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Stocking Up
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Research
departments back up investment advisors.
By Kevin Kipp
Every industry has its alphabet soup. This presents opportunities
to poke fun, sometimes at one’s self. Take investment research.
Bill Gleason, vice president of Scudder Private Investment Counsel
is a Chartered Financial Analyst…also known as CFA. “Stands for
‘Crazy For Arithmetic,’” Gleason says. “That’s what my wife calls
it.”
If one is evaluating publicly traded companies, one had better enjoy
numbers considering what’s out there. Such forms as the 10-K reports
that accompany slick annual reports are often just the tip of the
iceberg. A true picture of a company’s capitalization may be found
only in the examination of say, off-sheet financing, or maybe leases.
But not every CFA pores over fine print and footnotes. Gleason is
one of four professional staff in St. Louis (all with master’s,
each with some additional lettered credentials, including another
CFA) and four support staff.
“Our job is providing investment advice, and managing individual
securities portfolios,” he says.
Scudder also has a family of mutual funds. Whether it’s Gleason
picking a stock for a customized portfolio, or a mutual fund manager
picking a basket of stocks for everyone who owns a particular fund,
they rely on the same research department.
Gleason says Scudder has analysts located around the world. Fifty-three
cover nothing but stocks, 39 cover fixed income and 17 focus on
“quantitative analysis,” that is, valuing stocks and portfolios
purely mathematically. And they have two economists who help put
all that financial analysis in context.
A real source of pride for Gleason is, “We won’t buy a stock unless
we visit that company.” Arithmetic is fine. Let’s see fire in their
executives’ eyes.
“A mutual fund portfolio manger is often a CFA, too,” Gleason says.
“The difference is that a mutual fund manager handles one fund.
I manage individual portfolios for clients based on their unique
circumstances. Obviously we focus on high net worth individuals.”
Obvious also is that if you have to ask “How much?” chances are
you can’t afford it. So we asked: What does it take to have a Scudder
portfolio manager of one’s very own?
“Our bread and butter is the $2 million to $25 million range,” Gleason
says. “We’ve managed money in St. Louis for 40 years, for families
and several hospitals and foundations. St. Louis is strong in charitable
organizations.”
Edward Jones focuses on a broader segment of the investment market.
Alan Skrainka, the company’s chief market strategist says, “Our
typical investor is an individual saving for retirement.” He wouldn’t
talk topside net worth but allowed that some accounts are valued
at over seven figures.
While Edward Jones clients don’t have to be millionaires, they have
plenty of investment reps to choose from. “Barron’s ranked us as
the sixth largest firm in the country, in terms of investment representatives,”
Skrainka says, “although with the newer numbers that are out now,
we might be as high as fourth.”
Investment reps are the heart of Edward Jones’ business. “Our first
obligation is to provide good advice and good recommendations to
our customers. We do that through our investment reps. They tailor
the research department’s recommendations to the client’s needs.”
Skrainka, who has been in Jones research since 1982 says the department
is comprised of 35 analysts, and a strategy team of four. Most have
MBAs. “All but one or two are chartered financial analysts, but
a CFA co-signs on their recommendations.”
He adds, “One hundred percent of our research is for our investment
reps [including a trust department] to use with their clients one-on-one.
We have a model portfolio, but it is really a buy list. We’re not
running money.”
In other words, Edward Jones will recommend mutual funds, but it
doesn’t operate any. “We separate the distribution of investments
from the manufacture of investments,” Skrainka says.
A.G. Edwards has researchers and CFAs, too. The firm’s Securities
Research Department contains 72 senior equity analysts, who work
along with A.G. Edwards’ nine-member Investment Strategy Committee.
The firm also evaluates mutual funds as well as individual securities.
And for its clients who prefer professional money management, A.G.
Edwards’ Private Advisor Service evaluates and recommends money
managers.
Don Gartlan, vice president and manager of investment management
consulting has 40 folks in his department, including nine investment
advisor analysts and seven performance measurement specialists.
“Our department tries to solve a Catch 22,” Gartlan says. “There
are an estimated 20,000 registered investment advisors. Which one
should you hire? Some are very good; some should be avoided. It
takes resources to evaluate. That’s what our analyst group looks
into.”
Like Scudder’s Private Investment Counsel, Private Advisor is for
high net worth types, “as well as small to medium institutions,
with endowments up to a $100 million,” Gartlan says.
Performance attracts Gartlan’s attention. “But we retain a money
management firm because of qualitative factors: the people, their
investment philosophy and the discipline with which they apply their
investment process.”
Gartlan’s team also quantifies risk in portfolios, and measures
how consistent returns are in both rising and declining markets.
“This allows us to provide the right mix of managers to the client’s
own tolerance for risk,” he says. “If you can quantify risk, you
can manage risk.”
For a fee that is based on assets placed under management, the client
also enjoys custody, consulting, reporting and transactions services,
Gartlan says. “So far $11 billion has been placed through the program.”
That’ll buy some alphabet soup.
Kevin Kipp runs Bubble Communications, a creative services and
community relations firm in St. Charles. |
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