Investment Insights from an Industry Legend

Wealthy Behavior: Investment Insights from an Industry Legend
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00:00:10 – 00:05:00
Welcome to Wealthy Behavior, talking money and wealth with Heritage Financial. The podcast that digs into topics strategies and behaviors that help busy successful people build and protect their personal wealth. I’m your host, Sammy Azzouz president of Heritage Financial, a Boston based wealth management firm working with business owners, executives and retirees for more than 25 years. Now, let’s talk about the wealthy behaviors that are key to a rich life.

Welcome to episode five of Wealthy Behavior, Talking Money and Wealth with Heritage Financial. I’m Sammy Azzouz, the president of heritage financial and your host. We have an extra special guest today, someone I’m really excited to talk to and share with everyone. My good friend and mentor, the founder and CEO of Heritage Financial Chuck Bean. Chuck is an industry legend having spent over 25 years in the business building a top tier independent wealth management firm and is regularly featured as one of the top financial advisers in the country. Chuck and I are going to talk about what he’s learned over the course of more than 25 years in the financial planning business that can help individuals and families achieve their goals. Welcome to Wealthy Behavior, Chuck. Thank you, Sammy, for that incredible introduction. I appreciate it. No problem. Happy to do so. So let’s start with a little bit of your background. You know, talk to us about your experience in the industry and how you got started. Sure. I can’t believe it’s been over three decades now. I started the business 32 years ago. I graduated from Boston College with my finance degree and immediately started my career in 1990 with John Hancock Financial Services. I was able to obtain all my security licenses and started working on a couple of advanced designations, the Chartered Life Underwriter, and Chartered Financial Consultant designations, all the while building a successful retail book of business. And within 5 years, I was fortunate to be one of John Hancock’s top representatives. But I wanted to talk to my clients more, more independence, more choices than just representing one proprietary company’s products. So in late ‘95, I followed my entrepreneurial spirit and started heritage financial services. We affiliated with an independent broker dealer, Commonwealth Financial Network at the time, and Commonwealth allowed us to provide financial advice and investment solutions across the whole spectrum really without restriction. And while with Commonwealth, we formed the RIA, which is the registered investment adviser at Heritage. That was in year 2000. And Commonwealth was a tremendous partner during those formative years, where we were really able to leverage all their back office resources, operations, technology, financial planning investment support, to build a strong client centric practice. So I was fortunate to be named one of their top advisers for the last 5 years until we decoupled from the broker dealer in 2009, and then became a fully independent RIA and personal wealth management firm. And that’s heritage financial, which I think started in the Commonwealth days, but that’s the independent RIA that you referred to. Tell us a little bit about heritage. So we built the business from a small two person shop, me and a secretary back in 1995 to today, what I deemed to be is a very thriving independent person wealth management firm. We’re comprised of 38 highly credentialed employees with all kinds of varying degrees of expertise. We have 9 client facing advisory teams, each with deep and diverse planning expertise and background with complementary skill sets. Each team consists of a seasoned wealth manager who leads a client relationship and works alongside a wealth adviser in a co-advisory capacity. They’re both certified financial planners, they typically have other advanced designations and areas of specialization that compliments the other advisors in the firm. Each of these teams is supported by three internal groups. We have the financial planning team, and investment management research group, and our service and ops team. So as mentioned, heritage is an RIA, which by design is a fiduciary and what that basically means is we’re always doing what’s in the best interest of our clients at all times. We place a strong emphasis on our core values which are teamwork, integrity, and excellence. And are very proud of our mission, which is simply to make a positive and lasting financial impact on the people in our lives and those we serve. We accomplish this mission as wealth management professionals by gaining a real deep understanding, Sammy, of our client’s goals, build long-term client centric relationships, and really guide them to the complexity of the financial lives. So even though we’re based in the greater Boston area with a large percentage of our clients here in Massachusetts, believe it or not, Heritage now services clients in 35 different states. And today we’re serving over a thousand clients representing more than $2 billion of assets on management. And we’ve also enjoyed some great free advertising, as I call it, the national recognition by the likes of Barron’s Forbes, Charles Schwab and finance adviser magazine, being one of the top independent financial advisers in the country. Yeah, absolutely.

