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Ageless Excellence

Achieving freedom in a wirehouse environment is no small feat, but Joseph Chu has pulled it off.

David J. Drucker, 10/18/2007

If you read my columns regularly, you know I'm a frequent detractor of the wirehouses as beacons of financial planning progressiveness. In fact, call me crazy, but I believe that it's virtually impossible to perform a truly advisory service from a primarily product-pushing platform.

Yet every so often, individuals or teams within these organizations manage to create little fiefdoms that do more than convince unsuspecting consumers to buy inappropriate or extortionate products as means to financial salvation. And Joseph Chu, CFM, CIMA, and senior financial advisor with Merrill Lynch in Greenwich, Conn., is one of them. At the tender age of 27, Chu has collected 125 clients nationwide and manages for those clients approximately $200 million. How he's done that, given his Merrill Lynch status, might hold lessons for other "captive" advisors.

In answer to my first question, Chu said, "No, I didn't grow up in an entrepreneurial environment, just the traditional Asian culture that emphasizes the importance of working hard and finding a good job." Yet, he still took a divergent path from his other family members who he characterizes as stuck in middle income positions as engineers, professors, and computer science professionals. "I wanted to escape from the trap of living in middle America," he said.

That escape began with earning a bachelor of science degree in finance, management, and economics from the University at Albany, SUNY, in 2001. After this, he spent less than a year in Manhattan as a public accounting risk consultant with Arthur Andersen, fortuitously leaving just before the Enron scandal surfaced. Chu learned quickly that accounting takes a certain personality type. "It also takes longer to get to the top [in the accounting profession], and there's less of an entrepreneurial spirit in accounting firms. I wanted to go into something within sales that would draw on my finance background," Chu said.

Now, Chu has not just a sales position, but a small business within Merrill Lynch. "I was 22 when I started, and it was very difficult persuading prospective clients to take my advice on managing their money," he said. But Chu had persistence on his side. "I came into the business not knowing anyone, and I didn't come from wealth. So I would lock myself in a conference room every day and make 200 cold calls." If nothing else, Chu said he had a consistent marketing process.

The cold-call drill eventually led to a revelation: "The reality is that if you're pushing products, you're not going to grow in this business. If you want to grow in this business, you must go after wealthier and wealthier clients. And these people are sophisticated; they don't need people telling them what stocks to buy, but they do want someone to look at the big picture and give them advice."

At the same time, Chu didn't think becoming a wirehouse-style money manager was the answer, either. "How can people who just came from sales tell people how to manage money?" he said. "Who on earth are these retail brokers posing as money managers? Besides, research shows most professional money managers don't beat their indexes, anyway."

So Chu changed his focus to his own brand of wealth management. "I've followed the concepts of the Millionaire Next Door. As a twenty-something, I've worked hard, invested wisely, and I have a mortgage and a family-- all of which has helped align me with my clients," he said. "I've grown up fast, but I've also gained my clients' trust. They know they're not working with some young guy just out to make a quick buck."

Chu's married status not only helped align him with his clients, but it's been an education, too. (Isn't it always?) "When my wife and I got married, we had to discuss how to manage our money," he said. "This is a real concern for most people as they experiment with joint and separate accounts. I'm able to relate to these issues a lot better now."

Not that some people don't still mistrust Chu's young age. "I was referred to this doctor who didn't completely trust me, [which was amusing because] I'm in a much better financial situation than he is. The prospect asked the referring CPA if I'm reliable because I'm so young," he said. Normally, though, Chu's age is a benefit because it tells clients he'll be with them a long time. And as he gets into his late 20s, he has more of the experience clients are looking for and he's approaching an age they feel more comfortable with.

How does Chu market his services? He has a niche, and he works it. "My market is executives in transition, so I network with local executive recruitment groups, and I've created a forum for senior executives to meet one another," Chu said. "I'm hosting my 21st forum tomorrow and have had over 1,000 executives attend these forums so far." Chu will typically hire a career coach or recruiter to come in and talk, while reserving a little time to say a few words to attendees about managing their finances during their career transitions.

"I've heard of other advisors doing what I do, but they often focus on 401(k) rollovers. I steered away from that because, again, that's pushing products," he said. "Instead, I discuss things like how transitioning executives can pay bills with no income coming in--big-picture things. I've had tremendous success building a group of clients around this marketing strategy." PAGEBREAK

What does Chu actually do once he gets a new client? "One of my latest clients with assets of $9 million is very sophisticated. He managed his entire portfolio on his own at Schwab for over 30 years. He has three homes and belongs to the same number of clubs, yet he recently lost his job and is concerned about how he's going to maintain his lifestyle," Chu said. "By going in and creating a full plan, I won his trust over, and I'm now also working with his son, who has inherited quite a bit of wealth."

Chu's plan creation looks nothing like Merrill's leather-bound "Financial Foundation" plans that it was famous for six or seven years ago. "They were jokes," said Chu, echoing the opinion of just about any independent advisor who ever took on a former Merrill Lynch client. "Merrill dared to charge $1,000 for those plans, but they don't do those anymore." Chu explained that Merrill's newer wealth-management tools, such as "Wealth Outlook," provide the sophistication and customization that advisors like Chu expect.

"Through the wealth management approach and using Monte Carlo simulations, I am able to understand the client's big picture, savings rate, time horizon, lifestyle/retirement goals, and determine what type of return will help the client maximize his probability of success," he said. "Once I have determined this rate of return, then my job is to determine what type of portfolio generates this return with the lowest volatility. Since my education and designations are all built around the science of portfolio construction and investment consulting, my entire process of portfolio management is to employ institutional portfolio theory."

In doing this, Chu determines his client's asset allocation and suballocations, assigning each of the latter to an appropriate indexer or money manager. "For equities, I am big believer in index investing, as I do believe that many actively managed portfolios do not have satisfactory performance net of fees and taxes. However, there are two instances where I will use money managers. If they have shown a consistent ability to outperform net of fees or if they have consistently tracked the index net of fees with lower volatility," Chu said. "Index investing tends to have higher volatility and, although long-term performance is in favor of indexing, my experience shows that most clients cannot stomach the increased volatility. So in a nutshell, I use ETFs unless I can find a worthwhile money manager." PAGEBREAK

One thing Chu doesn't do is make tactical bets in sector, geographies, size, or investing style, nor does he buy individual stocks. "My sole purpose in investing clients' money is protection and reasonable growth to achieve the returns necessary to satisfying their life goals," he said.

What's surprising to me is that advisors can work within Merrill Lynch with as much autonomy as Chu seems to have. "The more productive you are, the more autonomous you can become. Then again, I never felt I was restricted within Merrill, even when I first started. Of course, you always have to go through your share of compliance headaches--that's just part of [working in] our industry."

And could Chu walk away with what he's built? "My clients are always asking me, 'Joseph, you're a young guy. What happens to me if you move on?' I feel confident my clients would follow me. And I've gotten offers from many of the other large wirehouses, but Merrill's been very good to me," he said. "They like advisors who are 'home-grown' like me."

Maybe the cause of Chu's success can be boiled down to basic values. "I've always been taught that the minute you stop learning is the minute you stop growing. Culturally, education is very important to me. I've simply carried that over to my clients. They appreciate being educated, too."

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