Sometimes it takes a new face to reinvent an old firm. When Kelley Downing was named president and CEO in 2007 of 115-year-old Bartlett & Co. in Cincinnati, the firm had been owned by Baltimore asset management giant Legg Mason for more than a decade - but the arrangement had lost its original appeal. Bartlett began looking for a way out.
Legg Mason had bought Bartlett back in 1996, hoping the firm would bring in new clients, while Bartlett would get back-office brokerage support from the larger organization. But in 2005, when Legg Mason sold its brokerage business to Smith Barney, many of the synergies for Bartlett evaporated.
Downing, who had joined the firm as a senior portfolio manager shortly after the original Legg Mason sale, helped Bartlett expand operations, shift its client focus and reinvent itself. With 2,000 clients and $3 billion in assets under management (up from $2.3 billion a decade ago), the firm ranked No. 25 on this year's Financial Planning's list of top fee-only RIA firms.
In February 2012, she and nine other advisors bought the RIA from Legg Mason, returning the firm to its original private, employee-owned status. The move allows Bartlett to focus on its clients more directly, Downing says: "Our clients have always seen us face to face."
Bartlett has a long tradition of staying ahead of the curve, Downing boasts. For example, Bartlett became a fee-only investment advisory firm in the 1940s and is acknowledged to hold the oldest, still active, SEC registration in the U.S. under the Advisers Act. As far back as 1972, the firm computerized its portfolio management system. Bartlett adopted a socially responsible investing approach in 1977. And the first female partner was named in 1983. (Downing is the firm's first female president and CEO.)
Downing chalks up the last decade's growth to relationship-building and community outreach. "We're very visible in the community," she says. "All of our portfolio managers are on local nonprofit boards and as a company we sponsor numerous nonprofit events."
Liz Carter, executive director of St. Vincent de Paul Cincinnati, says the charity chose Bartlett to manage its endowment after a competitive search process in 2008. "Kelley had helped us develop our St. Vincent de Paul Charitable Pharmacy in 2004," Carter says. "We're now giving away $5 million in free medications to people in need. She really stuck with us to get the program off the ground."
In other networking efforts, Bartlett's 22 wealth advisors and research analysts often participate in local panels and seminars. While the firm periodically sponsors its own big seminars (Schwab Chief Investment Strategist Liz Ann Sonders spoke at one), Downing says that "small, intimate luncheons work best for us - say, 45 clients and prospects, along with local attorneys and accountants."
The firm also has started marketing its services more aggressively - through public radio sponsorships and its website and newsletters, as well as word of mouth. The new ads put an emphasis on financial planning as well as investment management; the firm even changed its logo to reflect the shift.
While expanding the firm's message and services, Bartlett has become a tad pickier in accepting clients. "We use a more in-depth questionnaire in our initial screening of clients and are more disciplined in setting client goals and monitoring those goals," Downing says. "Our practice is best suited to the client with $1 million or more in investable assets [who is] looking for a financial partner."
The firm has also shifted its client mix to focus on individual clients. Over the last decade, Bartlett has moved from a 65/35 split between individuals and institutions to a mix that's 80% individuals and families, and 20% institutions.
As larger institutions turned more to consultants for wealth management, investment managers got relegated to asset management only, and Bartlett's relationship skills were no longer as important. "So we transferred that skill set and expertise to the private client market, where it was valued," Downing says.
Relationship building and education have become particularly important in retaining multigenerational clients. Bartlett's strategy for the youngest generation of its longest-term client now entails working directly with family members in their teens.
The Bartlett advisor for fifth-generation clients meets with the family's teens several times a year and explains the basics of investing. The group has formed an investment club (the parents match the teenagers' contributions) and the teens are charged with investigating investment ideas and bringing those ideas to the meetings, where they are vetted for possible inclusion in the club's portfolio.
The firm takes a value-driven approach to investing - a style it formally adopted in 1974 and uses an in-house research staff of CFAs to implement. According to Downing, an average client portfolio might hold 60% in domestic equities, 10% in international equities, 20% in bonds and 10% in alternative investments. All of these components are then diversified further. Alternatives, for example, currently include five different ETFs or mutual funds: an international REIT fund, an opportunistic fixed-income fund that invests long and short, a commodity fund, a fund-of-funds hedge fund and a catastrophe-oriented bond fund.
Of course, asset allocation also depends on client size and risk tolerance. While Bartlett's average client is worth $2 million, the largest client's net worth tops $400 million. One strategy popular among some institutions and wealthier families is an actively managed fixed-income portfolio, which includes corporates, high-yield and munis, as well as preferred stock and convertible stock - all in the form of individual securities or mutual funds.
Clients with a balance of equities and fixed income are charged on a sliding scale of 1% on the first $1 million, 75 basis points on the next $4 million and 50 basis points on assets exceeding $5 million. Clients pursuing the fixed-income strategy are billed on a lower fee structure.
As the firm's lead investment advisor for clients focused on socially responsible investing, Downing keeps close tabs on clients' concerns. Her tenure as a commodities trader taught her to handle volatility, she says. "Fear and greed drive the markets, so during particularly volatile market conditions, my job is to educate clients to react rationally, rather than emotionally," she says. "Building relationships and trust is the key."
BUYBACK PAYS OFF
Last year's buyback, which gave Bartlett more operating leverage to reinvest in the firm, has proven to be an advantage for clients and employees alike. Since the buyback, Bartlett has been investing in software and services that specifically benefit individual clients, Downing says.
Independence can be an advantage in recruiting employees as well. When Bartlett hires investment advisors, the possibility of future equity ownership is attractive, she adds. Downing has hired four new professionals since the deal closed last year.
Although Bartlett is a wealth advisory firm and not a family office, she says it tends to handle a number of concierge services for its larger clients, often finding itself in the lead position with a client's team of advisors. These perks are not what bring clients in the door, though. People come to Bartlett, she says, because of its competitive performance and long-term record of preserving the wealth of its clients.
Jim Grote, CFP, is a Financial Planning contributing writer in Louisville, Ky.
President & CEO, Bartlett & Co., Cincinnati
Credentials: B.A. in American diplomacy and foreign affairs, Miami University; M.B.A. in finance, Thunderbird School of Global Managemente
Experience: Commodities trader for E.F. Hutton; manager of institutional investments for Fifth Third Bank; senior portfolio manager at Bartlett & Co.
AUM: $3 billion
How I see it: "During particularly volatile market conditions, my job is to educate clients to react rationally, rather than emotionally."