The $50 million men

Last March, Scott Hanson picked up his telephone, listened to an offer and promptly declined it. Not that the soft-spoken principal of Hanson McClain Inc. was being rude. Mr. Hanson simply told the Genworth executive who made the cold call that it was premature to talk about selling his reverse-mortgage company. The company, Liberty Reverse Mortgage Inc., had broken even last year for the first time since its beginning in 2004. But Genworth Financial Inc. of Richmond, Va., was persistent, and more calls to Mr. Hanson followed. Eventually, Genworth executives convinced Mr. Hanson and his partner, Pat McClain, to talk seriously about selling Rancho Cordova, Calif.-based Liberty. They struck a deal, and by year’s end, the two expect to receive $50 million — a magnificent return on a $1 million investment. The cash-out adds a bold exclamation point to the tremendous run enjoyed by Mr. Hanson, 40, and Mr. McClain, 44, who now count three successes since breaking away from Lincoln National Corp. of Philadelphia 14 years ago to become independent advisers. First is Hanson McClain, their Sacramento, Calif.-based advisory practice, which manages more than $1.3 billion. Second is Folsom, Calif.-based Hanson McClain Retirement Network LLC, an agglomeration of 101 advisory practices that handles more than $4 billion and pays royalties to Hanson McClain for use of its marketing systems. And third is Liberty Reverse Mortgage, which originated 2,200 loans last year. Although the businesses differ, the common theme is a largely blue-collar client base. “Advisers seem focused on high-net-worth clients,” Mr. McClain said. “That tells you a lot of other people out there need help, too.” Hanson McClain Inc. serves 3,000 households. The median value of its accounts is about $400,000, very low relative to the medians for many advisers, according to Mr. Hanson. The firm’s unusual specialty is managing the accounts of telephone company workers who are on the verge of retirement. This niche is so well researched and systematized that the firm has been able to sell its approach through Hanson McClain Retirement Network to independent reps in 40 states. Hanson McClain collects 20% of the fees generated by assets collected by network participants. Pension experts The network requires financial advisers to become experts on the pension programs of AT&T Inc., now of San Antonio, and the regional telephone operating companies that were spun off from the old Ma Bell in 1984. Expertise about the nuances and details of complex phone company pension plans encourages employees to roll over their retirement accounts to Hanson McClain once they stop working. By attaining such success with blue-collar investors, Hanson McClain shows it grasps a key management principle, said Mark Tibergien, managing partner with Moss Adams of Seattle. “It’s not a question of wealth,” he said. “It’s of scaling your offering to the size of the client. You can serve [people of lesser means] as long as you don’t overserve them,” Mr. Tibergien said. The way that Hanson McClain has found to serve its customers efficiently is by using mutual funds as its investment vehicle and paying salaries to staff members, Mr. Hanson said. In fact, the pair intend to use salaried workers to tackle their next entrepreneurial venture — taking the $50 million from the sale of Liberty and using it to roll up other practices. They think they can succeed where other roll-ups have sputtered by not relying on workers who are paid on an incentive basis. But neither partner approaches their next venture with cockiness. They know from firsthand experience that success isn’t a sure thing. In 1993, shortly after they broke away from Jackson National with less than $10 million under advisement, “we were starving to death,” Mr. Hanson said. Instead of just hitting the phones, the partners hit the road. “I gave 50 seminars a year” to telephone company employees, Mr. Hanson said. “I literally wore out a spot in my car.” The two also began hosting a two-hour radio talk show on Saturday mornings on KFBK-AM in Sacramento. Although neither partner ever borrowed money to finance business ventures, Mr. Hanson admits they had one safety net. “Both of our wives had jobs,” he said. By 1994, the company broke even, and by 1995 it was starting to prosper. The partners then hired a consultant who mapped out a business plan that included 10 job functions. “Our goal was to get our names out of as many boxes as possible,” Mr. Hanson said. A key tenet of the plan was to hire salaried advisers exclusively. “We had a 50% split with one guy, and I said, ‘I’m never going through this again,’” Mr. Hanson said. The company now has 12 salaried staff advisers. Even Liberty Reverse Mortgage, the company’s home run, had a rocky start. Just after its first year, for instance, the unit nearly went belly up. “We didn’t have the people or the procedures in place to effectively handle the leads coming in. We were losing money,” Mr. Hanson said. “We shut off all marketing for two months while we worked through our inventory of leads, hired more people and put procedures in place to make sure it wouldn’t happen again,” he said. A continuing problem for the partners has been managing the relationship with its network partners, some of whom are disputing what Hanson McClain claims they owe. The company is trying to collect back royalties from 20 of its network members, Mr. Hanson said. But these frictions should be kept in perspective, said Jim Nagengast, executive vice president, chief operating officer and chief financial officer of Omaha, Neb.-based Securities America Inc., which has had custody of Hanson McClain’s assets since the latter’s inception. “Some of the disgruntled people went from being $100,000 producers to being $1 million producers,” he said. “These are good problems to have. They’re arguing how to contractually split millions of dollars rather than having never made them,” Mr. Nagengast said. Some advisers in the network referred by Hanson McClain declined to comment for this article. But others said that it was necessary to give credit where it is due. Marketing aces “They’re two of the best marketers I’ve met in this business, and I’ve been in this business for 20 years,” said Marc Silverman, a Miami-based representative of Securities America who has been a member of the Hanson McClain network since 2000. The company no longer plans to build assets in its network business by adding new partners, Mr. Hanson said. Instead, it plans to open branches in Chicago, Dallas, Detroit, Houston, San Antonio and other cities. And because C shares and their 12(b)-1 fees have come under scrutiny by regulators, the firm is beginning a wholesale conversion from mutual funds, which have been its mainstay from the start, to wrap accounts. Wherever their new ventures take them, the two plan to continue a core practice of limiting work hours. They seldom work more than 40-hour weeks and take Fridays off, in part to compensate for their Saturday radio show and in part to spend time with their families. They also think that time away from the office is essential for thinking, which is what led them to the reverse-mortgage business. Until a few years ago, the two concede, they knew little about reverse mortgages — and Mr. Hanson even admits to a previously held bias against them. But he read an article in 2003 that changed his mind, and after much discussion, they went ahead.