Financial services summit focuses on Vermont as a business location

MIDDLEBURY, Vt.-Financial services businesses can flourish in Vermont because the state attracts talented workers and offers them a superior quality of life. That was the refrain at the Financial Services Industry Summit held Oct. 24 at Middlebury College’s Kirk Center. The purpose of the summit, jointly sponsored by Middlebury College and the State of Vermont, was to explore issues related to recruiting financial services businesses to the state. About 35 leaders of the industry with connections to Middlebury College or Vermont attended, along with faculty and administrators from the College, state economic development officials, and Governor James H. Douglas.

In his welcoming remarks, Middlebury College President John M. McCardell Jr. said financial services was selected as the focus of the summit because the industry meshes particularly well with the advantages a Vermont location offers.

Citing Middlebury’s successful and closely knit alumni financial services network throughout the country, McCardell said the efforts of summit participants to bring in jobs can have great significance in a state the size of Vermont. “The creation of just 500 new jobs can lower the unemployment rate about one quarter of a percent,” said McCardell. He also said the high-earnings positions that the industry would bring would generate other supportive employment opportunities.

Summit participants affiliated with Middlebury College represent over $65 billion of assets under management, including private equity capital as well as investment management and mutual fund assets. The market capitalization of listed companies represented at the meeting exceeds $40 billion. Several participants are also principals of nationally known financial service advisory firms.

Fredrick M. Fritz, a Middlebury graduate and trustee who was instrumental in planning the summit, said the goals of the summit process are long range. “We expect that, over time, the business leaders here today will help us get the word out about Vermont as an attractive location for financial services businesses,” he said.

Fritz, former chairman of Banc Boston Capital and Fleet Private Equity in Boston, said he hoped the summit would provide an inventory of the issues, including barriers, related to the process of attracting businesses to Vermont. He added that he expects Middlebury College will continue to play a central role in pursuing the issues discussed at the summit as an extension of two of the College’s initiatives, DigitalBridges2.0 and Middlebury Solutions Group, whose purpose is to help small, innovative Vermont companies grow into successful enterprises.

Secretary of the Vermont Agency of Commerce and Community Development Kevin Dorn said the purpose of the gathering was twofold. “One is to bring financial service professionals into Vermont and pitch them on the advantages of being located here; the other is to solicit advice from them about how we could do it better. It’s as much a conversation as it is a sales pitch.”

Dorn noted the ability of Vermont as a small state to be nimble and accessible when dealing with the concerns of businesses. He said the state’s balanced budget indicates a climate of conservative financial management in state government and the kind of stability that is an advantage to Vermont businesses.

Using the captive insurance industry as an example of how Vermont has responded in the past to the needs of specific business sectors, Dorn said that actions by the state created the statutes and regulatory structure that facilitated an influx of captive insurance companies. As a result, Dorn said, Vermont has the second largest number of captive insurance companies in the world, producing more than $7.2 billion in gross premiums.

The afternoon session included a panel moderated by Greg Peters, managing partner of Lake Champlain Capital Management, who introduced the principals of three financial services businesses currently located in Vermont. John Dwight, chairman and chief executive officer of John K. Dwight Asset Management; Kingman Penniman, president and chief executive officer of KDP Investment Advisors; and Joseph Rob, chairman and chief executive officer of Sentinel Family Funds, gave brief presentations on the advantages and drawbacks of doing business in Vermont.

Dwight, who started his business in Vermont 20 years ago and now employs more than 75 people, listed three major factors that make Vermont attractive: the physical setting, the sense of a small community that exists in the state, and Vermont’s ability to attract highly qualified people.

Dwight said the assets of financial services are its people. Describing several of his current employees, he also said he has been able to attract top quality people and that he experiences very little turnover of personnel. He said there are areas that Vermont could improve upon, noting an essentially neutral regulatory climate, transportation, and high taxes.

Much of the discussion following the panel presentations explored issues related to taxation in Vermont.

Responding to a comment that Vermont taxes seem to be causing some people to leave the state, Michael Claudon, D.K. Smith Professor of Applied Economics at Middlebury College and director of Digital Bridges2.0, said that taxes do not seem to be causing a significant exodus from Vermont. Noting the steady increase in property values in the state, Claudon said, “The market says that, though the tax bite is very real, there are still more buyers than there are sellers.”

Ken Perine, president of the National Bank of Middlebury, cited a study conducted by the Federal Reserve Bank of Boston indicating that total Vermont taxes are not out of line with other New England states. Perine’s statement was supported by Dawn Terrill, deputy secretary of the Vermont Agency of Commerce and Community Development, who cited a study that ranks Vermont 20th lowest in total taxation out of all the 50 states.

Lake Champlain Capital Management’s Greg Peters said that Vermont’s Act 60 has aggravated the tax situation by creating property tax imbalances among various towns in the state. “I think a message that needs to keep going back to Montpelier is that this is an ongoing issue and we need to get it under control,” said Peters.

In a town meeting format moderated by Charles Kireker, co-founder and managing director of Fresh-Tracks Capital, a Vermont-based venture capital firm, summit participants discussed the types of financial services businesses that would work best in Vermont, concerns about Vermont’s ability to support their demanding telecommunications needs, the educational climate needed to provide well educated employees, and other issues.

In response to concerns that a Vermont location could be seen as a drawback by clients who expect financial businesses to have Connecticut or New York addresses, John Dwight said that his clients have developed a preference for his Vermont location because it has fostered an atmosphere of low turnover and few distractions. He said the trade-off for living in Vermont is more frequent travel to keep in touch with clients and similar businesses. One Vermont business executive observed that talented, happy employees provide better service to clients.

Churchill Franklin, Middlebury College alumnus and trustee, and executive vice president of Acadian Asset Management in Boston, noted that his firm recently completed a recovery plan to be implemented in the event of a crisis such as a large scale terrorist attack. Franklin, who recruited many of the business leaders who attended the conference, said, “Vermont’s location not far from major metropolitan business centers, and its status as an unlikely terrorist target could make it a very attractive emergency location for businesses seeking to set up a remote site during a disaster.”

The day ended with remarks by Vermont Governor Jim Douglas, who noted that Vermont is one of five states in the nation that ended its last fiscal year in the black, and that there has been a net increase in jobs over the past six months. He stressed the quality of higher education in Vermont and described the business incubators being formed at some institutions.

Noting actions the state is taking in relation to energy, transportation, and telecommunications, Douglas said “[There is] a new culture, a new attitude, and a new energy to reach out and grow the economy of our state.” Referring to his efforts to bring more jobs to Vermont, he said, “It’s not just any job that I’m concerned about, because the average Vermonter doesn’t make as much as the average American, so I’m concerned about the quality of our jobs as well. Financial services is a place where we can grow that.” Douglas’ message to participants was, “We want your business, and we want you to feel good about Vermont.” He said the state is making great strides in becoming more attractive to business.

Following the governor’s speech, organizers agreed to plan future summits.

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