Managing Wealth

Making sure clients' assets last their lifetimes-and beyond.
BY ANITA DENNIS

EXECUTIVE SUMMARY
  • ONE CPA's WEALTH MANAGEMENT and investment consulting firm had $170 million under management at the end of its first 15 months in business. The firm manages the personal investment portfolios of clients who typically have a net worth in excess of $7 million.
  • THE FIRM'S SERVICES include development of a very comprehensive assessment and needs analysis, detailed lifetime cash flow studies, an asset allocation study and an efficient frontier analysis that determines what level of risk is needed to achieve the desired goals.
  • THE FIRM BENEFITS FROM a four-person advisory board made up of clients and long-term business contacts that meets regularly to offer advice and comment on business management and marketing issues.
  • AMPLE RESOURCES ARE ESSENTIAL when launching a firm tailored to the very wealthy. The firm's two partners each invested the equivalent of 150% of their previous annual salaries to start their firm. It's also essential to have very sophisticated investment experience.
Anita Dennis is a Journal contributing editor.


Less than two years ago, Kaycee Krysty left a large CPA firm to help launch Tyee Asset Strategies, a firm that provides wealth management and investment consulting. With a partner, she now manages the personal investment portfolios of clients who typically have net worths in excess of $7 million. After 15 months, the six-person Seattle firm had more than $170 million under management. Although Krysty no longer performs traditional CPA services, her experience with high net worth clients illustrates the benefits and pitfalls of working in this market. It's a market that has been underserved, but Krysty believes that will change. "There's so much opportunity here," she says.


A NARROW FOCUS
Tyee concentrates on a very specific sector. Most of its clients have substantial liquid assets because they built a business, then sold it, or took a company public or accumulated substantial stock options while working. Most clients maintain investments in various assets, such as their own company or real estate, while Tyee manages their traditional financial assets. "We help them look at everything else they've got-a house on the lake, a company, a commercial building," Krysty says. "Our differentiation in the marketplace is that we combine the portfolio management with a financial strategic plan."

In order to do that, the firm partners ensure that the overall investment approach is cohesive and addresses the client's specific objectives. "We meet with each client every quarter plus we do a full annual review of their entire financial situation." As part of the process, the partners work with the client to develop a very comprehensive assessment and needs analysis, to articulate goals and to produce lifetime cash flow studies, an asset allocation study and an efficient frontier analysis that determines what level of risk is needed to achieve the desired goals. The product is a roughly 20-page investment policy document. "Only at that point do we actually start investing the money," Krysty says.

The firm can be understood in part through what it doesn't offer. "We don't hold ourselves out as providing traditional personal financial planning. We provide a long-range strategic plan for how the wealth is to be used. Our clients' major concern is how to make their wealth last their lifetimes and beyond. We focus only on related issues." The firm does not address other aspects of business or family enterprises. "We work in a team environment so if our clients have special needs, there are others-primarily CPAs and attorneys-who work on those issues."

Krysty brings to the firm 20 years in public practice, where she worked with high net worth clients but had also branched out into consulting with other CPA firms on their PFP practices. "Now I'm more focused on working directly with clients," she says. Her partner in Tyee, Rich Simmonds, formerly ran the marketing function for a major trust department in Seattle, so he contributes sophisticated investment and marketing skills. The firm has four employees who handle transaction reporting, trading, customer service, document preparation and support.

Krysty targeted this niche earlier in her career because she believed it was not getting the attention it deserved. "Many of the traditional CPA services were being done well, but clients who sold their businesses weren't getting a broad viewpoint on investments. Many investment experts simply said, 'Give me your money and I'll invest it.' They didn't want to know any other details of the clients' financial situations. But this type of client needs a comprehensive approach to get the investment part correct."

