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The art and science of how one RIA grew assets 125% by springing for several hundred steak dinners a year

Patrick Horan more than doubles his ROI on seminars with a disciplined process

Author Gerri Leder September 16, 2011 at 2:44 PM
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Pat Horan: You can't just do one seminar over three nights and say, 'it didn't work.' It's a discipline.

Jeff McClure

Jeff McClure

September 16, 2011 — 6:52 PM

It is interesting that in the article the stated return is 3.2%. I wonder if that is a Freudian slip.
In my case if I were to spend $11,570 on a set of three seminars, I can be assured that staff time and my time would be worth at least that amount in addition to the money spent on mailings, lists, food, etc. If fees equated to 0.85% per year, then the gross income from the $3.87 million would be $32,895.

Presuming the nine clients generated is a correct number then the average portfolio in what appears to be the best set of seminars is $430,000. If Mr. Horan spends 4 hours per client in meetings and actual investment planning and his staff spends an equal time, then his and his staff time is worth $125 per hour the first year.

There are a lot of variables here that are unaddressed, but it still looks to me like a probable loss to break-even the first year. Of course beyond that first year there are great advantages.

It would be interesting to see the long term results of this program. The numbers always look good for the best set, but seeing the overall numbers in the same manner as the best set would be very educational. If Pareto’s Rule is in effect here, then my experience suggests that to put on these seminars and follow up he will need a full time employee or the equivalent to do this. That employee cost is probably about the same as the net return on investment in the first year, again suggesting that in the first year the marketing program is at best a break-even.

Jeff McClure

Nevin Freeman

Nevin Freeman

September 16, 2011 — 7:42 PM

Hi Jeff,

Indeed it was a typo — we originally printed 2.3%, when in fact it was 230%. Thanks for pointing it out!

Nevin

Jeff McClure

Jeff McClure

September 16, 2011 — 11:13 PM

Another problem with your numbers: How did a firm with $448 million grow assets by 125%? That would seem to indicate that the firm was at $200 million and then grew by about $250 million from the seminars. In order to accomplish that wonder, the “best case” described in the article would have to be repeated about 65 times. The article states that only eight months of the year are good for seminars, so it would have taken 8 years of seminars as good as the “best-case” described. Given the claim of 45 seminars and two days per week on which seminars are presented, that equates to about 23 weeks or 5.75 months, which is about right for an 8 month seminar season.

I would be very interested in the numbers behind the 125% growth. Given that 8 years ago the stock market was at the bottom the slump following the 2000-2002 decline and is now roughly double what it was then, had no new money been brought in, a 100% growth in assets under management would have been normal.

There are a lot of numbers in this story that just don’t appear to add up. If this is a fiduciary, investment advisory firm, then the kind of claims seen here are questionable at best and potentially a violation of several statutes. Asset under management claims, including growth of assets under management are a highly regulated issue.

Don

Don

September 17, 2011 — 8:03 PM

Very good points, Mr. McClure. I was also wondering about how the growth of assets due to market movements factored into percentage-growth claims.

I’d be interested to hear some feedback from Mr. Horan.

Patrick Horan

Patrick Horan

September 18, 2011 — 2:47 PM

Mr. McClure, You bring up some interesting points, thank you for your analytic skills which could be greatly improved if you had all the data – which I have. Mr. McClure is trying to reconstruct the secret sauce with some of the ingredients mentioned in the article. It is very difficult to do with any kind of accuracy unless you have ALL the ingredients or data.

Let me first point out a very simple assumption made by Mr. McClure which is not accurate. Our run rate on firm assets is better than 1.23% on our entire book of business instead of the 85 bps that he assumed we were charging. In his commentary Mr. McClure states that my revenue is $32,895 on $3.87m of assets when if fact it was $58,050. This is a wide margin of error caused by inaccurate assumptions. Our fees start at 1.50 % on household assets under $1m. – which was the case on the results generated from the one seminar series sighted in the article. We build customized portfolios from the ground up using individual bonds, stocks and other securities. We are not asset allocaters who use etf’s and or mutual funds; therefore we can charge higher fees because we actually add alpha to the portfolios.

