Ken Fisher keeps expanding his $42 billion RIA empire despite UHNW head winds

The big West Coast money manager discusses his growing institutional arm, his biggest competition and his unorthodox management style

Wednesday 2.29.12 by Steve Garmhausen

Name: Ken Fisher, chairman, CEO
Firm: Fisher Investments
Headquarters: Woodside, Calif.
AUM: $42 billion
Years in business: 33

I don’t know of many bosses who would build their employees out-of-state offices to help them avoid problems like traffic congestion, high taxes, expensive housing and bad schools. But Ken Fisher, head of a $42 billion RIA — one of the biggest in the country — does things differently. See: The world’s largest RIA takes the cult-on-the-hill to the Washington state woods.

In 2009, Fisher, whose 33-year-old firm is based in Woodside, Calif., broke ground on a second campus in Camas, Wash. Three years later more than a third of the firm’s 1,250 employees now work at the new building and the company is making room for more. With the first building complete, the foundation has been laid for another one like it; that’s in addition to a 30,000-square-foot IT center that’s currently under construction. See: Capitalizing on 'unintended consequences’ of DOL changes, Ken Fisher pounces on a fat-margin 401(k) opportunity.

I spoke with Fisher, head of FIsher Investments and a longtime Forbes columnist, about this ongoing ambitious project. We also discussed his business model, and whether Skype might fit into his famously phone-centric approach.

Why are you building the Washington offices?

California is a very expensive place, and in various ways it’s becoming much more onerous for employees. In the state of Washington there all kinds of good things employees benefit from that they don’t get in California. I’m not going to suggest Washington’s the very best place in the world, but we canvassed lots and lots of places and [decided] that it’s a really good place to put our employees that would like to have an alternative to California. It’s in a location that provides easy transportation from California; literally the facility is 20 minutes from the gate at Portland Airport.

We don’t force anyone to go to Washington; this is all aimed at creating a better environment for employees.

Will the company eventually be based in Washington?

People always ask that question as if we have a presumed outcome, and we don’t.

Do you see Ken Fisher eventually moving to Washington?

Not particularly, but I wouldn’t say it’s impossible. I’ve been lucky in life; I can afford to overcome the dilemmas many young people in the workforce can’t overcome.

I also have personal reasons to be in California, and you could ordain that as the “grandfather tax.” Many of the reasons someone puts up with California’s features are tied to things like family and those types of issues. We all have our own personal features; I have a very long, non-work-related emotional relationship with things related to redwood trees, and I put a lot of my life into things related to redwood trees.

Fisher is a fast speaker to begin with, but when the subject of his relationship with redwood trees came up, he was really off to the races. Suffice to say that Fisher is a giant in the world of giant trees. In 2006, he established the Kenneth L. Fisher Chair in Redwood Forest Ecology at his alma mater, Humboldt State University in Arcata, Calif. — the first endowed chair at HSU, and the only one in the world focused on a single tree species. More on thathere.

How are asset levels and inflows these days?

On the high-net-worth side funding levels are tough. We’re funding net a few hundred million a month in the U.S. and something like 15 million pounds in Britain and something like 7 euros in Germany, and people are still reacting to concerns and fears, all the things they read about in 2011. That caused them be fearful. Our activity levels are high; effectively you’re building a pipeline of people who are agitated and fearful, but they’re also hesitant to get off the dime.

What we’re often known for is our high-net-worth business. Then the other part that we’re typically less seen for is our institutional piece, which is about $13 billion of our of our AUM. And in the last couple of years, it’s done better than high net worth, and it’s increased a little as a percentage. it’s now in the range of 38% [of our AUM].

Your client relationships are mostly handled over the phone rather than face to face. Why are your clients, for whom you’re managing a lot of wealth, OK with this?

If [our clients] really want to see someone face to face, they can. They just mostly don’t. Clients that in their heart need face to face on an ongoing basis probably decide not to move in our direction. I think people in our industry way overemphasize how much clients and prospects want to have that face to face. For the most part a lot of our clients want to be able to call in whenever they want, and they don’t want to have to set up a meeting. A lot of them see having some face to face where some person blows smoke at them is actually a negative. They want to call in … when they’ve got a bean on about something and they want deal with it right then.

One of the problems, in our opinion, with many advisors is that some of them are so dependent on their ability to do face to faces. They’ve got themselves stretched too thin to deal with problems at critical times, which is when they’re of the most value to a client.

Have you considered using Skype with clients?

