From the Austin Business Journal
Spend an afternoon at the beach, and you’ll see everything from ankle-biters to heavies. Regardless of the height of the waves, though, one thing never changes: They always come back around. Indeed, this ebb and flow may be seen to mirror financial markets. Those with the means and a call to adventure will charge toward the sea with a surfboard, determined to emerge victorious. But surfers – much like financial planners – are made, not born. To that end, the wealth advisor is like a well-educated, highly capable professional surf instructor: teaching clients how to duck dive and avoid a wipeout with their precious resources.
The Austin Business Journal recently assembled a panel of wealth management experts to discuss the myriad ways they work with clients. Panelists included Todd Brockwell, President, 1900 Wealth; Ronnie Powell, Sr., Wealth Advisor, VeraBank; John Sawyer, Chief Investment Officer, Sunflower Bank and Ryan Parker, Head of Private Banking for Texas, Sunflower Bank. The discussion was moderated by the Austin Business Journal’s Market President and Publisher, Abby Mellott.
Abby Mellott: When individuals come to you looking for financial planning advice, what’s the biggest misconception they have about the work you do?
RONNIE POWELL: A lot of clients have many moving parts in their complex lives, but they often don’t realize how much that can impact their financial plan. Maybe they haven’t updated their will in 10 to 15 years. They may have accumulated significant RSUs since the last time they looked at their long-term plan. Your estate plan will look different for someone with young children versus someone who may be caring for aging parents. So a financial plan really isn’t a “one and done” kind of thing, right? So meeting with a certified financial planner can help people stay ahead of the curve as they prepare for the next phase in their lives.
TODD BROCKWELL: I agree with Ronnie, plans can become stale. Clients need reminders that their balance sheet changes even if their investment portfolio seems secure and stable. They may have mineral rights, land, homes and other assets, and as those things evolve – as they commonly do with high-net-worth families – the financial plan should evolve too, generally every three to five years.
JOHN SAWYER: Right, these are living documents, and they should be revisited. Obviously there are a lot of complications as you age. You accumulate more assets as you advance in your career. But thinking about insurance planning is very important for younger people. A lot of times with clients I’ll hear people say “I’ll get to that.” But with a lot of those things, we really need to do it now. If you can just get into the routine, it will become part of what you do. You don’t want to get to that later stage and realize you’re not as organized as you should be.
Abby Mellott: I’d like to hear how you approach the task of helping your clients set financial goals.
RYAN PARKER: I agree with John – starting early is a key point. No one says, “Oh man, I can’t wait to do my financial planning!” Sure, we want to know what house or car we can buy, right? That’s the fun stuff. We can talk about planning in cases where there’s generational wealth and inheritance issues, but what happens if the generational wealth isn’t there? Sometimes you need to have candid conversations with yourself, your spouse, your children – and really be honest about what is there, versus what is potentially there.
RONNIE POWELL: Exactly. I take clients through what I call a discovery exercise. With a couple, I present them with a range of financial topics that are important to a lot of my clients. I usually start with the quiet spouse, the one that may not be involved with a lot of financial decisions, because I want to make sure I hear what’s important to each person in this partnership. So this creates a really dynamic conversation. It’s a cool way to get both spouses talking, and sometimes there’s an argument, but this is really just a listening exercise.
Abby Mellott: So you are serving as a mediator.
RONNIE POWELL: I can be, yes.
RYAN PARKER: Sometimes I’m a priest. (Laughter)
JOHN SAWYER: What Ronnie just described is what differentiates a good planner from a not so good planner. It really shouldn’t be a formulaic exercise. So if someone shows up with a questionnaire and says, “Here, let’s fill this out together,” that’s probably not a good sign. It really should be conversational, and making sure their goals are aligned. At least start there.
Abby Mellott: Interest rates are a hot topic of conversation these days. Given the run-up in interest rates, how should clients be thinking about near-term cash holdings?
TODD BROCKWELL: I’ve been doing this 25 years, and treasuries have really never played a role. Now, if you can get a 5% plus annual yield on it, risk free, it will play a significant role. We don’t handle any institutional money, but whether it’s family foundations or the individual families themselves, if they do want a fixed income position, we’re using that. It’s an important learning tool.
