Succeed

Transcription

Succeed

NAPFA ADVIS R
MAGAZINE
Ron Pearson:
How to
Succeed
at Succession
Planning
Plus...
Where are
they Now?
August 2014
PERFORMANCE SUMMARY, CLASS R SHARES (SIRRX)
SIERRA CORE RETIREMENT FUND FROM INCEPTION 12/24/07 TO 7/31/14
$150 -
-150
Sierra Core Fund
$125 -
-125
Benchmark**
$100 -
-100
S&P 500
$75-
-75
$50-
-50
2008
2009
2010
2011
2012
2013
2014
Successful portfolio management involves both profiting from sustained uptrends — the past
three years have all been part of the current rising cycle — and limiting drawdown during the
adverse part of the cycle — which Sierra has also done very well for many years.
As of 6/30/2014
Latest Five Years
Cumulative*
Annualized
Since Inception 12/24/2007
Cumulative*
Annualized
Year-to-Date
One Year
Sierra Core Retirement
Fund Class R (SIRRX)
+5.73%
+5.61%
+38.22%
+6.69%
+58.23%
+7.29%
Benchmark**
+4.98%
+10.74%
+55.24%
+9.21%
+34.14%
+4.62%
“Cumulative” performance from inception is the total increase in value of an investment in the Class R shares assuming reinvestment of
dividends and capital gains distributions.
** “Benchmark” is the average of the mutual funds in Morningstar’s Conservative Allocation category. Conservative-allocation portfolios seek
to provide both capital appreciation and income by investing in three major areas: stocks, bonds and cash. These portfolios tend to hold
smaller positions in stocks than moderate-allocation portfolios.
The S&P 500 Index, a registered trademark of Mc-Graw-Hill Co., Inc. is a market-capitalization-weighted index of 500 widely-held common
stocks. Data here for the S&P includes dividends. Investors cannot directly invest in an index and unmanaged index returns do not reflect any
fees, expenses or sales charges.
The performance data quoted here represents past performance for Class R shares (symbol SIRRX), and are net of the total annual operating
expenses of the Class R shares (see below). For performance numbers current to the most recent month end, please call toll-free 855-5561295 or visit our website, SierraMutualFunds.com. Current performance may be lower or higher than the performance data quoted above.
Past performance is no guarantee of future results. The investment return and principal value of an investment in the Fund will fluctuate, so
that investors’ shares, when redeemed, may be worth more or less than their original cost. The total annual operating expenses including
expenses of the underlying funds (estimated at 0.58% per year) are 2.19% for Class A and Class I, 2.34% for Class A1 and Class I1, 2.94%
for Class C, and 1.98% for Class R. Please review the Fund’s prospectus for more information regarding the Fund’s fees and expenses.
ASSET ALLOCATION AS OF JULY 31, 2014*
High Grade U.S.
Bonds
13%
High Yield
Corporate Bonds
10%
Multi-Sector
Bond Funds
15%
U.S. Government
Agency Bonds
6%
IntermediateTerm Bonds
13%
Equities
22%
Low-Volatility
Funds
International 3%
Temporay
Havens**
2%
Municipal
Bonds
13%
Bonds
2%
*NOTE: Holdings can change at any time without notice. **Money Market & ultra short bond funds.
The top ten holdings of the Sierra Core Fund as of the date above is among the extensive information included in a four-page Fact Sheet,
which is updated at least quarterly and can be viewed and printed from our website, SierraMutualFunds.com.
PERFORMANCE BY QUARTER, CLASS R SHARES (SIRRX)
Year
Q1
Q2
Q3
Q4
Calendar
Year
Benchmark**
2008
-0.88%
+1.27%
-3.51%
+0.34%
-2.82%
-18.61%
2009
-2.01%
+20.12%
+9.14%
+1.82%
+30.81%
+20.77%
2010
+3.61%
+0.33%
+3.89%
+0.07%
+8.07%
+10.03%
2011
+2.34%
+0.807%
-0.69%
+0.18%
+2.63%
+1.70%
2012
+1.94%
+1.23%
+2.57%
+1.01%
+6.91%
+9.40%
2013
+1.01%
-1.67%
-0.69%
+0.58%
-0.80%
+7.23%
2014
+2.83%
+2.82%
The Sierra Core Fund pays a quarterly dividend. Shares are available through TD Ameritrade, Charles Schwab & Co. Inc., Fidelity, Pershing and
directly from the Fund.
The Fund indirectly bears the investment management fees and expenses of the underlying funds in addition to the investment management fees
and expenses of the Fund – all of which however are fully reflected in the above performance information. In some instances it may be less expensive
for an investor to invest in the underlying funds directly. There is also a risk that investment advisers of those underlying funds may make investment
decisions that are detrimental to the performance of the Fund. Investments in underlying funds that own small- and mid-capitalization companies
may be more vulnerable than larger, more established organizations to adverse business or economic developments. Investments in underlying funds
that invest in foreign equity and debt securities could subject the Fund to greater risks including, currency fluctuation, economic conditions, and
different governmental and accounting standards.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Sierra Core Retirement Fund. This
and other information about the Fund is contained in the prospectus and should be read carefully before investing. The prospectus
can be obtained on our website, SierraMutualFunds.com, or by calling toll free 1-855-556-1295. The Sierra Core Retirement Fund is
distributed by Northern Lights Distributors, LLC, Member FINRA/SIPC.
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Fr om the Edi tor
Practice Management
P
ractice management is a topic that we try to
cover every month in the Advisor in some
form. Because there are so many different
kinds of advisors represented by NAPFA, it’s
nearly impossible to include information in every
article that will apply to everyone’s practice—but
practice management is generally the one thing
that everyone can relate to. While it’s always a
focus of this magazine, this month that focus is expanded.
In each month’s Advisor, Stanley Ehrlich and Richard Sincere
take turns sharing observations and experiences gleaned from years
of running their own businesses. This month, Richard revisits the
theme of taking risks by literally revisiting his favorite coffee shop
in Vermont, where the owners have made big gambles with their
business. He offers advisors some lessons learned from a seemingly
unrelated industry.
Another monthly feature is the “Practice Profile” section, where
different advisors share details about their practices and what’s
currently helping them to manage their clients’ assets and their dayto-day operations. Once a year, we try to look back at some profiles
from a few years ago to see what’s changed at those practices. For
this year’s “Where Are They Now?”, six different advisors provide
insights into how and why their practices that have evolved since
2009. In addition, one advisor who was profiled in 2009, Ron
Pearson, describes how he used an unconventional approach to sell
his practice less than two months ago.
This year, Jennifer Lazarus, Diane MacPhee, and Melissa
Hammel have rotated responsibility for the other column that appears
in the Advisor each month. These three advisors bring their unique
insights into practice management by focusing on those aspects into
which they have particular expertise or insight. In Melissa’s column
this month, she looks at how advisors can defuse a tense situation in
which clients blame them for poor portfolio performance.
Practice management is also a topic that will be covered
extensively at the upcoming NAPFA Fall Conference in Charlotte,
NC. On the first day of the conference, attendees can choose from
sessions on buying a practice, making a good first impression, and
progressing toward ownership within a firm. On the second day, they
can attend sessions on key lessons learned in different firms, business
models for working with next-generation clients, solo practices, and
internships. On the final day, the session topics include social media
strategies and video content creation. In addition, for new planners,
the Practice Foundation series runs throughout the conference and
offers insight and training in key practice-management areas.
While I’m not an advisor myself, I always take away lessons
from practice-management topics that I can apply to my own
profession and to my daily life. Hopefully these topics will help you
in that way as well. If you have experiences from running your own
practice that you’d like to share, we’d love to hear them.
NAPFA CONTACT INFORMATION
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FAX: 847.483.5415
STAFF
CEO
Geoffrey Brown browng@napfa.org
Controller
Laura Maddalone maddalonel@napfa.org
Professional Growth and Education
Robin Gemeinhardt gemeinhardtr@napfa.org
Executive Assistant to CEO
Mardi Lee leem@napfa.org
Membership
Bevin Callan callanb@napfa.org
Membership and Education Coordinator
Heidi Tennant tennanth@napfa.org
Marketing and Communications
Rebecca Howard howardr@napfa.org
Membership Assistant
Cindy Ganze ganzec@napfa.org
Consultants
NAPFA Advisor Editor
Chris Hale 540.354.0755 editor@napfa.org
Publisher and Director of Magazine Operations
Eric Haines 732.920.4236 ric.haines@erhassoc.com
NAPFA Advisor Production
Eric Georgevich ericgeorgevich@gmail.com
NAPFA Consumer
Education Foundation
NCEF Coordinator
Lisa Lenczewski lisal@napfa.org
The NAPFA Advisor Magazine issue #8 August 2014 is published
monthly for $85.00 per year by The National Association of Personal
Financial Advisors, 3250 North Arlington Heights Road, Suite 109,
Arlington Heights, IL 60004. USPS number 024-735. Periodicals
Postage Paid at Arlington Heights, IL, and additional entry office in
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From time to time, NAPFA Advisor publishes articles on
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or timeliness of such advice. Submissions are encouraged but will be
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by a stamped, self-addressed envelope.
NAPFA and NAPFA Advisor do not guarantee or endorse any
product or service advertised in the NAPFA Advisor.
Napfa Advisor August 2014
3
4
Ta b l e o f
Contents
A ugus t 2 0 1 4 Vol. 3 1 , I ssu e 8
Ron Pearson
The former Navy Wing Commander and, as of
July, former financial planner discusses how he
leveraged a career of mentoring into a successful
sale of his practice. Pages 14-16.
Departments
Keeping Up with NAPFA
In the Limelight
The Drawdown Effect
Greg Miller, CPA, of Wellesley Investment
Advisors, explains how convertible bonds
can help investors weather the next market
drawdown. Pages 18-19.
8
32
Features
Staying in the Game 10
Does Changing Your Business Model Help or Hurt?
Income Protection Planning
Mitchell D. Nelson, DIA, CLTC, of
MyDisabilityPlans, LLC, describes how
advisors can better understand income
protection strategies for their clients.
Pages 26-27.
(excerpted from figuide.com)
By Jim Blankenship
QDRO vs. Transfer Incident to a Divorce
Divorcing couples often face the need to split up some
retirement account assets. This can be done from a retirement
plan such as a 401(k) or 403(b) or from an IRA. Depending
on the type of account, the rules are very similar but are
referred to by different names. For a qualified retirement
plan, the operative term is “Qualified Domestic Relations
Order” or QDRO. For an IRA, the action is known as a
transfer incident to a divorce.
With a transfer incident to divorce, the original owner
of the IRA is allowed to direct all or a portion of the IRA
account to his or her ex-spouse’s IRA. The major difference
between a QDRO and a transfer incident to a divorce is that a
transfer incident to a divorce does not allow for the receiving
ex-spouse to receive the funds penalty-free if not rolled over
into a receiving IRA. With a QDRO, although the funds are
taxable to the receiving ex-spouse, there is no 10-percent
penalty if the funds are withdrawn prior to his or her reaching
age 59 ½.
