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Advisor Spotlight: Lon Morton went from being a minor league baseball player to a major league RIA

Morton Capital Management gets referrals from both Schwab and a local bank that acquired it

Wednesday, March 31, 2010 – 6:23 AM by Brooke Southall
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Lon Morton: Most potential clients do not fully appreciate the differences between dealing with an advisor from a Merrill Lynch or other wirehouse versus a fee-only advisor -- RIA.

Lon Morton didn’t set out to be an RIA early in his career. One reason: he was likely more concerned about the velocity of his fast ball. Drafted by the California Angels of Major League Baseball in 1963, he was a pitcher mostly in their farm system for about six years. He then began a career selling retirement-related financial products, but he started his own fee-based RIA in 1983 and he’s never looked back.

Morton, 65, had a scare in 2003 when he was diagnosed with prostate cancer. The disease is no longer troubling him but its diagnosis was enough to convince him to consider ways to generate liquidity from the equity in his practice and he sold it to Santa Barbara Bank & Trust [owned by Pacific Capital Bank] in 2006. The deal succeeded. Morton just signed another five-year contract with the bank to run its wealth management practice.

He’s pleased that the bank has allowed him the autonomy to choose alternative investments, to eschew unwanted bank products and to even hold assets at a separate asset custodian – Schwab Advisor Services. I interviewed him yesterday, and I liked his evening plans better than mine. He was headed with his wife to hear Paul McCartney sing at the Hollywood Bowl after a day on the road meeting with clients. Morton says he’ll work a minimum of another 10 years. “Look at guys like John Templeton and John Bogle,” he says. “The more experience you have, the better advice you can give.”

Name and title: Lon Morton , president and CEO of Morton Capital Management.

Locations: Calabasas and Santa Barbara, Calif.

Years in Business: 30-plus

What did you do before becoming an RIA? Provided estate and retirement planning as a retirement plan consultant.

Assets under management: $920 million

What asset custodian do you use and why? Schwab Advisor Services. We have had a great relationship with Schwab since 1989. They have great people, very professional, cost efficient and, in our opinion, they have the best technology in the industry.

What differentiates your firm? Our experience and strong knowledge base in alternative investments. Morton Capital has invested in hedge funds and real estate for over 20 years and over the last three years has created 62 customized structured notes and CDs totaling almost $300 million for client portfolios. Our non-traditional approach has helped Morton Capital stand out.

Why did you become an RIA? As a retirement plan advisor, I realized the need for independent objective advice to help guide clients. Commissions are in direct conflict with this so we became fee only.

Who are your biggest competitors and why? Large investment banks — wirehouses — and some bank trust operations. Most potential clients don’t fully appreciate the differences between dealing with an advisor from a Merrill Lynch or other wirehouse versus a fee-only advisor — RIA. The fiduciary standards are higher for a fee-only firm and of course you don’t have a company selling you these products. In 1983, when we registered as an RIA, we were among the very few. We must be doing something right; today there is a huge exodus from the wirehouses with more people trying to imitate us. I guess that’s a compliment.

What was the biggest obstacle you faced in becoming an RIA? Being able to earn enough money without earning commissions. It was difficult to get off the commission train and onto the fee train. Today brokers charge wrap fees on managed accounts but back in 1970s and early 1980s, it was just a handful of firms that did what we did [in terms of charging fees for service]. We were charging 50 to 75 basis points, so we couldn’t afford to pay all our overhead. It took a number of years to get to critical mass to run an organization based just on fees.

What is your primary strategy for winning new clients? Existing clients are a key source of new business. However, we are also very fortunate to be on Charles Schwab’s referral platform and have benefited from that relationship. It also doesn’t hurt to have been acquired by Pacific Capital Bancorp four years ago and benefit from the bank’s referrals to Morton.

Do you outsource management of your clients’ portfolios? No, we have in house research as well as purchased research that our team of professionals uses in order to develop investment portfolios.

What was the worst day in your RIA career so far? With over 30 years of advising people, institutions and foundations, the 1973-74 bear market, 1987 collapse on Black Monday or early March 2009 are just a few. However, I can tell you it is these instances that create a learning experience and often result in opportunities.

What was the best day in your RIA career so far? Every time a client expresses to me how fortunate they feel to have our firm advising and taking care of them, their investments and financial issues. Last week a widow called me and said: I don’t know what I would have done without you. It’s always a good day when a client appreciates what you do. You realize the important reasons for being in the business.

What’s the next big thing for investing or allocating on behalf of clients? Volatility will return to the market and it will be the advisors’ responsibility to construct portfolios with an insurance element to protect or substantially reduce potential declines and losses. Returns over the next 10 years will be mediocre, so the advisors will have to extract value from less traditional sources.

Who do you look up to in the investment industry? It would be easy to name Warren Buffet, etc., but the people I truly look up to are the people who have passionately built this industry by always doing what was best for their clients including educating and expanding their knowledge to assist their clients in more ways. A name and firm that comes to mind is Ken Gregory of Littman & Gregory, whose firm has given so much back to the industry and individual advisor as they have served their clients. What I really respect is their passion for investment research and getting it right. They’ve been consistent since the early 1990s. They’ve been willing to share it and really brought the ideas to a lot of advisors. I think it’s really enhanced the RIA business for a number of firms.

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