Wealth manager or stock broker? There is a difference
- Details
- Published on Tuesday, 26 July 2016 13:40
- Written by Paul Gordon
Every so often we all hear stories about people who suddenly came into a lot of money and, in what amounts to little time, find themselves in bankruptcy court.
The older we get, we hear about those who retired thinking they would have enough income from investments that they would never have to worry about it, only to learn that wasn’t the case.
That’s where a wealth manager can be the most valuable ally for anybody who needs help handling money; keeping income safe and helping it grow is a job for a fiduciary who puts his clients’ peace of mind first, said Mike Mahoney, a registered investment advisor and owner of Cypress Asset Management in Peoria Heights.
“There is always a challenge of finding someone to help you with your money who is truly going to be working in your best interest. But it is really important. There a lot of tragic stories about people who get money and can’t handle it and don’t want to educate themselves to make the best decisions,” Mahoney said.
“I’m a fiduciary. It’s what I do. As a registered investment advisor, the duty owed to the client is much higher. By law, we are held to a high fiduciary responsibility and suitability responsibility. I am not saying stock brokers aren’t responsible, but there are a lot of problems in the entire industry. Get a second opinion; it matters,” he said.
“Look, if you were talking about your physical health you wouldn’t think twice about getting a second opinion. But many people go on blind trust.”
Mahoney has helped people his entire professional life. It’s what he enjoys, from his early career in the insurance industry to his current business as a registered investment advisor. Putting his clients first has molded his success.
He became a certified financial planner in 1992 because, he said, he became aware that many people neglect to plan for their retirement. “I know I can help them,” he said. “I want them to feel confident in me and in what we are doing, what they are doing.”
That is one reason Mahoney lined up Cypress Asset Management as an independent member of The BAM Alliance, a national organization of investors and advisors that has grown from 30 firms and $1.5 billion in investments in 2002, when Mahoney joined it, to 150 firms and $26 billion now. BAM is made up of independent, like-minded advisors who put the needs of the client first and advise them the way they would advise themselves. BAM calls that “eating our own cooking.”
Mahoney said he aligned himself with BAM because he wants his clients to have “a sense of well-being when it comes to managing their wealth.” That, he added, extends to helping clients with other pieces of their finances other than just investments. It includes tax planning, retirement funding, estate planning and even charitable giving.
He said he even has his own succession plan with BAM should something happen to him; again, to give his clients a sense of well-being.
“You know, when it comes to wealth management, investing is the easy part. But all investors need to know more about it. I mean, I’ve met bankers other finance people who don’t keep up with changes in the industry. We want to educate our clients so that they know what we are doing for them is truly for them. I want them to ask me questions. I want them to take ownership of their plan because if they don’t understand the plan, they abandon the plan,” Mahoney said.
The behavior of the investor is the biggest detractor when it comes to long-term investing, he added. “Some people don’t stick to the plan, which is written according to your willingness and ability to take risks. It’s their call, of course; it’s their money. But if I do a good enough job educating the clients, most know the plan and stick to it,” he said.
Mahoney said most people turn to stock brokerages that have well-known names and usually a lot of brokers. That’s fine, he said, but often lost is the personal touch a fiduciary is bound to give a client. “A broker is more sales drive. Some can be certified financial planners, but they aren’t held to the same standards. Their incentive structures are different,” he said.
Brokers usually are sales-driven and offer clients products that may or may not be in their best interest. Mahoney said he doesn’t offer products; rather, he offers education and opinions grounded in the science of investing.
Also, some big-name brokerages offer wealth management planning, but once a plan is in place that relationship is terminated. Mahoney doesn’t operate that way.
“Being a boutique firm, I get to know my clients well. We start with a discovery meeting, which helps us both determine the fit, and we go from there. We all bring baggage to the table. We all learn different values and biases, usually from experience. Most older investors have been zinged before and are much more cautious. There is a lot of anxiety and emotion when it comes to money. When you show them clarity, transparency and objectivity, it gives them peace of mind.
“When people discover you really are putting them first, the relationship blossoms.”
Mahoney has six keys to working with clients:
- Trust – acting as stewards to clients; favoring transparency and simplicity.
- Direction – building a personalized strategy for each client and keeping goals well in sight.
- Discipline – providing the glue to hold clients to their plans.
- Market returns – leveraging academic evidence to maximize returns.
- Costs – we are sensitive to costs and taxes and strive to minimize them.
- Time – we watch the markets so clients can pursue more fulfilling things.
The typical portfolio Mahoney handles is worth $1 million-plus. His clients range from business executives to physicians and attorneys and nearly all of them have been referred to his office. “It’s all about the referrals because those come from people you have helped,” he said.
Mahoney isn’t shy about having clients and potential clients read up on him and the differences between a registered investment advisor and a stock broker. He’ll even provide the reading material, including a book titled “Playing the Winner’s Game” by known financial writer Larry Swedroe, with the forward written by Mahoney himself.
The last paragraph of that forward says much about how Mahoney approaches his work and his clients: “It’s our investments in life, not our life in investments, that most accurately determine our wealth. You don’t have to be a millionaire to play the winner’s game, but you certainly have to have your priorities straight.”
Mahoney has written papers, as well, and has done case studies to illustrate how the science of investing can go with true wealth management to bring success to the client.
