In the shadow of the biggest Wall Street empires, Hennion & Walsh has managed to thrive for a quarter of a century using the basic principle of providing value to its retail municipal bond customers through its attention to quality, not quantity.
"We treat every investor large and small with a personal touch," Bill Walsh, a partner at the Parsippany, N.J.-based investment services provider said in an interview last week as the firm prepares to celebrate its 25th anniversary in the municipal bond industry.
Its first trade occurred on Jan. 25, 1990 when it purchased a block of 200 New York/New Jersey Triborough Bridge & Tunnel Authority bonds from a bid-wanted list. The bonds carried a 7.125% coupon due in 2019 and offered a 7.53% yield to maturity, according to Walsh.
That trade established the start of its growing inventory and the new investment advisory business was born.
When it originally opened its doors as "Nori, Hennion & Walsh," the firm had a staff of just a half dozen employees and a focus on municipal bond portfolio management. Walsh, and original and existing partner, Rich Hennion, changed the name of the firm when founding partner Dominic Nori exited in 1999.
Today, the firm has grown to 18,000 retail clients representing all 50 states, and has a staff of 150 between its New Jersey headquarters and Florida branch in Delray Beach. It continues to bill itself as "independent specialists in municipal bonds" using high-quality tax-exempt securities to focus on increasing and preserving clients' investments through conservative growth and income strategies.
He believes the size of the advisory firm is an advantage over the Wall Street giants because of its personalized attention to clients' goals and objectives rather than the bottom line.
"For big firms, most of their profit comes from wealth management or they make more money in the other sectors of the financial world," he said.
"We are much more nimble with 150 people than a wire house with 200,000 people," he said. "Our reps and traders have the feel for what investors want, and we match their objectives with specific offerings."
The firm employs a practice of "bonding" with clients through long-term relationships, one-on-one attention, close partnerships, and old-fashioned personalized attention and service.
For instance, it offers individuals, and professional and retiree organizations, free investment seminars at its offices. Its advisors also address customer concerns directly — without the use of a call center or voice mail.
These are some of the characteristics that Walsh feels sets his firm apart from large Wall Street firms — and has kept it in business for 25 years.
While it was not easy to operate in the shadow of large firms, Walsh said he and Hennion honed the business with a simple philosophy rooted in value, quality, and low risk to carve its own identity as a small investment advisor.
"In a niche market, where we are still helping muni investors build portfolios, there is not a lot of individual attention to that" among the larger firms, Walsh said. High-quality fixed-income investments, such as municipal bonds, are "the cornerstone of financial health," according to the firm's website.
"We try to help individual investors get the best value in muni bonds, and I think that's the reason we are in business today," Walsh said in an interview. "We are able to go into that niche and get clients a fair shake in the municipal bond market."
One of two recent trades Walsh deemed suitable for the firm's buy and hold investors includes New Jersey general obligation bonds with a 3.25% coupon due in 2030 at a 3.29% yield to maturity and rated A1 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.
In addition, he bought Virginia Beach storm water utility revenue bonds with a 3.125% coupon due in 2039 and a 3.24% yield to maturity, rated Aa2 by Moody's, and AAA by Fitch.
The trades appeared attractive versus Wednesday's benchmark triple-A GO scale in 2030 which yielded a 2.21%, while the 2039 maturity yielded 2.52%, according to Municipal Market Data.
Generally, Walsh says these two trades exemplify the type of trade his retiree clients use to earn value on the long end of the market and to satisfy their need for income over a long time horizon.
"We never attempted to be market makers in the high-yield sector," Walsh said. "We are not slipping into non-rated dirt bonds to pick up extra yield."
For instance, while some of his clients chose to sell the investment-grade Puerto Rico paper they owned at the height of the commonwealth's fiscal debacle, others decided to hold the paper and earn the higher yields that surfaced around the headline risk.
"We are guiding them through it, but the market has been pretty fluid," he said.
One of the biggest challenges for investors 25 years ago and in the current market is decision-making.
"Investors really have to decide what they are trying to accomplish and stick with it," Walsh said.
"In today's world of headlines it's easier to be reactive than proactive in going after your goals and objectives," Walsh explained, noting that equity investors are quick to make knee-jerk reactions to news on a daily basis. "If you decide what your objectives are you can be more disciplined. You don't have to be as cutting edge, you just need discipline to stay the course," he advised.
Besides municipals, the firm also offers a full line of equity and fixed-income products to meet clients' needs, including mutual funds, money market funds, 401Ks, and retirement, long-term care, and estate planning.
Many clients own equity investments in other portions of their portfolios, but are subject to more volatility and risk than with municipals.
"Most individual bond investors are not total return investors," Walsh explained. "If they are looking for growth, in general, bonds are not built for growth."
"There's a certainty with a bond that they don't get in some of the other markets," Walsh said.
The reliable nature of municipal bonds helps keep demand strong, according to Walsh, who said he expects the promising start to 2015 to continue.
"To me it appears demand for municipal bonds is increasing and I can certainly see that holding true for the first quarter," especially given the relative value of long municipals to Treasuries recently hovering around 95%, Walsh explained.
"If you are in a high tax bracket munis have proven to be a worthwhile investment" versus taxable equivalents — especially with the increase in state taxes, Walsh added.
The firm's upcoming milestone, Walsh said, is a reminder of its early days of building the business from scratch and evolving with the changing market — yet maintaining an old-fashioned approach to establishing and keeping clients and managing portfolios.
"We are happy where we are today, but want to continue to grow on those premises and ideals" in the future, Walsh added.
