New Well-to-Do Keep Financial Firms Busy

FOR financial management firms catering to the rich, business has never been better.

The well-to-do have prospered over the past decade. They benefited from the mergers and acquisition boom of the 1980s. The long bull market for stocks, only this year interrupted by a ``correction,'' has lined their pockets with capital gains. Although the tax measure pushed through Congress last year by President Clinton has hit the well-to-do, their tax rates are still well below those of the 1970s.

Currently, 1.8 million households in the United States have $1 million or more in investable assets, up from 834,000 households in 1989, according to PSI, a financial services research firm in Tampa, Fla.

``We don't really fully appreciate how many people in this country now have ... 401K and other types [of] pension benefits that are growing at a very substantial amount,'' says Jay Hughes, a partner in the wealth-management department of Jones, Day, Reavis & Pogue, a law firm in New York. ``You find that there is a much larger number of people with these kinds of investable assets, simply when you aggregate together all of the various investment pots.''

``Roughly, for every dollar of old money [inherited wealth], there's $9 of so-called new money,'' says Charlotte Beyer, founder of the Summit, N.J.,-based Institute for Private Investors, an independent research and educational forum for private investors over- seeing assets in excess of $10 million. New money is being generated by the appreciation of financial assets; the sale, merger, or acquisition of a business; or the issuance of an initial public offering, she says.

The greatest advantage this specialized niche of wealth-management firms has over other investment houses with institutional focuses, she says, is that they know where to find the business.

``A firm with an institutional focus just isn't paying any attention to this [new wealth] market,'' Ms. Beyer says. ``They're not hiring sales or marketing or servicing people to pay any attention to the market.''

Boston-based Pell Rudman & Co. Inc., one of a handful of investment advisory firms in the country whose sole focus is high net-worth individuals (the minimum investment is $1 million), has seen its highest growth rate in the last five years. ``There's no question that the 1980s were a terrific time for wealth creation in this country,'' says Jeffrey Thomas, chief investment officer for Boston Harbor Trust Company N.A., a subsidiary of Pell, Rudman. The fact that Pell, Rudman was founded in 1980 was ``a happy kind of accident,'' Mr. Thomas adds.

The company's competition include private investment firms, large banks, and trust companies, Thomas says. But Pell, Rudman's ability to provide extensive, personalized service gives it an edge, he says. ``We're not chasing the GM [General Motors] pension account,'' he says, ``and yet we're big enough to have all the resources an individual ... needs or wants.''

With $1.5 billion in assets, Pell, Rudman's services include financial counseling, portfolio management, private investment management, and trust and custodial services (through its two subsidiary companies, Boston Harbor Trust and Atlantic Trust in Washington).

Early on, Pell, Rudman focused its efforts on attracting entrepreneurial wealth rather than inherited wealth, Thomas says. The problem with old money is that there are no guarantees that a family will hold on to it, he says. Often, longstanding fortunes will shrivel up when generations of heirs do not continue to create new wealth, he says.

``There will always be both elements [old and new money] out there, but you need to have the wealth creation,'' Thomas says.

Over time, Pell, Rudman has found a balance between the two. ``Having had success with new wealth, we have developed credibility and the reputation that attracted more establishment [money],'' Thomas says. ``This is very much a word-of-mouth business.''