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Top 100 Financial Advisors for 2011
Top 100 Financial Advisors for 2010
You can be forgiven for viewing the stock-market rally of the past six months with a measure of foreboding. Time and again over the past few years, stocks have first rewarded faith with attractive returns, then snatched the gains back in another downturn. What unknown force might rob you of your profits this time, and what should you do about it? Stand pat, if this year's crop of top advisors has any say.
The 100 advisors, (click here to see complete list), have generally been urging clients to refrain from thinking like traders. Instead, they say, keep an eye on the horizon and a level head through the market swings. It's not an easy sell: "It can take years to get our clients to think as investors," says Gregory Vaughan of Morgan Stanley, who tops the list for the second year in a row. "Like everyone else in the world, they have short memories, and they are focused on a particular set of experiences; those are what shape their thinking about the markets." And that is where folks go wrong, Vaughan argues; the more your emotions get tangled up in temporary price gyrations, the greater the likelihood that your portfolio will suffer.
VAUGHAN, LIKE MANY of the top advisors, remains bullish on stocks, even after the Standard & Poor's 500 has run up 27% since early October of 2011.
The index "has been flat for 10 years, during which time earnings have doubled, so we're probably in a better place than we were 10 years ago," Vaughan says. "You can buy really great companies that are doing business around the world, have solid balance sheets, are growing dividends, and aren't too expensive."
There's less of a consensus on the bond markets. With interest rates at rock-bottom levels, advisors often differ on where to find income (see story, "The Great Bond Conundrum").
The ranking -- based on assets under management, revenue generated for the advisors' firms and the quality of advisors' practices -- features 24 pros who weren't on the list last year. Some repeaters have made big moves up. Martin Bicknell of Kansas-based Mariner Wealth Advisors shot up to No. 4 from No. 17. Lyon Polk of Morgan Stanley Private Wealth Management jumped to No. 11 from No. 25. Eric Gray of Merrill Lynch went to No. 50 from No. 79. (Gray is one of five advisors profiled below.)
As a group, the top 100 increased their assets under management by 12% during 2011, the result of both investment gains and new business. By contrast, the S&P 500 was just about flat for the year. We don't break out the performance of the individual advisors because their clients have a variety goals, complicating comparisons. But as a rule, the top advisors have strong investment records, which is how they win client recommendations and grow their businesses.
The clients are unquestionably wealthy, with an average net worth of $178 million. The typical account size is $77 million. That's why many of the advisors, backed by 20 or so teammates, wind up managing billions.
This ranking differs from the Top 1,000 Advisors listing we ran in February; we assembled that one by identifying the leading advisors in each state and combining those lists. This ranking disregards the advisors' locations. Later this year, as in the past, we'll publish Top Women Advisors (in June) and Top Independent Advisors (in August).
AS THE STORIES in the rest of this special report make clear, each advisor brings his or her own style to bear on the business. While most favor a clear long-term focus, some have begun recommending that at a small portion of an investor's portfolio be earmarked for short-term "tactical" moves, to take advantage of the market swings. (See story, "Time for Some Trading.") While many take a wary view of initial public offerings, they aren't above indulging clients' fervor for particular companies. "There is room for my clients to buy stocks in companies they are particularly fond of," says John Goldstein of Constellation Wealth Advisors, who is No. 20 on the list.
And what should clients do with their growing riches? In the story, "Gift of Giving," advisors point to some smart ways to pass money along to future generations. That, of course, is the ultimate in long-term thinking.
Merrill Lynch PBIG
Team Assets: $5 billion
Rank: 50
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Gray was just starting out in life when he got his first lesson in sizing up risk and return. After attending the New England Conservatory of Music to study drums and other percussion, he came across some hard data about his chances for employment: "When an orchestra held an audition for the job of sixth percussionist," he recalls, "1,200 qualified candidates showed up and competed for the chance to essentially play the triangle and not much more."
So Gray took his know-how elsewhere -- to the tech industry. He joined a company that was developing music-related software and hardware for the likes of Michael Jackson, Sting and George Lucas. That got him interested in business, which in turn got him hooked on finance. He earned his chops at Goldman Sachs' private-banking unit and eventually made his way to Bank of America, Merrill Lynch's parent.
