Lowell Pratt, CFA Talks Burney Company
Check out this interview and podcast with Burney Company President and Chariman Lowell Pratt, CFA. Among other topics, Lowell shares:
- the story & legacy of Burney Company
- how Burney has broadened into wealth management and taxes
- why Burney embraces a 60/20/20 base allocation
Want to learn more about Burney Company? Connect with us here.
Full Transcript from Podcast
Chris Broadhead: Welcome to the Ultra High Net Worth Clients Podcast. I'm your host, Chris Broadhead. Today, we have the pleasure of talking with Lowell Pratt. Lowell, welcome to the show. Can you introduce yourself and tell us a bit about you?
Lowell Pratt: Thank you for having me on the show. I'm Lowell Pratt. We run an investment firm based in Reston, Virginia, with satellite offices in different areas. Our firm's legacy is equity investment management, which has been our primary focus for most of our 50 years. We've broadened into wealth management and are on the path towards launching a tax business to complement what we do here, so becoming a little more comprehensive.
Chris: Wow, okay, almost a one-stop shop, sounds like.
Lowell: Well, that's the idea. Basically, if we can identify client pain points and address those, then we're doing our job.
Chris: Awesome. Well, a lot to dig in there. How did you get into this wild industry?
Lowell: I grew up in a financially insecure household, which led me to be very interested in everything to do about money that we didn't have. When I went to college, I couldn't decide between finance and economics, so I double majored in both. I got very lucky out of school that I found the Burney Company, which needed me for my computer skills, not my investment skills in the beginning, but it was still a foot in the door. They have an active equity philosophy that has been the puzzle I've been helping to solve for 37 years now.
Chris: Wow, so you've been with the same firm your whole career?
Lowell: My whole investment career took me about two years to get a foot in the door, but once I did, it was a very good fit for me philosophically and professionally. I got very lucky with opportunities that came along at the right times in my development, so I haven't had to ever leave.
Chris: Wow, that is very unique, especially in this day and age.
Lowell: Except if you're at my firm. I'm still nowhere near the most senior person here. This is a place where a lot of people come and stick forever. My ambition every time we bring somebody new on is to see that person doing something useful here 37 years later.
Chris: So what's the secret of the firm to keep people for their entire careers?
Lowell: Probably more than anything else, a culture that we have here. The founders of my firm, Jack Burney and the original crew, were mostly West Point classmates, class of '46. They all had 20-30 year military careers and brought a culture from that world here. It's about balancing running a business with camaraderie and a family feel, very different than the normal corporate feeling. There's a two-way commitment expected of everybody that's part of this culture. For a lot of us, that just feels right, knowing we'd have a hard time finding this someplace else.
Chris: That's great, so it's more of a family feel than a corporate feel?
Lowell: Well, yeah, and I'm going to say balanced. We're running a business, so everything's got to be balanced. You need to be a performer as well. That's an expectation. We have the same philosophy; we have a lot of expectations for our people, but we support them and help them achieve those.
Chris: Awesome. You mentioned you're active investors. Do you take a larger role in the actual investment placements?
Lowell: We're sort of the opposite of the normal firm in that respect. Doing active equity well is hard. It requires a lot of resources, so we've built a different sort of team here, lots of CFAs in addition to CFPs and other advanced degrees. We have a big group focused more on how to invest with effectiveness, and then there's also the classic team where they're primarily CFPs and client-facing. They have a different and very important role in the process.
Chris: Any exciting developments in the investment front or anything on your radar you're excited about?
Lowell: From our standpoint, the answer is always yes. We have a 60-20-20 kind of base allocation. We've been successful with that sleeve of our allocations, particularly in comparison to 60-40, which has been so disastrous for so many investors. We also have an active equity process; our founder, Jack Burney, I claim, is the world's first committed quantitative investor. He built models to pick stocks 50 plus years ago. We use our modeling techniques to model the types of stocks that do the best after sell-offs, so during market recoveries, there's a very different kind of stock that leads.
Chris: Can you elaborate on your alternative investments?
Lowell: Our alternatives include managed futures, private credit, and private real estate. They're selected for their low correlation with stocks and bonds, offering diversification without significant performance sacrifices. We're careful in selecting and evaluating these investments for potential returns.
You have to be very patient because a couple of years ago, that was our least favorite allocation for all of our clients. They all told us how much they hated our managed futures, and then, of course, they had a spectacular year right after everybody gave up on them. So you have to have a lot of stick-to-itiveness and really view this from the long view of what it's doing for the mix of assets that you're managing.
Chris Well, I think a year like 2022 will motivate a lot of folks to look outside of stocks and bonds. Like, how are they both down?
