L&HA: You often use the term holistic financial planning. What does that mean and how important is it to your practice?
CH: People often express surprise at how successful our practice has been in Columbia, South Carolina because you don't think of Columbia as a mecca of wealth. I think the key is that from Day 1 our focus has been clients with whom we can do holistic financial planning. By that we mean everything from talking with them about their vision for the future and how they might get there from both a values and a money perspective, to the amount of umbrella coverage they need. We look very globally, we touch everything, and we offer a range of services including income tax planning, estate planning, insurance, long term care planning, and investments.
L&HA: Your practice is fee for service?
CH: We have always been fee-only. We work with a variety of strategic partners especially on the insurance side where there is a commission or transaction cost. Sometimes we'll use Vanguard or another product that serves the consumer directly. We're agnostic; we do whatever is best for the client.
L&HA: Do you recommend annuities to your clients?
CH: The fee side of the industry for a long time had a hate relationship with annuities so we wouldn't even think about them. About eight years ago, we began to see that they were a tool we needed. We have a client whose family had set up a charitable lead trust; in the interim she wanted a flat income stream from some of her money. She has problems of overspending, so we bought her an immediate-pay annuity for ten years. Oftentimes, people outlast the need for their permanent insurance. If they have a legacy universal policy that's no longer logical and we want to preserve the cash value, we might exchange that policy for a variable annuity.
L&HA: What are alternative investments and what do you currently use?
CH: Forever and a day we all thought 'stocks, bonds and cash.' We thought it was pretty sexy to use micro-cap stocks. Then much wealthier families and college endowments began to look at asset classes like real estate, oil and gas, and timber and gold. An asset class can also include commodities or managed futures. Now more and more people are looking at emerging market debt because of currency issues and the declining dollar. Sometimes people use the term to mean a strategy of investing within normal asset classes like a hedge fund but using puts and calls, options, and other leveraging to make a better return on a risk-adjusted basis. Mutual funds like the Gateway Fund use hedging strategies, and I think it's legitimate to call them alternative investments.
L&HA: Has your investment approach changed in recent months?
CH: We always had a nice exposure to emerging markets such as India, the Philippines, Turkey, and Brazil. In the early part of the decade we had three percent exposure, then it grew to five and then to eight percent. When we looked at how much growth potential there is in those economies versus ours, we decided to put some funds in small caps in emerging markets, and we have been adding a bit more on the debt side denominated in other currencies to help our clients with the declining dollar.
L&HA: Is this done by in-house staff?
CH: We have a team of four. Not being on Wall Street we don't have a huge pool of experienced people from which to hire, so we have always grown our own team. The challenge is how we make sure they don't think our Kool-Aid is the best Kool-Aid, so we strive for diverse training, political ideology, and cultural background.
L&HA: Is this a good time to be bringing young people into financial planning?
CH: We are not afraid to bring in somebody young who has talent. We do a lot of training and there are several of us over age 50 in the agency. Young people are technologically in the know and they have a fresh appetite for learning. We've been very successful hiring women, but we have struggled with color and culture diversity. We've hired a number of our great interns, but often they get whisked away to Big Six accounting firms or Wall Street.
L&HA: What drew you to this business?
CH: I originally worked for Merrill Lynch. It was a great starting point because I really enjoyed working with people, but I also liked using the left side of my brain. At a professional meeting I learned about charging a fee and getting your CFP. I was young and naive, and I thought, 'That’s what I'm going to do.' I started this agency 14 years ago seven blocks from where our office is today.
L&HA: I noted your comment in The Wall Street Journal that in your experience successful entrepreneurs are passionate first about what they do, and financial success flows from that. Does that apply to you?
CH: I have found that my clients who are the most financially successful (and that's just one way of determining success), whether they are an electrician or have a lawn service or are in a family business, have done something they enjoyed and were good at and went from there. I feel fortunate that I am able to do something I am so passionate about. Perhaps people are attracted to us because they are like us. If you look at Bill Gates in Malcolm Gladwell’s book Outliers, you see that early on he loved to play on a computer. He spent hours doing that, and his passion sparked everything that came after.
L&HA: Do you see the economic changes coming out of Washington, D. C. having an effect on your clients or on your practice?
CH: Higher taxes are inevitable, and that will leave our clients with less to save or spend. We're anticipating that globally we'll have slow growth. With more marginal returns in the market we're going to have to work harder to earn what we do as a firm. We'll have to be wiser about how we allocate resources within our own firms.
L&HA: Any reflections on our conversation today?
CH: A challenge for all of us is to keep an open mind. Take annuities: we used to think we would never use them, and they turned out to be a phenomenal tool. We try to keep an open mind about how to create wealth or what talent young people can bring to our team. Curiosity and open-mindedness are critical to being successful.
