“We step back and take a holistic, 10,000-foot view when approaching our clients’ financial plans.”
Can’t say how often we’ve heard that phrase, and in the next breath advisors say − with a straight face – that they outsource insurance portion. Come again? If they don’t personally address risk mitigation and minimization, can they then claim to be a truly comprehensive advisor?
Top advisor Andy Mathews, founder and president of Berkshire Advisor Resource, says no. The CFG/H. Beck affiliated rep keeps the insurance planning in-house and is making it work to the tune of $3.5 billion in assets under management. He has offices in New York, Colorado and Southern California, and is in his 20th year in the advisor business.
“I initially went to college to become a teacher,” he says. “Teaching is analogous with financial planning. Planning has something to do with charts and graphs and alpha and beta. But it’s really about psychology. The charts and graphs are secondary.”
Insurance planning is the foundation of his practice, and the foundation of his clients’ financial plans. Boomer Market Advisor sat down with Mathews to ask him about the unique structure of his firm and his truly holistic approach to addressing his clients’ needs. For more of the interview, visit www.boomermarketadvisor.com.
Boomer Market Advisor: From a practice management standpoint, you’ve structured your business differently than most. Please explain.
Andrew Mathews: We do quite a bit of insurance and quite a bit of wealth management. My vision was to take the best attributes of the wirehouses, independent financial advisors and insurance agents. We combined these into a firm with a main platform of independence. There’s no mother ship telling us what to do or what to offer our clients. We’re a client advocate. The business plan that was written for this particular company is the new way to operate. You’ll see more firms like this in the future. I thought there would be more by now but we’re still not seeing that many.
BMA: You mean combining the best attributes of the three different business models?
AM: Yeah, exactly.
BMA: What’s the minimum net worth a client must have before you’ll work with them?
AM: We target the kind of clients we want; meaning we don’t have minimums on net worth. We call it attitudinal minimums; we want a client who will actually follow our advice. We’re not fond of having relationships where we produce a financial plan in a leather binder, and say, “Here, take that. Good luck, do with it what you will.”
BMA: You’re heavily involved in in-house insurance planning. What’s the value in doing so?
AM: I think that if a financial advisor does not address the risk management side (meaning insurance, wills and trusts and those kinds of issues), they’re not comprehensive. Even if they have don’t have the expertise but are very familiar with someone who does, not enough advisors actually take the client to that person personally and say, “Here, we need to get this done.” And I think that’s reflected in the end result. I see buy/sells [cross purchase] agreements that are not funded with any type of insurance. I see all kinds of different business agreements that would generally be funded with insurance that were never funded that way.
BMA: You’ve seen buy/sell cross purchase agreements not funded with life insurance?
AM: Oh, gosh, the majority of them that we see [are not].
BMA: Wow. That would seem to be an E&O claim waiting to happen. Am I wrong in that?
AM: (Laughs) No, actually you’re absolutely right.
BMA: That’s shocking.
AM: When I first came into the business about 70 percent of the business agreements I would see had some sort of a problem. About 25 percent of the clients I see have an updated will and probably around 20 percent of the business agreements I see are actually over-funded.
BMA: But if you take pride in your independence, how do you get paid in light of the commission-based insurance structure?
AM: We get paid in the three ways that financial planners get paid. We either are paid by hourly or project fees, by some sort of commission or by AUM fees. It differs depending on how much business the client has with us and how complicated the case is. With business agreements, we might fund some of them inside the retirement plan, maybe linking a buy/sell or buy-out plan to a retirement plan. So we put the insurance inside the retirement plan and deduct the premium. It’s a little more complicated planning. With those types of agreements, it’s required that all fees and commissions are disclosed upfront.
BMA: You have a heavy focus in long term care insurance. Are people finally starting to get the message on the need for LTCI?
AM: I don’t think there’s been an insurance product to date that has gotten more press over the last 10 years from financial magazines; everything from a magazine like yours to something that’s published for the end-user. There’s been more written about why people need to look at long-term care and I think that’s helped. As far as advisors offering long-term care insurance to their clients, it’s a manic business because the insurance companies really don’t know LTCI; how to price the product and how it’s all going to work out. But the answer to your question is that we see a 20 percent increase in long-term care policy premium every year.
BMA: So market penetration – at least among your clients – is pretty high?
AM: Our job as a comprehensive planning firm is to make them aware of the issue. Then the client has the opportunity to do something or do nothing.
BMA: Do you see it as a potential E&O claim if you do not address it and the need arises in the future?
AM: Oh yes, and we have them sign a form to that effect. That’s something that’s been written about a lot, especially as more boomers age, but we’ve been doing it for probably fifteen years now.
BMA: Does CFG/H. Beck do your compliance, or do you do it in-house? How does that work?
AM: Yes, all of the above. In the financial services industry, compliance is the major issue that everybody’s still talking about. We’re getting more and more – I wouldn’t say compliance issues but you know there are changes and things have to be brought current so we do it in-house. We have somebody dedicated to do compliance in-house, but because of our size, it’s twice a year that the broker/dealer comes in with their attorneys and we just make sure the files and everything are in shape.
BMA: How many clients does the firm have?
AM: We have about 3,400 hundred clients with $3.5 billion under management.
BMA: That’s an awful lot of clients. Are you working 24/7?
AM: We have good people. I think it’s hokey when people say this, but we are kind of a family. And we’re pretty lean as far as support staff. We have specialists. Our long-term care person runs all the long-term care, we have a disability person that runs disability and we have person that does estate planning, so everybody fills their role. But I do work a lot.
BMA: So it’s almost like the specialist is responsible for their individual business?
AM: It makes exact sense. We do something else that’s different that we instituted about five years ago. For clients who are in the upper echelon of whom we deal with, we bring in all the advisors and we talk about their case. Everybody throws out their ideas. We ask the clients if they want to come in and see the argument. Some of them do. But it’s something similar to a wirehouse model, the brainstorming in the team environment. We’ve done some crazy, weird things. We have a client with oil rights in Belize. We negotiated the oil rights and were heavily involved with oil and gas attorneys because the client was afraid the government might nationalize. And not only oil and gas experts but international oil and gas experts. So that was something I never really thought that we would do in traditional financial planning.