How Elite Morgan Stanley Advisor Went from Generalist to Specialist
This report is part of an ongoing series examining members of the FT 400 list of elite brokerage-based advisors.
To some pundits a 35-year bond bull market is yesterday’s news. But to veteran Morgan Stanley advisor Drew Zager, dire forecasts about Federal Reserve interest rate hikes and a still-growing stock market are sweet music to his ears.
The FT 400 member, whose eight-person team manages about $10 billion and is based in Los Angeles, decided early in his 30-plus-year career to focus on fixed income investing. In these volatile times for global bond markets, Zager believes such a specialization gives him a more refined view of how to answer questions from antsy income-oriented clients.
"I decided early on that it was important to drill down and learn how to really understand a company’s balance sheet to help manage my clients’ investment risks," he says.
In fact, the now 58-year-old Zager started out working as an accountant. After more than four years as a CPA and tax manager at a Big Four accounting firm, Zager joined Morgan Stanley to work with high net worth and institutional clients on managing their investments.
"I was 26 years old and it was very difficult to get wealthy, older individuals to let me manage their money," he recalls. "So I started out by offering fixed income brokering services to large insurance companies and other institutional investors as well as government agencies."
But working as a broker and earning commissions wasn’t a long-term pursuit.
"I decided rather than charge based on a transactional basis, it made sense longer-term to work as a portfolio manager and charge a management fee based on assets under management," Zager says.
That was in 1990, well before the current trend of fee-based advising took hold. Two big brokerage clients -- a hospital and a billionaire investor -- helped him make a smooth transition. But as his practice grew, Zager says he made sure to keep his "head down" and stick to a blue-collar work ethic learned from his middle-class parents.
"I was very fortunate but I worked very hard to outwork my competition," he says. Typically, Zager came into the office at 4:30 a.m. and stayed until around 6 p.m. He also lived close to work at a "functional" apartment in downtown LA.
Zager still arrives early, most often by 5 a.m. And he doesn’t cut himself much slack in terms of leaving early. But he does take weekends off these days, sort of. "I do make myself available to our clients 24/7," he says.
While he’s now a specialist, Zager is a firm believer in starting out as more of a generalist. "No matter what area you focus on, it’s important to understand the basics of how equities and bonds work," he says. "That gives you a solid foundation to directly manage investment portfolios."
Zager also recommends younger colleagues strike strategic partnerships with other financial advisors. For example, his team markets its fixed income expertise mainly to other Morgan Stanley advisors. "We’ve got a member of our team whose full-time job is to market to other advisors," he says.
Currently, some 40% of his practice’s assets come from such partnerships. More importantly, he sees such partnered assets as its biggest area of future growth. "Besides working on portfolios, we talk to outside accountants and other experts to help answer questions by other advisors about their clients’ taxable and nontaxable assets," Zager says.
Robo advisors will eventually take market share from many traditional areas of portfolio management, he warns.
"I still believe that ultra high net worth investors and institutions are going to need someone to add value and navigate different market conditions," Zager says. "So advisors need to really target clients who value what they provide to keep growing their business."
Today, Zager is telling investors that despite expecting at least three more rate hikes by the Fed in 2018 and "slightly" more inflationary pressures in the coming year, he doesn’t believe 10-year Treasury yields are likely to move much past 3%.
"There will be more headwinds ahead," he says, "but I don’t see inflation or Federal Reserve tightening moves overheating bond markets in the coming 12 to 18 months. Rates are going to rise but not to the extent where it’s going to create an awful investment environment."
The FT 400 rankings score FAs based on six criteria: total assets, asset-growth rates, experience, credentials, online accessibility and compliance records.