Lowell: Yeah, exactly. Especially some of the magnitudes. It's just not something the long B has had. Their worst year ever was last year. This year looks like it's going to be even worse. It's just really terrible. We're in some wild times.
Chris: Yeah, so that's awesome. I'd love to take a step back and hear about how you started your practice, how you found clients, if you focused on a certain type of client, and if you could just take us down there.
Lowell: Yeah, so the firm's a little bit different. We have an active equity strategy that's had success for a long period of time. We have, for most of our company history, had the privilege of having other financial professionals, investment professionals, refer clients to us. Our best opportunities would have been probably in the 80s when the wirehouses were referring clients out to advisers, and there was separate account management.
More recently, the discount brokers, the TDs, the Schwabs, they had referral programs where they did the same thing. So we've gotten most of our business through the years from referrals from other investment professionals. And then once you have those relationships, then you have the opportunity to manage those, and if you're doing your job well, there should be a secondary flow from your clients. So we get our best new clients from our existing best clients for sure.
Chris: Awesome, awesome. So, exceptional performance delivers a lot of referrals. Are there any specific strategies you employ to encourage your favorite clients or largest clients to deliver more referrals?
Lowell: We did some Bill Cates training. The gist of his approach is just ask. Great performance is not the attraction that one would think because anytime you have an active strategy, you're going to have volatility in return.
Inevitably, you're going to have some off periods, and there's a lot of damage that's done whenever that happens. So building a reputation and a brand is as important as the performance that underlies that. But basically, for the clients that you have, it's just forming deep relationships and recognizing that they're going to have friends and family that are not as well served as they are. All you have to do is start that conversation, and it should lead naturally to introductions.
Chris: Awesome, awesome. So do you and Burney do any other types of marketing to clients?
Lowell: We probably spend way more on digital marketing than we should. We've got lots of younger people around here that are very enthusiastic about the potential for that. It's slow going.
We've had some success, and I don't know exactly how to balance all of this, but CNBC comes out with an advisor rating, and for the last two years in a row, they've ranked us number one in Virginia, number nine nationally among RIAs. Taking that digitally to the world and beating the bush for clients actually gets some traction. It's really when you don't have that, it's a lot more difficult.
Chris: Okay, and have you noticed any aspect of the digital marketing kind of stand out above the others?
Lowell: Advertising is not unsuccessful for us. We cast a broad net, and we occasionally catch little, sometimes not little fish. It's a long, slow process, and I'm not sure the payoff is there. It's a lot of time and money invested to get some clients.
For the younger people, it's fun and exciting to go that route too, but I think the old-fashioned spend your time and money with your clients has probably got the better pay.
Chris: Got it, got it. So do you put interfacing with your current clients on some sort of schedule?
Lowell: Again, I'll go back to the legacy of the firm, which is investment management. We have a lot of clients that still use us for equity investment management. You're not able to form relationships that are as deep if that's basically all that you're doing for them. On the planning side, on the wealth management side, you can delve into their whole financial life.
As I mentioned, we've got a tax practice that we've opened, so now we can give tax advice as well as investment advice. The broader your relationship is, the more the opportunity is.
So for those types of relationships, it's probably at least a quarterly check-in, probably trying to meet at least once in person per year, depending on location. We've actually got clients all across the country. The more we can understand what their financial objectives are and what their constraints are, the deeper the relationships become. It's very manpower-intensive, but there's a good payoff for that.
Chris: Yeah, I agree. I enjoy speaking to my clients. My wife is like, "Oh my gosh, you have to talk to four people in a day?" I'm like, "That's like the best part of my day."
Lowell: That's right. If you enjoy the business, then talking shop is always going to be fun.
Chris: Yeah, it brings me to life. It's much better than answering emails or double-checking things. That's awesome.
Lowell: Let me offer one thing that we haven't covered yet, which I think is also important to understand about us. The Burney Company has advisors as clients as well as investors as clients.
The core Burney Company doesn't have any end investor clients. The firm was founded by career military officers in their first careers. All of them had the same experience where you had these rotating jobs where you're in command of troops, and somebody tells you to take a hill, you get to go take the hill.
Everybody loves that job, and that's what the advisers do with their clients and with their books. Then they rotate off that and become a support officer.
The Burney Company's always been set up with that structure. The core company, 50 years now in our 50th year, is a support organization that supports advisors. It helps them be successful doing what they want to do with their investments.
Chris: That's very unique. You're obviously the first guest that I've had on who has that business structure.
Lowell: What's fun is we've got friends that have plugged in for our support. They run their own business, but they also philosophically align with the opportunities around active investing. To be able to network and support those, as well as our internal advisers, is great. It's a second dimension that provides a different channel of growth for the company.