00:05:01 – 00:10:03
And I know that recognition is really important and reflective of all the hard work of our employees and the clients who have trusted us over the years. And you touched on this a little bit introducing your background Hancock to Commonwealth to the independent model. What did you feel like was so important in terms of for the end client – why it mattered to go independent? So independent is all about being on the same side of the table as the client, conflict free advice, without regard to monetary incentive, no quotas, no particular products, hidden fees, revenue sharing behind the scenes. Being able to offer unbiased objective independent advice and the best senses of the client is to me the only way one should be engaging a professional. So the independent model seemed to be the only solution for what we were looking to accomplish with our clients to give them the highest success rate and the best potential results. Absolutely. It’s hard enough to come up with good investment and planning ideas if you have one hand tied behind your back and have conflicts and potential proprietary product and solutions that you need to advocate for as well. One thing with heritage that’s really a reflection of you and how you founded the firm and how we handle our clients is our motto every detail matters, which is, I think, something that is baked into the firm because of your DNA and your approach. So I’d love to know where did that come from? What does it mean to you? Why is it important ultimately for clients to be working with a firm where that motto resonates? Sure. So we strive to be very timely with our client responsiveness and attract people to the heritage team. We really want to serve as true fiduciaries and acting in the client’s best interest. We take the time to learn everything we can about our clients and dedicate a small team of advisers to each relationship. So they’re always interacting with people they know and trust. We are constantly raising the bar with client deliverables and trying to enhance services. So clients wealth management needs are taken care of at the highest possible level. As we all know, the devil is in the details with everything in life. And early on in my career, I learned from some of the most successful people in the business, that paying close attention to details really matters and delivers better results, especially when offering important financial, investment, tax, retirement, and estate planning advice. And it’s all integrated. Before advisers can provide any sound or meaningful advice, prudent recommendations, you need to do your homework on the front end. And understand the entirety of that particular client situation at hand. We need to review the tax returns. We need to understand their cash flow needs. What the spending plan looks like, how much they can save towards their goals and ensure everything is integrated into a sound, well organized plan. So we monitor dozens of internal data points and internally for each client that covers all the important aspects of clients retirement plans, asset protection, management, social security, estate planning, income tax planning, philanthropy, helping educate kids and grandkids with college, and monetizing businesses, real estate transactions. You name it. And everything gets integrated into a financial plan that allows us to provide ongoing sound advice. So we all know there’s an old adage of garbage in garbage out. And the more we engage and understand all the issues and goals in the front end, the better the customized guidance and advice we can offer to match a client needs to get better results. Yeah, absolutely. And I think that front end work is reflected in the way that we take on new clients and the three-meeting process really that you developed to introduce clients the right way to heritage with a lot of upfront work to understand the details and build the right plan. So chuck, you’ve touched on the fact that you’ve been in the business going into three decades now and during that time obviously as an investor and an investment adviser, you’ve seen almost everything, right? Three bear markets, a couple of bubbles bursting, infinite market corrections, you know, the last decade for investors, people chasing growth stocks, more recently, that have struggled a little bit. You know, what would your advice be to investors today who are wrestling with something that we haven’t seen before really in our careers, which is higher inflation, much higher than expected, that’s rattling the markets. The way to combat uncertainty is to design a portfolio allocated with enough pistons in the engine to weather whatever type of storms may brew and pass over. And with inflation rearing its ugly head today, we’re implementing real assets into the portfolio that are great inflation hedges that are actually moving up during this year 2022 while stocks and bonds are pulling back.

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We actually added to those inflation hedges and real assets early in the year/ late last year. But we don’t time markets, it’s impossible to know what the next best thing is going to be. So you must diversify. We look at our client’s pie with lots of slices in it, or an engine with lots of pistons, and some will go up and some will go down. And when they do, we rebalance. We have an algorithm internally with our investment team that monitors each asset class very closely. And when there’s a varying degree of standard deviation above and beyond what our tolerance level is, typically 20% swing or more, we’re going to fix it, fixing it is rebalancing, taking profits on some things, and buying things when their cheap. And that’s counterintuitive to the average investor, especially the do it yourselfer, because emotions get in the way, things are down. Their mindset tells them to sell or abandon ship. When no, those are great buying opportunities. In fact in early 2020 as the pandemic was starting to rear its ugly head and stocks were swooning down 20%, 30%. I think the S&P dropped as much as 33% over a very short number of weeks. We were licking our chops, our investment team had a plan in place to rebalance portfolios and sell some of the alternatives and fixed income holdings and buy stocks while they were very attractive. So maintaining a disciplined approach and having professionals guide you through the storms, to me, delivers the best results. Absolutely. One of my favorite clients is a lady who is tough cookie but super nice, shared with me the frustration that you guys never tell us when to get out of the market. And I thought about that for a second and why don’t advisers ever say get