Doug Houser:
From Rea & Associates studio, this is unsuitable, a management and financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful, measurable results. I'm Doug Houser. On this weekly podcast, thought leaders and business professionals break down complicated and mundane topics and give you the tips and insight you actually need to grow as a leader, while helping your organization to grow and thrive. If you haven't already, hit the subscribe button, so you don't miss future episodes, and if you want access to even more information, show notes, and exclusive content, visit our website, www.reacpa.com/podcast, and sign up for updates.
COVID has certainly, significantly impacted all aspects of our lives, particularly from a financial perspective. Doug Feller, a principal with Investment Partners, has watched the COVID fallout closely with regard to the changes to financial planning habits. Today, he's going to share his observations and give us some tips to help get us back on track. Welcome back to unsuitable, Doug.
Doug Feller:
Good to be here, Doug. It's been a while.
Doug Houser:
Yeah, Absolutely. I'm always intrigued by this topic. In fact, we were chatting a little bit pre-session here, about the emotional and psychological impact to folks' investment retirement planning philosophies. I know there was a significant impact to that, obviously back in the great recession. I'm curious to see what you've experienced over the last year as we've gone through this COVID pandemic.
Doug Feller:
Yeah. COVID turned everybody's lives upside down and really jacked with their psyche in a lot of ways. As a financial planner, we talk about this all the time, about the value of it. Just what I've noticed in my career is, when things are going well, and when things are easy, and when markets are cooperative, and the economy's healthy and everybody has a good income, it's easy to really just punt on really diving down and creating a financial plan. It's what we've just observed, and then once every 10 years or so, we come into something like we came into last year and everybody gets really dialed in. I've seen a renewed interest, and more than interest, renewed focus, on making sure that client's financial resources as they come to us, that they're ready for whatever financial goals they have.
I would just say, generally, that my observation is those that walked into 2020, haven't done the work, fared much better, because we were able to recall all the goals that we had and recall the plan and demonstrate that in time, and it was a quick recovery we can talk about that, but...
Doug Houser:
Right.
Doug Feller:
...But that the long-term had changed. The behavior tends to want to focus on the immediate near-term pain, and so we spent a lot of last years just recalling the long-term outcomes that we're pursuing. For those that walked into last year with that, I would say that they fared very well and our conversations were relatively normal. For those that didn't, and that doesn't mean they weren't financially healthy.
Doug Houser:
Sure.
Doug Feller:
They just didn't have a grasp on how what was happening affected them. That's what I mean by the renewed interest. There was much more focus on, "Okay, we really need to get down and put the screws to our financial situation and make sure that either A, we're okay, and B, that nothing has really been derailed in the long run."
Doug Houser:
When you talk about that financial plan, is that a comprehensive look that, "Okay. Hey, what do we need, what do we want to spend either on a monthly or annual basis? What are our assets going to allow us to do or not do? And how do we get there? How do we bridge that gap? Or if there's not a gap what do we do to deploy all those assets?" Is that kind of an overarching view that you've got?
Doug Feller:
Yeah, yeah, it is. I think I probably said things like this on this podcast before. Where planning, no matter what area of life is relatively simple, it's understanding we're at the starting point, so let's just take inventory. Projecting out in the future what we want our resources to do for us, and then simply reverse-engineering the behavior necessary to drive from point A to point B.
Yes, it was evaluating all of that, and that's what we got because that's what a planner does, is guide a climb on that path. What about our current state has changed, if anything? What about our future state has changed, if anything? And do we need to do anything differently? I think there were, COVID... You can say this about investment markets as well last year in that there were the COVID haves and the COVID have nots.
It really depended on who you were talking to. Some clients were in great shape depending on the industry that they worked, and some simply weren't. We talked to, I'm sure you've had a lot of business owners that you look back at in 2020, and the outcome was their best year ever.
Doug Houser:
Right.
Doug Feller:
You know, I have a client in HR law, and so work at home policies and all of that, she had her best year ever, and equally, I have a friend that was an event planner, and there were no events last year. It was really this bifurcation of the economy, which I think has started to normalize.
Doug Houser:
Yeah.
Doug Feller:
The experience for clients was vastly different depending on the individual situation.
Doug Houser:
Yeah.
Doug Feller:
The outcomes were varied and the advice was different, but we really just dug in and helped reassess where everybody stood, and give them some guidance going forward.
Doug Houser:
What do you do? Of course, we have a lot of clients that are essentially owner-managed, closely-held businesses, or largely invested, say in commercial real estate, if that's their business, but they're not very well, let's say diversified or they're not liquid in any way. Their entire worth or value is tied up in that entity or entity. For folks like that, what do you do? Where do you start with a plan to get them there? It's not as if they're going to turn around and say, create that liquidity overnight, but even still how soon do you start getting involved with folks like that?
Doug Feller:
Oh, with folks like that, it depends on exactly where they're at in life. I think in relation to their business, we talked about this before, but usually, as the seed is planted in their mind about an upcoming liquidity event is really time to start digging in, because as they come into that event, as you know, they're tunnel focused on preparing their business for sale. Everything from the quality of earnings to evaluations, to making the company attractive to a buyer, and getting all of those things in order. Because it gathers so much of their attention on that one event, it's been my experience that envisioning what life looks like after that liquidity event, oftentimes they haven't spent the mental and the emotional energy to look at their personal finances then.