For now we’ve ruled it out. My views on these subjects are overridden by my concerns that we do not do anything which regulators may seem hostile to it. I think there’s potential for these relationships via Skype, but I’d like to see what in my opinion is some clarity on usage from regulators before we’d dive in to such things.

One of my primary goals is that I’ve never had and never will have a problem with any of my major regulators; I will bend over backward to do anything to make sure I don’t have problems with my regulators.

Where do you have assets under custody?

One the institutional side pretty much all the major institutions have their own major custodians, and we’re basically linked onto whoever the custodian is. Mostly these are the same institutional custodians everyone else uses. On the high-net-worth side, we use a handful of traditional broker-dealers. It’s been true for a long time that Schwab was the biggest, and it used to be true that we were Schwab’s biggest single customer. Other major custodians are mostly the big national wirehouse brokerages: Smith Barney, UBS, Merrill, Fidelity …

Has your hiring picked up?

Yes. We added something around 175 in 2011. It was pretty much across the board, a little more in institutional than high net worth. See: Ken Fisher resumes hiring but still has 'overcapacity’ of investment counselors.

We spend a fair amount of time—not for everybody, but for many more than not—rotating people from one area to other areas of the firm. A goal of the rotation is to build breadth beyond depth into our employee base. For an awful lot of our areas, we don’t want someone too siloed in an area where they lose the perception of what the totality of everything is about.

Do you use proprietary technology or do you outsource to the big providers that are popping up?

We have long farmed them out. We do have proprietary technology in relation to trading and portfolio management that we built in-house. But traditional portfolio accounting and fee billing and CRM and things like that, those kinds of functions are all farmed out. Trying to invent that wheel ourselves is not something where we have a proprietary advantage. Our vendors are not so broadly used in the industry; they have customized stuff for us. I don’t think there is anything you do at that level, the way the industry is today, that makes or breaks you. You play to not lose that game, you don’t play to win.

Who’s your competition?

We can track where the funds come from and go to when they leave us, and the biggest single place is the major broker-dealers. Why? Because that’s where the biggest piece of the assets are being handled anyway. Then on the other hand, we’re going to be up against almost anybody. Sometimes we might be competing with an independent RIA with $60 million of AUM, and 100 clients.

Have you ever considered trying some brick-and-mortar branches?

Of course I’ve considered it, and I would consider it again. But I don’t anticipate so doing, or we’d be doing it. I don’t think brick and mortar gives you some tremendous advantage.

In the brokerage world, there’s Edward Jones, which has had a very impressive history of being in tiny-town America. I’m very impressed with how Edward Jones has done as a business model; I think it’s one of the under-told stories of modern financial times. The nature of our industry, in part, is that people excel by differentiation, and in my view there are so many folks trying to be eyeball-to-eyeball, belly-to-belly at a customer-service level, I’m not so sure that is particularly advantageous.

What does Fisher Investments, already hugely successful, aspire to?

I kind of see us as a big niche player doing a lot of different things, and differentiation is important to that. I’d never try to compete head-on with major players in their strengths because I’m a youngest brother and I learned not to do that when I was a little boy.

A lot of what we do are not what [clients] would typically get from most other places, and the customer that comes to us likes those things. For example, we tend to enlist clients who are really looking off in a different direction, for a total global approach. We typically have a higher non-U.S. orientation than most folks.

Likewise we have a whole series of different forums, national client seminars and get-togethers all over the country that our competitors don’t do. We learned that if you take your stand in a midsize town in America the clients act like getting together with each other. We have one seminar venue where, in a top-30 city, 200 to 400 clients [come] together in one room for lunch or dinner and they get a very long presentation and a very long Q&A. That arrangement is one we know our clients like a lot.

Another one we’ve done routinely for a long time [that] no one else in does is, we schedule events where we take a whole bunch of clients in a given area who don’t know each other to a lunch; a Fisher person excuses himself in the first five minutes. They talk among themselves and it gives them an opportunity to compare notes. Folks are skeptical of financial services providers in general and fearful they don’t have their best interest at heart. If we can trust them enough to be alone together, that’s a statement that allows them to trust us.

Then we have a little seminar all over the country where we invite 12 to 20 people at a crack. Basically it’s one continuous Q&A, but at a much more technical level. We call these investment roundtables. The clients are into asking more technical or detailed questions, or they may want a bunch of heavy give-and-take, and they can go at it for a good long time with one of our people, and with other people around to chime in. This is all part of our service offering that we’re doing routinely and that other people aren’t doing.

Ken Fisher

Fisher Investments