While starting your own investment firm is challenging,the process can be fascinating. You will have the satisfaction of running a business that can make a positive difference in your clients' lives, helping them to manage the money they earn and to save and invest for a comfortable retirement. eHow asked investment advisor Larry Russell, who owns a successful one-man financial planning and investment firm in Pasadena, California, what you need to know and do to succeed in the investment business.
eHow: If you want to own your own investment firm, where do you begin?
Larry Russell: You begin by being interested in the investment process, which means reading a lot, possibly beginning with The Wall Street Journal and the financial section of The New York Times, but continuing on to a thorough understanding of the important academic research on the behavior of the stock market and the investing behavior of investors. It helps to be an investor yourself. What I'm suggesting isn't some education path that takes a few weeks. Whether you get a bachelor's or master's degree in finance or educate yourself, it's a process that can take years.
eHow: Is that how you started?
Larry Russell: More or less, yes. I have an undergraduate degree from the Massachusetts Institute of Technology -- MIT -- but in the process of getting the degree I became even more interested in human behavior. After graduating and getting an MA from Brandeis I began survey research and performed statistical analyses of corporate employee benefit programs at the National Manpower Institute in Washington, D.C. Next, I joined the Institute for the Future, a think tank in Menlo Park, California. For Fortune 100 clients, we used sophisticated projection methods to develop long range planning scenarios that incorporated demographic, econometric, financial, and technological factors. Stanford University is also in Menlo Park and as much out curiosity as having an immediate goal in mind, I picked up another degree there, a Master's Degree in Business Administration. Following that, I had a career in Silicon Valley, mostly in business and corporate development. Twenty-five years later I co-founded a venture capital financed corporation that took a technological approach to investment management by harvesting, filtering, and displaying new information on traders’ workstations in real-time. That led to the Lawrence Russell Company, an investment firm where I am a Registered Investment Advisor providing scientifically-based, personal financial, investment, money and retirement services to individuals.*
eHow: Who are typical clients and what do you offer them?
Larry Russell: Well, they all have some money to invest, but not all of them are wealthy. Many find me after having becoming dissatisfied with the higher fees of some other financial institutions. One generalization I can make is that they all need some help investing their money wisely. Unfortunately, there's a lot of misinformation floating around out there about how to invest, particularly in the stock market. I provide my clients with a customized financial road map on whatever topics are relevant to their goals. I give them completely objective, research-based advice on any personal financial planning or investment topic they choose. My goal is to help them become knowledgeable and self-sufficient in their financial decision-making. What I don't do -- and this makes me different from many financial advisers -- is to provide ongoing financial management for an annual fee. I provide either comprehensive lifetime financial and investment plans for a fixed rate or financial consulting on a specific subject on an hourly basis. Much of my advice has to do with pointing clients toward the lowest cost means of investing their money at the lowest possible risk.
eHow: How do you get your clients?
Larry Russell: I have several financial websites, including The Skilled Investor and The Pasadena Financial Planner, and some clients come through those sites. Other clients are referrals from current or past clients. I don't do any promotion other than that. I intentionally do not chase after new clients. Proactive clients who find me are the best clients to work with. I find there's a direct correlation between the grossly excessive fees that some financial advisers ask you to pay over the long-term and the aggressiveness of their sales pitches. On the other hand, If you're providing clients with real value, they will find you. Having said that, I also have to warn anyone contemplating a career as an independent adviser, not to expect quick riches. Like any small business, it takes years to get established.
eHow: Any tips for someone contemplating a financial advising career?
Larry Russell: It could be a long list, or I could boil it down to a very few essentials: Know your stuff -- at some point, in order to become a registered financial adviser, you will need to take a qualifying exam such as the North American Securities Administrators Uniform Investment Adviser Law Examination exam, commonly called the Series 65 exam. Don't believe for a minute that just because you've passed the exam, you're actually qualified. Read and study. The stock market research field is always changing as researchers find new ways to analyze data. Continue to read and study for as long as you practice. Also, note that the way I structure my business isn't the only possible way. Probably more financial advisers charge an annual fee than take my approach. But however you proceed, you have to provide real value. A lot of bad things happen if you don't. For one thing, if you charge a client 1 percent of everything in his account every year, that tempts you to provide advice that attempts to beat the market in order to justify your fee. In fact, the research shows there isn't any such market-beating advice. The future of the market cannot be predicted. Often, the best investments for a client are a few very low-cost index funds -- widely diversified pools of equities that match a particular index, such as the Wilshire 5000 index. You can only tell a client that truth if your high fees don't require you to beat the market. The market-beating approach usually results in high costs, unnecessary volatility and increasingly poor results over the long run.
About Larry Russell
Larry Russell is a registered investment adviser and financial planner in Pasadena, California. A graduate of MIT with a MBA from Stanford University, Russell opened his own investment firm after a successful career in business and corporate development in Silicon Valley, where among other positions he was director of corporate development at Sun Microsystems Inc. He advises individual clients at Lawrence Russell Company and provides financial advice at several online sites
Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.