Brokerages Find a Gold Mine in Leisure World : Retirement Community’s Affluent Residents Are Big Source of Investment Cash
Dean Witter Reynolds Inc. has found its Laguna Hills regional headquarters a pleasant, if not slightly embarrassing, surprise.
Some Laguna Hills stockbrokers enjoy telling how Dean Witter all but backed into its Orange County offices next to the main gate of Leisure World.
The brokerage company’s regional headquarters in Laguna Beach had opened a small satellite office in Laguna Hills in 1975. When the satellite began outselling the main office, Dean Witter moved to the retirement village in 1977 to take advantage of the riches there. It closed the Laguna Beach location in 1982.
“On a per-broker basis, the satellite outsold Laguna Beach,” says Thomas J. Doherty, branch manager of the Southern California region, although he says it was a combination of factors that led to the office move.
Still, the move underscores the recent rush by securities brokers and other financial institutions to the nation’s largest gated retirement community.
The one-time bean fields outside Leisure World, part of the old Moulton Ranch that developer Ross W. Cortese bought in 1962, have sprouted at least nine securities brokerage houses, five banks, 12 savings institutions and numerous other money handlers. The institutions have turned a five-block area outside Leisure World’s main gate off El Toro Road and Paseo de Valencia into a supermarket of financial services. And many more brokers, bankers and lenders are a short distance away.
Retirement communities attracting brokers is not unusual. For instance, Robert Thomas Securities, which has a franchise operation in Laguna Hills, and its parent company, Raymond James & Associates, are based in the nation’s premier retirement city, St. Petersburg, Fla. But Leisure World, which opened in September, 1964, is different. The development has an intense concentration of money and is located in a growing part of an affluent county.
“If we had a chance to go to Leisure World or eight miles away where there is no bus service, we would be leaving a major market behind by going further south,” says Michael Zaccaro, branch manager for Prudential-Bache Securities, which opened its office in February, 1984.
Most of the brokerage firms--from the huge, New York wire houses to the small, regional operations--have arrived during the last two years or so to set up shop near where they expect the center of the county’s wealthier population to be in 10 or 15 years.
“It’s the largest growth of upper wealth in the county,” says Zaccaro. “We want to attract investors from Laguna Niguel, Mission Viejo and especially Irvine. So we’re as far south as we can get and still serve both areas.”
The brokers could have gone to those nearby communities, but it was Leisure World that attracted them to Laguna Hills.
Doherty recalled one customer’s reason for liking the financial community outside the main gate: “He said if he couldn’t drive later on, he could walk over.”
Just how major a market the community has become is borne out by U.S. Census and Leisure World statistics.
About 21,000 mostly retired people (the average age is 76 years old) live in 12,736 units on 2,095 acres. Their homes, from apartment cooperatives to single-family dwellings, range in price from $40,000 to $400,000--and the price does not include the land, which is owned by three Leisure World housing corporations.
Affluent Population
The per-capita income of Leisure World residents last year was about $20,580, according to the National Planning Data Corp., a research company based in Pittsburgh.
The company estimates, by comparison, that the county’s per-capita income was $13,974 and the state’s was $11,763. Brokers estimate the average Leisure World estate at $300,000 to $400,000.
The five bank branches in the mini-financial center outside the main gate of Leisure World collectively reported total deposits of more than $343.1 million as of last June 30.
Don McKee, manager of the Security Pacific National Bank branch outside Leisure World says his branch’s $97.55 million in total deposits, as of June 30, were “one of the largest in (Security Pacific’s) whole bank system.” A First Interstate Bank spokeswoman says its Leisure World branch, with more than $119 million in total deposits, is one of the bank’s top performing branches.
The residents often were captains of industry--retired corporate executives, bank executives, publishing executives and successful doctors, dentists and lawyers. At least three retired Army generals and two Navy admirals, along with a retired German U-boat captain from World War I, live in Leisure World.
Most of the residents in the development come from out-of-state and are more familiar with the stock market than their California counterparts, whose experience is often limited to real estate markets, brokers say.
Flush With Cash
One reason Leisure World is such a lucrative market for money handlers is that many residents who have just sold homes or businesses before retiring and are flush with cash, brokers say. And residents often don’t know exactly what to do with it, they say.
A few concessions to the elderly are made by both the national firms, such as Dean Witter, Prudential-Bache Securities and Merrill Lynch Pierce Fenner & Smith, and the small regional shops, such as Robert Thomas, Associated Planners Securities and American Pacific Securities. Brokers, for instance, will sometimes visit Leisure World residents in their homes, arrange for transportation for them or pick up and deliver securities when the residents are handicapped or cannot otherwise take the short trip outside the gated community.
