On a scale of importance, with one being highest and 10 being lowest, Stewart Koesten ranks AUM as a 10. Not that the executive chairman of 16-year-old KHC Wealth Management in Overland Park, Kan., lacks credentials. He sports six financial designations, including a CFP.
The low priority of AUM comes from a simple deduction. The financial capital of most wealthy people is derived from their human capital - their time, talent, education, experience and passions in their careers. Since a client's career is the goose that lays the golden egg, Koesten focuses services on the goose (executive coaching, career transitions and compensation coaching) as well as the golden egg (wealth management and financial planning).
"I've never had a client who has come to me with the goal of 'making as much money as I can,'" Koesten says with a chuckle. Clients want to achieve specific life goals such as a job promotion, debt reduction, college education or travel. The primary path to meeting these goals entails successful career performance and satisfaction.
High-octane career performance is not an end in itself. When clients reach midlife, he hands them a detailed career satisfaction survey and asks them point blank: "Why are you working 15-hour days?" This is an appropriate question for a firm whose clientele includes corporate executives and other professionals.
Koesten and his staff of 12, including five CFPs and one executive coach, manage about $250 million for 100 comprehensive financial planning clients based on a percentage of AUM. In addition, on an hourly basis, the firm serves 75 financial consulting clients, those with more segmented objectives, such as retirement planning or buying a home, as well as roughly 20 executive coaching clients who are not seeking financial advice.
Client acquisition is limited to 16 new comprehensive financial planning clients and 15 new financial consulting clients each year. "We want to make sure our clients feel secure that we are not growing too fast," Koesten says. His goal is to provide "killer service," whatever needs to be done, such as helping clients with parental care issues. He summarizes his service niche as "one tier below family-office services."
While prospecting for corporate executives, the firm targets industries such as telecom, nanotech and biotech, where KHC has a history of good access. Executives from these fields tend to have a solid financial future, in the form of options, restricted shares and substantial bonuses.
As part of the firm's process, a wealth manager interviews a prospective client to measure how well the prospect fits the client model. If the prospect is given a high or low score, there is no internal discussion. For prospects with mid-range scores, the staff votes. The majority rules.
While the average comprehensive planning client at KHC has about $1.8 million of investable assets, the firm divides clients into two distinctive age groups with different expectations regarding income levels and asset minimums. Up-and-comers (twenties through forties) are expected to have at least $300,000 in assets, usually in 401(k) plans, and generally have family income exceeding $150,000 with strong growth potential.
Members of the not-so-young group (fifties and older) have close to $2million in assets and a high income. While the average age of a comprehensive planning client is around 55, the firm is focusing on the younger up-and- comers.
PREPPING FOR PLAN B
Joni Lindquist brings more than 25 years of experience working in large and small companies to her role as KHC executive and career coach. With her expertise, the firm provides not only career transition planning - Plan B for corporate executives looking for greener pastures - but also executive coaching that includes leadership, emotional intelligence skill-building and retirement preparation.
Before a client approaches retirement age, he or she is asked, "What would a day in your life look like when you are retired?" The initial reaction is often a deer-in-the-headlights stare. "Sadly," Koesten says, "most of us spend more time planning a one-week vacation than planning for a 20- to 30-yearlong phase in our lives." So Lindquist literally teaches executives how to retire.
Koesten recalls two coaching cases, one on career transition and the other on compensation planning. The first involved a young married couple, both corporate executives. During a quarterly review, the wife remarked: "I really don't know how I got to where I am. I always wanted to be a college professor." KHC helped the couple restructure their financial lives so that she could fulfill her human capital need. She now teaches mathematics at a university.
Another client was an executive moving to a new job and new employer in Hong Kong. The new company had no pension benefits and the client was uncomfortable broaching the subject. Koesten's firm joined in the negotiations and helped hammer out an agreement that included $250,000 in deferred compensation.
Koesten believes that human capital drives financial capital. But he has a more personal reason for his interest in human capital. In 1983, he left the insurance business to pursue a career in financial planning, his one major career transition. (He originally planned to be an airline pilot but the recession of 1974 and the deregulation of the airline industry sent him in a new direction.)
The U.S. had a dearth of executive coaches in the early 1980s, particularly in the fledgling field of financial planning. So Koesten was flying solo. "The biggest mistake I ever made in my work life was trying to be a fee-only financial planner in 1984 ... charging for financial planning services disconnected from any charges for assets under management," he says.
Persuaded that planners could charge like lawyers and accountants, Koesten was willing to stake his financial future on this approach. By the time he realized his error, it took a couple of years to recover. Two lessons stuck with him thereafter: a very detailed approach to asset management and an obsession with continuing education.
Koesten avoids individual stock picks, relying mostly on institutional class mutual funds for clients, along with some ETFs. A typical portfolio for a 55-year-old with medium risk tolerance would begin with a 60/40 blend of equities and fixed income.
The allocation of the equity portion of the portfolio would comprise: 32% domestic large-cap, 25% alternative investments (REITs, precious metals and managed futures), 22% international (developed countries), 8% international (emerging markets), 8% domestic mid-cap and 5% domestic small-cap.
The fixed-income portion of this typical portfolio would consist of: 60% high-quality bonds, 25% international bonds, 10% high-yield bonds and 5% cash.
At the firm, Koesten likes to develop new planners, hiring graduates from top planning schools, including Texas Tech University, Kansas State University and the University of Missouri. However, staffers must continue their education and the firm picks up the tab.
"Ever since I decided to become a financial planner, I've been on a learning binge,'' Koesten says. "Our clients deserve well-educated advisors."
Jim Grote, a Financial Planning contributing writer, is a certified financial planner.
Stewart Koesten, KHC Wealth Mgmt., Overland Park, Kan.
Credentials: CLU, ChFC, CFP, AIF, AEP, CIMA B.S. in Professional Aviation, Louisiana Tech University; M.S. in Financial Services, American College
Experience: Insurance industry prior to 1983.
AUM: $250 million
How I see it "I've never had a client come to me with the goal of 'making as much money as I can.'"