JOHN SAWYER: In terms of portfolio construction, we typically talk about three primary asset classes: stocks, bonds, and cash. Then we went through this zero interest rate policy period for an extended period, and cash wasn’t an element that contributed much to the portfolio. So now cash is back, right? It is an asset class, and it’s one that needs to be managed responsibly and thoughtfully. If you think about it in a total return context, it is now contributing to the return to that portfolio, after not doing so for the past decade.
RONNIE POWELL: Your elderly generation is loving it. It’s almost back to the old CD rates.
JOHN SAWYER: These yields are real, and they haven’t been since 2002, really.
Abby Mellott: Can we talk about dollar cost averaging? How can investing consistent dollar amounts at regular intervals play into a long-term investment strategy?
RONNIE POWELL: If somebody has a liquidity event, for instance, after selling a business, we’ll just do it over a couple of months. We won’t put all of it in at one time. Let’s say someone brings over a million dollars. We’ll put $250k to work every month for the next three or four months.
TODD BROCKWELL: If you look at the compounding effect over a long period, dollar cost averaging doesn’t have a huge impact on a portfolio unless you have a major third standard deviation event. That’s just statistics, right? But if somebody has a liquidity event where they sold their company and they hand over $10 million to one of the four of us, saying, “We trust you, this is everything we have,” the wise thing to do is to bring up an average over a fixed time period – whether it’s every quarter, a year, or even two years. They’re much more comfortable with that. That’s when behavioral finance comes into play.
RONNIE POWELL: I think a lot of people with new wealth like to see that dollar cost averaging, whereas with people who are used to having wealth, it’s not quite as important.
JOHN SAWYER: For people who are trying to establish wealth and build a balance sheet, it does create discipline. Think about your contribution to your 401(k) – it’s just a part of what you do. You get into the habit of doing it, so you don’t necessarily miss it. If anything, it’s a type of forced savings, and it builds good behavior. Speaking to Todd’s point, I think managing the optics on the emotion is probably more important than the actual results.
Abby Mellott: I know the practice of risk management is crucial in your field. What strategies do you employ to preserve client wealth while still seeking opportunities for growth?
TODD BROCKWELL: When you have a family you’re working with, there’s usually a spender and a saver. There’s usually one that’s a little more conservative. So whether you’re setting up a family partnership or a trust, or need to do an assessment. In any risk assessment, there are two factors to consider: the ability to take risks, and the willingness to take risks. A client may have one and not the other. So you’re constrained by the most conservative of those two.
RONNIE POWELL: Through the financial planning process, you figure out what’s important to them. You come up with a lifestyle bucket, as we call it, and then you build a portfolio that protects that lifestyle bucket through various market cycles. So over five years, we may put a certain amount in short term cash and municipal bonds, and put the rest of the portfolio in a more aggressive asset allocation. That way, if the market has a downturn, that allows the equity portion of the portfolio to recover and they can live off that lifestyle bucket that we set aside for them in very short term, high quality municipal bonds.
JOHN SAWYER: In terms of assessing initial needs, you want to consider the consistency and reliability of the client’s income streams to determine what that safety net looks like. It’s important to take your time and explain everything, and to set realistic expectations. Given the state of current markets everything is more or less working. But when we get into difficult markets, you don’t want the client hearing critical information at that moment. Your goal is for your plan to provide comfort during periods of anxiety. Frankly, managing people through the downturns is how we earn our fees.
Abby Mellott: I imagine there are so many variables that come into play. Like even if Todd and I have the same resources, you might give different advice because we’re different people, right?
JOHN SAWYER: Yes, that’s it exactly – you need to keep in mind the personalities of the people you’re dealing with, as well as the overall context.
RONNIE POWELL: You’ve got a great point – you need to get to know your clients really well. Listen to them. Have those ongoing conversations where you go over various scenarios so there are no surprises. Tell them what could potentially happen if the market turns this way or that, and what you’ll do about it if it does. Say “This bucket is here so you can draw from it if xyz happens.” Good communication is key. Schedule those yearly and quarterly review meetings. You need to keep reminding them of the various plans and contingencies. Remind them of the value you bring by explaining the details of the protections you’ve built into the plan.
RYAN PARKER: I agree completely. Staying in constant communication with your client, during the high times and the low times, will make the client more comfortable, and that’s what you want. For one thing, that high comfort level is critical to getting that person – or that family – to the next stage in their financial future.