Practice Management
Ron Pearson: Succession Built on Mentoring
14
Investing Convertible Bonds and the Drawdown Effect
18
Practice Profiles
Where Are They Now?
22
Insurance26
Income Protection Planning
Columns
From the Editor
Practice Management
3
From the CEO
Volunteerism
6
The Counselor Is in Blame
28
5
Geof Brown, NAPFA CEO
Volunteerism
S
ummer is always an important time to
recharge and prepare for the upcoming
year. Many of us will spend time creating,
reviewing, planning, and improving upon the
programs and services that we offer. During
the summer at NAPFA, we focus on those
items, as well as the relationship and needs of
organizational volunteers.
Volunteers are the lifeblood of any professional membership
organization, and NAPFA is no different. These committed
individuals put in extra time to ensure that their peers have a
valuable professional experience as part of their affiliation. They
have also taken on the added responsibility of helping create
compelling experiences for each of you.
Being a NAPFA volunteer, no matter the size of your role,
can be exhausting, and we depend on our volunteers to share their
subject-matter expertise, to help generate ideas, and to engage your
peers on our behalf. Our volunteers are teachers, leaders, coaches,
and mentors to those who find a home in this community. We often
hear that receiving our array of member services is valuable, but the
experience is only complete when you make the decision to give
back by serving as a volunteer.
NAPFA volunteer positions provide opportunities to enhance
your development as a financial planning professional. Becoming
a volunteer is an excellent way to connect with the NAPFA
community and financial planning profession on a different level.
We work very hard to make sure that experiences align with
member interests and offer an outlet for meaningful contribution to
the organization.
As a NAPFA volunteer, you can:
• Contribute to industry and organizational issues
• Receive leadership training
• Exercise new leadership, teambuilding, and
communication skills
• Network intimately with industry experts and thought
leaders
• Engage fellow NAPFA members in meaningful dialogue
• Participate in the design of “by members, for members”
programming
• Work collaboratively in order to foster a spirit of
innovation and creativity
• Learn from diverse people and viewpoints
• Contribute firsthand to knowledge creation
Please join me in thanking all of our 2013-’14 volunteers for their
gifts of time, talent, and treasure. If you are not currently volunteering,
please consider doing so in the future. We have ambitious plans for
the coming year, and your assistance would be appreciated.
I hope to see you in Charlotte, NC, on Oct. 21-24, for the 2014
Fall National Conference! You will not want to miss the exciting
lineup of educational sessions and networking opportunities slated
for this year’s program.
6
NAPFA'S MISSION STATEMENT
To promote the public interest by advancing the financial
planning profession and supporting our members consistent with
our core values.
CORE VALUES
•
•
•
•
•
Competency: Requiring the highest standards of proficiency
in the industry.
Comprehensive: Practicing a holistic approach to financial
planning.
Compensation: Using a Fee-Only model that facilitates
objective advice.
Client-Centered: Committing to a fiduciary relationship that
ensures the client’s interest is always paramount.
Complete Disclosure: Providing an explanation of fees and
potential conflicts of interest.
VISION
The public recognizes that NAPFA advocates the highest
standards for personal financial planning and that NAPFARegistered Financial Advisors are the trusted advisors of choice.
BOARD OF DIRECTORS
Chair
Linda Leitz, CFP®
Colorado Springs, CO
linda.leitz@napfa.org
Giles Almond, CFP®, CPA/PFS
Charlotte, NC
giles.almond@napfa.org
Cheryl Costa, CFP®
Framingham, MA
cheryl.costa@napfa.org
Robert Gerstemeier, CFP®
Loveland, OH
bob.gerstemeier@napfa.org
Anne Gibson, CFP®
Ellsworth, ME
annegibson@gibsongfs.com
Tim Kober, CFP®
Beaverton, OR
tim@cedaradvisors.com
J. David Lewis, MBA
Knoxville, TN
david.lewis@resourceadv.com
Tony Ogorek, Ed.D., CFP®
Williamsville, NY
tony.ogorek@napfa.org
Dana Pingenot, CFP®
Dallas, TX
dana.pingenot@napfa.org
CEO
Geoffrey Brown
browng@napfa.org
SEPTEMBER 2006 Napfa Advisor
LLIS BY THE NUMBERS:
LIFE LONG INSURANCE SERVICE
99.6%
OF YOUR CLIENTS WERE APPROVED
IN 2013 FOR THEIR POLICIES DUE
TO OUR COMPREHENSIVE
PRE-UNDERWRITING
1,485 POLICIES PUT
IN FORCE IN 2013
WHAT
DOES
THIS
MEAN
FOR YOU?
"
10,044
POLICYHOLDER SERVICE EMAILS SENT IN 2013
Advance Premium Email
Late Payment Notices
Lapse Notifications
Notification of Term Expiration
9,594 POLICIES PUT
IN FORCE SINCE 1998
You have no idea how valuable your information is to me.
Impressive follow through!
YOUR HIGH TECH, HIGH TOUCH APPROACH IS GREAT FOR MY CLIENTS AND ME.
It’s comforting to know you’ll be there to help my clients with their policies now and into the future.
A NICE SERVICE. I’VE NEVER SEEN AN INSURANCE AGENCY PROVIDE ANYTHING LIKE THIS!
"
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August 2014
7
A helping hand for the young Fee-Only advisor.
K eeping Up W ith N A P F A
Third ‘Jump-Start Your
Retirement Plan’ Scheduled
NAPFA, in partnership with
Kiplinger, has held two “Jump-Start Your
Retirement Plan” online sessions this year.
The third session is scheduled for Sept. 25,
and NAPFA members are encouraged to
participate.
In the second session, held June 5,
81 different consumers asked NAPFA
advisors 126 questions. Previous sessions
are available at live.kiplinger.com/Event/
Jump-Start_Your_Retirement_Plan.
NAPFA and Kiplinger will offer one
more Jump-Start program this year, in
December. “We’d like to have 20 advisors
answering consumer’s questions for each
Jump-Start,” said Bevin Callan, NAPFA’s
membership manager, said. “Once we
confirm the date for the December
session, we’ll be recruiting more member
volunteers.” Members who would like to
participate in the sessions are invited to
contact Callan at CallanB@napfa.org or
847-483-5173.
Full Slate of Progr ams
at Fall Conference
At the Spring Conference, NAPFA
members were immersed in the concept
of “behavior” amid a shifting financial
landscape. In October, the theme of
adapting to change will continue, with
“evolution” taking the forefront at the
NAPFA 2014 Fall Conference.
The conference, “Evolution Now:
Adapting and Thriving in a Changing
Environment in 2015 and Beyond,” will
be held October 21-24, in Charlotte, NC,
at the Westin Charlotte.
Featured speakers include:
• Dan Heath, a senior Duke fellow, will
share a four-step process designed to
counteract biases and irrationalities in
decision making.
• Greg Valliere, a political and
economic researcher, will present “A
View from Washington.”
• Sen. Kay Bailey Hutchison
will address the future political
environment.
• Hardeep Walia, Motif Investing cofounder, will discuss technology and
social media.
• Amy Florian, CEO of Corgenius, will
discuss the process of helping clients
transition through loss and grief in a
pre-conference session on Oct. 21.
• Bob Doll, chief equity strategist
and senior portfolio manager at
Nuveen Asset Management, will
speak on the current economic and
investment outlook.
A wide range of other sessions will
cover topics geared toward experienced
planners as well as those who have
recently opened a Fee-Only practice or are
thinking about doing so.
Days in Charlotte
• Four
Keynote Speakers
• Five
45
Total
Sessions
• Unlimited
Value to Your Business
•
NAPFA FALL CONFERENCE Oct. 21 – Oct. 24
Westin Charlotte Hotel, Charlotte, NC
Attendees will:
8
• Becomemorecompetitiveasa
Napfa
Advisor
August 2014
Fee-Only
advisor
• Hearpoliticalandeconomicenvironment
forecasts
Registration is $795 for NAPFA
members and $1,095 for non-members
before Sept. 8, after which it increases by
$300. An additional $100 discount will be
given to non-members who are attending
a NAPFA conference for the first time, as
well as NAPFA members who recruit a
non-member, first-time attendee.
Planning is also underway for the 2015
Spring Conference, to be held in San Diego.
For more information, go to NAPFA’s
website.
Book Encour ages
Fee-Only Planning
Michael J. Garry, CFP®, JD/MBA,
recently self-published “Independent
Financial Planning: Your Ultimate Guide
to Finding and Choosing the Right
Financial Planner.” Garry argues that most
people need a financial planner and tells
how to find one.
The book is getting a good deal of
press, including a piece in USA Today and
other news outlets. “In all of those pieces,”
Garry said, “I tell people that the best way
to work with a financial advisor is the
Fee-Only model, and I always mention
NAPFA as the first place to look.”
Garry is a managing member and
Chief Compliance Officer of Yardley
Wealth Management, LLC, Newtown, PA.
Correction
In the July issue of the NAPFA Advisor,
we ran the article “What to Consider when
Analyzing Real Estate,” by Edward Brown.
In the article, on page 30, the following chart
should have been included with the article.
We apologize for the error.
This chart should have accompanied the article "What to
Consider When Analyzing Real Estate" in the July Advisor.
It illustrates a comparison of excellent real estate ratios
compared to poor ratios.
9
Staying in the Game
By Richard Sincere
Does Changing
Your Business Model
Help or Hurt?
A
ny entrepreneur who has started
a successful business will admit
that you have to be self-absorbed
at the beginning. If you don’t want to
work 24/7, then your likelihood of success
will be diminished. Many people will
be cheering for you, and you’ll receive
lots of advice—but if that advice comes
from anyone other than a successful
entrepreneur, it is probably flawed. After
all, it is hard to give advice if you haven’t
walked in the shoes of an entrepreneur.
As your business grows more
successful, there comes a time when you’ll
start looking around at other businesses
in order to glean ideas for further success.
The most logical choice for readers of this
publication is to look at other Fee-Only
firms. Most will be gracious and more
than willing to show other advisors their
business models. This allows advisors who
are on the cusp of a successful business
to learn the do’s and don’ts of running a
strong business once they’ve figured out
where the “pencil sharpener is located.”
Learning from
Other Industries
Each person is different. In my own
case, after about a decade of running
my own firm, I started looking at noninvestment businesses to see how those
firms ran their businesses and if there were
lessons I could draw from completely
different industries. Since I’ve always
been interested in philanthropy, I’ve
been fortunate to meet many successful
entrepreneurs who give back to the
community. This led to discussions about
their business models and their strategies
for success.
Even though I’ve been lucky enough
to have many successful entrepreneurs
give me advice, I still fall back on
Frontside Grind in North Conway, NH,
as an excellent example of how to run a
business. While a gourmet coffee shop and
an upscale RIA firm aren’t remotely the
same businesses, each can learn a lot from
the other.
First, Frontside Grind offers one
of the best cups of coffee I’ve tasted
around the United States. This isn’t by
accident. Co-owner Austin has spent
years testing and roasting coffee beans to
perfect their flavor, and he is a passionate
coffee connoisseur. He takes his business
seriously and is adamant that his product
is better than those of his competitors.
