Prudential Securities Charles Andriole hated commissions so much that he wouldnt go after stock business when he became a broker in 1982. Bonds offered great yields, so building long-term bond portfolios seemed a good way to cut down on asking clients to pay for every idea.
Then the stock market heated up. Equities became a topic of interest among my clients, and I had to ask myself if I wanted equity business going out the door, Andriole says. His answer was no, but he didnt jump on the bull market bandwagon either.
Instead he studied. Andriole earned CFA and CIMA designations. He wanted to join an independent money management firm to manage stock portfolios. Then he got wind of a pilot program at Prudential allowing brokers to manage portfolios for a fee.
Id been fairly successful bringing in bond assets--about $50 million--but my production wasnt at the level for consideration, says Andriole, whos been with Prudential in New Haven, Conn., his entire career. I convinced them I needed to do the program or Id likely leave.
In 1986, Andriole became a discretionary portfolio manager. I had started to buy stocks with a portfolio management approach right before the switch, so I could say to clients, Ive been introduced to this approach through the firms new program. Now I can sit on the same side of the table as you.
His goal was to convert all of his business to the new fee-based approach, yet more than a decade later about 40% of Andrioles $225 million in assets remains nondiscretionary. It takes years to convert accounts, he says.
High-quality growth drives Andrioles investment strategy. Its a computer-based discipline, screening large-cap stocks through a wide range of measures, with consistent earnings growth over five to 10 years at the foundation.
Andriole uses technical analysis for buy and sell decisions. But you can get really snafued if you just follow the charts to decide when to sell, he says. Theres so much emotion driving the market. I wont sell into any emotional change in a stock.
He offers clients a balanced portfolio by adding bonds to his model, and a growth-and-income portfolio by adding higher-yielding stocks, including preferreds. Tax efficiency is built in.
Five years ago, Andriole hired two junior brokers to help his research efforts. Last year, they joined him as partners. They now manage accounts under $1 million, bringing in 20% of the groups revenues.
Andrioles business has grown steadily by more than 25% a year since he made the switch. However, he expects his growth to slow slightly if stock market returns go back to historical norms.
People tell me I could build a great business easier if I just placed money with other money managers, Andriole says. But I want to enjoy what Im doing.
In fact, the broker-as-manager approach is almost a religion with him. Andriole insists that brokers cant do discretionary business unless theyre totally committed to it. You must have true fidelity in what you do to be successful.
Few brokers have that kind of passion. As Andriole says, No one in my marketplace does what I do.
Charles Andriole
Prudential Securities
New Haven, Conn.
Started in Discretionary Fee-Based Management: 1986
Assets Under Discretionary Management: $135 million
Management Style: Quality growth with a focus on tax efficiency.
Research Practices: Runs large-cap stocks through computerized screens. Looks for consistent earnings over five to 10 years and reasonable P/E valuations relative to the long-term growth rate and the companys history. Overlays screened stocks with market indicators and uses technical analysis to determine when to buy and sell.
Performance: Well above the market, with less risk.
Greatest Challenge: You are accountable. Its not acceptable to say an analyst screwed up.
Best Benefit: I never have to apologize for a decision because Im not paid for the stocks I pick.
Everen Securities
Program: Everen Portfolio Management
Date Started: 1993
Description: Brokers use their own strategy to buy and sell stocks and bonds.
Participation Requirements: Must have four years of experience as a broker, recommendation by branch manager and regional manager, Chairmans Circle production, clean compliance record and $3 million in assets ready to convert. Must demonstrate a well-thought-out process for buying and selling.
Restrictions: Brokers must have no more than 10% of assets in a single security, must be diversified by industry, no low-priced stocks and only investment-grade bonds.
Fee Structure: Decreases from 3% depending on asset size. Fixed-income portfolios decrease from 1.25% depending on asset size. Firm may develop unbundled fees.
Brokers Involved: 165
Assets: $600 million
Prudential Securities
Program: Quantum
Date Started: 1981
Description: Firm picks mostly large-cap value stocks based on quantitative research.
Participation Requirements: Open to all brokers who take a 1 12-hour training class.
Restrictions: Brokers must buy from a list of firm picks and sell within the discipline set by the firm.
Fee Structure: Decreases from 3% depending on asset size.
Brokers Involved: A significant number (proprietary)
Assets: In the billions (proprietary)
Prudential Securities
Program: Prudential Securities Portfolio Management
Date Started: 1989
Description: Brokers use their own strategy to buy and sell stocks and bonds.
Participation Requirements: Selection requirements are proprietary. Brokers typically must have at least five years of experience, unless they come from a previous career in portfolio management. Brokers must demonstrate an investment discipline. They must have more extensive training than Quantum.
Restrictions: Brokers must follow modern portfolio theory and maintain balance and sector diversification.
Fee Structure: Decreases from 3% depending on asset size. Fixed-income portfolios decrease from 1.25% depending on asset size.
Brokers Involved: A much smaller number than those in the Quantum program (proprietary)
Assets: In the billions (proprietary)
Salomon Smith Barney
Program: Guided Portfolio Management
Date Started: 1991
Description: Firm picks stocks.
Participation Requirements: Open to all brokers who take a training class.
Restrictions: Brokers can only buy stocks selected by the firm and sell according to the programs recommendations.
Fee Structure: Decreases from 3% depending on asset size.
Brokers Involved: 2,000
Assets: $3.7 billion
Salomon Smith Barney
Program: Portfolio Management
Date Started: 1979
Description: Brokers use their own strategy to buy and sell stocks and bonds.
Participation Requirements: Must have five years of experience as a broker, a strong compliance record, $45 million in household assets and Presidents Council production. Must demonstrate an investment discipline useful to a broad client base, but not boilerplate for all clients. Must complete correspondence course and pass exams on portfolio management.
Restrictions: Brokers must use firm research, but not exclusively, and must follow modern portfolio theory in position and sector weightings.
Fee Structure: Decreases from 3% depending on asset size.
Brokers Involved: 600
Assets: $13.9 billion