Abby Mellott: As you know, market fluctuations tend to bring some opportunity. Can you talk about some of those opportunities that arise during these types of trends?
JOHN SAWYER: I think we’re seeing it right now with where cash rates are, right? What we’re aiming for is a disciplined approach to asset allocation and portfolio rebalancing that lends itself to taking opportunistic steps during times of market fluctuation.
RONNIE POWELL: I think your tactically managed portfolios benefit from market fluctuations. You can make small tweaks here and there that can add return over time.
TODD BROCKWELL: I love it. Luckily, in the first quarter of 2020, we added a bunch of new assets in the first six months after that 40% market drop. That’s a gut check for a lot of people.
RONNIE POWELL: During times of high market fluctuations, as wealth advisors our job is to take the emotion out of it for our clients.
Abby Mellott: In the age of AI and machine learning, how are you utilizing the current technology to enhance your business?
RONNIE POWELL: I think a lot of your ETFs and mutual funds are using AI to crunch the data and provide a better predictive product. That’s how we’re using it for our clients, for sure. It helps to analyze the data quicker. As time goes on, it will help forecast market trends. You’ve still got to know what the client wants, what they’re feeling, and what their red flags are. People still need that human touch, so to speak. If you combine that with all the AI opportunities, I think you can really guide the client in the right direction.
JOHN SAWYER: You can make this process as technical as you want. There are a lot of new and powerful tools available, but it always comes back to the person, or the couple, and understanding their unique needs. Thinking about my own personal use of AI, I’ve started working with it in a research context. These tools go well beyond what we are used to in search engine capabilities and can truly improve one’s overall productivity.
So I think we’re still trying to figure out how to incorporate it, but there’s no doubt it will change our industry, in both positive and negative ways. Eventually, it will likely allow more people to access the type of services that we offer at an earlier stage, which is probably constructive. However, it will absolutely displace people as well, such as entry level analysts, for instance. When that happens, it’s going to have a meaningful impact on profit margins and earnings going forward. We’re really just seeing the tip of the iceberg at this point.
RYAN PARKER: It’s been said before, but we are still in the people business, and this business will involve people sitting around the same table for the foreseeable future. We’ve all watched the talking heads on different media outlets, they’re talking about how bankers will go by the wayside because everything is going to be generated by algorithms. Ok, but people still want to work with human beings, especially whenever you’re dealing with generational wealth, or families who are just starting down this road. They will naturally feel a little vulnerable, so they want a real person they can talk to. I’m old school. I’m from a family of old school bankers. So I just can’t imagine it being any other way – especially for people in my generation.
Abby Mellott: I can see that, because you build that trust over time with your clients too, right? So, looking ahead, are there any emerging trends that you foresee making a big impact on the field of wealth management?
RYAN PARKER: Today, of course we talk a lot about social media. But you’ve got to be careful if you’re getting financial advice from social media. I have this discussion with my children all the time. You’ll need to do your own research: trust, but verify.
TODD BROCKWELL: It’s the same with gold, or for that matter, crypto. Some of these people may have very strong balance sheets, but if they don’t understand what crypto is, or the volatility of gold–don’t do it. The onus is on us to help guide them, but they need to, they need to do their own research too, or what we can do for them is limited.
RONNIE POWELL: I think social media is important for marketing, but as far as emerging trends, our digital onboarding and our mobile platforms are both continuing to grow. We’ve got to continue to enhance our cybersecurity measures, to make sure banks of our size aren’t spoofed. But at the end of the day, we’re in the relationship business. No matter what technological advances come down the pipeline, clients still want someone working with them face to face, knowing that I’m there working for them, through good times and bad.
RYAN PARKER: Our industry will continue to evolve. The essential work we do in banking – handling loans, deposits, wealth in the general – that won’t change. But the mediums, and how those deliverables get out there, those are going to change. If you speak to someone from the younger generation, they have no idea what a checkbook is. No one carries cash anymore. I think as an industry, we’re always looking for ways to innovate, without sacrificing our security.
JOHN SAWYER: In the near term, we have a lot of state regulations and tax laws that are sunsetting next year. So there are a lot more people that will need comprehensive estate planning. The type of service we’re providing is no longer strictly for the very wealthy. The need is moving downward dramatically, and I think there’s a large segment of our population that isn’t really prepared for that change.
