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Small firms connect with clients, nimbly tackle changes

In January, President and CEO Wayne Holly wrote a letter to clients of Sage Rutty & Co. Inc., assuring them that the money management firm would be by their side as markets plunged. 

At the end of 2008, clients saw their equity investments down by almost half, "which was a frightening thing," says Stephen Telesca, financial adviser at Sage Rutty. 

He adds, "Our No. 1 goal was to hold our clients’ hands as much as possible to get through this." 

The stock market has been unpredictable in the last several months, and investors have had to adjust to a new reality. The Dow Jones Industrial Average, for example, declined more than 50 percent from its peak in October 2007 to March of this year. But as markets try to gain footing and large financial institutions deal with the impact of the financial meltdown, small financial services firms find themselves in a position to respond nimbly and connect with their customers. 

"(As a small firm) we can be much more flexible and agile, moving quickly to changes in the industry and marketplace. We don’t have to go through layers of management," Telesca says. 

Independent money management firms find flexibility to be a key advantage as they go toe to toe with their larger counterparts. Competition is getting stiff as banks beef up wealth management groups. 

Money management firms with fewer than 100 employees and a local or regional geographic footprint often are challenged by the large firms, which have bigger advertising budgets and economies of scale to control overhead costs. Still, smaller firms say they continue to attract customers by addressing market changes quickly, offering niche products and personalized service. 

The fact that large institutions have received bailout money from the U.S. government or have gone bankrupt in the past year has caused some investors to shop for alternatives, says David Henion, managing principal, portfolio manager and a founder of Forte Capital LLC. 

There is an amount of uncertainty and lack of trust with large institutions, and many clients are questioning their safety, he says. "It has helped our business." 

Founded in 1996, Forte has some $340 million in assets under management. It manages 450 accounts of individual and retirement investment plans by placing assets with larger institutions such as Charles Schwab Corp. 

Forte, which is an independent financial services firm, does not sell or promote products, including commission-based products. That is a business model unlike most firms’, Henion says, which is helping Forte grow. 

Daniel Burnside, director of quantitative research at Rochester’s Federated Clover Investment Advisors, a division of Federated Global Investment Management Corp., says small firms can compete with bigger ones by developing a niche. His firm had $1.9 billion in assets under management as of June 30. 

AM&M Financial Services Inc., for instance, uses niche products in response to a constantly changing landscape. Its Executives in Transition program helps higher-level executives and managers with such things as layoffs, severance packages, benefits analysis and job offer negotiations, says Thomas Rogers, CEO. 
 

As of early September, AM&M had just shy of $500 million in assets under management. The company was independent for almost 30 years before being acquired by regional bank Tompkins Financial Corp. nearly four years ago. 

Personal attention to clients usually yields positive results, experts say. 

"One big difference is service. … We probably spend more time with our clients and ask more questions, deepening that relationship. It is the biggest advantage of how we compete," Telesca says. 

Sage Rutty tries to ensure that a client does not feel like a transaction or a number, he says. One way it does that is by using highly specialized financial service assistants who work closely with customers. Sage Rutty provides traditional education and estate tax planning, as well as survivor needs and risk analysis, insurance review and traditional investment options. 

Founded in 1915, Sage Rutty is the oldest locally owned financial services firm in Rochester with more than 8,000 clients and $1 billion in assets under management, Telesca says. 

"Our strategy really hasn’t changed over the years," he says. "It’s primarily cultivating relationships." 

Burnside, who teaches an investment management course at the University of Rochester’s Simon Graduate School of Business and advises on a portion of the UR endowment managed by MBA students called the Meliora Fund, says principals of small firms can help maintain and develop client relationships. It is harder to do that well in a large firm because of a large client roster. 

Through the recent financial crisis, Forte, like other firms, has had much more contact with clients. 

"We do not have a cookie-cutter service approach," Henion says. 

In general, larger firms can lose the personal touch, Burnside says. Smaller firms need to develop critical professional relationships, tapping classic referral sources, including attorneys and accountants. 

"Large firms have a comparative disadvantage with this," observes Burnside, who has worked at both small and large firms. 

For Sage Rutty, referrals are an important tool for growth. 

"We don’t have the same deep pockets that a larger firm does," says Telesca, adding that 94 years’ worth of working with clients, and in some cases three generations within the same family, has helped the firm build a reputation. 

"The fact that we’ve developed a really good, trustworthy name has helped us tremendously to maintain and expand," Telesca says. 

Sage Rutty last month combined its Henrietta and Greece offices into one office at Corporate Woods in Brighton. In the last year, the firm has added five advisers and more administrative staff. 

Though specialization and agility help, Forte’s Henion says one limitation to being a small firm is the limited exposure and limited brand awareness in the marketplace. 

Not only can larger firms advertise more, but they also have lower overhead costs. Fixed expenses such as those for accounting, legal work and information technology are high, and, as in any industry, that always plays to the strength of large firms, Burnside says. 

Small money managers work with limited resources to spread the word. 

"We can’t put a commercial in the middle of an LPGA event, so it challenges us to find other ways to get it done," Rogers says. 

Lynette Haaland is a freelance writer and a former Rochester Business Journal reporter.

09/18/09 (C) Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303.

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