Chris: Does that mean you all directly manage their assets, or are you an advisor to them?
Lowell: It depends. If you're an adviser, like the relationships we have right now, all of them execute their own strategies with our support. That's what we typically have done. But if somebody doesn't want to do that and they just say, "Hey, identify the risk bucket that this client belongs in and go execute for us," we could certainly do that as well. So we're prepared to do the more traditional TAMP solution to the investment piece of it, but we're mostly geared towards helping arm people to be successful doing what they want to do with their investments.
Chris: Cool. So it sounds like you guys definitely have a unique business model. Is the best way that you find clients to support and clients to serve just referrals and relationships?
Lowell: We've got a lot of successful experience with referrals from other professional investment professionals. That's certainly been a big part of what we have been traditionally. We're not involved with any referral arrangements right now, so the current focus is just on the client referral, and then hopefully, we're going to crack the nut of digital marketing, and that'll turn into some great bonanza one day.
Chris: Awesome. So this program is titled the Ultra High Net Worth Clients Podcast. How did you find your largest client?
Lowell: Interestingly, our largest client today is a client that was a broker, a wirehouse broker, more than 35 years ago, that referred clients to us and then gave us some of his own investments to manage. He didn't start as an ultra high net worth. He had a significant initial investment, but mostly it's just all in the market for more than 35 years with a successful equity approach, and that translates into our biggest client today.
Chris: Compounding interest and practicing what he preaches, sounds like.
Lowell: That's right. He's great. Think about how many big market declines have occurred in the last 35 years. A lot. He doesn't bat an eye. He looks at those the same way we do. That's opportunity. If he's got any cash on the side, it's time to push some of that in. He's got all the best instincts for being successful with equity investing.
Chris: Wow, that's awesome. Well, great. Well, it looks like we're going a little over time here. I want to respect your time. I could definitely ask you active investing questions for the rest of the afternoon,
Chris Broadhead: My final question, and it's an open-ended one so you can take it in any direction you would like, is what are you working towards?
Lowell Pratt: I've got one last chapter. Jack almost made 50 years with us. I'm not going to go 50 years, but I'm going to, health allowing, maybe make 45, which would be a nice, almost as good as Jack number to get. I've been able to build this company to pretty good scale, which means I've got depth with the personnel, and I've got strong leadership in parts of the company. In other parts, I'm still kind of working on that. So, getting my last hurrah is going to be continuing building the company as we've done, but start to identify and find replacements for running this company when I'm not around to run the company. That's my last mission here.
Chris: Any promising candidates from the Millennial, Gen Z?
Lowell: All of these. My buddies that don't have many of these people in their shop have a bad attitude about them. These are really smart, obviously very tech-savvy, motivated people. It's crazy how really young our company's become in that regard. There's almost too many candidates. They need some seasoning, but there's lots of people that are going to have the opportunity to bubble up, and they already are. If you have success with growth, you're going to need to push people to do things maybe a little sooner than they feel like they're ready to do it. With the right support, most of them will succeed if you give them a little nudge into the deep end. I'm very excited about the young people that we have been able to bring into our ranks.
Chris: You're open-minded enough to be on a podcast with a Millennial, that says a lot. I think you're on the right track, and you'll find someone great to keep the torch lit.
Lowell: I'm confident that I will, and I appreciate this opportunity.
Chris: Well, I appreciate you taking the time, man. Your wealth of knowledge and a pleasure to talk with.
Lowell: Likewise.
Chris: Where can our audience find out more about you and Burney?
Lowell: We're involved with the SEC inspection right now, just the routine whatever, and one of their gigs on us is that we're not clean enough in terms of describing all the different things that we do. It's not quite up yet, but if you get the way it's going to look shortly, it's Burney.com will have underneath of it Investment Management, Wealth Management, Advisor Services. So all the different elements of who we are will all map underneath Burney Company, or just Burney.com investment management for the equity piece, Burney wealth management for that, and for advisors, it's Burney Advisor Services.
Chris: That's also very impressive to a Millennial, that you have Burney.com.
Lowell: It's funny. A good friend of mine, an IT guy, and I did this big project here years ago where we sort of pioneered what would be called AI now. He was plugged in enough to know the importance of getting that, so he got that for us and then gave it to me when he left. So I can't claim more credit for that. I just lucked into Burney.com.
Chris: Hire smart people, that's the smartest thing you can do.
Lowell: He is a very smart guy.
Chris: That must have been like mid-90s?
Lowell: This would have been like probably late 90s. It was fascinating. It's surprising to me that it took 20 years for it to hit. The whole power of machine learning has been there for a long time. A lot of the firms that are rolling out their AIs right now have been working on this for a long time. Maybe we made a big mistake to stop working on it 20 years ago, but it was a fascinating project that we just, for reasons, did not succeed with that as an investment tool.