Next Mr. McLure ASSUMES that I spend 4 plus hours with each prospect and that my staff incurs these hours as well. How does he know what we allocate to each new client in terms of hours or resources? The fact is that when people attend my seminars they are educated on how we work so that when I spend and hour or two on a follow-up meeting we are talking about their goals and objectives which is followed by filling out paperwork to hire us. This all takes two hours per meeting on average– therefore the time on investment pays off through efficiency using seminars.

On his next point Mr. McClure could not believe the 125% growth over the last five years. In the article it stated “the firm also partners with one and two – advisor RIA firm to provide back office and other support that that may lead to a long-term succession arrangement with the firm”. This is a critical piece of information as we added $75 million of new assets under management this year alone by providing investment research, portfolio management, billing and reporting for another RIA which included a buy sell agreement. Asset growth though seminars and asset appreciation accounted for the other $160 m ++ of asset growth.

A final point I would like to make in my own defense is this. When I am interviewed by a reporter or writer for a story I provide them with a lot of facts so they have the complete picture. I can not control what ends up on the editing room floor as the writer will omit relevant factual information to shorten an article. Then the editors take a whack at the story as well – this is why there were three typos in the original article which have since been fixed. So before you critique me for fuzzy math maybe you should ask the folks in charge why they chose to delete key data from the article.

Lastly, I was asked to share my success with seminars by the writer. I did not seek attention for what I have done – I was sought out so that other advisors might benefit from years of successful marketing. In some way I hope I helped some of you who took the article for what it was meant to portray – that is to actually have a marketing plan that you stick with so you can measure the specific results. The only thing I regret is having to waste time writing a response like this to people who have nothing better to do that tear down someone successful instead of doing what they should be doing – and that is working intelligently on their own business.

Maria Marsala

Maria Marsala

September 19, 2011 — 12:51 PM

Mr. Horan,

You have been VERY generous in providing so much of your process for others to start seeing.

I’m amazed at the number of invites I am sent (to forward) the day before an event! When having a schedule of a years worth of events on an internal or even external (website) marketing calendar would be more helpful.

And so often advisors take their time in the follow-up when as you mentioned, the follow-up has to happen very quickly after an event.

Your article includes a wealth of information and should be dissected by savvy advisors for all the tips it includes!

Maria

Jeff McClure

Jeff McClure

September 19, 2011 — 1:33 PM

Good response. However, the claim of 125% gain by doing seminars is still a bit misleading. I was not complaining about whatever you may or may not be doing, but about the incomplete nature of the information presented in the story. Did you actually grow YOUR AUM by 125% by buying steak dinners? Indeed I do not charge 1.5% per year because I consider that to be an excessive level of fee, but that is your business. Additionally, by not providing the number of years you have been running this marketing plan one is left with the need to make some kind of assumptions in order to evaluate whether or not it is effective.

A prime question remains as to what percentage of your asset growth was a result of the seminars, asset appreciation, client additions, and the other operations you added to your firm. An effective analysis on your ROI on the seminars would break out those factors as well as adding back in the additional expense associated with the time and material expense associated with creating new client relationships.

I ran a disciplined, frequent, dinner seminar program for many years. Frankly, the energy and time expenditure exhausted me. Because of the way we create individual plans and analysis for each client we do spend a fairly large amount of time, mine and my staff, on and with each client. I discovered that in order to take on more clients we needed to hire more people, which also adds to the first year cost.

I am at the point where I am again looking at restarting a marketing program. My experience and the advice of consultants is that high net investable net worth clients are generally not acquired through seminar marketing. If indeed you have a system that is an exception to that experience, then you have truly had a breakthrough.

I would also be interested in knowing what the average investment per client is that you receive from the seminars.

Anyway, my comments were based on the very issues you raise. The article provided incomplete information that suggested you had increased your personal AUM by a quarter of a billion dollars in a short period of time by buying steak dinners. I apologize if my analysis offended. I just wanted to point out that there were some rather significant data missing. The 0.85% fee level is a number I read recently about “fee-only” advisers. It is also our average, so it was as good an assumption as any. As I wrote, if your charges are significantly higher then the assumptions change.

Over a long period of time my analysis indicates that as charges rise above 1% per year the net revenue on AUM decreases. We do get more initially, but by reducing the client portfolio growth by that amount we dramatically decrease the revenues to the firm ten years and more out. We have also noticed that our client retention rates are much higher below 1%. The alternative to that is to charge more and accept a certain client attrition rate with the marketing program intended to bring new clients in to replace the old. Again, my experience matches the studies and consultants’ advice: Keeping old clients appears to be more cost effective than bringing in new ones.

