For a guy with $2.1 billion in assets under management, Dale Yahnke is self-effacing about his success. The founding partner and CEO of advisory firm Dowling & Yahnke explains: "Ours is a general practice - no particular exotic niche. And we have a penchant for passive investing that is definitely not sexy. I guess we just execute better."

Better execution may be an understatement. Yahnke says one employee told him, "I had no idea what detail-oriented meant till I worked for you guys!" Each of the firm's 700 clients is served by a financial advisor as well as the firm's support team, which includes three additional CFAs who handle trading, retirement analysis and other planning issues.

Yahnke puts a premium on hiring smart people with impeccable educational pedigrees. Dual designations are a sine qua non for being a financial planner at the firm. Of the seven planners working directly with clients, six have both the CFA and CFP designations; the seventh CFA is studying for the CFP exam. In filling out its staff of 28 employees, the company tends to recruit M.B.A.'s from top schools like Harvard, the University of Chicago and the Wharton School at the University of Pennsylvania.

 

BUILDING A BUSINESS

After graduating from Claremont McKenna with a B.A. in economics in 1979, Yahnke worked short stints for Touche Ross (a precursor firm to Deloitte & Touche) as well as an insurance/financial planning firm, picking up his CFP certification and an M.B.A. from San Diego State in the process. (He also coached basketball for a year at Claremont, a job he still describes with a touch of nostalgia.)

Then he landed a job at the biggest law firm in San Diego, working six years as a financial analyst for major brokerage houses. Toiling in an industry fraught with huge conflicts of interest, Yahnke saw a clear need for independent financial advice.

When he and Mark Dowling started their financial advisory business in 1991, Yahnke's old law firm proved to be their launchpad to initial solvency. The firm not only referred clients to him, but gave him a safety net, he says: "They told me, if the financial planning business didn't work out, to come on back."

Yahnke never needed the cushion; the new firm grew steadily from 1991 through 1998, at which point he and Dowling had about $200 million in assets under management and more business than they could handle. "I never made one cold call in my life," he says. "We've always been 100% referral based."

But it was actually a cold call in 1998 from a job hunter - an M.B.A. from Wharton named Paul Temby - that helped them address the firm's growing workload; Temby eventually became a third partner in the firm.

The solution also proved to be a turning point for Yahnke, though, who had a difficult time letting go of direct relationships with new clients. It was tough, he recalls, but working with Temby helped him learn how to delegate - something Yahnke now says has been critical to the firm's success.

 

KEEPING COSTS LOW

Dowling & Yahnke's AUM grew 70% during the market collapse of 2000-02, reaching the $1 billion mark in 2006 and passing $2 billion in 2012, Yahnke says. Of the company's five partners, Yahnke now has major ownership; Dowling, who works four days a week, is gradually selling his stake to the junior members.

Yahnke attributes much of the company's growth to his efforts to keep client fees low. One piece of that is what he calls situational financial planning. He argues that comprehensive financial planning is expensive, requiring broad expertise - and it's oversold. Most clients actually just need answers to specific issues, he adds. So one way his firm keeps client fees low is by focusing staff energy and staying efficient.

"We don't do property and casualty insurance; we don't do tax returns," he says. "We don't draft legal documents. If a client has a good attorney, we don't dwell on estate planning." Yahnke works closely with numerous client advisors, outsourcing what he can to CPAs and lawyers. The firm spends much of its own time on retirement analysis, he says.

Another way to minimize client costs: Charge lower investment fees. Yahnke's fees for clients are 85 basis points on the first $2 million in assets under management, 70 basis points on the third $1 million, and 50 basis points on anything exceeding that. "I've always thought that people charged too much money in this industry," he says.

He also keeps costs low through passive investing. There's plenty of research to show it is very difficult to beat a broad market index over time, Yahnke says. He began using DFA and Vanguard funds in the early 1990s. He says he does include individual securities within the large-cap portion of client portfolios, however, both for tax management purposes and for ease of gifting appreciated assets to charity, since mutual funds are more difficult to transfer.

 

PORTFOLIO MAKEUP

A typical client portfolio would be 55% stocks and 45% bonds, he says, with the equity portion including some REITs. Yahnke puts a premium on liquidity and therefore avoids illiquid (and costly) assets like hedge funds and private equity. He's also wary of precious metals: "When my relatives call and ask me about gold, I know it's time to stay out of that market," he says.

The equity portion of a client portfolio is normally two-thirds domestic and one-third foreign, he says, with the domestic portion being 70% large-cap and 30% mid- and small-cap companies. Foreign exposure is generally 85% developed countries and 15% emerging markets, with developed countries following the same capitalization percentages as domestic equities. And in the bond portion of portfolios, he uses individual munis as well as bond funds for tax-free fixed income, and bond funds for taxable fixed income.

Yahnke says he is a disciplined rebalancer: "I got fired in 1999 more than any other year in business because I continued selling stocks and buying bonds." Yahnke says he also continued to rebalance and buy equities through the 2007-08 market meltdown.

In addition to delegation skills, Yahnke says he's had to learn better ways to hire and train new employees. He acknowledges that, years ago, he didn't do a good enough job of training new hires. The firm's training program now includes off-site team exercises and an extensive on-boarding schedule, with new employees shadowing more experienced members of the firm.

In hiring, he says, he just looks for the smartest people he can find, in addition to people who have worked in teams - an athletic team, a debate team, whatever. "I look for people who have worked in a team atmosphere, who are client-centric, have integrity and are competitive by nature," he says.

Yahnke advises planners in their 20s to hone their skills and build up their résumés - the more credentials, the better. Financial planning isn't a young person's business, he says: It may not be fair, but clients prefer to work with more seasoned advisors.

Yahnke hires people in their 30s and older for positions that involve direct work with clients. His younger staff may work behind the scenes, but he encourages them to keep learning. "I'll pay for any staff member who takes and passes the CFP or CFA exams, including our receptionist," he says. The entire firm, it seems, practices what it preaches: Do your homework.

 

 

Jim Grote, CFP, is a Financial Planning contributing writer in Louisville, Ky.

 

 

Dale Yahnke

Founding partner & CEO, Dowling & Yahnke, San Diego

Credentials: B.A. in economics, Claremont McKenna College; M.B.A., San Diego State; CFP, CFA

AUM: $2.1 billion

How I see it: "I look [to hire] people who have worked in a team atmosphere, who are client-centric, have integrity and are competitive by nature."