While Austin and co-owner Laura
are driven to produce the best product
possible, they must also return a profit.
They realized that their business wasn’t
growing due to size constraints of their
rented space and a lack of visibility in a
town that enjoys significant tourism due
to its year-round outdoor activities and
family-friendly shops and lodging.
Risky Decisions
Given a choice between making
a comfortable living vs. renting a
larger, more centralized location with
significantly higher rent (and where at
least two former restaurants had failed in
past years), they took the risk and moved
into the larger space. While the upside
would be substantial if their gamble paid
off, there was a good chance that their
vision would fail and that they would
be yet another business sinking into the
quicksand of this location.
A couple of years prior to this, Austin
had decided to expand his business model
to include roasting his own coffee beans,
putting in many hours outside of the retail
business. If I had my consultant hat on, I
would have advised Austin that, allowing
yourself to be distracted from a successful
core business is risky. While I really
admired his pursuit to make a perfect cup
of joe,—and he loved the roasting side of
the business—I worried that he might be
taking on one too many activities.
Laura, Austin’s business partner
and wife, didn’t want to be accused of
running her side of the business without
any changes, so she had started analyzing
the “culture” of the old coffee shop and
decided to make drastic changes. By
changing the seating arrangement and
décor of their original smaller location,
she discouraged patrons from lingering
for hours in the morning and to instead
purchase their coffee and then move along
after a reasonable time.
This did not sit well with many of
their loyal clientele. But in the end, the
name of the game is sales, and their
limited space discouraged potential
customers who did not to want to wait
in line before they were served but who
certainly were happy to linger afterward.
However, the new location, which is
considerably larger, encourages folks to
stay as long as possible, providing WiFi
and both indoor and outdoor seating.
When I wrote about Frontside Grind
a couple of years ago, I was unsure if they
would be successful. But I thought Austin
and Laura had the right to run the business
that was most desirable to them. The fact
that they were making sensible changes
and could go back to their original model
if it didn’t work was enough for me to
realize that, one way or another, they
would be successful.
As I visited North Conway after
months of being away, I was delighted
to see their success. The new location
was thriving. People were lined up in
two lines, 10 deep, at all hours of the
day waiting for excellent coffee. People
were hanging out inside at tables and
on couches and outside in their fencedin terrace, working on their computers,
having in-depth conversations, and just
enjoying their coffee, friends, and the
Continued on page 12
10
Moneyguide Pro New
11
Staying in the Game
Continued from page 10
beautiful mountain scenery. Austin, who
wanted time to really make sure his coffee
was superior to others while selling the
roasted beans to commercial shops, was
working hard on his passion. And a whole
host of “hip” employees were working at a
coffee shop that was “happening.”
Lesson for Advisors
What can advisors learn from
Frontside Grind? First, you really have to
try to offer a good product—but there's
a point when you have to go with “good
enough.” I know many entrepreneurs
who never market their services because
they are always trying to create the most
exceptional RIA firm possible—either
they stay really small and unprofitable
because they feel their firm just isn’t good
enough, or, even worse, they never launch
at all.
As an entrepreneur, it is important to
make sure you are offering a really good
product, but you must also realize that the
best is never going to happen, since things
always are changing and there are always
opportunities to make something better
along the way. If you can’t launch your
firm because it never quite meets your
standards, then you never give a potential
client a chance to experience the good
offerings you already have. Austin knows
that his current coffee bean is a really
good offering.
Another thing you can learn from
Frontside Grind is “location.” I was with
an advisor the other day who was talking
about moving away from her beautiful
building. She was concerned that there
weren’t enough parking spots, and, if
only she were allotted more parking
spots, then she would be willing to
stay put. She realized that if her clients
couldn’t easily get to her location, it
wasn’t worth staying. Location does
matter, and being at a place that doesn’t
require a lot of effort to reach is very
important.
I’ve also been visiting a number of
advisor offices that are getting bigger.
A lot has happened since many advisors
started their businesses, and if you’ve
grown your clients but not your office
space, odds are that it is time to look at a
bigger space. It might be a risky move that
comes with a much higher rent. And with
12
2008 still looming in our minds, this risk
seems somewhat scary. But sometimes,
“if you build it they will come” isn’t a bad
mantra. After his move, Austin is probably
more successful than he ever thought
possible.
Finally, changing clientele is
always a tough one. While Frontside
Grind probably retained a majority of
its clients, I’m sure Laura and Austin
have lost a few, as some people simply
don’t like change. Advisors are always
challenged with this issue, and many
have upped their minimums or politely
mentioned to some clients that the fit
isn’t the best. At some point, you have to
look at your clientele and see if you are
a good fit and whether it’s a fair deal for
both sides.
Some clients are more time
consuming or, in Laura’s case, “take
up to much space.” If you make things
uncomfortable for cafe patrons (or “firing“
clients) you risk offending not only your
clients but also their friends. On the other
hand, if some current clients are a drag on
morale or growth, then shaking hands and
saying goodbye isn’t a bad strategy.
Without the courage to make changes,
it is impossible to grow your business.
Hopefully, most of us are happy with
our current clients. But if we’re not, then
making a change is not onlythe right thing
to do, but it is also rather important. After
all, we started our businesses to gain
greater happiness than we were having in
a previous work environment.
Finding the Best Beans
As a final note, I’m so proud of the
success that Frontside Grind has had, even
though I’ve never had anything to do with
their business other than as a customer
and observer. As I grow older, it becomes
more evident that change needs to occur
in order to stay engaged. There are many
leaders in our industry who developed
different extensions to their business.
Advisors with the name of Warren, Norm,
Linda, Dave, Joel, et al. are well known
to all of us. Each one realized that he or
she could create a business that would
help other advisors. But deep down,
we entrepreneurs need to broaden our
horizons to keep ourselves from getting
bored.
Frontside Grind was willing to risk its
customer base to become focused on what
makes its owners happy. Some advisors
are available to anyone who comes
through the door, but others have become
experts in a specific area of financial
planning. Sometimes, being very focused
is really risky but also creates a real
knowledge base to help other clients.
Austin decided he wanted to have
the best coffee, bar none. He was
willing to become an expert in finding
the best beans in the world and thought
that his customers would pay more for
his outstanding coffee. And, even in a
community where income levels vary
significantly, he found a willingness to
pay for outstanding coffee. Clients of
advisors are also willing to pay more for
real expertise.
Richard Sincere is chairman and CEO of
Sincere & Co., LLC, a NAPFA Resource
Partner company based in Chicago.
Contact him by phone at 847.905.0225,
or by email at rs@sincereco.com. His
company’s website is sincereco.com.
NAPFA ADVIS R
MAGAZINE
FOR SINGLE
ARTICLE
R EPR INTS
Contact R ic H aines
Publisher & Dir ector
of M aga zine
Oper ations
ric.haines@erhassoc.com
Phone: 732.920.4236
This isn’t about returns, it’s about
relationships.
As a financial advisor, you know there’s nothing more important than
having a good relationship with your clients. We feel the same way.
That’s why we have a team of well-seasoned relationship managers
who actually listen first, then work with you to create custom strategies
based on your unique business needs.
Get ready for a different kind of custodian. Welcome to Human Finance.
TD Ameritrade Institutional, Division of TD Ameritrade, Inc. member FINRA/SIPC/NFA. TD Ameritrade
is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.
©2013 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission. 36 USC 220506
Give us a call at 800-444-6100
Or get to know us at HumanFinance.com
13
Practice Management
By Chris Hale
Ron Pearson:
Succession Built on Mentoring
I
n 2009, Ron Pearson had begun to
look ahead to the day when he would
retire for a second time. The former
Navy Wing Commander had retired from
active duty in 1994 and had been running
Beach Financial Advisory Service in
Norfolk, VA, since then.
“Six or eight years down the road,”
Pearson said five years ago, “I’ll sell my
firm to one of the NAPFA planners that
I’ve been mentoring.”
That schedule has been moved up,
and Pearson sold his firm and closed the
doors on July 21.
In an industry in which succession
planning is sometimes an afterthought and
always a challenge, Pearson managed to
make the transition to retired life in a way
that benefitted himself, his clients, and a
few other NAPFA members.
His solution was an unusual one.
Most planners find it difficult enough
to transition their clients to a single
new owner. But Pearson hand-picked
nearly a dozen different advisors to provide the right service for each client.
Mentoring
Pearson’s “succession plan” didn’t
start out as a plan at all. Instead, it began
as a way for him to learn the ropes.
“I got into the business after
26 years in the military and had no
background in financial planning other
than the CFP® courses,” he says. “It
wasn’t until I attended the NAPFA
Baltimore conference in ’92 that I found
some [planners] who were willing
14
to share a lot of information in the
hallways about how they do things.”
After returning from the conference,
Pearson wanted to have that same
experience at a local level. So he searched
all the Fee-Only advisors in Virginia and
called them to suggest getting together.
The group that was formed met for about
seven years.
“I knew that if I had a question about
something,” he says, “I could pick up the
phone and I knew the person I was talking
to. That helped a lot.”
Eventually, Pearson chaired a NAPFA
study group that met in Charlottesville,
VA, which is a three-hour drive from
Norfolk. Ten years ago, when there
were only one or two other Fee-Only
planners in the Hampton Roads/Virginia
Beach area, Pearson turned over the
Charlottesville study group to Brian
Carlton and started the Hampton Roads
study group with some other solo
practitioners who he’d been talking with
about setting up a business and other
practice-management issues.
“During this time,” he says, “I
was also the careers chair for the local
FPA chapter, so people looking to start
a business would come see me.” At
those meetings, he would invite them
to the NAPFA study group if they
were interested in discussing Fee-Only
planning.
But none of this, Pearson says, was
part of a grand plan to sell his practice,
even though his mentoring eventually
did lead into a succession plan. Instead,
he says that he was simply giving back
in the ways that NAPFA members had
been supportive of him when he entered
the profession. “I just felt like that was
something that was inherent in being a
NAPFA member—sharing information
and helping other planners.”
Succession Plan
When Pearson’s practice was profiled
in the Advisor in 2009, he’d only just
begun thinking about the possibility of
selling his practice. At the time, he had 43
retainer clients and a few dozen more who
came to him on an hourly basis. Most of
them were already retired or semi-retired
themselves, and he’d already stopped
taking new clients a few years previously.
For him, the focus had always been on
building a stable solo practice that would
give him a flexible schedule that enables
him and his wife to raise their grandchild.
He didn’t see his practice as a commodity
that he would eventually turn around for a
profit.
“In the last four or five years” he
says, “it dawned on me that, in terms
of an income stream, the business was
potentially worth something in a sale. It
was just serendipity that I had a study
group and that I knew a bunch of planners
who I’d helped mentor. I knew what their
strengths and weaknesses were…so I
could better match up my clients to them.
When the time came to sell, that was quite
useful to me.
“Succession planning was strictly an
afterthought. That was, again, serendipity.”
Practice Management
“People came to me, or I’d hear
about a new Fee-Only planner and
give them a call and sit down and talk
to them,” he says. “And there were a
number of people who were transitioning
out of the military just like I had, so I was
pretty useful to them…to give them an
idea of how things went—how to set up a
business and how to work with the state
and all that sort of stuff.