You are certainly to be commended for your excellent marketing plan. I wish you well in it, and if it is as profitable as the article suggests, you are doing a lot of good.

Albert Romba

Albert Romba

September 19, 2011 — 5:37 PM

Such a horrible attitude – no wonder he needs to spend a fortune on marketing to get new clients and replace the ones who fled.

Gerri Leder

Gerri Leder

September 19, 2011 — 6:47 PM

Thanks, all, for your comments. I am returning late to some of the feedback and thanks again to Patrick Horan for his detailed response to the reader’s query about the numbers. As the author and marketing consultant, I can tell you there are few RIAs who have the meticulous records on seminar results that he maintains. And fewer still who are willing to share his success stories with the rest of the industry. It is this attention to detail and discipline to the repeatable process over 30 years that stands Horan in the top of his field. One comment that was edited out was that I’ve attended his seminars and was floored by the number of million-dollar accounts that are represented (and some portion that move) for the cost of a steak dinner. But beware, the devil is in the details.

Jeff McClure

Jeff McClure

September 19, 2011 — 10:47 PM

I do want to make something clear one more time. I too appreciate Mr. Horan’s willingness to share. It was the title and information in the article that I was asking about. If Mr. Horan added $75 million by recruiting other RIA firms to provide AUM and added $160 million over a five year period through seminars, then that is quite a different metric. Again I am forced to make some assumptions here, but if we charitably assume no appreciation in asset value over that period, by subtracting the $160 million and the $75 million from his current $448 million, his AUM five years ago was $213 million. In his response he states that he added $160 million over the five years through seminars, a very respectable number; however, the seminars then accounted for a 75% growth in AUM over a five year period.

Please don’t get me wrong, anyone who can grow his AUM by 75% from mid-2006 to mid-2011 by asset acquisition is doing an amazingly good job of marketing. Still, a compound growth of 11.8% per year over a five year period is not exactly the impression the article leaves, at least with me. Given the number of seminars he suggests he is doing, two per week for eight months over a five year period his average new AUM per seminar is about $2.5 million (please forgive me Mr. Horan if I again made some inaccurate assumptions). Based on the cost per seminar stated in the article, my firm would lose money on the first year acquisition costs, but hopefully make money in later years. Conversely were we to raise our fees to the level he states that his firm charges, we would break even the first year.

The flaw I can see in my calculations here is in the assumption that his clients have seen no appreciation in their assets since 2006 and the people who invested in 2009 also have seen no appreciation. If there has been what I would consider a reasonable asset appreciation in the formula, then the acquisition costs would at best create a break-even first year even at 1.23% (or 1.5%).

There is no doubt that acquiring $160 million AUM in five years is exceptional and commendable. Had the numbers in the article suggested a more reasonable growth rate credited to the purchase of steaks I would have been far less critical. My personal experience with high cost dinner seminars run on a very consistent basis was similar to what appears to be the case here. As I wrote before, doing seminars two nights per week was a very wearing experience, particularly when combined with the relatively lengthy process of bringing new clients on board. For whatever it is worth in our investment advisory business we have gone from what was effectively zero in mid-2007 to about $90 million today. The question now is how to move forward.

In the end, the sheer number of new clients caused me to halt. We are just now getting to the point where we are becoming satisfied with the level of service and attention to portfolios that we would like to see. The “wall” we hit was that with each new client we had another annual review and other administrative costs. We had to find, hire, and train new people to do that. It takes us about one year to bring a new hire up to speed, and unfortunately they all do not work out to be what we had hoped. Then, as we hire more people we find that they need supervision. It is an interesting challenge and I wouldn’t trade it for anything else, but it is a challenge.

Mr. Horan, you are to be commended not only for the money but for your obvious dedication and devotion to growing your business. I sincerely hope you are providing the same level of analysis, management, and service that you apply to marketing.

Jeff McClure

Brooke Southall

Brooke Southall

September 19, 2011 — 11:00 PM

Jeff,

Thank you for your openness about your own challenges with these seminars.

