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Ken Fisher hits a milestone of $100 billion of AUM and $1 billion of revenues but faces a new challenge: How to grow a mature firm with competitors yapping at his heels

The Fisher Investments founder says the law of large numbers is now working against him, but he's spending furiously on reinvention, and 'nothing is sacred'

Thursday, February 14, 2019 – 4:01 AM by Oisin Breen
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Ken Fisher: You have to be pretty lonely to succeed.

Brooke's Note: In his gravelly voice, Ken Fisher will tell you that he does what works, and he doesn't care if nobody else thinks it's a good idea. He's been saying that for decades, and he's been the RIA market leader for the same amount of time. That hasn't changed. What has changed is that more competitors clearly are watching what he does and imitating aspects of his business. He is still bigger than all the national RIAs combined, but his firm's growth rate during the past year was not as great as many of the up-and-comers. Does that bother him?  Not really. Is he still fighting like a bulldog from the chairman's seat? You'd better believe it.

After years of steady growth, Fisher Investments is hitting an unimaginable RIA business milestone of $100 billion in AUM and estimated $1 billion in revenues.* 

Yet for Ken Fisher and his famed cult on the hill -- namely his thousands of staff that long operated from his sprawling residence on a mountainside overlooking Silicon Valley -- the concern is not about which champagne corks to pop.

Fisher Investments, now largely based in a custom-built office park outside Portland, Ore., faces a new challenge: How to grow a mature company with a host of firms yapping at their famous founder's heels -- using aspects of his own business model against him.

Firms like Creative Planning and Personal Capital are marketing nationally and serving clients by telephone centrally.

Nathan Fisher
Nathan Fisher, head of Fisher Investments' 401(k) division, is not being groomed for the top-job, nor is anyone else, says Ken Fisher.

To say Fisher is a victim of his own success would only partly explain his situation. For the past 10 years, he has set a spinnaker to the tailwind of the booming stockmarket. But his growth surpasses the S&P 500 index.

In Aug. 2009, Fisher's assets under management stood at an estimated $33 billion. See: Ken Fisher keeps expanding his $42 billion RIA empire despite UHNW head windsIn comparison, the S&P 500 was at 1,010.48. By 2017, the firm's assets topped $100 billion (a 303.03% increase), compared with a 252.32% gain in the index to 2,549.69. See: The world's largest RIA takes the cult-on-the-hill to the Washington state woods.

Zenith

That growth hit its zenith in 2017. The value of the firm's assets under management stood at close to $72 billion in January. By the end of 2017 this figure stood at $96 billion, a $24 billion jump or an increase of about 33%.

Since then, however, Fisher Investments' growth rate has slipped to just 4% for 2018.

Fisher is sanguine about the change. Essentially, he thinks the firm has bumped up against the law of diminishing returns. Each marginal dollar moves the needle less and less as the firm's asset size grows.  

Damien Ornani
Damian Ornani, Fisher's CEO, is in it for the long-haul, says Ken Fisher.

"We’re like China. At our size growth is slower and naturally impacted by market negativity. It’s also positively impacted by market positivity," Fisher explains, via email.

Actually, a better comparison might be the United States, which has a mature economy. Growth is harder and harder to come by. That's why economists get excited when U.S. GDP grows 2.0% to 2.5% a year, while a developing country like China might post as much as double digit growth. 

"Life is volatile. [It] would be boring otherwise. But, yes, we should grow at slower rates in the next 20 years than in the last 20,” Fisher acknowledges.

Rising competitors

Economics aside, Fisher's situation is complicated by a rising tide of competitors. Ironically, they're using his business model to compete against him. 

Creative Planning's Peter Mallouk took a page right out of Fisher's play book in January. His firm launched its first ever national television advertising campaign targeting Wall Street brokers. Mallouk said he intended to invest "millions" in the campaign. It's set to run the entire year. See: Peter Mallouk's Creative Planning launches national TV advertising to challenge wirehouses but will it work?

The AUM totals for those firms, however, are paltry by comparison. Personal Capital is closing in on $9 billion and Creative Planning is nearing $40 billion.

Fisher has no plans to rest on his laurels after hitting his landmark AUM and has no plans to abandon his call center-driven, king of junk mail and television advertising business model.  

“It’s just a lot more of the same like most years,” he quips. "Things change, things get introduced, people get hired, offices are opened, countries are entered, etc."

In the past year, Fisher Investments opened seven new offices, broke new ground for an expansion of its headquarters, hired its 3,000th employee -- and targeted at least 200 more -- built a full television broadcast studio, and it continues to spend "extensively" on research.

Fisher's firm declined to break-out whether assets gained in 2018 were net new assets or merely due to appreciation. "We don’t disclose performance, except to clients," says a company spokesman, via email.

Beyond the raw

Yet, despite the falling growth rate at Fisher Investments, the raw data on its assets under management fails to tell the whole story.

In fact, if its growth is compared with rival mass-market RIAs, Fisher Investments $4 billion 2018 bump is still equivalent to half a Carson Group, or 10% of Peter Mallouk's Creative Planning. See: David Bach rocks heavyweights with plan to leverage his media savvy for RIAs at his Topeka TAMP; 'Ridiculous' says Ken Fisher.

At first glance, it would seem obvious that $24 billion in growth significantly outstrips the $4 billion achieved between 2018 and 2019, But once market fluctuations are factored in, both years' performance are more similar.