“I probably ended up mentoring 15
to 20 advisors over the 20 years that I was
in business, from all over the place—just
in regular financial planning, but I also
have a sub-specialty in special-needs
planning and did a number of speaking
engagements with NAPFA on that. So I
get calls from all over the country from
advisors asking questions [related to]
special-needs-specific issues with their
clients.”
Placing His Clients
Over the past year, Pearson had
been getting a “full-court” press from
advisors and firms who were interested in
purchasing his practice.
“I got maybe a half dozen unsolicited
offers for my practice,” he says, “all of
which I turned down.”
The practice he’d built over the years,
Pearson realized, didn’t readily lend itself
to a client list that he could easily turn
over to a single buyer.
“Again,” he says, “I started off without
any idea of selling a practice. I was just
putting together people and developing
some income, so I had everything from a
retired schoolteacher with $100,000 to a
neurologist with $13 million.
I knew a bunch of
planners who I’d
helped mentor. I
knew what their
strengths and
weaknesses were….
When the time came
to sell, that was
quite useful to me.
“What I found was that I did not go
in to the business with the idea of having
a focused practice that would then be a
good match for anybody else. The local
advisors who I knew were pretty much all
into mutual funds, and I had a number of
clients who had individual stock positions.
The issue I had was that there was no one
firm…that was a good fit for all of my
clients.”
His solution was to place his clients
with multiple advisors, most of whom
he’d gotten to know through mentoring
relationships over the years.
“I segregated them out,” he says,
“and maybe five or six I put into
basically a good balanced fund and sent
them over to retail…because they didn’t
have enough assets that anybody would
take them on.
“I probably researched 100 to 150
advisors to try to find fits for the various
client mixes that I had. About half the
clients ended up with local [Norfolk]
advisors.” Three of his clients went to a
Fee-Only advisor (not a NAPFA member)
in Williamsburg, VA, four went to two
NAPFA advisors in the DC area, and one
client in Rhode Island ended up with a
NAPFA advisor in Massachusetts.
But placing his diverse mix of clients
was sometimes challenging.
“I had a client in Houston with
over $600,000,” Pearson says, “and I
couldn’t find one NAPFA advisor that
he met the minimums for in Houston. I
was really disappointed in that—what a
great opportunity for a young advisor in
Houston to start off a practice…because
nobody else will take him.”
Ron Pearson led the Hampton Roads Study Group for 10 years. At the group's most recent meeting, he met with John
Fiege, Brian Anderson, Paul Merritt, Arthur Jones, Vivian Honeycutt, Jim Flinchum, and Jim Carbone. Although
Anderson and Merritt aren't NAPFA members, they've attended the study group for years.
15
Practice Management
For that client, Pearson spoke with his
custodian, and they suggested a fee-andcommission planner in the same town as
the client. “So I sold him to that guy,”
Pearson says. “But that was disappointing.
“I had the same problem with a client in
Charlotte, NC, who had [around] $400,000
and didn’t meet anybody’s minimums.
That was really frustrating.”
The Charlotte client has family in
Norfolk, so Pearson was able to find a
planner in the Norfolk area who the client
can see when she visits her family.
In all, Pearson’s clients are now split
among 11 different advisors. In the process,
some clients decided to go to retail advisors
or to choose a different advisor than the one
that Pearson had selected.
Selling His Pr actice
When it came to deciding how he
would be compensated for his clients,
Pearson opted for a simple model that
would provide him with revenue for the
next four years.
“Basically,” he says, “I told each of
these new advisors…what I was looking
for as far as compensation. In all the
cases, we did it on a verbal handshake.
Generally, I was looking for a couple of
times revenues spread out over four years
based on what I would have been paid,
not what they’re going to be paid.”
My focus was on the
clients getting the
best matches that
I could for them
r ather than just
trying to maximize
my revenue, so it’s
all good from my
standpoint.
Under that model, Pearson isn’t
financially concerned with what the advisor
does with the client after the sale is made.
“If they grow the assets by two times,
I don’t get any more money—it’s all for
the gaining advisor,” he says. “I don’t have
to get reports on what they paid, what they
charged, and all that kind of stuff.”
But the model also comes with some
risk. Namely, Pearson has no control over
whether or not his former clients decide
to stay with the advisor he sold them to. If
they leave, then the payments stop.
“So I take the risk there that if I made
a poor choice and my client doesn’t stay,
then I don’t get any more revenue from
that client,” he says. “So far, it seems to be
working.
“I’ll probably get, when all’s said
and done, just about one-and-a-half
times my revenue instead of the two that
I was looking for, but my focus was on
the clients getting the best matches that
I could for them rather than just trying
to maximize my revenue, so it’s all good
from my standpoint.”
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16
Investing
17
Investing
By Greg Miller, CPA
Convertible Bonds
and the Drawdown Effect
T
he bull market that began after
the crash of 2008 just celebrated
its five-year anniversary. In the
past five years, stocks, as measured by
the Dow Jones Industrial Average, have
gained more than 150 percent, making this
the fifth-strongest bull market in history.
Equities have now gone 29 months
without a 10 percent correction—an event
that normally happens every 18 months.
Although history tells us that each decade
has one to three bear markets (where
“bear” is defined as a 20 percent or greater
decline), we’re well into the fifth year of
this decade, and the bear has yet to show
its face.
Bond markets frequently have longer
cycles than equity markets. Amazingly, we
are in the third decade of declining interest
rates. In response to the great recession
of 2008, the Federal Reserve quintupled
the size of its balance sheet through
quantitative easing, resulting in short-term
rates that are near zero and longer-term
rates at near-record lows.
We don’t know what will trigger the
next bear market in stocks and/or bonds.
It could be geopolitical instability, the
Federal Reserve tapering its quantitative
easing program, a slowdown in China’s
economy, a combination of the above, or
some event no one can presently foresee.
The point is that we don’t know when
the next bear market will arrive, but we
know it will. And we know that if history
is any guide, many investors will be taken
by surprise and see their portfolios hit by
drawdowns.
Preparing for a Dr awdown
Just what are drawdowns? By
definition, a drawdown is the loss incurred
by an investment during a certain period of
time, measured from its peak to its lowest
point. In our opinion, drawdowns are the
single greatest determinant of investing
success or failure for the majority of
investors. Why? Because we can’t know
18
if a mutual fund or stock will ever recover
from a drawdown, let alone when.
Facing mature stock and bond bull
markets, it is probably sensible to ask,
“Is my portfolio as prepared as possible
to weather the effects of rising rates or
falling equity prices?” Some might ask,
“Which of these two events should I be
ready for? How do I protect my portfolio
from unacceptable levels of drawdown?”
Given these uncertain economic
times, we believe it prudent to plan for
either contingency and consider, in fact,
how these two variables typically work in
concert. We also believe that convertible
bonds are extremely well suited to meeting
this challenge. Why? Because high-quality
convertibles generally do not have the
horrendous drawdowns that most mutual
funds and stocks incur.
Risk-averse investors will shun the
temptations of the current stock market
and seek conservative investments.
We think this is precisely what longterm investors should do if they want
investments that earn more than the
paltry returns of short-term bonds and
other fixed-income investments yet don’t
want to see their portfolios devastated by
drawdowns.
We believe quite strongly that, if
properly selected, convertibles offer just
that—downside protection while allowing
for upside participation. This is, of course,
because convertibles are bonds, after
all, and offer all the safety, stability, and
promise to pay that a bond can offer.
Yet they have an equity kicker that can
deliver significant results under the right
circumstances (a sufficient rise in the
underlying stock).
In more traditional asset allocation
portfolios or funds—invested in both
stocks and bonds—risk parameters stay
the same in all market conditions. A
convertible bond portfolio will adjust to
market conditions in a different way, due
to the optionality of convertible bonds.
Thus, when the equity market falls, a
convertible bond portfolio will have more
sensitivity to changes in interest rates.
Conversely, when equity prices rise, a
convertible bond portfolio will be more
sensitive to changes in stock prices.
Convertible bonds also take the
guesswork out of timing the market, because
investors will already be positioned to take
advantage of market volatility. In the event
that markets remain calm, convertible bond
investors get paid to wait because most
convertible bonds pay coupons.
A few times, we’ve felt that market
uncertainty was more striking than it
is right now. Can we imagine a better
tool for managing the repercussions of
either interest rate moves or a return of
the bear than convertible bonds? No, we
absolutely cannot. Convertibles seem well
suited to help investors, no matter when
the sleeping bear awakens, and no matter
when rates inevitably rise.
Lucky or Good?
Given our faith in convertibles as
instruments that limit drawdowns while
providing healthy returns, it’s certainly
fair enough to ask the question: “Are you
lucky or good?” This, in turn, leads to
the broader question of the role of luck
vs. skill in investing. A recent article in
the American Association of Individual
Investors Journal ranked certain activities
on a continuum of pure luck and pure
skill. Gambling falls on the “pure luck”
end of the spectrum, while chess falls
on the “pure skill” end. Surprisingly,
investing was ranked closer to pure luck
than to pure skill on the continuum.
With all due respect to the author of that
article, we disagree that investing involves
little more than luck. We present convertibles
as evidence that a financial instrument, when
combined with our investment process of
limited risk investing, can outperform both
stocks and bonds over full market cycles (a
bull and a bear market).
Investing
Merrill Lynch has been tracking an
index of convertible bonds (V0A0) since
1973. Since that time, the V0A0 index has
outperformed both stocks and bonds. While
this performance is impressive, there are
some drawbacks to the V0A0 index. First,
it’s only fair to point out that one cannot
actually invest in the V0A0—it is intended
to be a proxy for the convertible bond
market. That being said, we have some
problems with it.
Risky investments such as convertible
preferreds (instruments that rank low
in a company’s capital structure) are
included in the index. In addition, many
of the companies in the index aren’t
profitable and could never meet a longterm investor’s criteria for credit quality.
Finally, there are some high-priced
convertibles that leave investors’ principal
at risk in the event of a market downturn.
In Greg Miller’s book “Outrunning the
Bear,” you can read more about our
criticisms of various indexes and why, as
of Jan. 1, 2000, we have created our own
index, TRW (Thomson Reuters Wellesley
Absolute Convertible Bond) that we
believe more accurately depicts a better
long-term convertible bond investing
strategy.
During the period January 2000
through April 2014, the TRW index
not only outperformed both bonds and
stocks, it also outperformed the more
conventional V0A0 convertible bond
index.
Convertible bonds are a unique class
of assets that, if managed properly, have
proven abilities to outperform both stocks
and other fixed-income products over full
market cycles. Likewise, the TRW index
reflects a long-term strategy focused on
limiting risk to principal.
We employ a careful investment
process designed to place limits on risk,
with the goal of beating both stocks and
bonds through full market cycles. There
can be no assurance that we will do this,
but we continue to hone our process in
an effort to achieve our goal and produce
strong results.
