When Timothy Chase and Martin Eby founded WMS Partners in 1992, most financial planners earned their keep by pushing a large number of clients into commission-based products. Chase and Eby adopted two very different rules.

Rule 1: Charge fees only. Rule 2: Work with a small group of big clients.

Nearly 20 years later, their simple model is paying handsome dividends. Based in Towson, Md., the firm manages $1.5 billion, half of which comes from 22 families each worth $20 million to $500 million. A separate division serves 200 clients with $5 million to $20 million.

 

THE HISTORY

The firm grew at first from referrals for insurance advice and from accountants. "Martin and I created a niche as fee-only insurance consultants, and high-powered attorneys began calling us to advise their wealthier clients," Chase explains. Because accounting firms couldn't give investment advice at the time, WMS also attracted accounting clients distrustful of brokerage firms, a population Chase understood from his experience at a regional accounting firm in Baltimore and at Ernst & Whinney.

More than 90% of WMS clients did not inherit their wealth. Indeed, many are finance professionals or entrepreneurs-investment bankers, hedge fund managers, or private equity or real estate investors. As specialists, these sophisticated clients appreciate the big-picture approach WMS brings to the table. "I never expected this," Chase says. "We are lucky because our clients understand investments and can grasp the nuances of a complex investment or tax strategy."

However, the firm's main function, Chase says, is to "serve as the family CFO." This administrative hub serves as a coordinator for accountants, attorneys, outside investment advisors, consultants, insurance experts and philanthropic advisors.

The chief investment officer, partner David Citron, joined the firm in 2001, spurring rapid growth. Partners Robert Killebrew and Noreen Frost rounded out the investment team when they joined in 2009.

Over the years, the firm has added risk management and insurance analysis, family foundation management and philanthropic consulting, banking and credit management, investment consulting and consolidated reporting, and bill paying and mail handling. WMS does not prepare tax returns or legal documents.

"Our practice is very team oriented," Chase says. "Families receive advice from numerous in-house specialists, including the Family Office Team, the Investment Team, the Operations Team, the Financial Planning Team, as well as a large Accounting Team."

 

INVESTMENT STRATEGY

Preserving wealth is the first priority. The firm builds portfolios with a relatively low-risk core or base, then layers on riskier investments. "We invest in securities that have a low correlation to the market in order to ensure that our clients will have positive returns for this portion of their portfolio regardless of the prevailing market," Chase says. "Once we have a low-risk core, we add more aggressive assets that are diversified across security types, industries and geography," Chase says.

To lower volatility, the investment team uses absolute return strategies-based on the return of an asset rather than comparisons to a market benchmark. It also takes both long and short positions. With more than $1 billion to manage, WMS can offer alternatives closed to smaller investors, such as structured settlements, private money managers with unique styles, private equity and hedge funds.

Chase is pleased that several mutual funds now offer the convenience of alternative strategies. Two funds he uses extensively include FPA Crescent Fund (FPACX) and Ivy Asset Strategy Fund (WASAX). FPA Crescent, a value fund that he includes in most client portfolios, invests across many asset classes both long and short. Ivy Asset Strategy is a global hedge fund that can invest both long and short across the world in many different markets and asset classes.

Because WMS works with a small group of clients, it can spend more time listening. Chase recalls a client who had interviewed several large national investment management firms before coming to WMS. Those firms all focused on their investment results. Chase told the client he wanted to hear more about him before making recommendations.

In their conversation, he discovered the prospective client was considering buying a $2 million piece of real estate that he calculated could be developed into a $6 million asset. Part of his goal was to move money out of his estate to his children tax-free.

WMS advised him to do the deal by taking $250,000 from each of his two children's trusts and borrowing the balance of $1.5 million. The client's instincts proved accurate, and three years later the property sold for about $6 million. The kids split the $4 million profit equally, and the client recouped the money he borrowed with a small profit. He had moved $4 million out of his estate, and WMS had acquired a new client.

 

THE BURDEN OF WEALTH

Despite of his own multiple credentials and a high-powered staff, which includes two CPAs, five CFAs, two CFPs and one attorney, Chase finds the softer people side of his business most rewarding. Preparing the children of first-generation wealth to assume proper stewardship is a significant role for the firm.

One client came to WMS for advice on how to leave a large real estate company to his son without alienating his executive team. After Chase stepped in to facilitate discussions between the father and son, the client gave 10% of the business to his son and to each of four other executives who were not family. The father retained 50%. This solution rewarded the executives and insured that one day the son would own a 60% share. In the meantime, the son would become more active in the business, and the non-family executives would be considered his equals until he took the helm. "This is the fun part of our business," Chase says.

WMS organizes family meetings that typically begin with the first-generation spouses and over time expand to include children and even grandchildren. Children have observed their entrepreneur parents build their wealth, and often share their work ethic, but grandchildren may not have the same opportunity.

At times family meetings may include a money psychologist or career coach. Chase recalls one meeting when he brought in a career coach to work with four second-generation siblings in their twenties, all of whom were struggling with vocational issues. Each meeting includes educational materials customized for that family.

The firm helps parents teach the basics of budgeting, investing and setting financial goals. The second generation must master the skill of filtering many investment ideas down to the most appropriate for the family while also developing personal career plans. "Say two parents are worth $100 million and their two children end up with $50 million each and their four grandchildren with $25 million each. Why should the children and grandchildren work?"

Chase's main challenge also brings his main rewards: He loves teaching entrepreneurs and their progeny that the skills involved in building wealth are different from those needed to live with wealth and maintain it. Only if inheritors take responsibility for their finances can the success of the first generation translate into the second, third and generations beyond.

 

Jim Grote, CFP, writes regularly for Financial Planning.

 

Timothy Chase

WMS Partners

Credentials:

CPA, PFS, CFP, CLU

Assets under management:

$1.5 billion (practice)

How I see it: "We are lucky because our clients understand investments and can grasp the nuances of a complex investment or tax strategy."