Money management for the masses

To Do:

• Take Tommy to swim lessons.

• Buy school supplies at Wal-Mart.

• Select large-cap growth fund at the Mutual Fund Store?

Well, the company hopes you'll put financial planning on your errands list. The Overland Park, Kan.-based company aims to bring money management to the masses by locating its not-too-flashy storefronts in retail areas around the country. Its Maple Grove location, which opened in 2006, is nestled behind a Wal-Mart in a strip mall shared with a fitness club and a coffee shop. The Mutual Fund Store's second Minnesota location opened earlier this month behind a Famous Dave's, near a Blockbuster video in Woodbury.

Many financial advisers set their sights on the richest clients. But for Mutual Fund Store founder and CEO Adam Bold, the sweet spot is what the financial world calls "the mass affluent" -- investors with $100,000 to a few hundred thousand to invest (the dollar amount included in the definition varies). Bold's storefronts will even manage money for individuals with as little as $50,000 to invest.

"We've taken the same quality of money management and the same compensation system that the rich have always had access to and we've brought it to regular people, hardworking Americans," said Bold.

Bold spent years as a broker, trying out several companies in search of the right fit before leaving Prudential Securities in 1996. Bold's record shows he was fired for violating Prudential's sales practices. An arbitration from that same year accusing Bold of excessive trading and commissions was settled by Prudential for $39,500, although Bold was dismissed from the case. Bold disputes the details, blaming the 12-year-old incident on a poor relationship with a branch manager. "At the time I was really upset about it, but in hindsight it's the best thing that ever happened," Bold said.

A middle-of-the-night epiphany led him to open his first Mutual Fund Store in Kansas City in 1996. Bold envisioned offices in retail locations close to home, staffed by advisers who were prohibited from wearing ties.

Mutual fund radio

"I want people to feel comfortable," he said, in order to undo an image created by decades of investment representatives trying to make the stock market seem intimidating and complicated to the average person.

While running his Kansas City Mutual Fund Store, Bold started a talk-radio show -- an ideal marketing venue for a charismatic, self-described "mutual fund geek" with a photographic memory. Listeners call in with questions about mutual funds they own or are thinking of buying and Bold weighs in with ticker symbols, recent performance, fund manager details, buy/sell recommendations and reminders that his stores are conveniently located. "It's a fantastic marketing tool for us," he said.

After the radio show took off, the franchise concept followed. Today, there are 74 stores in 60 cities, some franchises, some company-owned, managing $4.5 billion for 23,000 people.

Buy the manager

Bold's investment strategy? It's the fund manager, not the fund name, that matters. "In life there are some things where brand name means something. In the world of mutual funds there are lots of undiscovered gems."

Bold and his investment team select about 70 funds encompassing 15 different asset classes from the mutual fund universe that's approaching 30,000 funds. The picks are always actively managed funds with no sales charge that have consistent performance and are run by managers with a good track record. Bold also said he won't take money or marketing fees to include funds in his platform. "I don't even take free golf balls. ... I want clients to know I can't guarantee results, but there's not a hidden agenda," he said.

Bold likes the Leuthold Core and Leuthold Asset Allocation funds, both managed in Minneapolis by Leuthold Weeden Capital Management. "Steve Leuthold may be one of the most brilliant guys I know. ... He's right a heck of a lot more than he's wrong."

Bold's no-conflicts, manager- driven philosophy appealed to Darin Pilacinski of North Oaks. Pilacinski had been working in financial services for more than a decade and figured at one point he'd like to transition from the back office to running his own financial planning practice. He came across the Mutual Fund Store concept in a trade journal.

No quotas for products

"I liked that I didn't have to meet a quota to sell a certain type of product," he said. He also likes the concept's centralized investment research center that picks funds "based on how they did in the past and on the manager," he said.

Today, Pilacinski, the Minnesota franchise-owner/adviser, says he manages $95 million for 450 clients, many of whom are retired or close to retirement. He's planning to open another franchise in a growing, upwardly mobile southern Twin Cities suburb in the next couple of years.

The Mutual Fund Store charges a fee based on the percentage of assets under management that declines as portfolio sizes grow; the most clients are charged is 1.5 percent of their portfolio. Bold also receives a 30 percent royalty from franchise stores.

Industry average charge: 1%

The Rydex AdvisorBenchmarking 2007 Survey found advisers charged an average of 1 percent of assets under management in 2006, up from 0.98 percent in 2005. "The increase is largely due to the shift by advisers toward more highly customized solutions," the report explained.

Ellis also dislikes Bold's claim that he can pick superior fund managers based in part on past performance. Studies have shown that most mutual fund managers fail to consistently outperform their benchmarks. "The idea that they can help you pick outperforming funds consistently, long term for their 150 basis points (1.5 percent) I think is totally bogus and is misleading the public."

But Ellis is impressed that the Mutual Fund Store is offering fee-based fund selection to a category of individuals who are usually ignored by advisers, explaining that average investors need help coming up with the right mix of investments, too.

"It is nearly impossible to serve the mass market and mass affluent with the advice model that we've made for people with millions of dollars," he said. "These guys are trying to combine self-service with a modicum of advice for the lower end. ... I'm going to give them points for that."