As subprime-related woes continue to disrupt the financial-services industry, financial markets and the broader economy, a Smith Barney team with three advisors and two associates — the La Jolla Group — is sitting pretty, despite the fact that it operates in an area most affected by the mortgage mess, San Diego. That's because the group listens seriously to its clients' advice and, about 18 months ago, started getting clients out of real estate before the crisis hit.
And this is just one advantage of running a practice in concert with clients, who — in this case — are 62 mid-size business owners with an ear (or two) to the ground in Southern California and typically from $5 million to $100 million in yearly sales.
"That's pretty unique — having the foresight from [some of] our clients, who are large real estate developers and owners of mortgage firms and companies," explains Neal McNeil III, CFP. "They were telling us that there was a glut of these bad loans sitting out there, and they had an understanding that this would affect the markets next."
This give-and-take style has proven tremendously helpful as the team built its practice over the past eight years. "Being in touch with our clients, getting their feedback, and understanding what's happening at a ground level before things happen at a macro level, where they can blow up, is really important and is a really huge benefit," explains McNeil, 34.
Overall, the La Jolla Group is poised to grow its assets under management from $250 million to $500 million by 2013 and generate strong returns by tightly focusing on the needs of its business-owner clients, diligently working the local market and relying on a select group of business partners (such as CPAs, investment bankers and attorneys). From 10 percent to 40 percent of its portfolios are invested in alternative investments (including hedge funds like Paulson Advantage Plus, private equity, real estate and debt), while the remainder is generally held in ETFs. "Their ability to manage our financial needs is exceptional," says client Willy Ayyad, CEO, United Development Group.
Team RootsAlong with Robert Meyer, CFP, "I came over to Smith Barney in February 2000 to join the Citi umbrella, which includes a variety of business services for business owners," says McNeil. "And ironically, exactly at this time, Ryan Clive-Smith had come over from Prudential. We developed a friendship at that time and later became a team."
The three CFPs work with two registered client service associates, Leslie Oriza and Tiffany Guidolin. McNeil handles the portfolio management, while Meyer tackles the broader financial planning and Clive-Smith does business development. The group members say they take their time on the "front end," often spending two to three years, to get to know their clients — nearly all of whom are consumed with the day-to-day management of running a business rather than managing their personal wealth — and to get the mid-size businesses sold.
"I ran an airplane company before coming into this business. I've always had this as a focus area of my advisory practice — business owners — because I knew how they thought," says McNeil. "You have no time for yourself; your days are full of nothing else but the company — and the solvency of the company, as opposed to your benefits and your family's."
Turning this intimate grasp of client needs into a robust book of business does take time, the advisors note, and focus. But the payoffs for both clients and the team, in terms of assets and returns, are materializing handsomely.
"This was a niche market, and I would talk to business owners and say, 'This is what's going on in your life.' And they'd say 'How do you know?' as if I'd been reading their diary. And I'd say, 'I've been there, and so I know exactly what's happening to you.' "
'A Lot Like Consulting' Business owners are different from public CEO, CFO and other "C" people, says McNeil, a SoCal native. "Their focus isn't just on macro issues or financial issues. If you're a business owner, you're worrying about everything — if you have employees, if you have the right 401(k), the right ESOP, the right buy-sell agreement. This is completely different from those on the public side. They have a lot more needs."
And it's up to the team to zoom in on the one need that's most pressing early on and to get it resolved. "We've found that there's pretty much one thing that keeps business owners up at night," according to McNeil. "Our job is to figure out what that one thing is and help them address that concern, and help them figure out what their ultimate goal for that business is."
That, effectively, means that the La Jolla Group operates a lot like a consulting firm, or a provider of ancillary services for business owners dealing with issues like employee turnover. "We are really the CFO for a business," he shares. "We manage the relationships for them and are only compensated once they sell the business and the proceeds are invested with our team. This is very important. We're unbiased, and our job is to make sure that they fit with the right teams, firms and other business partners that they're working with.
"Our clients look for us to guide them through some of these things, because there's so much information out there and so many people trying to sell them. Our difference is that we don't sell them products; we work with them on the big wealth event, and that's our job: We're consultants," McNeil notes.
Work the Market Still, there are plenty of advisors and other professionals aiming to offer services to mid-size businesses. The trick for the La Jolla Group is to zoom in on meeting a potential client's real need from the get-go.