On Dec. 30, 2016, the S&P's value stood at 2,238.83; by Jan. 5, 2018, this figure climbed to 2,743.15 (up 22.53%); yet by Jan 4., 2019 it had slumped to 2,531.94 (down 7.7%). Accounting for market fluctuations, Fisher Investment's 33% growth some 24 months ago, stands closer to 10.8%, and its non-appreciation linked gains, in dollar terms, at closer to $8 billion.

Equally, the 4% growth achieved between 2018 and 2019 becomes far more impressive, if the 7.7% decline in the S&P is factored in.

In line with the index, the value of Fisher Investments assets under management ought to have shrunk to $88.6 billion. The fact that it didn't, means the firm potentially achieved real-terms gains of as much as $11 billion either by asset gathering or market gains.

Be true to yourself

But as Fisher Investments enters its 40th year of business, Fisher is keen to emphasize that there's more to his firm than being a bulk advertiser and a mothership for advisors stuck dishing out advice over the phone, not least an "extensive" 80-strong research team, and a whole lot of deep thought. See: The documented RIA threat, 'phono-advisors’ and their nearly $300 billion of assets.

Ron Carson, David Bach, Ric Edelman, and Peter Mallouk
Fisher's rivals and contemporaries: (From left to right) Ron Carson, David Bach, Ric Edelman, and Peter Mallouk.

"There’s no doubt things will change and we will have to adapt -- as we always have throughout our history," he says. “[But] competitors never get that we’re not very good at marketing and we’re pretty darned good at lots of other functions."

The latter statement is at odds with how many observers see Fisher, which is known as a demon advertiser -- ubiquitous for its size across TV, Internet and junk mail. Its other attributes are harder to quantify and assess.

Fisher materials show that its does 3,000 annual client events, for instance.

Fisher Investments prospers by going against the grain, says Fisher. See: Ken Fisher resumes hiring but still has 'overcapacity’ of investment counselors.

"We don’t give a rat’s darn what everyone else is cheering for," he says. "Doing what's popular is very expensive in the marketplace ... Markets pre-price so well, [and] you have to be pretty lonely to succeed ... Being defensive is popular now. Alternatives are popular now. We’ll stick with the road less traveled."

Strong suit

That said, it's difficult to balance the claim that money management, not marketing, is Fisher Investments' strongest suit, given the firm was built on the perception -- one Fisher has long stumped for -- that it's a tell-it-like-it-is advisor that's elbowed its way to success in a world dominated by unrepresentative Ivy League elites.

Yet Fisher is not shy about charging fees with Wall Street-level profit margins.

Individual investors make up 60% of Fisher Investments' client-base and pay as much as 1.5% in fees for the first $475,000 managed by the firm. This is the second highest fee it levies.

The highest is 1.6% for its global mid-cap institutional Frontier Markets Fund. The lowest fee is 0.28% for investors with assets above $45 million. See: J.P. Morgan may launch first zero-fee ETF as 2019 marks critical passive- and ETF-investing thresholds.

S&P 500 Jan. '18 to Jan '19
The S&P 500's performance between Jan. 2018, and Jan. 2019. Source: barchart.com

Such fees are on the high end compared with other rival mass-market firms like Carson Group, AE Wealth, Edelman Financial Engines, or Creative Planning; which, according to their ADV2s, charge "up to 1%" (Carson), 1.2% for $500,000 and 1% on the first $2 million (Creative); and between 0.75% and 1.2% (Edelman).

AE Wealth, however, lists fees of 1.75%, but a maximum of 2.9%. See: Peter Mallouk's Creative Planning launches national TV advertising to challenge wirehouses but will it work?

The other RIA with $100 billion in AUM (more like $115 billion) is Vanguard Personal Advisors Services and it charges only 30 basis points but that pricing competition doesn't bother Fisher.

“We have no problem with firms like Vanguard or Fidelity doing whatever they want," he says. "They should, as should everyone else ... We don't see material fee pressure anywhere and on the occasion we do, we know that person or institution simply wasn’t our client anyway."

So there is some irony that the 1979-founded firm grew by offering itself as the Wall Street alternative channeling Fisher's nous in ultra-brash advertisements with simple lines like: "I hate annuities".

Fisher insists, however, that there are tangible differences between the management his firm can offer, when compared with the wider market. He lauds, for instance, its 'contrarian' market perspectives, including the belief that quantitative easing in Europe will remain "extremely bullish", and that over the long-term "rates won't rise much."

"Nothing is sacred about our way. We have no lock on how to grow," he adds.

Elements of Succession

Not even the Fisher name is sacred.

Indeed, there has been some speculation that Ken's son Nathan Fisher, who currently heads up the firm's 401(k) division, might well be groomed as his father's replacement. See: Capitalizing on 'unintended consequences’ of DOL changes, Ken Fisher pounces on a fat-margin 401(k) opportunity.

Yet Fisher says a succession plan is already in place, and was since Damian Ornani, 44, took the reins as CEO in Jul. 2016. See: Why Ken Fisher still plans to work a 60-hour week despite handing off CEO role to 'badass'.

“Damian Ornani's our CEO and there is no person in particular being groomed to succeed him," he says. "Everyone in senior management is being groomed for a bigger Fisher Investments." 

*(Revenues are dervived from a conservative calculation based on average initial fees taken from three of the firm's ADV2 brochures, for private, institutional, and 401(k) clients.)



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