Accuracy and Responsibility

Michael A. Tappan makes every effort to be accurate. He learned as a retail broker about the costs of mistakes, and the responsibility a money manager has to its clients.

"Being a retail broker put me in touch with the fact that I was managing money for people," Tappan said. "A broker keeps that in mind, because people trust that you'll protect their investments. If you make a mistake, you're responsible to your clients for their losses."

Tappan began his Wall Street career seven years ago as a retail broker first at New York's PaineWebber, and then at Shearson Lehman Brothers, a predecessor brokerage of two current Wall Street firms.

Working for commissions, Tappan said his stint as a retail broker also gave him a strong work ethic, and taught him the importance of organization with a heavy workload. But after two years as a retail broker, he decided he wanted to move into trading, which seemed to better fit his personality.

So he made the jump to institutional trading, joining Ashland Management in New York in 1994. He felt moving to trading was the continuation of a learning process.

"The institutional side seemed like the most interesting part of Wall Street to me," Tappan said. "There is more of a level playing field, and a standard of sophistication. It's not a process that's transaction-oriented. There's a long-term approach to managing people's money."

He is currently the director of trading at Ashland Management. The firm is a large-cap growth manager, serving mostly pension funds, high net-worth individuals and wrap programs. With $1.6 billion in assets, Ashland Management has averaged a 20 percent annual return over its 20 years of existence. Last year, the firm averaged a 31-percent return for clients through the end of November.

"Being a broker served me well," Tappan said. "For a trader or a retail broker, you have to be 100-percent accurate, and you have to be able to recognize how things happen, and react quickly to changes. After a few years getting my feet wet as a broker, trading seemed like the continuation of a process for me."

At Ashland Management, Tappan and Michael Jablonski the other trader on the desk work closely with the firm's six portfolio managers and its investment committee. Tappan and Jablonski are relied upon to gauge the climate in the market, and advise the portfolio managers and investment committee on certain stocks. They also rebalance the portfolios on a day-to-day basis.

"It's important to have open communication and a sharing of responsibilities. It makes it more interesting to be involved in the whole investment process, and not just executing orders," he said. "It heightens your sense of responsibility for the work that you're doing, and for your clients."

Ashland Management follows set quantitative computer models in selecting stocks for the firm's accounts. Using information from Ashland Management's analysts, the proprietary models rate stocks that fit the firm's accounts. With the stock ratings from the quantitative models, the investment committee makes decisions on restructuring the portfolios.

To help balance the ratings by Ashland Management's quantitative models, Tappan uses some soft-dollar arrangements for proprietary research from the sellside. He estimates that up to 20-percent of his desk's trades are directed to soft-dollar firms.

"I would say that's pretty average," he said. "That outside research increases our ability to add value to our portfolios. But you don't want to be driven on the desk by soft dollars. You have to be driven by best execution."

Tappan and Jablonski work regularly with roughly 20 brokers a year. Tappan likes to keep a close relationship with his brokers for information on the stocks Ashland Management follows.

Tappan said he and Jablonski have been relatively inactive recently because Ashland Management's portfolios have performed well. But under normal market conditions, the desk can run from a few trades a day to nearly 500.

To perform well on busy days, Tappan's relationship with Jablonski works to their advantage. "We know how to work together, and we can step in for each other," Tappan said.

Tappan tends to do more of the desk's block trading, but on some days, the two just shuffle the orders out randomly. Occasionally, orders are directed by the portfolio managers. But Tappan and Jablonski usually have the discretion to work the orders themselves.

"We invest mostly in large-cap stocks, so finding liquidity is usually never a problem," Tappan said. "But I want to work hard with an order to get best execution. I want to be accurate, and help clients get the best return they can. Keeping trading costs to a minimum is important to that process."