“A client of mine for 16 years is now in a rest home, though he still has a house in Leisure World,” Doherty says. “He called up one day and asked me to pick him up for a hair cut and lunch. He’s 84 and like a friend, so of course I took him.”
Merle T. Egge, resident manager at American Pacific Securities, says he has helped customers “from time to time” cope with more mundane problems. Two widows who are regular customers, he says, recently came to him for help in buying automobiles. After determining what they wanted, Egge says, he took them to a dealership, dickered over the price and helped to arrange the financing.
Such special services are not the rule, but most managers say they occasionally will help their regular customers.
Gave Gift to Brokerage
Sometimes the customers help out the brokers. A long-time Dean Witter client once opened up a small refrigerator in the firm’s office and saw it packed with lunch bags. A week later, the client and a friend arrived with a full-size refrigerator as a gift, Doherty says.
And Robert Thomas customer Albert Panzer, who had been hanging around brokerage firms for 30 years, finally took the Securities and Exchange Commission examination last fall after a six-day crash course on securities. At age 70, he now is one of the firm’s brokers.
“The best thing about Leisure World is the people you deal with,” says Jack A. Fromm, managing partner at Crowell, Weedon & Co. “They are the single-most honest, easy-to-get-along-with people in California. You’re dealing with older, retired people who grew up in a different environment with old-time values. You treat them fairly and they are intensely loyal.”
Deals are sealed with handshakes and smiles, and bills are paid on time, he says.
“You work in a time warp. It’s like doing business in the 1930s,” Fromm says. “Their word is good and there’s never a compliance check. If a customer has had a Leisure World address, we’ve never checked a bank reference. It’s like doing business with mother and father.”
Fromm has perhaps the most experience working with Leisure World residents. Crowell Weedon is the longest-surviving brokerage house in Laguna Hills.
“A solid 60%” of the branch’s business comes from Leisure World, Fromm says. In 1967, the firm became the first tenant in developer Cortese’s Taj Mahal office building, a three-story, multi-pillared structure that dominates the middle of the financial community.
Old-Fashioned Look
Crowell Weedon’s office is set up much like the Wall Street brokerage houses of the 1930s and 1940s, with walnut-trimmed half-walls separating the cubicles of its 22 brokers. It is an office where investors still can sit on wood benches, sip coffee, eat doughnuts, read the Wall Street Journal and watch two electronic ticker tape boards on the wall flash the results from the New York Stock Exchange, the American Stock Exchange and other markets.
“The main thing we’re concerned with is protecting our income,” says Peter J. DeMuth, 94.
“The growth stocks are for the younger guys,” says DeMuth--a former congressman from Pittsburgh and retired engineer and home builder--as he joined his fellow Leisure World investors one recent morning at Crowell Weedon.
Typical Leisure World investors, brokers say, want to protect their wealth by preserving the buying power of their money. They are conservative investors looking for low-risk investments, such as certificates of deposit, blue-chip stocks, municipal bonds and other government securities.
They are usually more sophisticated, or at least more discerning, about what they do with their money.
Still, brokers noted that financial advertising in the community newspaper, the Leisure World News, often hypes the latest high-yield deals.
Use Discount Brokerage
Experienced investors who know what they want often walk into the tiny office of Charles Schwab & Co., a BankAmerica subsidiary, and use the video display terminal to check on stocks they have or want to have. Schwab offers discount commissions because it does not have a research department, and its brokers do not offer advice on what to buy or sell.
Up to 90% of Schwab’s business since its opening two years ago comes from Leisure World residents, says branch manager Francia Uso Miller.
The year-old franchise office of Robert Thomas Securities is trying to grab some of that market by offering similar discounts, but with full service, including advice backed by research provided by its parent brokerage house, says manager Louis J. Tonetti. A little more than half of its clients come from Leisure World, he says.
Besides advertising, brokers reach prospective clients in other ways, most commonly by offering seminars. For instance, J. Edson Clinton, branch manager of Associated Planners Securities, says he gives monthly seminars on investing and financial planning.
Others, like Egge of American Pacific Securities, teach one of the four courses on investing and estate planning that are offered by Saddleback Community College’s Emeritus Institute, a continuing education program. Instructors, however, are forbidden from soliciting business or degrading another company’s product, says Lee McGrew, associate dean of continuing education.
While brokers could see that the south county would be growing, they often were not sure about the retirement community, especially when sales were halted in 1967 as the community’s developer, Cortese, saw his Rossmoor Corp. lose $8.7 million in two years.
“I didn’t expect Leisure World to grow as big as it would when we first came here,” Crowell Weedon’s Fromm says. “And no one at that time had any inkling of what inflation would do, making so many of the residents millionaires. It’s been a pleasant surprise.”
