clients that I will need to know, three to five years in advance, when they’ll want to take income from their investments.”

Whenever possible, Thompson likes to segment retired clients’ income. He tells the story of a retired client who came to the office in January 2010 who’d made 18% on his portfolio the previous year, while his target had been 6%. “We took his profit and bought him a five-year [guaranteed investment certificate] that would provide income five years down the road,” he says. “In his annual review this past January, he saw that he’d made 12%, and we did the same thing. We bought another five-year GIC with his profit.

“Then I asked him, ‘If the market is negative 10% this year, what do we do?’ When he shook his head, I said, ‘We do nothing. You’ll have four years of guaranteed income. Why sell when the market is down? Sell on your own terms when the market is up.'”

These are the clients who would have been calling in a panic this year, Thompson says. “But we haven’t heard a peep.” A strategy of this kind is not designed to augment the advisors’ income, he adds: “But it’s the right thing to do for the client.”  IE