Rather than chalking our track record
up to “luck,” we think it far more likely
that investing in an attractive asset class
(convertible bonds), applying a consistent
and repeatable investment process, and
constantly seeking to improve that very
process has much more to do with it.
Greg Miller, CPA, is CEO and co-chief
investment officer of Wellesley Investment
Advisors (wellesleyinvestment.com).
Miller is the architect of the firm’s
investment strategy and a national expert
on convertible bonds. He is the author,
most recently, of the book “Outrunning the
Bear: How You Can Outperform Stocks and
Bonds with Convertibles.”
The following indexes have been used
as benchmark data. Indexes do not reflect the
costs of trading, management fees, or other
expenses. It is not possible to invest directly
in an index. WIA accounts differ from an
index in that they are actively managed and
may include substantially fewer and different
securities than those comprising an index.
Thomson Reuters Wellesley Absolute
Convertible Bond Index (“TRW”)
TRW is the Thomson Reuters Wellesley
Absolute Convertible Bond index. The Index
is a joint venture between Thomson Reuters
and Wellesley Investment Advisors. TRW
is intended to represent a strategy with the
goals of absolute returns and outperforming
both equities and fixed income over complete
market cycles deploying convertible bonds.
WIA has discretion over the selection of
index constituents and their weighting in the
index. It is not possible to invest directly in
this index, and TRW index returns do not
include any management fees or transaction
costs.
Source: Thomson Reuters.
Barclays Aggregate Bond
A market capitalization-weighted index
often used to represent investment grade
bonds being traded in the United States.
The index includes Treasury securities,
government agency bonds, mortgage-backed
bonds, corporate bonds, and a small number of
foreign bonds traded in the U.S.
Source: Bloomberg data / Barclays.
Standard & Poor’s 500 Total Return
(“S&P 500 TR”)
A free-float capitalization-weighted
index based on the common stock prices of
500 top publicly traded American companies,
as determined by S&P and considered by
many to be the best representation of the
market.
Source: Bloomberg data / Standard &
Poor’s.
Bank of America-Merrill Lynch V0A0
(“V0A0”)
Represents all U.S. convertibles,
excluding mandatory convertibles, small
issues, and bankruptcies. Source: Bank of
America.
19
This month’s featured commentary from Marketfield Asset Management
DAX and IBOV Index
2004 – 2014
Authored July 11, 2014 by Michael Shaoul, Ph.D.
Chairman of Marketfield Asset Management
Subadvisor to MainStay Marketfield Fund
We have deliberately refrained from
World Cup-related research over the
last few weeks (despite being a fan of
both football and markets, they really
are best kept separate) but Germany’s
comprehensive trouncing of Brazil in
Tuesday’s semi-final strikes us as a
reasonable excuse to look at the relative
positioning of the two countries’ local
equity markets.
As may be expected, the performance
gap of the DAX against the IBOV
in recent quarters has been as
impressive as the recent scoreline, but
there is some evidence that relative
performance has started to favor Brazil
over Germany. This is interesting since
Germany would probably be as clear a
favorite for portfolio allocations over
Brazil as for a choice of soccer team.
At right is a 10 year chart of the DAX and
IBOV indexes, both of which have been
re-based into USD (the chart thus shows
the effect of being an un-hedged US
investor in either index), together with
relative performance on the lower chart.
As can be seen, for the first 5 years
directional performance was very close
with Brazil, resembling a higher beta
version of Germany (both the currency
and equity markets contributed). The
IBOV outperformed on the way up (its
relative value increased almost four-fold
from 0.42 in July 2004 to 1.60 in May
2008), before collapsing in late 2008
such that its relative value more than
halved to 0.73 by late December.
20
Source: Bloomberg
The last 5 years have been much
more interesting. Brazil massively
outperformed Germany in the 2009–
10 rebound as the emerging market
complex reached peak popularity
and by September 2010, the relative
value of the IBOV had reached over
2.25. The IBOV and the DAX then both
lost substantial ground during the
Eurocrisis but then diverged radically
in its aftermath. While Germany’s DAX
almost doubled in USD terms, the IBOV
continued to grind lower as foreign and
domestic opinion soured on Brazil as an
investment opportunity. By February
2014, relative value was back to 0.46,
almost where it lay a decade ago.
IBOV and BRL have recovered some of
the lost ground and, as a result, relative
performance has moved up to 0.62,
back to where it was in November 2013.
We suspect this is a meaningful turn in
the relationship between these indexes
and that the “reflation sensitive” IBOV
index has a good chance of closing the
performance gap with the DAX going
forward. This is not a negative call on
the DAX (although we suspect it faces a
period of choppy consolidation thanks
to round number resistance) but a
repeat of our prior guidance that the
commodity sensitive export-driven
portion of Brazil’s economy deserves
additional focus at present.
Since February, things have started
to look a little different. The DAX has
stalled at 10,000 and the EUR has moved
lower against the USD while both the
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featured here, e-mail info@sincereco.com
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www.sincereco.com
847.905.0225
Past performance does not guarantee future results. Index performance is not illustrative
of Fund performance. For Fund performance, please call 877-742-6951.
Michael Shaoul is Chairman and
CEO of Marketfield and also Chief
Executive Officer of Oscar Gruss & Son
Incorporated, a position he has held since
December 2001. He joined Oscar Gruss in
1996 as Chief Operating Officer. Between
1992 and 1996, Mr. Shaoul ran Park Square
Associates, a Manhattan-based real estate
investment and management company.
He was awarded a Ph.D. in Accounting
and Finance in 1992 from Manchester
University (UK). Mr. Shaoul has written
articles on behalf of Barron’s and has been
regularly quoted in The Wall Street Journal
and Dow Jones Newswires regarding his
opinions on the investment markets.
Mutual fund investing involves risk. Principal loss is possible. MainStay Marketfield Fund
invests in smaller companies, which involve additional risks such as limited liquidity and
greater volatility. MainStay Marketfield Fund invests in foreign securities which involve greater
volatility and political, economic and currency risks, and differences in accounting methods.
These risks are greater for investments in emerging markets. Investments in debt securities
typically decrease in value when interest rates rise. This risk is usually greater for longer-term
debt securities.Investments in asset-backed and mortgage-backed securities involve additional
risks such as credit risk, prepayment risk, possible illiquidity and default, and increased
susceptibility to adverse economic developments. MainStay Marketfield Fund regularly makes
short sales of securities, which involves the risk that losses may exceed the original amount
invested. However, a mutual fund investor’s risk is limited to the amount invested in a fund.
MainStay Marketfield Fund may also use options and future contracts, which have the risks of
unlimited losses of the underlying holdings due to unanticipated market movements and failure
to correctly predict the direction of securities prices, interest rates, and currency exchange
rates. The investment in options is not suitable for all investors.
For more information about MainStay Marketfield Fund, call 800-MAINSTAY
(624-6782) for a prospectus or summary prospectus. Investors are asked to
consider the investment objectives, risks, and charges and expenses of the
investment carefully before investing. The prospectus or summary prospectus
contain this and other information about the investment company. Please read
the prospectus or summary prospectus carefully before investing.
MainStay Marketfield Fund is subadvised by Marketfield Asset Management LLC and distributed and offered by
NYLIFE Distributors, LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life
Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management
LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY
10010, provides investment advisory products and services.
NYLIM-1613874
21
Practice Profiles
2009…2014
Where Are They Now?
Looking at Practice Management, Five Years Down the Road
Robert
Zimberg,
Financial
Mountain,
Inc.
By Bridget
McCrea
Five years
ago, Financial
Mountain, Inc.,
had four employees, 120 clients, and
about $50 million under management.
Today, the company is managing the same
number of clients—plus an additional $20
million under management—with one
fewer staff member. Financial Mountain
is effectively leveraging technology like a
Redtail CRM and Riskalyze (a risk profile
analysis tool) to work in a more efficient
and streamlined fashion. Robert Zimberg,
president of the Boulder, CO-based
practice, has attended several Technology
Tools for Today (T3) conferences to
learn about up-and-coming hardware and
software and sees technology as a key
enabler for his practice.
In place since October, Riskalyze
allows Zimberg and his team to carefully
assess the upsides and downsides of
specific investments. “It’s a great tool
and a very different way for advisors
to create risk profiles,” says Zimberg,
who finds the software to be particularly
useful when working with clients who
have endured the market fluctuations of
the last 10 years. “While we definitely
have minimized the downsides for them,
anyone who lived through the downturns
of 2000 and 2008 is still very concerned
right now.” Zimberg uses a mix of
equities, high-yield municipal bonds,
preferred stocks, convertible bonds, high
yield bonds, and MLPs when creating and
balancing portfolios.
22
Since originally profiled in 2009,
Zimberg says business has remained
steady. He has his eye set on $100 million
under management by the end of next
year and says that “at that point, we’ll
pretty much be all set.” Most of the firm’s
growth has been organic, although a
good portion of its most recent growth
spurt has come from a high volume of
401(k) conversion business. “One of my
clients merged his company with another
firm, and the old employee plan is being
terminated,” he says. “We’re now in the
process of onboarding those clients. It’s a
little crazy around here.”
That influx of new clients presents
an inviting challenge for Zimberg, who
is well aware of the tendency to “set it
and forget it” when it comes to investing.
“We’re talking to people who haven’t
looked at their 401(k)s in 15 to 20 years,”
he says. “People get very ‘stuck’ in their
choices and their lives, and it’s nice to be
the ones who pull them out of that rut and
help them plan better financial futures for
themselves.”
Alex Murguia & Dean
Umemoto, McLean Asset
Management Corpor ation
By Bridget McCrea
Since being profiled in March 2009,
McLean Asset Management Corporation
of McLean, VA, has experienced
impressive growth. At the time, the firm
had 16 employees and 190 clients. Today,
the company is managing about 300
families with the same number of staff.
Headed up by Dean Umemoto and Alex
Murguia, both managing principals, the
company has integrated an advisor team
from New Hampshire, established a 401(k)
presence, and brought on a representative
to help manage those employee plans.
“Many of the small businesses that
have 401(k) plans below $15 million to
$20 million are ignored by the industry
and run by commission-based operations,”
says Murguia. “It breaks our hearts to see
clients in those plans, so we brought on
Paula Friedman (the 401(k) rep) to help
run this aspect of our business, and she’s
been doing a great job with it.”
A few years ago, McLean Asset
Management developed a proprietary
financial planning software platform
called inStream Solutions—a product
that won Morningstar’s “Best Tech for
Advisors” award in 2012. “We surveyed
the landscape, and although there were
good planning tools available from which
to derive analytical conclusions, there
was no wealth management platform to
help us service our clients along our value
proposition,” says Murguia.
Initially released to a small set
of advisors to help McLean Asset
Management hone the concept, and to the
general advisor audience shortly thereafter,
inStream “goes beyond the norm as a
financial planning tool,” says Murguia,
“and helps advisors maintain an entire
book of business by running daily plans,
alerting them when clients fall out of
certain thresholds, and exploring different
types of key mechanisms.”
During the last five years, McLean
Asset Management has gravitated toward
a higher-net-worth client. “It wasn’t
intentional,” Murguia points out, “but as
Practice Profiles
you get more successful as a practice, you
tend to attract a higher level of clients.”
