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A Model Practice

Amid the downturn, Nick Giacoumakis has established a viable and growing business by sticking with key disciplines.

Karen Dolan, 10/21/2010

The temperature in the Boston area was 104 degrees when the power clunked out. In the darkened offices of New England Investment & Retirement Group, the stuffy air and rising heat couldn't dim Nick Giacoumakis' passion for his profession and the firm he founded in the suburb of North Andover. He has good reasons to be fired up.

As many financial advisors were facing tumbling asset levels and disappointed clients in 2008 and 2009, Giacoumakis was adding new relationships throughout the downturn, enough to nearly overcome the impact to assets from the steep market decline. His revenues dipped just 3% in the aftermath of the financial crisis.

Giacoumakis emerged from that period stronger than ever. His firm manages $500 million for 1,100 clients. In 2009, he made Barron's 1,000 top advisors list. He remained on the list in 2010 and is gunning for the top 100 list next year, now that he's crossed the $500 million threshold. He has achieved that success with a savvy business sense and an eye toward building an enterprise that can handle scale without compromising quality.

The Business Model
Giacoumakis brings a sensible business mind-set to financial planning. He points to a common error made by financial advisors when building their practices.

"Take Harry, for example," Giacoumakis says, describing a typical scenario. "He builds a book of 300 clients and hasn't grown his service staff quickly enough. Balls start dropping. Monitoring slips. Harry is overwhelmed and crumbling by the weight of his success because there's a lack of scalability and repeatability to his practice."

Giacoumakis has taken great pains to not underestimate the resources required to service his client relationships and monitor their accounts. He's avoided that trap by growing staff in advance of clientele. His firm employs 13 people, including five planners, three in-house researchers, and several client-service representatives. The team has grown steadily along with assets under management since the firm's founding in 1995. Several members have played key roles for 10 years or longer. There's family involvement as well. Giacoumakis' wife, Laura, contributes to the firm's marketing and communication efforts; his teenage daughter spent this past summer scanning documents to support the firm's paperless commitment.

The Investment Model
Giacoumakis has spent his investment career building and evolving an investment model that feeds into eight model portfolios. Clients are ushered into the appropriate portfolio based on their individual needs and risk tolerance, allowing Giacoumakis and his research analysts to focus their time and efforts on staying on top of the markets, managers, and securities that make up the portfolios. The model portfolios allow the team to spread its highest-conviction thinking across all client portfolios and to move money around quickly and in a way appropriate for each risk level. Making decisions on eight portfolios, not 1,100, adds tremendous scalability to the practice.

Giacoumakis and his investment team research and debate the holdings in the model portfolios with supplementary research support coming from the firm's longtime broker/ dealer partner, Commonwealth Financial. The team holds weekly informal investment meetings and more-formal, documented monthly meetings. Debate among staff is welcome. "If everyone agrees, we're not thinking," he says.

The Tactical Model
While the model portfolios keep a lid on the number of moving parts, Giacoumakis' approach to asset allocation has more bells and whistles. He does not sit on static allocations and plain-vanilla stock/bond mixes. He's been a big proponent of alternative investments, using some off-the-beaten- path strategies such as master limited partnerships and managed futures for years. He also uses a mix of mutual funds, ETFs, and individual stocks and bonds.

Giacoumakis argues that buy-and-hold investing can sometimes serve as an excuse for taking your eye off the ball. With his focus on an investment model, he can quickly handle asset-allocation changes across all client accounts fairly easily. This capability, he thinks, is necessary when dealing with a rapidly changing environment. He points to 2006, when he decided to scale back exposure to real estate and was able to execute it across his entire practice in one day with one block trade and a few keystrokes.

More recently, he's been keeping his eye on fixed income. He peeled back high-yield exposure this past spring in response to narrower spreads and higher valuations. He is now keeping a closer eye on higher-quality bonds that are more exposed to interest-rate risk. He hasn't made a move in response yet, arguing that bonds will likely remain strong for the next year or so with near-term rate increases unlikely. But the longer- term impact of heavy government borrowing has his attention.

Swapping buy-and-hold investing for tactical alternatives is popular now and a common theme at investment conferences and in the media. But Giacoumakis didn't just recently come around to the idea of moving assets around tactically. "If you buy at a bottom, you can hold on for a lot longer," he says. But many other opportunities come up quicker and are shorter-lived, so Giacoumakis has shaped his research organization around finding such opportunities and implementing strategies that take advantage of them quickly across his clients' portfolios. Giacoumakis' focus on asset allocation can result in wide variations in asset-class weightings across his model portfolios. For example, the moderate-risk portfolio has held anywhere between 25% and 65% of assets in equities.

But when it comes to putting cash to work, the firm has a steady discipline. Rather than immediately being put to work regardless of the market levels, all new money is dollar-cost averaged into the model portfolios from short-term bond funds over a period of several months.

Standing the Heat
Giacoumakis' dynamic approach to asset allocation has another effect. It helps assuage distressed clients during difficult times, because they take comfort in the fact that he's not just sitting still. He addresses the behavioral and emotional side of the financial-planning picture by taking an educational approach. During the financial crisis, Giacoumakis counseled clients through what he calls the four emotional stages of a downturn: surprise, denial, fear, and acceptance (a topic he wrote about in an article titled "Stage Fright" in the May 2009 issue of Investment Advisor).

Like he has, Giacoumakis wants his clients to learn to stay cool and emerge from extreme investing environments stronger--no matter how hot it gets.

Karen Dolan, CFA, is director of fund analysis with Morningstar.

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