CITY: Newtown Square, PA
ESTABLISHED: 1986 as Stolper & Co.
AUM: $7.6 billion
NUMBER OF CLIENTS: 173 families
NUMBER OF PARTNERS: 2 general partners
NUMBER OF STAFF: 80, including 4 CPAs, 16 CFAs, 3 JDs and 16 post graduate degree recipients
Registered Rep.: You left Kidder Peabody in 1986 to set up an RIA with 10 clients and about $50 million. That was brave.
Michael Stolper: I took a 50 percent pay cut. I was just 29, and my wife was pregnant. I figured out my fee structure based on my mortgage, car payments and food budget — based on what my wife and I needed to live.
RR: Fee-only RIAs offering objective advice to retail clients were fairly new in those days.
MS: In those days, you received a draw and were paid for transactions. I got interested in doing more investment policy advice. I had 25 clients who began relying on me for advice, advice not related to their accounts with me. I had become a “general manager” or chief investment officer for some of my clients, who were calling me asking for advice about other brokers. I was telling them what not to do as much as what to do.
RR: How do you go about setting investment strategy?
MS: We have a 15-person research group to analyze hedge funds and investment products from outside firms. We are investment-policy and asset-allocation centric. Your success will mostly be determined by how you spread client assets among the different capital markets. We try to determine which [asset classes] look cheap and which look expensive.
RR: You don't view long/short hedge funds as alternative investments?
MS: We'll sometimes substitute long/short managers for long-only [investments] to build a net exposure to some asset classes, say, such as small-cap U.S. stocks.
RR: What's your advice to others?
MS: My advice to everybody in this business is that when you are advising clients, recommending investments, whatever your advice to them is, it should be [consistent] with what the clients would do if they knew everything about investing. That's the ultimate test. Too often, we — I mean we as in the “royal we” — have other things in mind when we recommend an investment. That's not good.