While the traditional intermediation model was “strangely irrelevant to the rest of the client’s life,” a “bold shift” is underway in the financial advice industry.
Paula Hogan, partner and private wealth manager at Creative Planning, said in an interview with ThinkAdvisor.
Hogan, who founded Hogan Financial Management in 1992 and sold it to Creative Planning in 2019, was ahead of his time as a financial planner from day one.
Her fee-only firm focused on comprehensive financial planning, integrating lifecycle economics and asset life planning. Her first investment vehicle of choice is an index her fund.
Hogan, who evaluates today’s financial services, said in an interview:[The industry is] We get to know our clients and help them manage how they want their financial lives to play out. It’s a step in the right direction.”
Investors’ primary concern is not portfolio performance, but maintaining living standards, Mr. Hogan said. Mr. Hogan’s father was a tax accountant, and he became interested in the concept of variable annuities, leading him to work as an employee benefits consultant.
In the conversation, Mr. Hogan, who manages just under $500 million in assets ($290 million in assets under management at the time of the sale to Creative), talked about risk management, including the importance of insurance.
When she started her company, she had little experience in financial services, except for a brief stint in banking. It was her unusual vision of focusing on lifecycle investing and index funds, rather than sales-driven, that motivated her to pursue a solo career.
ThinkAdvisor recently interviewed Mr. Hogan, who was speaking by phone from his Milwaukee office.
At Creative, we focus on investment strategy.
The adviser seems to have made adjustments in advance to become an employee of one of the largest RIAs in the country from a sole proprietorship. In 2017, The New York Times called the RIA “a harbinger of profound change in finance.”
“As a founder [of my firm], had to relinquish ownership responsibility. I put a lot of work in my head to see if I was ready … to be a good team player somewhere else,” she says.
Interview highlights include:
THINKADVISOR: When I interviewed you for Research Magazine in 2012, you proposed a new definition of financial planning and hoped the industry would “move” into it.
It was “a lifelong process of integrating individual values with the management of both human and economic capital for the betterment of self and community.”
Have you arrived yet?
Paula Hogan: We are seeing some progress. The financial services industry is an outgrowth of the securities industry, which historically has been all about portfolio and performance, and strangely irrelevant to the rest of a customer’s life.
As the industry works to get out of this situation, it’s starting to think about an individual’s values and goals, and the whole person’s situation as it relates to not just financial capital, but human capital.
This is very different from the brokerage model of “What is your risk tolerance? Here you go!” Here is one of our standard portfolios. ”
So this is a bold change, a big step from the traditional mediation model to one that looks at all aspects of a person’s economic life through the lens of their values.
Do you still believe that the future of financial planning is the vision you had in 2012, lifecycle investing integrated with asset life planning?
we are moving in that direction.creative planning [and other top firms] We do that by spending time getting to know our customers and by having a suite of services that help people manage how they want their financial lives to play out.
The industry has changed. Is your approach to planning still very different from what most planners do?
Companies that I find attractive are expanding [the abovementioned] direction.
Financial planning is more than just a portfolio.it’s about building people [need] All Areas: Real Estate Planning, Insurance – Life & Disability, Property & Liability – Helping Business Owners Understand or Sell Their Business.
What primarily prompted the move away from the broker model?
It was a natural progression, and advisors started listening to what people care about, what their needs are, and what they need to do to reach those goals.
An example is shown below. When I started his financial planning in the 1990s, when a client asked us about taxes, we had no hesitation in saying, “Ask your accountant. What about taxes?” I am your financial planner. ”
However, there is now nothing in our clients’ financial lives that we do not consider from a tax planning perspective, so we are highly savvy about taxes.
This is what I call “the natural course of events.”
How do advisors help clients maintain the quality of life that matters most to them?
By understanding what their values are and what they value. That determines how much risk you want to take in your portfolio and insurance, and how you treat your human capital.
Talk more about the importance of risk management.
For example, I’m not sure I can say, “This is the portfolio for you,” to someone who doesn’t know if they have disability insurance or life insurance if they have financial support.
When you have a truly comprehensive plan, you are addressing the issue of risk before embarking on your portfolio. Because you need to know who that person is, what is happening to them. Where are they at risk? What do they prefer about how much protection they have against that risk?
What else is important to understand about using insurance?
When something goes wrong and gets you off track, insurance turns from an expense into a source of funding.
Insurance has always been important, but even in the paid community I belonged to, there was an aversion to insurance, and I can say that I didn’t know enough about it.
but now it’s like [in the case of] tax planning. How can you talk about your client’s portfolio if you haven’t already protected the risky areas that need to be covered by insurance?
It would be nonsense not to think [doing] OrBut our industry [finally] Evolving towards it.
Before I sold my clinic, I was on an immediate annuity, but now I’m not on an annuity at all. (Creative doesn’t offer them.) Do you have a solution that offers similar benefits to your clients?
You can continue your smooth course using more traditional methods with reserve funds, proper debt, insurance, and proper tax and estate planning.
What inspired you to start your own company 31 years ago? You had little experience as a financial planner.
I had a bee in my hood and a vision of what I wanted to do. We started with index funds, which were very unusual.
I wanted to be in a direction that felt right for the industry to go. And I wanted to see if I could make it work.
We made a lot of lifecycle investments. There was a moment when lifecycle investments could actually be implemented in a purely academic way, but that moment has passed.
In the meantime, I think the industry is moving in the following direction: [the life-cycle approach]and creatives are doing it.
Why did you choose creative planning to master the practice?
I hired an investment banker after I decided I was ready to move on because my life and industry had changed. We looked at a wide range of companies and he probably narrowed it down to 20 and did a phone interview.
Then I personally visited with a dozen people, talked to senior and middle management, and walked around the back. [office]further interviews were sometimes conducted.
At that point, I had a good understanding of the state of the industry and it felt clear that creative would be our home.
How has your business model and the way you operate your business changed since joining Creative?
Not much has changed. First, he had to relinquish his ownership responsibilities as a founder. I put a lot of work in my head to make sure I was ready for it, to be a good team player somewhere else.
I had never been an employee other than less than a year at a bank, so I wasn’t sure how long I would be at Creative. [including the Bank of Boston, on the investment side].
I thought I would only work on creatives until 2020. But now it’s 2023 and he’s still having a good time.
Photo: Paula Hogan