Chris: Are you seeing anything on the AI front that you're excited about right now?
Lowell: Absolutely. The forecasters observing that this will be as transformative as the internet are spot-on. Everything will be different. It's a disruptive technology, so there will be winners and losers. The big winners will be the firms and individuals that learn how to employ the best. The firms that are not gearing up around this are in big trouble.
Chris: Are there any AI tools you guys are enjoying or benefiting from currently?
Lowell: We've got a revenue surprise model that correlates with earnings. With a high degree of accuracy, they can forecast companies that are going to have
Chris Broadhead: My final question, and it's an open-ended one so you can take it in any direction you would like, is what are you working towards?
Lowell Pratt: I've got one last chapter. Jack almost made 50 years with us. I'm not going to go 50 years, but I'm going to, health allowing, maybe make 45, which would be a nice, almost as good as Jack number to get. I've been able to build this company to pretty good scale, which means I've got depth with the personnel, and I've got strong leadership in parts of the company. In other parts, I'm still kind of working on that. So, getting my last hurrah is going to be continuing building the company as we've done, but start to identify and find replacements for running this company when I'm not around to run the company. That's my last mission here.
Chris: Any promising candidates from the Millennial, Gen Z?
Lowell: All of these. My buddies that don't have many of these people in their shop have a bad attitude about them. These are really smart, obviously very tech-savvy, motivated people. It's crazy how really young our company's become in that regard. There's almost too many candidates. They need some seasoning, but there's lots of people that are going to have the opportunity to bubble up, and they already are. If you have success with growth, you're going to need to push people to do things maybe a little sooner than they feel like they're ready to do it. With the right support, most of them will succeed if you give them a little nudge into the deep end. I'm very excited about the young people that we have been able to bring into our ranks.
Chris: You're open-minded enough to be on a podcast with a Millennial, that says a lot. I think you're on the right track, and you'll find someone great to keep the torch lit.
Lowell: I'm confident that I will, and I appreciate this opportunity.
Chris: Well, I appreciate you taking the time, man. Your wealth of knowledge and a pleasure to talk with.
Lowell: Likewise.
Chris: Where can our audience find out more about you and Burney?
Lowell: We're involved with the SEC inspection right now, just the routine whatever, and one of their gigs on us is that we're not clean enough in terms of describing all the different things that we do. It's not quite up yet, but if you get the way it's going to look shortly, it's Burney.com will have underneath of it Investment Management, Wealth Management, Advisor Services. So all the different elements of who we are will all map underneath Burney Company, or just Burney.com investment management for the equity piece, Burney wealth management for that, and for advisors, it's Burney Advisor Services.
Chris: That's also very impressive to a Millennial, that you have Burney.com.
Lowell: It's funny. A good friend of mine, an IT guy, and I did this big project here years ago where we sort of pioneered what would be called AI now. He was plugged in enough to know the importance of getting that, so he got that for us and then gave it to me when he left. So I can't claim more credit for that. I just lucked into Burney.com.
Chris: Hire smart people, that's the smartest thing you can do.
Lowell: He is a very smart guy.
Chris: That must have been like mid-90s?
Lowell: This would have been like probably late 90s. It was fascinating. It's surprising to me that it took 20 years for it to hit. The whole power of machine learning has been there for a long time. A lot of the firms that are rolling out their AIs right now have been working on this for a long time. Maybe we made a big mistake to stop working on it 20 years ago, but it was a fascinating project that we just, for reasons, did not succeed with that as an investment tool.
Chris: Are you seeing anything on the AI front that you're excited about right now?
Lowell: Absolutely. The forecasters observing that this will be as transformative as the internet are spot-on. Everything will be different. It's a disruptive technology, so there will be winners and losers. The big winners will be the firms and individuals that learn how to employ the best. The firms that are not gearing up around this are in big trouble.
Chris: Are there any AI tools you guys are enjoying or benefiting from currently?
Lowell: We've got a revenue surprise model that correlates with earnings. With a high degree of accuracy, they can forecast companies that are going to have positive surprises and those with disappointing ones. It's extremely powerful. We use it to help with the timing of when we buy and sell things. This is a machine learning model using unconventional data. They scrub a bunch of socials, compare the buzz against analyst expectations, and where there's the biggest disconnect, there's the biggest opportunity. That's been a very powerful part of our investment process.
Chris: It's hard not to push that button, especially in emails now.
Lowell: Until it becomes our doom, this is all going to be great.
Chris: Well, Lowell, thank you so much for taking the time to talk to me and my audience. Super enjoyed getting to know you.
Lowell: Thank you.