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Mutual Funds: Mutual Fund Store to Expand, H&R Block-Style

The Mutual Fund Store of Overland Park, Kan., the fast-growing independent fee-based financial planning franchised business, is taking a page from successful tax office franchisor H&R Block's playbook-literally.

Last week it hired as its CEO David Byers, the former chief operating officer and chief marketing officer for H&R Block's retail tax services unit. Byers, who spent the last eight years working for Block in its Kansas City, Mo., headquarters, will oversee the company's day-to-day operations. He will also execute the firm's growth initiatives, including expanding the company's network of financial planning offices and building alternate points of distribution by partnering with well-trafficked retail establishments.

Adam Bold, founder of The Mutual Fund Store, will assume the role of executive chairman and continue to market the firm as the "face" of the company and remain chief investment officer. Bold considers himself more of a grassroots entrepreneur who wants to make the world a better place.

"I think I'm pretty good at picking investments, but at running a company, I'm not particularly good," Bold conceded. He acknowledged that his strong suit lies in building asset allocation models for the firm's clients and identifying great mutual funds for those clients to invest in.

Although Bold hired a high-profile executive search firm and embarked on a national search to find the perfect CEO, he ended up finding Byers right in his own Kansas City backyard. Their families live in the same housing subdivision, and their wives know each other.

The Mutual Fund Store, which began in 1996, has been busily establishing its nationwide network of investment advisory offices through a combination of company-run and franchised storefronts, many of which operate in suburban shopping center strip malls (see MME 11/22/04). Traffic is driven through client referrals, as well as a weekly call-in radio talk show that Bold hosts in several markets. Bold noted that he is currently in talks with a TV network to host a weekly 30-minute TV show, but declined to name the network.

The company currently has 54 storefront locations and provides advisory services to more than $3 billion in client assets. Assets under management are up from $1.7 billion in February 2006, when the firm took on venture capital firm Summit Partners of Palo Alto, Calif., as a minority partner.

Although Bold initially relied on selling store franchises, an oddity for the financial services industry, he has mapped out geographic areas that will be kept for company-owned stores, but will continue to expand franchise storefronts.

True to its name, The Mutual Fund Store focuses solely on offering no-load, or load-waived, mutual funds to clients by way of financial plans. It has no proprietary products and won't accept payments from fund companies. Its sweet spot continues to be individuals with $50,000 to $500,000 of assets. The average client has a portfolio worth $220,000.

Despite the firm's growth, client fees haven't risen. "This is the segment of the population that has been ignored, abandoned and abused by the financial services community," Bold said. Although the firm has no plans to add other products, such as insurance, or services, such as tax preparation, it is considering establishing a referral service to other independent financial services providers, in recognition of clients' needs.

At H&R Block, Byers was in charge of expanding Block's tax offices from 9,000 to 12,000 nationwide, as well as hatching key partnerships with alternative outlets such as Wal-Mart.

"We are trying to do a measured, thoughtful growth plan," Byers said. "Our goal is to grow the right way. We are not going to grow just for growth's sake." That growth means choosing locations wisely, he said. "It is critically important to find the right property for The Mutual Fund Store because we have so few points of presence," Byers added.

Growth is one of the risks franchisors face. "There's a temptation to sell a franchise to everyone who wants to buy because you want to grow," said Joe Mathews, principal of Franchise Performance Group, a Litchfield, Conn., consulting firm, and author of "Street Smart Franchising."

"But if you bring in enough of the wrong people, you sow the seeds of your mistakes," he noted. "If you get enough of the right people on the bus, then you create momentum."

The Mutual Fund Store is unique in that it is "the first nationally branded fee-based investment advisor," Bold said. But there have been others that have considered, and rejected, the franchising model, said Mark Seibert, CEO of iFranchise Group of Homewood, Ill., a suburban Chicago franchise consulting firm. There are potential liability issues when franchisees are investing people's money. "Some have felt there is less control in a franchise than where they can control the employees they have working for them," Seibert said.

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