Today, the company’s typical client has
about $2 million in investable assets, but
the firm “doesn’t turn away business just
because it doesn’t meet some pre-ordained
asset level,” he notes. “If we can manage it
and add value to the equation, we’re more
than happy to do so.”
Recently, McLean Asset Management
added Wade Pfau—named one of
the industry’s top 25 influencers by
Investment Advisor magazine—as
its director of retirement research. As
one of the foremost researchers in the
United States with regards to retirement
planning, Pfau is assisting the firm with its
portfolios and helping it hone its approach
to retirement income distribution. “That’s
our niche,” says Murguia, “and Wade is
helping to lead the charge on that.”
Scott Leonard,
NAVIGOE, LLC
By Bridget McCrea
It wouldn't be
fair to say that
Scott Leonard
has been
drifting since
his 2009 Advisor profile, but it wouldn't
be too far from the truth, either. For two
and half years, Leonard ran his firm from
a 50-foot catamaran while sailing around
the world with his family. Back on dry
land for the last six months, this founding
partner with NAVIGOE, LLC, in Los
Angeles, works with about 140 families,
has $225 million under management, and
employs six staff members.
In 2009, Leonard was running
Trovena, LLC, with a partner. That
partnership has since dissolved. “My
partner and I had different ideas about how
we wanted to grow the business going
forward,” says Leonard. “We came to the
realization that we had some very different
thoughts on that, so it made sense for us
to split up rather than continuing to merge
our two companies.”
The split was both straightforward
and amicable, says Leonard. “I had my
clients and he had his clients, the latter of
whom didn’t even know me personally. It
was pretty much a non-event.”
During Leonard’s sail around the
world, he flew home on a quarterly basis
to take care of business. “I’d be home
anywhere from seven to 10 days, and it
was just back-to-back client meetings,”
he recalls. And as if that wasn’t enough
activity, Leonard also published a book
titled “The Liberated CEO” (published
by Wiley), which details how he designed
his business model in a way that allows
him to see the world while still running a
successful practice.
Currently, Leonard says he’s focused
on building a new marketing plan and
gearing up for some aggressive growth
over the next few years. “I want to build
my business organically while also trying
to help build more career paths within
our industry,” says Leonard. “The latter
is discussed a lot in our profession, but
it needs more attention. NAPFA firms
have great capabilities when it comes to
building out those types of programs.”
Stan and
Hildy
Richelson,
Scarsdale
Investment
Group, Ltd.
By Kevin Adler
“Business
has been very
good,” say
Hildy and Stan
Richelson about the firm that they’ve built
in Blue Bell, PA.
That’s an understatement, as
Scarsdale Investment Group has grown
from $115 million assets under advisement
when it was profiled five years ago to
$280 million assets under advisement
today.
What’s the secret? Well, it’s not a
secret. It’s a message that the Richelsons
have been shouting for more than 25
years: For a secure retirement, buy highquality individual bonds, array them in
a custom bond ladder, and hold them to
maturity. It’s simple.
“All financial advisors mark-to-market
and look at clients’ gains and losses as a
measure of whether they and the advisors
are doing well,” explains Stan. “But we
don’t mark-to-market or issue reports
regarding clients’ gains and losses. We just
look at cash flow: How much reliable cash
flow will your portfolio produce?”
The Richelsons currently build
custom laddered bond portfolios with
maturities of between 14 and 23 years,
and they explain their logic to their clients
relentlessly. When the markets tanked in
2007-’08, their clients were protected from
disaster: No client lost a dollar of interest
or principal during that period, and their
cash flow remained the same. When the
markets rebounded, they kept their clients
from chasing returns.
Of course, it’s not really so simple.
Maintaining bond ladders requires
constant attention that isn’t apparent even
to some financial advisors.
“Advisors tend to think of bond
ladders as if they’re static and are
designed to provide a year or a few years
of liquidity for a specific need, or for
liquidity to invest the rest of the money,”
says Hildy, who is president of the firm.
“We see bond ladders as fluid—they’re
always changing. Bonds get called, and
every year the existing ladder gets one
year shorter. The shape of the yield curve
changes over time, too, increasing the
value of bonds in certain maturities and
diminishing the value of others.”
Managing those fluctuations is the
task that the Richelsons undertake for their
100-plus clients. They have been buying
longer-term bonds even in the last five
years—when the conventional wisdom
was to invest in shorter-term bonds
because everyone “knew” interest rates
were sure to rise.
“Everything you’d read in the last
five years told you to invest in short-term
bonds,” says Stan, “But when we saw
yields on bonds maturing in five years or
less close to zero, the bird-in-hand was
to invest in longer-term bonds yielding
around 4 percent. It’s not that we were
making a call on the direction of interest
rates. We knew that we didn’t know what
the direction of interest rates would be.
But knowing that we didn’t know enabled
us to invest in long-term bonds and earn
the higher rates for our clients.”
The Richelsons’ philosophy is laid
out in their book, “Bonds: The Unbeaten
Path to Secure Investment Growth”
(Bloomberg Press). The book was first
23
Practice Profiles
published in 2007, before the crash, and
it became a best-selling investment book
in 2009. They updated it in 2011 as the
second edition and hope to write a third
edition next year.
The book and their steady stream
of articles for consumers and in industry
journals keep them and their bond strategy
highly visible. They also write a free
newsletter.
“Almost all of our new clients come
to us through reading our book,” says
Stan. “One NAPFA member in our study
group has referred a few clients to us, but
we’re out of the mainstream so we don’t
get a lot of referrals.”
To accommodate its doubled client
base in five years, the firm hired one staff
member as director of operations. He has a
Series 65 license.
For the most part, the Richelsons plan
to remain in charge for many more years.
“I love what I do, and I’m not intending to
stop,” says Hildy. “My mother lived to be
104, so why do I have to take up knitting
now?”
David Blain,
BlueSky
Wealth
Advisors,
LLC (former
D.L. Blain &
Co.)
By Kevin Adler
Here’s an
interesting fact:
15 years after
starting his investment company and 10
months after purchasing another FeeOnly firm on the other side of the country,
David Blain, CFA, is the second-youngest
person at BlueSky Wealth Advisors.
“That’s something we’ll work on,”
says the 47-year-old Blain, as he sketches
out his plan to become a major player in
the Fee-Only industry. “We’re not an old
firm by any means, but as we grow we
will need to bring in young advisors who
we can train for the long haul.”
Today, BlueSky has 12 employees and
offices in New Bern, NC, and Pleasanton,
CA. That’s up from a staff of three in
2009, all in North Carolina, when the firm
24
(then known as D.L. Blain & Co.) was
profiled in the Advisor five years ago.
BlueSky’s three teams each consist of
two advisors and a client service member,
and they serve 211 clients in 21 states and
manage $240.5 million. Back in 2009,
the firm had 55 clients and managed $65
million.
A West Point graduate and Gulf War
veteran, Blain became a financial advisor
in 1989 after 10 years in the Army. He
always had big ambitions—stating when
he was profiled five years ago that he
wanted to be the dominant Fee-Only
advisor in eastern North Carolina.
He was on his way to that goal,
and then fate gave him an even bigger
opportunity last year. “I put in a bid on
Pleasanton Financial Advisors almost on
a whim,” says Blain, and he was one of
nearly 80 bidders for the firm.
But as he talked with Pleasanton’s
majority owner, Gary R. Smith, CFP®,
they realized that they ran their firms
similarly and could make the transition
successful.
Blain came away with the prize
in September 2013: a foothold in the
wealthy, rapidly growing East Bay area of
San Francisco.
“I’ve diversified my business, both
geographically and in the types of clients
I serve,” he says. “My North Carolina
practice has a lot of retirees and small
business owners, but the Pleasanton
business adds to that many high-tech
workers.”
Since the purchase, Blain’s focus has
been on integration of the firms. “Like
anything new, there are issues you have to
work through, but overall it’s been great,”
he says. “We’ve retained all the employees
and every client but one, who said she was
probably going to leave anyway.”
The biggest challenge has been
integrating computer systems—a surprise,
given that both firms use Portfolio Center
and Junxure. “Merging the information
has been much harder than we were led to
believe, and we’re actually still running
two Junxure databases,” Blain says, “but I
see the light at the end of the tunnel.”
Blain credits Pleasanton’s former
owners, Smith and Mark Janer, CFP®,
for doing their part during their one-year,
part-time contracts. Not only have Smith
and Janer smoothed the way with clients,
but they introduced Blain to the business
professionals in the Bay Area who are
prime referral sources.
Already, BlueSky is reaping the
benefits of scale. “For one thing, we were
moving between state-registered and SEC
registered, but now we’re solidly in the
SEC category,” Blain says. “Also, we now
have the revenue to outsource more backoffice tasks, increase recruiting of highly
qualified professionals, and to improve
our technology and marketing.”
One other impact is that Blain is
losing daily contact with clients, but he
says he always intended to transition to an
executive role. “I’ll probably only work
with the top 10 percent or 20 percent of
clients,” he says. “That’s why our team
approach is so important, and it’s why we
are going to build staff in both offices.”
With an engineering background,
Blain said that he likes building systems.
He feels that his company’s new client
intake model is very effective, and that it’s
a platform for both growth from referrals
and for more acquisitions. “I think we can
go to smallish firms where the owners are
seeking a transition solution and say that
we have a whole system we can unleash
for their clients, while keeping their
employees in place,” says Blain.
Blain is also planning to take a larger
role in the industry. “I think I have some
insights I can share about building and
managing a business,” he says.
Rick Miller,
Sensible
Financial
Planning
and
Management,
LLC
By Chris Hale
In 2009,
Rick Miller was
confident that he would weather the
economic storm that had hit his client base
of “young retired” and those preparing to
retire. He placed his bets on the “science
of retirement income management,” and
those bets have paid off.
Practice Profiles
Today, Miller’s firm, Sensible
Financial Planning and Management,
LLC, in Cambridge, MA, has nearly
tripled its assets under management from
its low point five years ago. Having added
60 new clients to bring its total to 200, the
firm now manages $330 million.
“We still focus on retirement income
management,” Miller says, “but we’ve
refined that into using TIPS [Treasury
Inflation Protected Securities] ladders and
immediate annuities. And we’re considering
longevity insurance.” Previously, Miller had
focused on index funds and ETFs.
The firm also doubled its staff—from
four to eight—which now consists of three
financial advisors, four junior advisors and
investment operations personnel, and one
administrator.
Miller’s fee structure has changed as
well. In 2009, he used a blended approach
that incorporated AUM, fixed fees, and
account-based fees. Today, he uses a tiered
annual fee, with the tiers related to assets
managed. The firm provides clients with
two services: portfolio management and
integrated financial advisory (integrating
ongoing planning with portfolio
management).
The firm has also changed the
technology that it uses. Miller uses
Tamarac Rebalancer and also outsources
portfolio accounting to Tamarac—
Tamarac PortfolioCenter replaced
Advent Axys, and Tamarac
AdvisorView handles reporting. To
manage retirement income, the firm
uses Income Discovery software.
