For one wealth management firm in Greater Chicago, bigger is not necessarily better, and so a firm has created a culture that emphasizes teamwork and a relatively narrow professional focus. One leader of that firm, Mark Balasa, a CPA and CFP, remembers what it feels like to be a client looking for honest financial advice.
As a young CPA, he sought counsel from insurance agents and stockbrokers, only to come away with two unpleasant impressions. "I was struck by an almost tangible conflict of interest and felt lost amidst the bewildering complexity of choices, not sure where to turn," he recalls.
Balasa felt motivated to create an alternative to this situation. In 1986, one year after completing his CFP credentials, he co-founded a firm with Armond Dinverno. They eventually merged their company with that of Michael Foltz in June 2001. Today, as co-CEO and chief investment officer, Balasa helps to oversee Balasa Dinverno Foltz, a fee-only independent wealth management firm, which manages roughly $2 billion for more than 800 clients.
As chief investment officer, Balasa leads the five-person investment committee and oversees the firm's overall investment philosophy. The firm-wide investment framework creates a consistent experience for the firm's clients, while allowing for customization at the individual portfolio level.
Balasa Dinverno Foltz's team includes lawyers with experience in business and estate planning matters, CPAs, CFPs, CFAs, MBAs and certified divorce financial analysts. Balasa also holds an M.S. in financial planning from the College of Financial Planning. "As the firm grew, we settled into working with the two client niches we most enjoyed: business owners and women," he recounts.
And BDF came to emphasize teamwork. "A corresponding service structure gradually evolved into our Business Owners Service Teams and our Women's Service Teams," Balasa says.
THE BEAUTY OF NICHES
Practices with distinct niches are often presumed to be small boutique firms. But at $2 billion and counting, the firm has broken out of that mold. And, Balasa notes, his firm is not alone. For example, he says, in 2001, Mercer Advisors Inc. in Santa Barbara, Calif., merged with a practice management consultancy specializing in dental practices and now has around $4 billion in assets under management.
Balasa admits that turning away non-niche clients can be scary at first, but it is ultimately rewarding for several reasons. First of all, focusing on a niche makes your firm a bigger fish in a smaller pond. "It's easy to get lost in Chicago," he says, "and our two niches help us stand out. They function as a branding tool."
Further, niches create efficiency in drawing new clients. Recently, the firm hired an advisor from Goldman Sachs with experience in the food and egg industry. That expertise has helped the firm to attract business owners in that industry sector, specifically those looking for help in company valuations as well as tax issues with farmland.
The firm's two niches are also credited with increasing the firm's efficiency in attracting employees, narrowing the search process by making it somewhat self-selecting. Balasa Dinverno Foltz tends to get applications from financial professionals with expertise in one of BDF's sub-niches: physicians, other medical professionals, the food and egg industry, and divorced or widowed women.
The niche approach also streamlines marketing. "Most independent firms, including ours, simply do not have the budgets to advertise at a level that makes a meaningful difference," Balasa admits. "However, our niches positively impact our one-on-one marketing with, one, our client referrals; two, our centers of influence like attorneys, accountants, investment bankers and valuations specialists; and, three, our Schwab and TD Ameritrade networks."
Finally, niches build a firm's service capacity. The Business Owners Service Teams are both quick and adept at advising on numerous client needs. These areas include asset and risk management, ownership and management succession, buy-sell agreements, business value maximization and other sale strategies, as well as numerous estate planning issues.
Likewise, the Women's Service Teams have become specialists. Their areas of expertise include family dynamics, divorce planning, cash flow management and estate settlement issues.
TEAM STRUCTURE
To provide these specialized services, the firm developed a team structure that plays to the strengths of its existing employees. The basic team typically includes three or four of the following positions: wealth manager, senior advisor, advisor, senior financial planner and financial planner.
The firm currently has 12 teams - 10 in the Business Owners Service Teams division and two in the Women's Service Teams. The capacity for any given team is around 80 clients, but varies with the team. Financial advisors do not have their own clients or book of business.
The highest position, wealth manager, comes in two types: business development wealth manager and relationship wealth manager. Business development wealth managers work to bring in new clients and often turn these clients over to a relationship wealth manager once the client has formally engaged the firm to provide services.
But business development wealth managers sometimes keep clients within their own team, and relationship wealth managers, who primarily work with existing clients, also bring in new clients. Specialization is balanced with flexibility.
The firm's incentive compensation plan rewards individuals' own strengths as well as the success of a team as a whole. In addition to base salaries, there are team performance incentives and individual incentives for bringing in new business. BDs and RMs have additional incentives based on client referrals and retention, team leadership, and mentoring and coaching.
PLEASING CLIENTS
The primary objective at BDF, according to Balasa, involves creating happy clients by solving their major financial issues - issues that go well beyond investment returns. For example, he notes, "Selling a business can be a three- to five-year process if done properly." An important part of any sales strategy includes building the value of the client's business.
In small, closely held companies, higher valuation often hinges on strong leadership. "Outside buyers look closely at the business maturity of management, whether that management is family or not," Balasa says. Accordingly, to strengthen a firm before sale, the firm may outsource leadership training to specialized business coaches, usually retired CEOs with previous experience in building businesses.
Other sales strategies include choosing a state residence for the business before a sale. One attraction of the state of Florida, for instance, is that it has no individual income tax. Another major sales process guides families through the tax and estate planning necessary to convert illiquid assets into liquid assets. This process includes preparing future generations to manage those soon-to-be liquid assets.
Business owners' personal and professional lives are intertwined. What if an owner is transitioning ownership to a family member? How do you equalize distributions if some members receive ownership interests and others do not? What if something unforeseen happens?
These questions can all be addressed by the firm's step-by-step Business Owners' checkpoint process. Owners answer detailed questions about the legal health of their businesses (such as key employee agreements, loan covenants, up-to-date qualified retirement plans) and their family succession plans (regular family meetings, documented succession plans), as well as questions about estate planning, personal asset protection and business value maximization issues.
With only two of the 12 existing teams, the Women's Service Team is a growing entity within the firm, and WST members are encouraged to obtain the premier credential in the divorce planning arena, the certified divorce financial analyst, But the WST is not limited to divorce.
It helps women transition through any number of life events: the birth of a child, the loss of a spouse, a new career, retirement, the education of children, aging parents and the sale of businesses. A major goal is to help women make the smart financial decisions that bring "complete peace of mind."
With an average account size of $2.25 million, Balasa does not aspire to magnify the amount of assets under management. "Our sweet spot is in the $2 million to $8 million range," he says.
Citing recent allegations about Wall Street firms that have profited at their clients' expense, Balasa says, "I know that 'trying to do the right thing' may be a cliché, but this is really what we are all about. Our goal is to add sufficient value while sitting on the same side of the table as our clients."
Jim Grote, a CFP in Louisville, Ky., writes regularly about high-end advisory practices for Financial Planning.
Mark Balasa, Balasa Dinverno Foltz
Credentials: M.S., financial planning, College of Financial Planning; CFP, CPA
Assets under management: $2 billion (firm)
How I see it: "It's easy to get lost in Chicago. Our two niches - business owners and women - help us stand out. They function as a branding tool."
