Advisor Success Story–Timothy Hatton

Phoenix, Arizona-based Hatton Consulting, Inc., incorporates the latest in cutting-edge wealth manage­ment tech­niques to provide service to 180 clients with $200 mil­lion under management.

Five Steps Plus One

By combining wealth management with best practices, Timothy Hatton has created a dynamic financial model.

At Hatton Consulting, Inc., founder Timothy Hatton uses a system of financial analysis that takes into account all that he has learned about investing— and then goes one step further by incorporating the latest in client-focused wealth management techniques. Between what Hatton knows about investing and what he is applying through wealth management, his firm offers a well-rounded approach that relies on numerous best practices.

Like many of today’s leading financial advisors, Hatton has found his own way to a client-centric investment discipline. He’s even written a book on the subject, The New Fiduciary Standard, which incorporates much of what Hatton considers to be the best current industrywide thinking about how a client and a financial advisor can marry cutting-edge investment practices to planning and analysis. “I’ve always been an information junkie,” Hatton recalls. “And when I became serious about this business, I became serious about finding out all I could as well. I just kept educating myself about how best to serve the client using the technology to the greatest advantage and generally finding out what the best approaches were.”

Hatton’s analysis eventually solidified around five separate points when it comes to helping clients position their portfolios properly:

1. Analyze the client’s position. Ask the right questions and get to know the client and his or her assets and liabilities. This allows the advisor to assess the client’s suitability for various approaches.
2. Diversify and allocate the portfolio. Match risk tolerance with goals and objectives to create the optimal asset allocation.
3. Formalize the Investment Policy Statement. Organize and commit to writing what has been decided, including investment guidelines, rebalancing configurations and other key issues.
4. Implement the policy. Find the vehicles that allow implementation of the investment strategy.
5. Monitor and supervise. Use a one-page document that is as clear as possible to report progress on a regular basis.

Hatton discovered various perspectives as he pursued his career as a stockbroker, starting at Dean Witter after college and then moving to Morgan Stanley. He founded Hatton Consulting in 2000, and began to apply what he had learned from others in the field and from his own reading. Much of Hatton’s initial focus involved ways of managing risk via Modern Portfolio Theory (MPT), an approach to investing that had blossomed academically around the middle of the 20th century. MPT created a bold new definition of risk—volatility over time—and sought to control it via a broad range of investments.

Essentially, MPT focused on a gamut of opportunities and how they interacted with one another, thus switching the investment emphasis from a focus on which individual stocks to buy to the portfolio as a whole. Eventually, Wall Street caught on to MPT and renamed it “asset allocation.”

Hatton then attempted something more ambitious in his approach to utilizing MPT: He focused on a form of investing known as “asset-class investing,” which hewed more closely to the fundamentals of MPT. By using disciplined risk/reward ratios and specific fund groups, Hatton attempted to accurately calibrate risk and reward for individual clients. After setting up these disciplined investment portfolios, Hatton’s firm tracked them, rebalanced them and reported to clients on their progress in an understandable way. Using this approach, Hatton and his firm began to grow quickly.

Hatton’s approach is to put the client’s interest first, and to implement what is mutually decided upon from a planning and investment standpoint. “We coordinate all the moving parts,” Hatton says. “As the trusted advisor, we do the legwork.”

Wealth management is an outgrowth of another Wall Street discipline: financial planning. Financial planning was actually triggered by expanding computer power, which gave the Wall Street practitioner the ability to bundle numerous services together, including insurance and investment planning.

Hatton’s methodology is symbolic of how far the financial industry has come. The combination of asset-class investing and financial planning, when married to wealth management, is a holistic approach to financial services that adds value to 20th-century financial planning. Today, with 180 clients and $200 million under management, and with a growth rate of some 30 percent a year, Hatton’s firm bears witness to the efficacy of this holistic configuration.

He points to his involvement with advisor coaching firm CEG Worldwide as a key factor in the firm’s success. “This is an extremely sophisticated business, and one that is getting more so all the time, as challenges continue to mount,” Hatton points out. “Using the CEG Worldwide wealth management consultative process has provided additional tools that push us to the forefront of this business.”

In fact, Hatton sees his client-centric approach as best of breed. Helping clients understand what is truly important in their lives, and then configuring finances to support those life goals, has become the defining planning technique that permeates the rest of what Hatton does. “When we sit down with clients, we know we’re offering the best of what the industry has to offer,” he says. “We think they see that too.”

Washington-based Sagemark Consulting has $275 million in assets under management with 200 clients, and the firm continues to grow rapidly by emphasizing wealth manage­ment.

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