When he was profiled in 2009,
Miller pointed out that NAPFA was
at a point where “we really need to
figure out our next trick. NAPFA
has had a huge impact in terms of
communicating the benefits of FeeOnly advice to the world,” he said,
“and now it’s time to look at what
can be done to create a similar
impact by emphasizing another key
value that we deliver as Fee-Only
planners.”
Today, Miller sees these same
challenges facing the organization.
“The biggest challenge for
NAPFA,” he says, “is the challenge
facing all membership organizations
in the age of the Internet and social
media—maintaining relevance.”
Amid so many other
obligations competing for an
advisor’s attention, Miller
appreciates the fact that NAPFA
consolidated its conferences into
two large annual events. He’s
less enthusiastic about the virtual
conference offerings, however.
“The virtual conferences don’t
help me,” he says. “There’s no
opportunity for networking. Also,
I’m in the office, so I don’t attend the
sessions—there’s always something
urgent requiring my attention.”
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The Advisor highlights a
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25
Insurance
By Mitchell D. Nelson, DIA, CLTC
Income Protection Planning:
Lessons for the Financial
Planning Profession
N
o matter how well we plan, the
reality is that much of what occurs
is beyond our control. The test of a
great financial plan (and its planner) is not
how well it works when everything is going
well, but rather how well it works when the
breaks go against us.
Disability is one of the most devastating
ways a bad break can disrupt an advisory
client’s plan. More often than not, the
client will never see it coming. But when
it occurs, income protection planning will
be the most important aspect of the plan.
Very few advisors deliver an advanced
level of understanding and service to their
clients when analyzing and recommending
disability income protection strategies.
Let’s look at how advisors can leverage
these strategies to add to the soundness of a
comprehensive plan.
Few advisors would dispute that a
core objective of any financial plan is
providing adequate and dependable income.
This is even more crucial to clients in
the accumulation phase of their lives. A
sickness or injury that impacts a client’s
ability to earn income and fuel the plan puts
everything at risk.
Differences in Perception
According to a 2011 Advisor Disability
Awareness Study performed by the Council
for Disability Awareness (CDA)1, 83 percent
of consumers agreed with the following
statement: “(Disability) can happen to
anyone at any time.” Contrarily, only 35
percent of advisors thought consumers
would agree with this statement.
In addition, only 5 percent of consumers
said that “disability happens infrequently,”
while, 45 percent of advisors thought that
consumers would agree with that same
statement.
These two findings show a huge divide
between consumers’ and advisors’ beliefs
about disability, and it demonstrates the
1. disabilitycanhappen.org/research/producer
26
importance of financial advisors discussing
the topic of disability planning with their
clients. Risk management review is a great
way to connect with client concerns and to
address their financial anxieties.
Addressing Disability Risk
So how do the best planning firms
address this risk? First, an advisor needs
to convey the importance of this aspect of
the plan to the client. In fact, many clients
already understand the risks associated with
disability, but they don’t know how to bring
up the topic.
According to the CDA study, 25
percent of consumers believe that it’s
important to start planning for the loss of
income at any age. Another 42 percent of
consumers believe that it’s important to start
planning for the loss of income in their 20s.
Interestingly, 48 percent of advisors believe
that consumers would not be willing to
discuss disability insurance until they’re in
their 40s.
Again, this shows a huge divide
between client beliefs and advisors priorities
in terms of income protection planning.
It also suggests a huge opportunity to
differentiate an advisory’s services by
focusing on clients’ needs and concerns
Insurance
and to connect with them personally. If
an advisor makes this aspect of planning
a priority that should not be overlooked,
clients will respond to its necessity.
Second, appropriate attention must
be paid to accumulating, documenting,
and understanding what is in place and
available to the client. When addressing the
actual sources of protection, there is often a
disconnect in terms of understanding where
income will come from during a disability.
According to the CDA study, consumers
rank their top three sources of income during
a disability as:
• paid vacation or sick leave
• disability insurance payments
• spouse/partner income.
or tax plan. A financial planner cannot afford
a “big miss” on this aspect of the plan.
This is where outside experts can be
especially valuable. Those experts can help
the advisor deliver an in-depth analysis
that speaks to the client’s current state and
explains the strengths and weaknesses of the
existing plan.
According to a March 2014 article in
the Journal of Financial Planning, these
multi-disciplinary models produce higherquality results and enhance trustworthiness
for clients.
•
Advisors, however, have very different
ideas of what income sources their clients
would rely upon during a disability. Their
top three include:
• selling possessions
• help from family and friends
• government programs.
The advisor’s responsibility is to
establish a defined plan of resources that
have been properly vetted and analyzed
for quality and strength. Since consumers
believe their disability policy will be a
major source of income, it’s critical to
truly understand how this coverage will
operate.
Finally, resources are brought to bear
(typically from other partners), contributing
to a “multi-disciplinary” model that drives
effectiveness and efficiency. Whether an
advisor is a sole practitioner or a member
of a large firm with subject matter experts,
partnering with outside resources brings
an extra layer of support and expertise to
the disability income planning process.
Efficiencies and increased quality can be
brought to bear at no additional cost to the
financial planning firm or its clients.
Avoiding Potential
Impairments
The insurance plans that a client might
already have in place—whether individually
purchased or provided by an employer—
are complex instruments with unique
characteristics that need to be investigated.
They are fluid and must be reviewed with
the same in-depth analysis as an investment
•
When our firm has been asked by
Fee-Only firms to do this type of analysis,
we have uncovered significant impairments
in plans that, left undetected, would have
created enormous hardships for the client at
claim time. Examples of these discoveries
include:
• Coverage waivers that could have
been removed. A thorough review of
in-force policy documents will expose
underwriting challenges that might be
mitigated based on current history or
changes in underwriting philosophy.
This includes exclusions, ratings,
or limitations that may be removed
with updated information. Coverage
is dramatically improved without
increasing client costs.
• Over-insurance issues due
to inaccurate applications or
implementation that would lead
to policy rescission at claim time.
As part of in-force policy review, the
original application is examined. If
there were errors or mistakes made
in the disclosure of in-force coverage
upon application, actual benefit
amounts could be rescinded based
upon an assertion of fraud or false
statements at time of claim.
Incorrect assumptions of benefit
maximums due to inaccurate or
incomplete review of the employer
plan. Simple assumptions about the
amount of potential monthly benefits,
the taxability of those benefits, and
inadequate cash flow projections can
leave clients and their families with
undesirable exposure. The financial
advisor plays an integral role in cashflow analysis by ensuring that the
client doesn’t under-project expenses
and over-project protection during a
loss of income.
Covered earnings inaccuracies,
leading to inaccurate cash flow
projections under claim projection
review. Proper policy review requires
a correct understanding of how
employer policies define covered
earnings. Making assumptions based
on employer summaries can leave
clients with huge coverage gaps when
aspects of their variable income are not
part of the covered earnings definition.
Understanding how to read and
organize key disability policy provisions and
executing decisions based on their accurate
interpretation leads to better planning results
and satisfied clients.
If a firm’s promise is comprehensive
financial planning—including risk
management review—advisors have a duty
to address this aspect of their planning
practice and to provide the best resources
available. They must make a conscious
decision either to incorporate a more
robust program of disability analytics by
developing deep in-house expertise or by
partnering with focused resources partners—
or they should inform their clients that this
is a service they do not perform. There is no
middle ground.
To continue on the path where little
attention is paid to this vital aspect of
planning is to endanger clients and to expose
a firm to unnecessary risks.
Mitchell D. Nelson, DIA, CLTC, is president
of MyDisabilityPlans, LLC. He can be
reached at 952.641.5206 or mitch@
mydisabilityplans.com.
27
The Counselor Is In
By Melissa Hammel
Blame
R
ecently, I began working with a
client who felt clearly in the right
when seeking to place blame
on her partner about money issues gone
wrong. You could cut the tension with a
knife. I felt it as I began the conversation,
and I felt the emotion rise as we delved
further into the “issue.”
I, too, have been both the recipient
of blame and the person seeking to place
blame on someone else. Let me give an
example of how I have sought a way to
blame someone else for a mistake. Then
I will share with you my thoughts and
suggestions on why folks seek to blame
others, and what we as advisors might be
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28
able to do with blame when it shows up in
a client meeting.
Not too long ago, a client contacted
us because he believed that his fee had
been calculated incorrectly (isn’t it
always an issue with the fee?!). This
particular professional has an engineering
background and is most particular about
everything—especially the fee and
numbers. Immediately, I felt a sick feeling
in my gut and thought, “Oh no, not again.
What did we do this time?” Then, as
information became available, I found a
possible error with our major custodian
and jumped on it—and hoped that I could
conveniently place the blame on them and
get out from underneath the responsibility.
After more research and more discussions,
however, we found where we had made
a mistake in the data entry and needed to
correct our own procedures.
Ah…so close to finding the fault to
be with someone else, and yet so far once
again!
Taking Ownership
Why do we seek to blame others?
Quite simply, it’s painful on some level to
take ownership of a mistake. Somewhere
deep down, don’t we all wonder if we’re
just not good enough and harbor some
small, quiet fear that other people might
see our weaknesses? I know this is going
deep here, and my goal is not to say that
we all had horrible childhoods and that
we all have deep dark secrets. Rather,
I’m seeking to point out a common bond
within the human race.
The Counselor Is In
So what happens when a client comes
into our financial planning office and
begins, in a subtle way, to suggest that we
are somehow at fault for low returns in
their portfolio? Easy enough to point to
the market, right? Easy enough to think
to ourselves, “Well what does this client
know about investing? They just don’t
understand that no one can know exactly
how to invest.”
Let’s go deeper—what is the client
really suggesting? This could be their
thinking: “I pay these people to invest
my money, and my friend at work
talks about how their investments are
booming…but my account doesn’t seem
to be performing the same way. Plus, I’m
paying these people (my friend just does
it himself). My gosh, I’ll be 59 next year,
and I only have a few years left to earn
before my retirement…what if I’ve made
a mistake in picking the wrong people or
the wrong investments, or what if they
advised me to save and they were wrong
in their projections? What the heck am I
going to do?”
In general, here are some approaches
that might be helpful:
Reacting to Blame
The thoughts that I’ve listed
above flow through the brain almost
unconsciously, like lightning—so
fast and close together that the client
is probably not even aware of them.
The words coming out of the client’s
mouth sound accusatory and angry. But
underneath those words is fear that has
energy behind it. It’s probably fueled
by that little seed of doubt that resides
within us all and makes us question
our ability to be enough, to make good
choices, and, in this case, to have chosen
the right manager and to have done
enough saving.
What would be the best response to
provide to your client? Every client is
different, and each planner relationship is
a different relationship, built on different
expectations.
Ask for more information, and
validate the client’s fears.
• “This is important to discuss—
I’m glad you brought it up.
Tell me a bit more about your
concerns.”
• “So your friend’s account seems
to be performing much better—I
want to hear about that.”
• “Let’s talk about this—help me
to see your concerns, and give me
as much detail as you can.”
After the client talks, avoid the
temptation to respond with reasons.
Instead, say:
• “What else will you share with
me on this, or anything else?”