out? Because, you know, we’re in a capitalistic society and asset classes are going to continue to escalate and appreciate in value over years and decades to come. As long as it’s positive inflation and there’s opportunities for business owners to thrive and make a profit, risk assets are going to go up in value. Now they have their periods of cooling things off and taking a step back, but in the long run the trend is your friend. Stocks have delivered returns averaging around 10%, going back many, many decades and even overlapping The Great Depression. Bonds are going to give more modest returns in the mid to low single digits and then you got real estate and private assets as inflation hedges, real assets that are also that mid to maybe upper single digit range. So diversify, pick a portfolio that’s appropriate for you that’s going to give the risk and return results you’re after and stay committed. Stay loyal, stay disciplined. Yeah, I mean, one thing we see is people have a tendency to jump from either strategy to strategy or to chase performance, which is typically a big mistake, a loser’s game, so to speak. And right now, people are facing that temptation with their bonds. They want to dump their fixed income, bonds are struggling for the first time that they can really remember. And the advice is obviously stay the course. You can’t just jump ship when an asset class, you know, struggles all of a sudden. Would you agree with that? What would you tell people who are looking to get out of their bonds right now? I would absolutely recommend they stay the course because those bonds are now yielding a much higher dividend. And those dividends are reinvested every month so they’re buying more shares of the bond prices while they’re low. So there’s an internal dollar cost averaging process taking place. And again, the higher dividend yield. So bonds are going to have their phases like stocks and real estate and everything else, so it’s pistons in the engine as a rule. We are underweight bonds in most client portfolios because of the low interest rate environment and we replaced them with some of the real assets to help juice up the returns and have a bit of inflation management. To abandon ship would not be recommended. Stay tried and true in the long run. This is great Chuck. Any other investment mistakes that you’ve seen consistently over time? Just, you know, mentioning cash, cash is a drag on portfolios, the money market yields are still at or near zero. The fed Jerome Powell and company have already signed increasing rates. We’re going to get several more rate increases. This year, cash will start to pay a little bit more, but in the long run cash has always had a drag on investment returns. And people feel that their safe money that it’s money under the mattress. They can’t lose it. It also is losing purchasing power every year because cash doesn’t keep pace with the tax rates you pay on the little bit of yield and the inflation. If inflation is up 8 and a half percent year over year, which it is now, you’re getting a real bad negative return on that cash holder. So cash is meant for short term obligations, you’re buying a car. You’re putting a down payment on a home, you’re funding a tuition bill, you’ve got working capital.

00:15:00 – 00:20:03
That’s money for the bank, for money market CDs, et cetera. But long-term money for your saving or investment goals must be put to work. Yeah, and I think that’s key, you can get overly concerned about short term volatility, but money needs to go where it should go from an allocation standpoint. So your long-term money should be invested in long-term instruments, your short term money really should be set aside and cash so it’s not exposed to the market and you don’t want to overdo it in one direction or the other. Maybe talk about the flip side of that. We see it from time to time, probably just as often as we see people sitting on too much cash. And that’s taking too much risk in a portfolio. And I guess putting some of the portfolio at risk of a permanent loss of capital versus just volatility. Yeah, it definitely works on both sides. Some people look at the rearview mirror over the last several years. We’ve seen growth stocks, tech stocks, how well they performed. Value international, et cetera. And clients will look at yesterday’s news and ask us to position more dollars in those things that did well yesterday. And that’s the absolute reverse of what they should be doing. They’re buying yesterday’s news. They’re buying at high points, maybe the market top. They’re taking money out of other asset classes that are more reasonably priced that haven’t had their full day in the sun yet. And those are wealth killing mistakes. You hate to say. So we need to be prudent investors and prudent advisors, I should say, helping our clients make wise, sound decisions and they’re not going to get themselves in trouble. Yeah, absolutely. Thanks for sharing that. And now obviously investing is just one piece. We are wealth managers, which is more than just the portfolio. We are taking a look at everything, including the financial planning aspects of a client situation. And over the course of time, the financial planning becomes much a bigger part of our regular meetings with clients, there’s much more going on than regular updates on a long-term portfolio. What are some of the planning mistakes that if you’ve taken all those clients through the three-meeting process and you’ve worked with clients across three decades, as you mentioned, that you’ve seen that people can really focus on avoiding. Some of the real easy things we put together personal financial statement itemizing all their assets and liabilities by ownership title, et cetera. In many cases, their life insurance policies, their IRAs, Roth ITAs, 401ks, pension plans don’t have the most up to date beneficiary designation in place. When they started working at acme company years ago, they were not married. They’ve had their mother listed as the primary beneficiary. They get married and have kids and things evolve and change. And they never thought to go back to HR and do an audit of their beneficiary designations and get them up to date. So we do that. We dot the I’s cross the T’s. We make sure we contact all the different administrators and ensure that we’ve got the correct beneficiaries in place. Great. And related to that, I think a lot of times we see people who haven’t even put the time in to get their estate plan done initially. Yeah, a lot of folks have a basic will sometimes nothing more than that. Maybe power of attorney or healthcare proxy, but over the years they’ve amassed some decent levels of wealth. They’re