I also want to let you know I wrote the headline! It was intended to be accurate but also very much to draw in reader interest. It’s the nature of headlines to walk that line.

all the best,

Brooke

Jeff McClure

Jeff McClure

September 19, 2011 — 11:04 PM

Oh… I forgot. Mr. Horan, you too have made some assumptions. I stated that it takes about four hours of my time and about four hours of staff time in the first year.

No, I do not meet with a client for four hours! I generally spend about two hours doing the analytical work on their accounts, which average about five per client. 401(k) and other DC plans are particularly time consuming. Then, even though my staff roughs out the IPS I do the personalization and details.

Once all of that is done I have staff members who go in a check all my figures and statements, then we have to actually make the trades and have them reviewed.

Finally, it is quite rare that we have only a single meeting with clients in the first year. It all adds up to a lot of time. If you have found a better way to do things with less personalization, then that is simply a difference in practice.

Again, thanks for sharing your experience.

Albert Romba

Albert Romba

September 20, 2011 — 2:30 AM

From the firm’s brochure – “On occasion we hold seminars. These seminars may include presentations on various securities and insurance products, or
financial planning and investment strategies. We may charge a fee of up to $250 per person.”

Why wasn’t the fee to attend discussed in the article? Why does the brochure use the word “occasion”? Sounds like way more often than ocasional.

The brochure also contains info about paying finders fees for referrals and performance based fees. This firm has also bought other RIA firms as an asset growth strategy. This isn’t your plain vanilla RIA firm by any means. I would be more interested in reading about your standard boring RIA growing through seminars than this sort of organization. The complexity of the firm explains the chip on the shoulder of the subject adviser.

Gerri Leder

Gerri Leder

September 20, 2011 — 11:46 AM

No charge for these seminars.

Jeff McClure

Jeff McClure

September 20, 2011 — 1:14 PM

Brooke,

RIA Biz appears to be a new publication. Perhaps a word of advice is in order about your targeted readers.

By definition those affiliated with a registered investment adviser are fiduciaries and are held by rule of law to exact and precise definitions. We are specifically forbidden from issuing false and/or misleading statements. In order to survive over a long period we need to actually learn to think that way.

Your publication purports to provide us with advice. Yes, there are those who have entered into this profession from the insurance and securities sales industries who are accustomed to hype and hyperbole as standard communications forms. That is the main argument advanced by FINRA in its bid to take over regulation of investment advisers. That some advisers are now moving toward or using statements that are not completely truthful does not make it either right or acceptable.

I object to using a misleading or, in this case, false statement to draw attention to a story. I think you can trust that if you provide me with inaccurate information I will soon be blocking your publication and advising my fellow advisers to do the same. I am quite familiar with the ethics taught at journalism schools. Using a misleading headline is not ethical or acceptable in that profession. That The Globe or National Enquirer does it does not make it professionally acceptable.

I have contacted the Wall Street Journal editorial board, among others, in the past about misleading headlines. Their practice has been to apologize and promise to revert to the high standards that has kept them in business for so long. I suggest you take the same approach.

My clients depend on me for advice on which their standard of living for much of their future depends. I must deal with reality as reality and avoid following or believing any false premise. If you want my, or my fellow professionals to trust you, then I recommend you hold yourself to that ethical standard.

Tom

Tom

January 4, 2012 — 3:12 PM

Jeff – You have too much time on your hands. Go hit the phones or something. :-)

Jeff McClure

Jeff McClure

January 4, 2012 — 4:12 PM

Tom – I can imagine no worse torture than “hitting the phones.” Like Isaac Asimov, I find that I often think best through my fingers. After 30 years of relative success (with intermittent disasters) I have noticed that some of my best ideas have come as a result of give and take writing.

Brooke Southall

Brooke Southall

January 4, 2012 — 10:21 PM

Jeff and Tom,

Thanks for adding some levity to my day. Jeff you raised the bar with a literary allusion that includes Asimov.

Brooke

Jeff McClure

Jeff McClure

January 4, 2012 — 10:44 PM

I loved that man. Read everything he wrote. He did reportedly make that comment about thinking with his fingers. I find the same to be true. I am often amazed at what comes out when my digits get started on the keyboard. Unfortunately my Aspieness gets out there too sometimes and manages to insult people.


Mentioned in this article:

LederMark Communications

Top Executive: Gerri Leder



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