Fortunate Son

I grew up in a family-owned business. My dad was in the custom looseleaf binder manufacturing business, and I worked there from the time I was very young. My dad had a very strong work ethic. I graduated from college and worked for my dad for four or five years, then decided to leave that business.

I had read an article in 1979 or early 1980 about the College for Financial Planning, which was just getting off the ground, that talked of the idea of providing value-added service to clients, of problem solving. I was a good salesperson but didn't want to make a lot of money just from selling stuff to people. I could balance ethically my sales ability with providing a tremendous amount of advice and service. I still have a burning desire is to see that advice and service throughout the industry–I think we're still too product-driven.

I came into the business in early 1981 (to an independent financial planning firm) and people thought I was insane to talk about investing in stocks. We were coming off one of the worst bear market periods ever: from 1966 to 1982 the Dow lost value. Most of the clients that we had originally were older clients approaching retirement, so they had very low risk tolerances, and couldn't afford to lose their capital, and [their portfolios] had to produce income for them, either today or in the near future. Their risk tolerance was a maximum down 10% or 15% before they would abandon their investment plan. So to keep them comfortably invested, we had to find a way to control the risk that they're investing in.

I was forced back onto the savings side of the ledger to generate income. I've always been a market historian, and I knew in that period we had just come through–1966-82–everybody was talking about investing in growth, then systematically withdrawing from growth. I knew by looking at that most recent underpeformance cycle that it didn't work. So I was looking for an investment solution where you could distribute the 5% to 6% from the underlying investments, which forced us to look at dividend paying stocks and bonds, in a balanced approach to investing to provide an income stream over time, and price appreciation that helps you with inflation. So that's what we did. As boomers move toward retirement, those clients will need income. We'll be an overnight success yet.

We've struggled with whether we should make it into a mutual fund, but we're a small firm, and we're pretty firmly entrenched in the separate account management business, as opposed to the mutual fund business. A bigger firm could do both, but we'll mind our knitting.

And the future of the profession?

We have a huge competitive advantage in providing clients with initial comprehensive financial planning and then ongoing financial advice, but that's where our industry fails miserably. It's easy to do an initial plan and get them into a product, but what separates a sales practice from a business is that we can actually help our clients manage their financial lives, if they're willing to allow us. That's the competitive advantage of the independent financial advisor community versus the large conglomerates. But the private banks and the private client groups, in the last five or 10 years they've made tremendous strides in actually doing that themselves. I see that as a huge risk for the independent community.

The average advisor I talk to, I'm surprised at how product solution-processed they still are.