Brad Frederickson hit the production wall four years into the business. He had fulfilled a childhood dream to pick stocks for a living and it felt pretty good to be a $500,000 producer. Until he stayed there the next year. And the next.
I found I couldnt be a student of the market and build business, says Frederickson, a rep with Everen Securities in San Jose, Calif. I felt constraints on my business. Every time I had an idea, I had to call 400 clients.
In 1989, Fredericksons sixth year, he began managing stocks on a discretionary fee basis. The new approach leveraged his time, allowing him to produce $700,000 in 1993 and cross the million-dollar mark in 1995.
Frederickson left most of his accounts alone. Many were retirees with a low cost basis in their stock portfolios, he says. It didnt make sense to ask them to start paying a fee. I just decided every new client had only one choice for stocks--discretionary fee-based management, he says.
An asset allocation plan drives every client relationship. Only when a client agrees there should be a stock component to the plan does Frederickson open a discretionary account. All other investments are handled in separate commission accounts.
Frederickson has a portfolio management style he admits makes it more difficult to run his business: strict, narrow stock selection and no model portfolios. A stocks price is everything.
The risk you take is not in the company you buy, its in the price you pay for it, Frederickson says. I buy good companies where something has brought down the price. My job is to decide why the price is where it is and if the problem is chronic or temporary.
If theres a lot of interest in a market sector, Frederickson digs into a stocks absolute valuation, not just its valuation relative to the sector.
He rarely sells. If you buy right, you dont have to worry about the sell side, he says. I have a cushion between what I buy a stock at and what it is at now. That keeps me in the game with a stock in a down market.
Before Frederickson switched to discretionary management, he rarely had time to call any but his largest clients about stock ideas. Now he can service smaller accounts as well; he has no minimum for his program.
Today Fredericksons business tops $250 million in assets with $2 million in production. Success has come, he says, because he was good at defining a methodology and articulating it to clients.
I can say, If you believe in these methods, hire me for your lifetime, Frederickson says. If you ask one of my clients who manages their money, they wont say Everen or an institutional money manager, theyll say Brad Frederickson.
San Jose, Calif.
Started in Discretionary Fee-Based Management: 1989
Assets Under Discretionary Management: $70 million
Management Style: Contrarian value manager. Builds customized portfolios of low-priced. high-quality large-cap stocks.
Research Practices: Uses chart books to track a stocks price history. Only uses research reports to help determine whats causing a price drop.
Performance: Performance figures are proprietary according to Everen policies.
Greatest Challenge: I feel bad if I do anything other than manage these assets. I dont market or prospect anymore. Its really a challenge for me now to pay attention to so many other pieces of a clients financial picture.
Best Benefit: Discretionary management gives me the leverage to make sure clients get what I do best.