Because of the partners' contacts in the Seattle business community, they are able to gain new clients exclusively through referrals. Their client acceptance procedures help them limit firm size. The minimum the firm will take under management is $1 million, but even when that criterion is met the partners have two to four meetings with potential clients to ensure everyone's goals mesh. The firm avoids clients who want to keep their assets moving constantly to get the highest possible rate of return. "Nobody can deliver that," Krysty says. "We meet our clients' expectations, but getting the highest rate of return all the time is not a realistic expectation." Usually, conservation of wealth is the primary goal. "The first things clients will say is, 'I worked hard to make this money so don't lose it because I don't want to build a business again.'" Clients ask mainly that the firm deliver good results on a conservative and consistent basis and that it keep them informed of the status of their investments. Objectivity is another important issue. "The fact that we work for a fee only is part of the value," Krysty says.

The most enjoyable clients, she finds, are those who have "a diverse set of life goals. It's fairly common to have clients who not only want to pass wealth on to their children but also have significant charitable and philanthropic interests as well as ongoing business interests. Clients who have interesting lives-we really can add value in those kinds of complex situations."

Firm Profile
Name: Tyee Asset Strategies, Inc.
Year opened: 1995.
Location: Seattle, Washington.
Total personnel: Six.
Number of partners: Two.
Number of CPAs: Two.
Areas of concentration: Wealth management and investment consulting.
Advertising and marketing programs: Exclusively by referral.
Best thing we did in the last five years: Focus on narrow niche; provide ample start-up investment.
Worst thing we did in the last five years: No regrets so far.
How the practice will change in the future: Add support people to continue to leverage partners.


VALUABLE FEEDBACK
One of the start-up's most important assets is a four-person advisory board comprising clients and long-term business contacts that meets for one afternoon a quarter. At each meeting, the partners make a presentation, including all of the firm's financial information, and the board members offer advice and comment. "The board has been invaluable in helping us identify business management and marketing issues," Krysty says. The board insists, for example, that the firm remain dedicated to its niche. "The needs of wealthy clients are complex and you don't want to get distracted by working on smaller engagements or on retirement plans."

Another issue is client relationships. "Our firm is organized so clients deal with principals. They don't have partners sell them the firm and then end up dealing with other professionals." The firm's client acceptance procedures also allow the firm to bring a fresh perspective to each portfolio. "Every client situation has some unique twist, so every investment approach is handcrafted."

The firm does not compensate advisory board members for their service and their expenses are small, since all clients are in the state of Washington. "The board members enjoy it and they're excited about what we're doing," Krysty says. "It's an opportunity for them to get together with peers. And they look at us like a Harvard Business School case. We're growing really fast and things are going really well, but there's always something to address."


A SIGNIFICANT INVESTMENT
Launching a firm tailored to the very wealthy can be expensive. Krysty and Simmonds each invested the equivalent of 150% of their previous annual salaries because they didn't want their small firm to be hampered by limited resources. "We decided that for this type of clientele, the first client in the door should get the absolute highest quality of service that we expect to be able to produce," Krysty says. "So we had to have all the resources available. In particular, we needed skilled employees and high-level technology. A nice downtown office also was essential. We had an enormous overhead in the first months, but it has absolutely paid off."

The CPA advises that her niche can be a great market, "but it is fraught with peril if you don't have the right resources." That includes having someone on staff with very sophisticated investment experience. "You can't simply buy software that picks mutual funds and have instant investment sophistication. It's too risky." Firms also need a large capital base to finance the resources they'll need to run their practices and to be in compliance with all federal and state statutes. Finally, practitioners must enjoy working with people, "because this business is very relationship-intensive."

Given its successful start-up, Krysty believes the next challenge will be to expand the staff in a way that will allow the partners to delegate some responsibilities without losing the personal touch. "We have to maintain our current level of client contact because that's essential to the business." The firm's unusual name is a reflection of its philosophy. Krysty says that Native American culture has a very strong influence in the Northwest. "Tyee" is a Native American term of tremendous respect that describes a person of distinction or a great chief. "Our clients are the best, and respecting people is one of the company's core values," Krysty says. "All our clients know they will be treated as Tyee."

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

COLUMN

Deflecting clients’ requests for defense and indemnity

Client requests for defense and indemnity by the CPA firm are on the rise. Requests for such clauses are unnecessary and unfair, and, in some cases, are unenforceable.