in a taxable estate. If they’re in Massachusetts, residents with over a $1 million, doing some more advanced estate planning, trust planning can preserve a million times two for husband and wife from estate tax planning and also ensure that the assets are probate free when left to the family. And they want to go through fire drill and God forbid husband, wife, or both, perish, what happens? how are these assets distributed? should they be handed outright directly to their kids or are the kids too young. Should there be a trustee appointed to ensure the oversight management of those hard earned assets. If they are a little older, do they still want those children to get access to large sums of money? Sometimes millions of dollars in one lump sum, or should it be held in trust and provide an income stream maybe for the rest of their lives and then the generation skip and avoid taxes to the next generation. So depending on the size and complexity of the estate and the wealth that’s created, there are so many wonderful planning opportunities we can discuss with our clients and help design it properly. Yeah, one thing we focused on in episode two of wealthy behavior was personal liability insurance because we see that a lot as a gap that people are just under covered under insured. They don’t have the right coverages in place, and so I would strongly recommend folks to take the time to listen to that one, but that’s not really the only area we see people underinsured, is it? No, we see people underinsured with life insurance, long-term care insurance, even property and casualty insurance. And I’m a big believer if you’ve got financial resources to pay a higher deductible, increase the deductible, save on the insurance premium.

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But you want insurance for a catastrophic event. So make sure that the whole value of the home is covered or the value of the life of the individual is covered, but keep the premiums as low as possible through proper plan design. Yeah, absolutely. And we’re finding a lot of people are underinsured with disability insurance and overly reliant on what their company provides, so I think it’s important to build that financial plan, look at the gap, and be willing to address that gap with the right coverage in place. And those are hard conversations because those policies cost money, but they’re extremely important if anything were to happen to you in terms of protecting your family’s financial future. I think it’s also important for each employee to take a look at their company benefits because there are these cafeteria plans with a lot of different options and coverages to choose from. And in many cases, once we request a copy of their employee handbook, I analyze all the different benefits I can take advantage of. There’s many that they’re not utilizing. Some of it has dependent coverages in there. Some of it has long-term care coverages that are very cost effective or supplemental life insurance at a reasonable rate that can fill in some of the blanks, fulfill the need for the right amount of coverage. Yeah, absolutely. That’s why we make it a point of looking at benefits and pay stubs, periodically, just to make sure that there’s nothing that should be taken advantage of from a planning standpoint that’s not. You’re a business owner, Chuck, and I know you have some thoughts on planning, priorities for business owners or planning gaps that you see with business owners, something that obviously I focus on a lot with my client base as well. What are maybe the top two or three things you would say to business owners in terms of their specific planning needs? You know, you really need to think about life after you with the business. Life after Chuck, what is the succession plan? Who are the powers to be? Who’s going to step into your shoes, continue to carry the torch as strong or higher or better level than you are. And it takes a lot of thought. It takes a lot of preparation, it takes hiring a professional or two to assist you in this regard and put it into writing and document it. So that you’re protecting your family, you’re protecting the wealth that you’ve created, the last thing you want is to leave a very unmanaged unorganized box of assets and a business that your family, spouse, or kids are faced with without any clear path to succession. So succession planning is extremely important. It’s an ongoing practice. I was the single owner of heritage years ago when it started and there are now 11 shareholders at the firm and it’s growing. And I’m extremely proud of that. As the ownership base grows, the company grows, people are running to work, not walking to work now. The extra excitement of having ownership and clearly that’s an important one. Yeah, one of my business owner clients phrased it to me as such and he’s basically said, you need to figure out along the way how to extract the most cash from the business tax efficiently, which it was his way of saying sophisticated retirement plan design, take advantage of cross testing, profit sharing plans, defined benefit plans as appropriate, which I know you and I find as completely underutilized, particularly in the small business owner space. And then, you know, what’s my exit strategy going to be for the business? Is it going to be an internal succession like you’re talking about? Or is it something external, but giving thought as to what’s best for you, your family, your employees, your clients, I think is extremely important. And on the retirement plan design, in particular, I find that to be an area of big opportunity for business owners to shelter a lot more than they think, and you should not always be reliant on your CPA to bring that up. I think a team-based approach with a financial adviser and a tax advisers are helpful in bringing those solutions to bear. 100% get the A-team together and all collaborate, share ideas and you’ll have a much more successful plan in the long run. Absolutely. So there’s a lot there, obviously, from an investment and planning standpoint, you touched on the extent of our internal financial planning checklist, the things that we want to be focused on with clients, which leads me to one last question on this area is you really have built into the firm’s DNA, a focus on ongoing education, credentials, continuing your career development and I just wanted you to touch on why that’s so important to you and how you think that benefits the end client. So my late grandpa Joe Pelosi was my first coach and mentor in the business back thirty some-odd years ago. He was actually Hall of Fame manager at MetLife and someone I truly aspired to be like someday.

