A Pioneer in Pension Consulting
George Russell turned his grandfather's one-man business into a new industry
WHEN George Russell took over his grandfather's investment firm in 1958, dust had scarcely started to settle on his Harvard Business School textbooks.
At that time, his grandfather's company was essentially a one-man business managing investment accounts for 14 clients. Lacking expertise as a money manager, Mr. Russell asked the customers to seek investment advice elsewhere.
It was 11 years later, after studying pension funds, that ''I learned enough to do something constructive,'' as he modestly puts it.
Today the Frank Russell Company, which retains the name of Russell's grandfather, is the nation's leading pension-fund consulting business. Its key clients, 69 companies, have $750 billion in pension assets.
Russell, a soft-spoken man who likes to wear short-sleeved shirts (with a tie), seems an unlikely head of such an operation.
But Joe Grills, a former IBM Corporation pension manager, says Russell saw the potential to provide a host of services for pension-fund managers and those who hired them.
''What George Russell was able to do almost as a visionary, was recognize that the industry was going to grow to a very large level,'' says Mr. Grills, now an independent investment adviser. ''He was on the ground floor.''
Observers also attribute the company's success to Russell's hiring top-flight people and entrusting them with responsibility long before ''empowerment'' became a buzzword. Each year some of the 1,200 employees climb Mount Rainier, which looms in view at the firm's Tacoma, Wash., headquarters. Russell himself has climbed the snow-capped peak several times.
In the financial community, the company is probably best known for tracking the performance of United States stock markets through indexes such as the Russell 2000 (small companies) and the Russell 1000 (large and medium-size firms) indexes.
But the company earns its bread and butter from consulting on pension strategies and tracking pension managers. Meanwhile, new avenues of business are opening up.
One such area is writing educational brochures for workers. More and more companies have shifted the responsibility of pension-fund management onto their employees. Workers contribute voluntarily to individual retirement plans, with the company often matching the contribution. In these ''defined contribution'' plans, also known as 401(k) and 403(b) plans, workers decide what mix of stock and fixed-income mutual funds to invest in.
Unfortunately, Russell says, employees tend to make poor choices.
First, too many workers don't participate in the retirement plans (though most do). Second, those who do participate often underplay stocks in their portfolio. A too-common mix is 90 percent fixed-income investments and only 10-percent stocks. Russell suggests stocks should have a significantly larger share. This balances the risk of a stock-market collapse against the risk of ''inflationary depreciation,'' in which a too-cautious portfolio fails to keep up with inflation.
In 1969, when J.C. Penney Company became his first pension client, too many companies hired only one person to manage their pensions, Russell says. And companies were hiring based on an old-boy network more than science. Russell helped change that by tracking the performance of money managers and their investment strategies.
''I was convinced that one manager was not the right number,'' he contends, since various styles of investing produce different financial results, depending on market developments. A separate division of the Russell Company handles the new employee-education effort.
In a new program called ''LifePoints,'' this division frames its counsel around the concept that people begin planning for retirement at different stages in their careers and with different tolerances for risk. A handbook directs people into one of three categories: ''beginnings,'' ''midway,'' and ''transitions.'' Once an employee selects his or her choice, a questionnaire unique to each category helps the employee determine the right investment mix.
Just as the company's original consulting business helps firms pick a variety of managers for their multibillion-dollar pension pools, LifePoints helps individuals select a balanced portfolio for their thousands of dollars.
For some clients, the Frank Russell Company's task ends with communicating options to workers. Other clients have the firm manage the investment money in Russell mutual funds. The investment-management business currently totals $40 billion in assets, including trusts and endowments as well as pension plans.
With consulting branches in seven countries outside the US, and many of today's richest investment opportunities in developing economies, Russell does a lot of traveling.
Six months after the Berlin Wall fell in November 1989, he founded the Russell 20-20, which comprises 20 pension-plan sponsors (such as AT&T Corporation and Caterpillar Inc.) and 20 money managers (such as Alliance Capital Management). Members tour one emerging economy each spring. This February it's India. Past trips include: Russia, China, and eastern Europe.
Russell sees ''a massive economic explosion'' in developing nations that, despite the risk of social unrest, offer potential rewards too great to ignore.