• Keep saying this in one form or
another, to let the client get it all
out.
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29
The Counselor Is In
By Melissa Hammel
Then, ask the client what he or
she thinks might be a solution to
their concern. And then inquire as to
what they would like to see happen as
a result of this concern that they have
voiced.
• “Based on what you’ve shared
with me, tell me what you’d like
to see happen that would best
give you the result you need
here.” (Again, play with the
words so they are natural and true
to your own voice.)
Your goal is to get the client to the
bottom of the concern—not necessarily
to fix the concern just yet. Another
response that can help here is:
• “You’ve shared a lot with me
on this issue, and you’ve given
us some very good information.
If you could come up with a
word, a feeling, or a phrase that
summarizes all this from your
point of view, what would that
feeling and word be?”
At this point, you might begin
discussing what solutions you see and
sharing them with the client. The client
has been thoroughly heard and made
a part of the solution process. This
creates a partnership that bonds folks
closer together and leaves less room for
blame.
In closing, please know that there
may not be a solution that you as the
advisor can implement. This happens.
The goal, going back to the blame
concept, is to uncover what may be
driving this person to say what they
said—and ultimately to help the client
see what their bottom-line concern
is and the feelings underneath all of
this. After moving through an exercise
like this, a client can see more clearly
their own concerns and feel heard and
validated.
For me, as someone who has been
blamed and who also sought to blame
others, when I feel heard and I uncover
what’s driving my concerns or fears,
my blame tends to melt away. I also can
learn from experiences like this. I find
that, ultimately, a confrontation like
this—or a mistake that needs to be fixed
or owned up to—helps me grow closer
to the person and trust that I have been
heard.
Melissa K. Hammel, CFP®, LPC/
MHSP, NCC, is a NAPFA-Registered
Financial Advisor and the managing member and principal financial
planner of Hammel Financial Advisory Group, LLC, in Brentwood,
TN. Contact her at melissa@hammelfinancial.com or 615.371.5222.
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30
SATUIT FUNDS
U. S. Focused Equity Mutual Funds
Satuit Capital U.S. Emerging Companies Fund
SATMX
Satuit Capital U.S. Small Cap Fund
SATSX
Satuit Capital U.S. SMID Cap Fund
SATDX
g
n
i
t
a
r
b
e
Cel
s
r
a
e
Y
4
1
For more information about our Funds or
SMA’s, please contact
Robert J. Sullivan, Chief Investment Officer
615-790-8897 • rsullivan@satuitfunds.com
Jim Espinales, Director of National Accounts
976-568-6799 • jespinales@satuitfunds.com
www.satuitfunds.com
Disclosures and Risks
INVESTMENT IN U.S. EMERGING COMPANIES , U.S. SMALL CAP and U.S. SMID CAP COMPANIES
Always consult the prospectus before investing and for a further discussion of risks. Performance data, if quoted,
represents past performance; past performance does not guarantee future results. Investing in these companies may be
associated with additional risks. These risk include but are not limited to (i) small revenue base (ii) limited product lines,
(iii) lack of depth of management (iv) lack of ability to obtain funds (v) feature products or services for which a market
does not yet exist and/or may never be established. The increased risk involved with investing in these companies may
cause the market prices of their securities to be more volatile than those of larger,Napfa
more established
companies.
31
Advisor August 2014
I n
the
A July 1 Financial Planning magazine
article looked at six tips for cybersecurity
best practices. Roger Pine said that, at his
firm, any request for money is looked at
by several people. That practice, he said,
prevented a case of fraud last year. He also
emphasized physical security, noting that his
staff members are required to clear off and
lock their desks before leaving for the day.
Legacy planning was the subject of a July 7
article on NewRetirement.com. Constance
Stone discussed six ways to leave heirs a
legacy. In addition to advice about homes
and property, her suggestions included
creating a beneficiary IRA, naming a child
as beneficiary for an annuity, using excess
distributions for a second-to-death life
insurance policy, and gifting depreciating
stock to charities. Stone also was quoted
in a July 2 Financial Planning article on
“Smart Ways to Unlock Client Feedback.”
She recommended informal, candid
discussions—as opposed to surveys—as a
way to solicit feedback from clients.
David Blain wrote an article for the
July 8 “Voices” column on WSJ.com.
He discussed advisors’ hesitancy around
real-estate investments, citing the
difficulty in charging management fees
for money removed from a portfolio to
invest in real estate, as well as, lack of
expertise. Compliance is also an issue, he
said, though he emphasized the benefits
to advisors who are willing to become
real-estate experts, including possibly
beating the stock market in long-term
appreciation. Blain advised that no more
than one-third of a client’s investments
should be in real estate.
L imelight
On July 9, Mike Garry answered
questions about how to find a financial
planner for USAToday.com. Garry pointed
out that “financial planners are not just for
rich people” and suggested that consumers
seek a planner who is certified by a
professional organization.
Shanda Sullivan co-authored the article
“Financial Blunders that Can Cripple
Your Net Worth,” which appeared on
USAToday.com on July 10. In the article,
Sullivan identified credit-card debt,
living beyond your means, paying for a
child’s college, not taking advantage of
an employer’s matching retirement-plan
contribution, and not saving until reaching
pre-retirement age as mistakes to avoid.
Two members contributed to a July 11
article for The Wall Street Journal on
dangerous investments for individuals.
Robert Hockett suggested asking four
questions before investing: “Is it clear
what the investment does? Does it come
with high fees? Can you sell it easily?
And does it have a proven record?”
Christopher Van Slyke warned against
liquid-alternative funds, saying that they
are complex and often don’t have a track
record longer than six months.
Craig Ritter appeared on Phoenix’s
KPHO TV news to discuss auto and
homeowner’s insurance on July 29. He
suggested shopping for a new insurance
policy every two to three years in order
to get the best deal and re-evaluating
older vehicles to verify that they’re
not over-insured. He also encouraged
consumers not to file small claims against
their homeowner’s insurance. In order to
avoid credit checks when re-shopping for
policies, he recommended not entering a
Social Security number online.
On July 31, Roger Wohlner’s article
“The Money Chat You Need to Have
Now with Your Family” was published on
DailyFinance.com. Using a recent Fidelity
survey as his starting point, Wohlner
highlighted several areas of retirement
planning that children might discuss with
their parents.
Alan Moore was named to
WealthManagement.com’s “The Ten to
Watch 2015” on Aug. 4. Moore started his
own firm two years ago, when he was 25,
and recently co-launched the XY Planning
Network with Michael Kitces.
Advertisers In This Issue
Advisor Insurance Resource................ 16
EMA Softech........................................ 29
Franklin Square..................... Inside back
Low-Load Insurance.............................. 7
MAGA.................................................. 30
MoneyGuidePro................................... 11
New Direction IRA.............................. 25
Perkins................................................... 28
Ryan Insurance....................................... 4
Satuit Funds.......................................... 31
Scottrade.................................................. 2
Select Sectors SPDRs........... Back cover
NAPFA is gr ateful to all of the advertisers for their support of NAPFA
and the NAPFA Advisor. However, readers should understand that NAPFA can
undertake no duty to perform due diligence about the claims and promises made by
advertisers. Furthermore, admission of a company as an advertiser in the Advisor
does not constitute an endorsement of its services or products by NAPFA. Readers
should perform their own due diligence on any products or services that they use
or recommend to their clients. Nevertheless, an advertiser is expected to advertise
only services and products that have economic viability and that fully comply with
applicable law and NAPFA’s professional standards.
32
Sincere & Co./Marketfield.............20-21
Sierra..................................Inside front, 1
Sunwest Trust......................................... 9
TD Ameritrade...................................... 13
Wasatch................................................. 17
ALTERNATIVE CREDIT ASSETS
ENDOWMENT-STYLE STRATEGIES
INSTITUTIONAL ASSET MANAGERS
access granted.
Franklin Square can help financial advisors diversify investors’ portfolios with income
alternatives that were once out of reach for many investors. Contact us to learn how.
CALL
OR VISIT US ONLINE
215-220-4303
www.franklinsquare.com
FOR DUE DILIGENCE PURPOSES ONLY. NOT FOR PUBLIC DISTRIBUTION.
This is neither an offer to sell nor a solicitation of an offer to buy any securities, which can only be made by a prospectus. This advertising literature must be read in conjunction with the prospectus for the
applicable Franklin Square Fund, if any, in order to fully understand all of the implications and risks of the offering of securities to which the prospectus relates, if any. A copy of the prospectus must be made
available to you in connection with any offering. No offering is made except by a prospectus filed with the Securities and Exchange Commission and the Department of Law of the State of New York. None of the
Securities and Exchange Commission, the Attorney General of the State of New York or any state securities regulator has approved or disapproved of the securities of any Franklin Square Fund or determined if the
applicable prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Franklin Square Capital Partners is not affiliated with Franklin Resources/Franklin Templeton Investments or the Franklin Funds.
33
TAKE A NEW LINE WITH YOUR
EQUITY
Financial Sector SPDR ETF
Top Ten Holdings*
XLF - FINANCIAL
1
2
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6
7
8
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Company Name
Symbol
Weight
Wells Fargo
Berkshire Hathaway B
JP Morgan Chase
Bank of America
Citigroup
American Express
US Bancorp
American Intl Group
Goldman Sachs
Metlife
WFC
BRK.b
JPM
BAC
C
AXP
USB
AIG
GS
MET
8.84%
8.18%
7.91%
5.81%
5.38%
2.90%
2.76%
2.72%
2.60%
2.14%
* Components and weightings as of 7/31/14.
Please see website for daily updates. Holdings subject to change.
Time For A
Stock Alternative
Potential benefits of adding Sector SPDR ETFs to your portfolio include:
• Undiluted exposure to a specific sector of the S&P 500
• The all-day tradability of stocks
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• Liquidity
Consumer Discretionary - XLY
Visit www.sectorspdrs.com
or call 1-866-SECTOR-ETF
Consumer Staples - XLP
Energy - XLE
Financial - XLF
Health Care - XLV
Industrial - XLI
Materials - XLB
Technology - XLK
Utilities - XLU
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information,
call 1-866-SECTOR-ETF or visit www.sectorspdrs.com. Read the prospectus carefully before investing.
The S&P 500, SPDRs, and Select Sector SPDRs are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use. The stocks included in each Select Sector Index were
selected by the compilation agent. Their composition and weighting can be expected to differ to that in any similar indexes that are published by S&P. The S&P 500 Index is an unmanaged
index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common stocks. Investors cannot invest directly in an index. The S&P 500 Index figures do not reflect any fees, expenses or
taxes. Ordinary brokerage commissions apply. ETFs are considered transparent because their portfolio holdings are disclosed daily. Liquidity is characterized by a high level of trading activity.
Select Sector SPDRs are subject to risks similar to those of stocks, including those regarding short-selling and margin account maintenance. All ETFs are subject to risk, including possible loss
of principal. Funds focusing on a single sector generally experience greater volatility. Diversification does not eliminate the risk of experiencing investment losses.
ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select Sector SPDR Trust.
34 Napfa Advisor August 2014

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