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And really he was really able to extract the best from me. And he taught me the art of goal setting. He would have business goals on one side of an index card and personal goals and the other. And not only on the business side, it revolved, focusing on higher education. What designations, degrees, additional knowledge, I’d like to gain. He said, if you want to be successful in life and make more cash, he said, spell it KASH, K’s for knowledge. Knowledge is power. If he had it his way, in addition to becoming a Chartered Life Underwriter, Chartered Financial Consultant, I then became an Accredited Investment Fiduciary, he wanted me to become a Masters in taxation. Become an attorney, a CPA and on and on and on. And I said, grandpa time out. There’s only so many of the day, but clearly it was engrained in my DNA early on, and I’ve been promoting that throughout the firm since day one. So we have over 19 certified financial planners here at the firm, four chartered financial analysts, we have five chartered financial consultants, and then more than a dozen other advanced degrees, designations with varying degrees of domain and expertise. I don’t think we would be where we are today without my prodding pushing and supporting that. We help pay for most, if not all, of the higher educational costs. We promote people once they attain these advanced degrees because they’re more powerful and valuable to our clients. So higher education is extremely critical to heritage. Well, fortunately for us and our clients, you listened to your grandfather, but you eventually pushed back a little bit and didn’t spend your life in universities and pursuing credentials. You balanced it out a little bit, because that did sound like a pretty daunting list. I’d still being school right now. Exactly. Talk about where the firm is today and the important milestone you just hit and where do you see the firm going from here? So last year, we were very fortunate to surpass a great milestone. It was just 2 billion of assets under management. And as our firm continues to grow, we’re able to reinvest more resources into the firm hiring more talented individuals to complement the current team. And to fulfill the mission and commit to making a positive and lasting financial impact on lives of our clients, we need to continue to grow. We need to grow at an attractive rate. My team has heard me say there’s a hundred times if we’re not growing, we’re dying. And growth enables us to attract and retain great talent, offer career paths to our employees. We invest back into our team, offer additional wealth management services, enhance the technology that our clients are accustomed to working with. And then open more regional offices to better service our clients at more convenient locations while continuing to expand employee ownership. Thanks, Chuck for sharing that. Great feedback. There’s so much more we could talk about here, but this is a great overview of what investors should think about when they’re selecting an adviser or wealth manager and some planning investment mistakes to avoid and also just thoughts on where the firm is going from here. If our listeners only take one thing away from our conversation as it relates to working with an adviser or firm, what should it be? One thing I would suggest is work with a fiduciary, an advisory team that works tirelessly for your hard earned wealth day in and day out and aligns their interest with yours. Conflict free advice. So a fee based relationship without commission, revenue sharing, hidden costs, any of that behind the scenes is the most pure, transparent way of aligning our interest together. So clearly, I would recommend working with a fiduciary. Great. And since the name of our podcast is wealthy behavior, what’s one wealthy behavior that you practice consistently and would recommend to our listeners? I think the number one practice a client could take away from this discussion is to be disciplined. Remain disciplined at all times with your financial plan, your investment strategy, through all the ups and downs, the media is going to throw curveballs at you, the markets are going to have their up and down roller coaster swings. Do not let emotions get in the way of sound, long-term prudent investment advice. And if you remain disciplined, you will win. Awesome advice. Thanks again, Chuck for sharing this valuable insight and joining us today. Thank you very much for having me, Sammy.

Thank you for listening to Wealthy Behavior. If you found the conversation useful, please consider leaving us a review wherever you listen to your podcast and sharing this episode so those around you can live a rich life too. For more insights, subscribe to our weekly blog and heritagefinancial.net and follow heritage financial on Facebook, Twitter, and LinkedIn. Check out my personal finance blog at thebostonadvisor.com. This educational podcast is brought to you by Heritage Financial Services, LLC located in the greater Boston area. The views and opinions expressed in this podcast are that of the speaker, are subject to change and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment or strategy discussed will be successful or will achieve any particular level of results. Investing involves risks including the potential loss of principle. *This automated transcript may contain grammatical errors.