"If you look at this company -- wow, half of all Americans have an account at B of A," says Gray, 50. "The infrastructure of branch offices, the investment in computers and technology are tremendous barriers to entry on the part of potential rivals -- it would be impossible to replicate or recreate this overnight."
That market clout enables Gray to tap into a vast array of investment products on behalf of his clients, who typically have accounts of $50 million and a net worth of $75 million. He sees his first job as preserving their wealth, and second, protecting their purchasing power from any revival of inflation or rising interest rates.
Bonds remain a key part of any portfolio, Gray says, even though the Federal Reserve is trying to force investors into riskier investments by keeping yields on short-term Treasury securities at all-time lows. "Clients aren't comfortable earning zero, so the challenge becomes finding a way to earn in a comfortable and safe manner."
Though stocks can be a volatile asset class, Gray thinks they ultimately play a defensive position in client portfolios. "The default position or viewpoint is that all equities are risky and that alternatives are risky," he says. "In fact, we own gold and commodities to offset inflation, foreign bonds to offset the risk of a decline in the U.S. dollar, some real estate, some floating-rate debt and market-neutral strategies to offset volatility."
Gray takes a long-term view of the stock market, believing that despite the recent rally, valuations remain reasonable, with the Standard & Poor's 500 index trading at about 13 times prospective 2012 earnings. When it comes to selecting the managers to whom he is willing to entrust client assets, Gray looks for those who break out from the traditional style boxes and who are willing to act as global asset allocators. For instance, that could mean selling U.S. stocks if the S&P 500 creeps into overvalued territory. "Investing opportunities exist all over the world, and we like managers who recognize that, who have the flexibility to take money off the table and deploy it in a defensive strategy. These managers tend to be value-oriented."
Constellation Wealth Advisors
Team Assets: $5.3 billion
Rank: 20
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There's independent, and there's seriously independent. Goldstein falls into the second camp. When he and Paul Tramantano founded their Menlo Park, Calif.-based advisory firm in 2007, they resolved to change something they believe is fundamentally flawed in the way the wealth-advisory business has traditionally been run. While other firms turn to outside concerns to run funds of hedge funds, Constellation created and now runs its own fund of funds.
"We wanted to consolidate the best ideas in the hedge-fund space for our clients, and to disintermediate or do away with a whole layer of fees," he says. Those costs could have added up quickly had Constellation opted to work with one of hundreds of funds of hedge funds already in existence.
"We were able to take on the role of general partner," Goldstein says, "and I took the lead doing the work to get it structured, to figure out how we'd do the due diligence and monitor the individual hedge funds that ended up in the portfolio."
Goldstein, who learned the business as a wealth advisor at Citigroup, says investors appreciate the efforts. "My clients know that I sweat the details as much as, or even more than, they do -- and that helps them relax."
In another case of Constellation charting its own course, the firm has an in-house chief investment officer, a post usually seen only at large firms. CIO Sam Katzman, Goldstein says, is invaluable because he is able to sift through the vast amounts of information generated both on and off Wall Street and boil it down to the most relevant insights or analyses. The result is a reading packet of 50 to 100 pages for the investment-policy committee meetings. "He helps guide us in setting the asset allocation; it's up to us to execute on that by selecting the right investment products," Goldstein explains.
Wealth preservation is at the heart of Goldstein's efforts, as it is with most advisors working with the ultra-wealthy. "We are worried about the impact of the large structural problems in the economy on client wealth, such as the erosion of purchasing power through inflation or currency movements," Goldstein says. "I am trying to anticipate the consequences of those policies."
What already seems clear to Goldstein is that the bond market's role as the chief way to preserve wealth is no longer intact. Instead, he thinks that stocks do better in the kind of environment that exists today, particularly for a client with a time horizon of 10 to 15 years. "And alternative investments offer flexibility that everyone needs to have in their portfolio," he adds. For instance, Goldstein has guided clients into direct ownership of multi-family residential properties that generate income for their owners. "This way, you can control the leverage and the location," he points out.
But for all his innovations, Goldstein does one thing the old-fashioned way: He meets regularly with clients and keeps them up do date. That's crucial right now. "We have gone through a number of cycles -- I've been working in Silicon Valley since 1982," he says. "We have learned that you hear the same talk at the peak and trough of each of those cycles. But for many of our clients, this is the first cycle they have navigated, so we need to be by their sides."
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