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As wealth management firms expand, advisers counsel nervous clients

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by Doug Childers


Two years ago, researchers at Wachovia Corp. discovered a vein of gold in Central Virginia. The number of families in the region with $250,000 or more to invest between 2005 and 2010 would rise 58 percent. To tap into this new wealth market, Wachovia Wealth Management announced in August that it was beefing up its private banking division in the Richmond area.
In September and October, however, that bit of news was overwhelmed by headlines about the worst financial crisis since the Great Depression. The crisis reshaped the nation’s financial markets: Some companies came under federal control, others accepted government loans and investments, and still others consolidated to survive.
Charlotte-based Wachovia wound up in the final group, forced by its deteriorating holdings of subprime mortgages to merge with Wells Fargo & Co. after a brief flirtation with Citicorp.

Still, the change of ownership didn’t nix the plans of Wachovia’s private banking group to expand in Richmond. “We currently have seven relationship managers with 40 to 50 members on the team here,” says Thomas E. Beames Jr., regional director for the private banking team.  “In the next several years, I’d expect that number to grow demonstrably.” 
Nationally, Wachovia Wealth Management’s private banking group had 250 relationship managers in 2007.  It plans to double that number in the next two years.
The number of high net-worth households in Central Virginia should still climb, backs, says Beames.  “It may not be at the pace we expected, but our economy will continue to grow.”
Beames is not alone in his optimism. Despite facing a stock market that has lost billions of dollars in recent months, many Virginia wealth advisers are planning to expand, not contract.  But there is caution out there.  Expect “asset allocation” and “discipline” to be the buzzwords in financial planning.

Expansion plans
Houston-based Stanford Financial Group apparently spotted the same opportunity in Central Virginia that Wachovia did.  In August, the company opened an office in Richmond for its Private Client Group, whose wealth management services range from buying and selling securities to providing financial planning and estate planning.  Six senior executives from UBS Wealth Management have joined the Richmond office as financial advisers. Stanford Financial Group also has a new office in McLean, with five financial advisers.  The company says the Northern Virginia office is performing well and attracting new clients.
“Richmond’s strong economic base and its strong client base make it especially appealing to us,” says Mike Bannon, managing director for Stanford’s Richmond office.  “It’s one of only three cities in the United States that is home to a Federal Reserve, a federal circuit court and a state capital.  No doubt, this pullback affects clients’ assets, but Richmond is well-suited to withstand it.”
Smaller wealth management firms are expanding as well. “We just hired another planner to join us, and we’re looking to bring on more now,” says Frank T. Shull IV, vice president of Lara, Shull?& May, an independent wealth management firm in Falls Church.  The firm currently has 13 employees.
Likewise, Gregory A. Watts, senior vice president and wealth adviser at the Virginia Beach branch of Morgan Stanley, says he intends to grow his practice’s market share.  “We have expansion plans going forward for the next 12 to 18 months.  We’re definitely planning to grow the business, not contract.”
Still, wealth advisers have had to do some hand-holding as financial news around the world became increasingly grim.  “We’ve reached out to clients through e-mail and phone calls almost on a daily basis,” Shull says.  “The ones close to retirement are especially concerned.”
Because clients of the Falls Church firm typically have a net worth of $3 million to $10 million, they don’t have to see a 9 to 10 percent return on their investments, Shull says.  “We’re a pretty conservative shop.  We determine the growth rate our clients need to earn to meet their goals and objectives.”  While the firm saw its investments decline this year, it had little exposure to financial institutions, aside from the holdings of some mutual funds.

‘Tough environment’
David J. O’Brien, an independent, certified financial planner in Richmond, called his clients as the debate over the $700 billion bailout bill began in September.  “I told them I was available for questions,” he says. 
“This economic situation is something I think we see only once every two generations,” he adds. “We try to plan for events that fall within two standard deviations from the mean — more than 95 percent of the expected outcomes. But we’re in the third standard deviation now.  This is a tough environment, but it will end.  And we will get through it.”

Clients calling Morgan Stanley’s Watts are expressing concerns that extend beyond their investments. “In past declines, clients have focused primarily on their individual portfolios. There’s certainly concern about that now, too,” he says. “But there’s a broader concern out there about the global financial system. If clients felt more confident in the overall soundness of the financial system, they’d feel better about their portfolios.”
The credit crisis has changed the mindset of clients.  “They’re different investors, savers and borrowers than they were two years ago.  It’s been scary, a frightening situation,” says Wachovia’s Beames.  He and his managers plan to stick with a strategy of diversified investments.  “We’re advising our clients to be realistic about how they address their risk tolerance and exposure,” he says.  “We start with risk tolerance and build strategies around it.”
“Risk tolerance” is on the tongues of many financial planners today.  So are such terms as “long-term plan” and “discipline.”  “We’re encouraging people to stay calm, remain disciplined and focus on their long-term goals and asset allocation because decisions made during an emotional time tend not to be good long-term decisions,”  says Watts.

Dealing with fear and greed
But emotions are hard to keep in check when the Dow Jones industrial average plunges more than 700 points in one day.  “Humans are hard-wired with two emotions that generally don’t work well with investments:  fear and greed,” says N. Edward Link Jr., senior vice president with the Meridian Group at Smith Barney, a five-person wealth management team based in Roanoke.  “Having a plan and sticking with that plan keeps those emotions in check.”
Link’s team has been reviewing client portfolios with an eye on how the market’s recent fluctuations might affect their financial plan five, 10 or even 15 years down the road.  “We make an adjustment if it’s necessary for that time frame, rather than for right now.”
Watts is advising clients to take advantage of opportunities for long-term investments. “There are a lot of opportunities, not only in the stock market but also in the bond market,” he says.  “Because the current crisis has been largely driven by credit concerns, the prices of many high-quality, fixed-income securities have been unduly punished.”

O’Brien sees another silver lining to the financial mess. “I hope this global economic crisis helps people understand the need for good, well thought-out financial planning and the discipline to stick to it,” he says. 


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