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FINANCIAL SERVICES
Advisers are plowing back profits into growth.
At long last, independent financial advisers are spending on the future.
www.investmentnews.com
SAN FRANCISCO (August 2005) - "This feels like a spending year," said Dan Skiles, the Denver-based senior vice president of technology consulting at Schwab Institutional, which is based in San Francisco. "Before, it was: 'Dan, show me how I can get more efficiency out of my existing system. Don't tell me what I can buy.'"
But that appears to be changing.
For the first time since the technology bubble burst in 2000, anecdotal evidence suggests that advisers are spending more money on everything from software to office equipment.
The increase comes as many are starting to see big improvements in their own bottom lines.
"We'll see the largest net profit we've ever had," said Douglas L. Nelson, president of Reno, Nev.-based AQN Advisors Inc., which manages $200 million. "So not only are we feeling good, but we've got the cash."
The scale of capital spending by advisers is impressive, said Mr. Skiles.
"We're not talking about getting more [random access memory] at Best Buy" he added. "We're talking about things that cost $10,000, $12,000 or $25,000."
F&D Advisors LLC, for example, is making a two-year, $500,000 investment in technology, said Jeffrey S. Peller, a partner at the Atlanta-based company.
"Our confidence in our model and our ability to add value to our client is the reason we're investing in ourselves," he said.
F&D is buying new servers as well as a virtual private network that will enable employees to access confidential office files from outside the office. It's also making an investment in software that will allow the firm to reduce its use of paper and re-balance lots of client portfolios simultaneously.
"We're growing by $100 million to $150 million a year" in assets, said Mr. Peller.
Indeed, asset growth clearly is driving higher spending at many advisory firms.
"We're thinking about the growth we've seen in the last 18 months," said John B. Sullivan, president of Portland [Maine] Global Advisors LLC, which manages more than $120 million. "We're looking out at the next 18 months, saying: 'If we don't make investments, we'll have issues.'"
Portland Global is spending almost $20,000 for customer relationship management software and on account reconciliation services from Advent Software Inc. of San Francisco.
Where it counts
James McCaffrey, chief operating officer of Sand Hill Advisors Inc. in Palo Alto, Calif., said his company has plans to expand to $3 billion over the next five years, from $1.1 billion today.
"It's not cheap," he said.
To get ready for that growth, Sand Hill spent $75,000 to buy software that enables it to produce client reports for specific periods. It also spent $50,000 to upgrade its website to allow clients to see their aggregated accounts online.
But not all spending is going toward managing growth. Portland Global recently splurged on chairs that are designed to promote spinal alignment.
"We really needed chairs in 2002," Mr. Sullivan said.
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