Advisers target disgruntled clients

Whether out of necessity or a sense of opportunity, financial advisers are gearing up to attract clients in the midst of one of the worst bear markets on record. The severity of the market drop, coupled with the collapse of major financial institutions, has made the investing public desperate for fresh ideas. At the same time, many advisers are avoiding client contact, making their client base susceptible to competitors. "We definitely see a sliver lining" from the market turmoil, said Richard Ferri, founder of Portfolio Solutions LLC of Troy, Mich., which manages $700 million. Already this year, he said, he has brought in $20 million in new assets. Last year, Mr. Ferri garnered $60 million. "A lot of people are looking around for a better adviser," he said. Robert Rowe, a Chicago-based rep with Raymond James Financial Services Inc. of St. Petersburg, Fla., concurs. "I'm seeing a number of situations" where prospective clients are seeking another perspective, he said. "I'm coming in as a fireman. People are hurting out there. There are a lot of problems." Mr. Rowe is not allowed to disclose his assets under management, he said. "I've had several nice accounts transfer in," said a representative at St. Louis-based Wachovia Securities LLC, who asked not to be identified. In today's stock market environment, it's much easier to deal with someone else's problems than deal with existing clients who have seen their assets tumble, the rep said.

NEW PROBLEMS

Brian Grodman, founder of the Grodman Financial Group LLC of Manchester, N.H., said tax season is an especially good time to pick up clients. "We're getting at least one call a week [from certified public accountants] who've had clients come in for taxes who've gotten completely hammered," said Mr. Grodman, whose firm has about $100 million in assets. "If you can explain to the CPA how you manage money and why, and can show that you've done good job in 2008, then this is the season to get referrals." Mr. Grodman said his balanced portfolios were down 15% to 20% last year. Some brokerage firms also smell opportunity. LPL Financial of Boston on Jan. 30 rolled out a marketing program for its reps, ClientsFirst. "The foundation of the program is, how do [advisers] go out and capture all those new prospects who are making a decision to change their advice provider?" said Ruth Papazian, LPL's executive vice president of independent-adviser services. A designated website for the campaign attracted 850 advisers within the first few hours of going live, she said. Edward D. Jones & Co. LP is running a television ad showing a storefront with a voice-over of an adviser speaking with a concerned client. The spot temporarily replaces a series of humorous ads encouraging investors not to go it alone, said Jim Weddle, managing director of the St. Louis-based firm. "We're getting two and a half to three accounts in for every one we lose," Mr. Weddle said. The clients are coming primarily from wirehouses, he said.

FILLING A VOID

Figuring out what clients want from advisers isn't easy amid the market's turmoil. LPL had Spectrem Group of Chicago study what investors want right now, Ms. Papazian said. "Most want to look at recovering lost assets," she said. "We thought they would want to move to a safe harbor, but they're certainly not fleeing the market." With a new client, though, "where do you put them?" the Wachovia broker said. "Do you sell out? Buy [certificates of deposit] yielding 1% or 2%? Or become a Pollyanna [and] catch a falling knife" by buying more stocks? No matter what, disgruntled investors need to be appeased, said Christian Shank, vice president at Shank Wealth Management LLC in Kingwood, Texas, which manages about $75 million for clients. They want "some type of activity rather than be told just to stay the course," he said. Portfolio Solutions' Mr. Ferri, meanwhile, hopes to attract the attention of discontented clients by attacking what he sees as flawed and expensive active-management strategies. "Given the economic situation and the [lower] returns in the markets, people are looking at their costs, including the adviser fees" they're paying, he said. Last month, Mr. Ferri hired a communications consultant to do media outreach about his low-cost services using ETFs. Mr. Shank is staying defensive. "I will not buy anything that does not pay some sort of a yield," he said. Mr. Grodman agrees. He is tilting people toward Treasuries, short-term bonds and cash "if for no other reason than emotions," he said. "If the market turns around and goes up, and [clients] make 6% instead of 12%, so be it," Mr. Grodman said. E-mail Dan Jamieson at djamieson@investmentnews.com.