When the market crashed in November 2008, Ben Marks, a UBS advisor, knew he had to act fast to differentiate himself from Wall Street malfeasance.
So, he quit the Swiss banking giant and moved his of two other advisors, two admin staff, an investment analyst and a communications specialist to LPL’s independent platform under the Marks Group Wealth Management banner.
The new firm, which is located in Minnetonka, Minn., a suburb of Minneapolis, specializes in investing in local firms, an approach Marks says clients find very reassuring, so much so in fact that the firm recently took on another advisor enamored by the message, raising the firm’s total assets from $250 million to $300 million and its clients to 250.
To be clear at the outset, Marks’ firm doesn’t just invest in local companies, but its advisors certainly lead the conversation with their local focus. “We provide a well-balanced asset-allocation approach that covers all a client’s investment needs, but we differentiate ourselves by buying equity in local companies,” he says. “We lead with that fact and helps win us an audience with a prospect we wouldn’t otherwise have seen, so it’s a door opener.”
Marks’ firm is 100% discretionary and buys individual securities and exchange-traded funds that price daily, so there’s a lot of liquidity. Proximity doesn’t just extend to the local firms, which make up around one-third of receptive clients’ core equity holdings, but also to the in-house stock picking. “It means clients actually meet the decision makers who aren’t just faceless money managers in New York,” he says. “Plus they get the peace of mind of owning stocks in companies where they likely know someone who works there.”
Proper due diligence goes into the local stock selection. Marks’ area of the Midwest is heavy with companies that make medical devices, and “if they fit our criteria through fundamental analysis, we’ll usually start with one or two bellwether firms at first that are boring but profitable and then complement those with smaller companies that offer greater growth potential. We also look for companies where management has a significant ownership stake, so executives have a lot of skin in the game.”
Thirty percent of a core equity portfolio might seem like a lot, but Marks assures that the larger firms offer broader diversification than you’d think. “Some of the larger firms make well over 50% of their revenues from overseas markets,” he points out, plus client portfolios are bolstered with international and alternative strategies to keep them well diversified, even though that’s not the primary bait Marks’ team fishes with.
As an added bonus, the local focus has one Marks’ team a lot of exposure in the local press. “They’re aware of what we’re doing, and when a local company reports, reporters call us,” he says. “The best form off advertising is to be quoted as a knowledgeable expert, and that happens to us on a pretty regular basis.”
While Marks’ pitch is pretty simple and definitely effective in a decidedly anti-Wall Street climate, he says he isn’t aware of any local advisors who are mimicking his approach, something Marks himself partly borrowed from a local brokerage firm that has been buying homegrown stocks since the sixties. His biggest influence, though, is his father, who bought the 10-year-old Marks 10 shares of a local company four decades ago. Thanks to various buyouts and mergers over the years, Marks now owns 200 shares as a result of that initial purchase, but that gift was the “watershed event that molded my future,” he says.
For other advisors who want to give buying local a shot, don’t do it half-heartedly, Marks warns. Write a policy statement and a business plan around the strategy and figure out how to reposition clients’ assets to take advantage of successful local companies that in this economy may well be undervalued right now.
Given the alternative—often cookie-cutter allocation models clients have no emotional connection with—backing the home team might well give you the edge over your competitors, Marks says. “Being about to talk about ownership in local companies is the way in which we differentiate ourselves,” he says. “Just don’t do it haphazardly.”