Dale Grubb of Salomon Smith Barney spent 11 years building a million-dollar business on traditional stock picking, but figured he had only about half of his clients total assets. When Grubb switched to fee-based discretionary portfolio management four years ago, he got a much higher percentage.
Today, Grubb figures he has 100% of the assets of 98% of his clients.
Stocks were Grubbs first love when he became a broker in 1984. By 1994, he was handling substantial portfolios ($300,000 minimum) for wealthy retirees in the central Florida town of Sebring, and placing the rest with third-party money managers.
Grubb had been careful to focus on building assets instead of dropping tickets. In a small town like Sebring, you cant buy and sell stuff all the time or theyll run you out of town, he says.
His performance got noticed. First, an old friend at the firm who had switched to fee-based portfolio management urged him on. Then the firm began monitoring some of his long-term portfolios, giving him the go-ahead. But it was the death of his largest client that convinced Grubb to change his approach.
Id talked to him every morning about his stock portfolio, Grubb says. When I sat down with his family after his death, they had no idea what we had been doing. They thought he had about $2 million with me, when we actually had $15 million. The wife wanted to continue my managing the portfolio, but didnt want to be involved.
Fee-based portfolio management suddenly made perfect sense. The clients widow became Grubbs first discretionary client. About 60% of his high-net-worth clients followed.
Since the 1995 switch, Grubb has passed $2 million in production on $200 million in assets. He delivers balanced management in three model portfolios for clients with at least $500,000. About 80% of his discretionary assets are in a growth-and-income portfolio, 10% in an income-and-growth portfolio and 4% in a growth portfolio. The remaining 6% of discretionary assets are in fixed-income products.
Growth at a reasonable price is Grubbs stock picking mantra. These are world-class companies beaten down unmercifully for no reason, such as Home Depot and Nokia, he says.
Grubb holds tight in volatile markets. He never bails on his core stocks--those hes judged to have solid management and able to withstand economic uncertainties. He allows noncore stocks to drop as much as 20%, then partially pulls back on his position.
Research takes up two-thirds of Grubbs day. With the help of three full-time sales assistants, he stays glued to Bloomberg and talks with a network of analysts in the firm and at other firms. Clients are a research source as well.
I like to own the products made by the companies I pick, so I ask clients what products they buy in helping make my stock selections, he says.
Becoming a portfolio manager has opened the door to a lucrative estate planning business. Grubbs clients are ready to act when he suggests setting up a cash-flow plan for retirement, opening a central asset account or creating a trust. An estate planning specialist in his region steps in to help him with a growing trust business.
Im not looked at as a niche player, someone whos only there to pick out growth stocks at a reasonable price, Grubb says. Clients see me as a complete money manager.
Salomon Smith Barney
Started in Discretionary Fee-Based Management: 1995
Assets Under Discretionary Management: $100 million
Management Style: Balanced. Allocates client assets in three portfolios--growth (100% equities); growth and income (50% equities, 50% Treasuries and preferred stock); and income and growth (30% large-cap equities, 70% municipal bonds and preferred stock).
Research Practices: Uses Bloomberg to track 300 to 400 stocks and talks regularly to analysts.
Performance: 18.1% since third-quarter 1995.
Greatest Challenge: I had a client early on who chided me when a pick would go down a bit after I bought it. It really brought me down. Id get worried if I was doing the right thing. After talking with other clients, I realized what I needed to do was fire the client.
Best Benefit: The portfolio management program is a means to an end: estate planning. My business now is wrapped around attorneys.