Sound financial advice with a personal touch

Jerry Sullivan • Vacaville, CA
Solano Strategic Financial Advisors • Securities America Inc.
Read full biography below

Proactive Advisor Magazine: Jerry, how do you see your overall role in serving clients?

The important attributes that come to mind in working with clients are listening skills, understanding, a focus on education, integrity, and personalized service. I became a financial advisor in order to provide solid, sound advice to the average investor of all ages, and especially for individuals or couples who are facing the uncertainties of retirement.

I think having a sophisticated and strategic planning and investment approach is obviously extremely important. But that means very little if a strong personal connection is not established. While I advocate the use of technology and digital communications, I also think we should not lose sight of delivering the human touch in our firm’s relationships with clients.

In my 30 years in this business, I have learned how unique the needs are for each individual. Whether they are planning on college for their children, trying to figure out their 401(k)s and pensions, thinking about legacy planning, or dealing with the myriad issues of a small business, every person has their own story, their own belief system, and their own specific wants and needs. I believe our firm does an excellent job of drilling down below the surface and getting at those individualized planning issues.

What does your client base look like?

I work with clients of all ages and from all walks of life, with different income and asset levels, but there are really two sweet spots for our practice. The first is composed of people about 10 years away from retirement. They are ideal clients because there is still time to make some mid-course adjustments in retirement and legacy planning, and to explore tax-advantaged strategies. The mindset of a potential client or client couple is important—the overall process works best with clients who value advice and are open to education and coaching.

“Risk management is extremely important for our clients.”

I also have a lot of experience working with small-business owners. These individuals not only have all of the classic retirement-related needs, but they also may have fairly complex business-related needs in the areas of insurance coverages, retirement plans, succession planning, and so forth. If our firm is not fully expert in an area they need, we have many external resources we can partner with. Business owners also can represent a prime source for referrals, both within their company and among people in their network.

Talk about your planning process.

For pre-retirees and retirees, I use a six-step income-distribution and wealth-planning process, which we call “The Income Difference.” Broadly speaking, the steps go like this:

1. Discovery: Understanding a client’s unique situation and gathering key data points.
2. Prioritizing: Determining the immediate and longer-term needs and financial objectives.
3. Analysis: Overlaying priorities with the financial situation defined in the discovery process. Determining if third-party resources should be used for certain areas.
4. Solutions: Constructing appropriate action plans and allocation strategies for income distribution and longer-term asset growth. Assessing the relative role of guaranteed-income products and variable-return approaches, making safety of income and wealth preservation a priority.
5. Plan implementation: Implementing the plan using the criteria from the first four phases. We especially look at time frames, current economic conditions, personal risk assessments, and strategic approaches for each specific plan element.
6. Review, monitor, and update: As a team with the client, we will set appropriate milestones to review and update the plan, assessing progress toward each client’s goals. An important component of this is evaluating on a periodic basis the strengths and weaknesses of the plan, what is working well and what might be underperforming.

While this represents the logistics and process of how we work with clients, the key point really goes back to the personal touch. We want to make sure to communicate that we are here to listen and help with any questions or concerns. Our goal is to make sure that clients have a firm understanding of how the elements of their plan all tie together and the various roles, objectives, and time frames for different buckets of money. And, most importantly, we try to make sure a client knows they have a professional resource to help guide them through the intricacies of the planning process, the many options of retirement income and investment strategies, and the intricacies of the markets.

Where does active investment management fit in strategy development with clients?

Active investment management is an important philosophical belief that I bring to my analysis of portfolio allocations and strategies for virtually all of our clients. With the periodic bouts of extreme volatility and downturns over the past 15 years or so, I do not think individuals facing retirement should be taking a “riverboat gambler” approach to their portfolios—risk management is extremely important for our clients.

See Related Article: 10 reasons investors need active management in retirement

Determining the role of actively managed strategies for any client begins with their financial plan, objectives, and risk profile. I place a great deal of emphasis on evaluating their true appetite for risk and use what I believe is an excellent methodology for getting at a client’s risk tolerance. It is one thing for a client to say they could easily stomach a 20% drawdown in their portfolio, and it is quite another thing to see your $1 million account down by $200,000. We try to ascertain what their response, feelings, and behavior might be to those kinds of real-world results using their actual portfolio values.

When we have a good feeling for their risk profile and objectives, we establish a time-horizon-based bucket or sector asset-allocation approach. We have four distinct sectors, each with its own specific goals. To greatly simplify, the first sector represents funds that need to be very liquid and have little risk attached to them—these are funds where the principle is fully protected and available for immediate needs or an emergency. The second sector is also a relatively conservative allocation, but where the ironclad safety of principle is sacrificed a bit for higher yields. For example, these funds might be invested in a multi-asset income fund or a short-term bond portfolio.

The third sector is what I call moderate growth—this is where we typically have actively managed strategies, especially if it is a pre-retirement account. If it is an after-tax account, we like to use constrained, tactical strategies that are tax managed. The fourth sector is for long-term income. That could include Social Security benefits, a defined-benefit pension plan, income from real estate, or possibly a variable annuity with a guaranteed-income rider.

l tell clients that these four sectors integrate and coordinate with one another—we maintain a discipline and balance in setting them up in the planning process. For the third sector—the moderate-growth area—third-party money managers who have actively managed strategies are an important resource. Rather than having a client’s portfolio growth tied strictly to the ups and downs of volatile markets, we want it managed by professionals who will look at and touch their strategies and portfolios every day. They will not be trading or making changes every day, but they have the ability to move allocations appropriately as market conditions change, or to rotate through asset classes and sectors. I believe that is a critical point of differentiation, and I communicate that clearly to clients.

How do you handle the fee discussion with clients relative to money managers?

Studies, such as DALBAR’s “Quantitative Analysis of Investor Behavior,” have shown that the average investor, left on their own, will significantly underperform the market. We also know that unmanaged, passive strategies will invariably face significant drawdowns, which are hard for any investor to handle emotionally. I firmly believe that our clients can significantly enhance favorable probabilities for long-term investment performance through rigorous planning, our methodology for asset allocation, and employing managed strategies where appropriate.

The use of outside professional managers obviously comes with a cost attached. We fully disclose those fees, which I believe are reasonable, and that is usually a productive and positive conversation—clients come to understand the benefits of such an approach. By having a professional manager or managers involved in overseeing your investments, it helps give a client more confidence that they are not going it alone in unpredictable markets. Just as one consults a trained professional physician for important medical needs, it makes perfect sense to use highly qualified investment professionals for portfolio management.