There's a lot of planning techniques. Everything from charitable intent, to gifting shares of the company to trust, and all these different kinds of things, these planning techniques that often need to be addressed before that sale. Having a long enough runway to begin to plan for that, and involve their attorney, and Rea & Associates into that conversation, I think is critically important.
Yes, you're right, a lot of the liquidity oftentimes, 90 or 95% of the net worth is tied up in the business, but life changes radically after that. We're trying to pull those folks into family discussions and talk about wealth transfer and what they want to accomplish because a hundred percent of their energy has been devoted to focusing on the business.
Doug Houser:
Right. Those goals can change too. It's a living, breathing plan. It doesn't have to be set in stone. It can change, quickly, right?
Doug Feller:
Right. Yeah. Well, you have the example I used before where we're trying to get from point A to point B. Point B often changes often because of life drives it. [crosstalk 00:09:07] CD and that'll evolve over time, and coming back to COVID, I would say that that was one of my observations over the past year. We've seen a lot of this in the media and just in casual conversations with friends on how priorities shifted. There was definitely this sense of more time with family and so on. Anytime we go through one of these events, I think now's a great time to be reassessing. I'm not going to say life priorities, that's up to you, but how your financial resources tie into that because last year we weren't able to spend money.
Doug Houser:
Right?
Doug Feller:
What do you spend money on? Amazon, right?
Doug Houser:
Right. Amazon benefited.
Doug Feller:
Right. We've seen cash build-up, and I think people found out they could live on a lot less. Now, whether or not they want to go forward, and it's a different question, but I think when we come through adversity and challenging times like we did, it's a good time. It's a prompt to sit down and simply reassess where we're at with everything. I've noticed that. Clients saying, "Hey, I was in my house for 12 months. It's way too big. I'm going to downsize." And the list goes on.
Doug Houser:
It's interesting. You say that, I like that term, that it was a prompt. I think it really was for many of us on a number of fronts. Maybe talk about some examples. Then do you sit down and say, okay, if they truly want to spend less, let's say each year, or their priorities change, you alter that financial plan. Does that often lead to, say, changes in an investment portfolio per se? Or are the changes more subtle?
Doug Feller:
Yeah. Good question. Probably more subtle. I'm trying to think of a good example here, or a tangible example would be... We knew a lot of people in life that were significantly affected by COVID. I mean, last year was... I lived through a couple of downturns, and capital markets and they've all been financial. Even in 2008, you'd go back to that time, you couldn't borrow any money from anybody at any price.
Doug Houser:
Right?
Doug Feller:
But you still went out and had dinner then night, and this was different in that the focus was on health, more than finances. I think as people took inventory of their time. I've sensed that, in conversation with a lot of clients, that it might be accelerating retirement dates. Life is short.
Ultimately, what does that lead to? Probably, we just do an evaluation of the risk inherent and investment strategies, and whether we need to alter that. These are, I suppose, the subtle things, sometimes very real things, that come out of conversations, and they're more qualitative. As a financial planner, you look at the investment or the estate plan, and we're reevaluating a lot of estate plans with the potential of some significant tax changes. Yeah, we're reassessing all of that. That comes out of a high-level conversation in these, I call it the implementation, whether it's an investment program, or an education program, or charitable giving, whatever it happens to be, that's our job as professionals to really sort through all the details, but it comes from a very high-level conversation.
We're pretty attuned to how people are feeling, and as you get to know, I'm sure this is the same case in your business, as you get to know people over time, you can observe changes in their thinking, even their behavior. That's often a clue for us to probe deeper into what's going on, and that point B's shifted the point C.
Doug Houser:
It's interesting you say that, and I'm also curious to know if, in your tenure, if you've noticed a change in, as we move to each new generation... I know I asked this because I have three 20 somethings and their philosophy is in some ways, different than mine. No, they're very much more socially aware, or active, than I certainly was in my twenties. Do you see those kinds of things bleeding into investment strategies and investment portfolios or goals for younger generations? Have you witnessed that?
Doug Feller:
Yeah, somewhat. For younger generations, and even my generation, I guess I technically fall into X, there's a lot more on the social causes about making sure your capital is supporting the things you care about and as much avoiding the things that you actively oppose. There's much more of a tangible touching of the investments and see seeing the outcome. You see this charitably a lot. It used to be that you would just give to a central organization that would benefit the community, and now as you do that, it's much more about, I want to see my dollars have an impact.
We observed that our younger clients, want to play a more active role. They're a lot more hands-on and there's... I have clients that are not of that generation that says, "Look, I have better things to do with my time, and I trust you and I don't want to touch it, just let me know what I need to do." So, yes, you're definitely seeing differences in how clients approach service professionals.
Doug Houser:
Yeah.
Doug Feller:
Based upon generation, how they pay for those services is different. The level of interaction is also different. The younger generation is much more interested in technology.
Doug Houser:
Right.
Doug Feller:
In utilizing that, and so, that's been an interesting change, I think, in the past year, I'm sure Rea & Associates has probably observed the same thing.
Doug Houser:
Yeah. What have you seen along those lines, in terms of that adoption of technology? Anything specific that comes to mind that sort of surprised you over the last couple of years in that regard?
Doug Feller:
It surprised me, just like this meeting where you and I have done this before in person.
Doug Houser:
Yeah.
Doug Feller:
We knew the technology had always existed to have a conversation just like this, but I think it was assumed that we needed to be in person and was sort of the default, but it's often a barrier in working with your attorney, or your accountant, or your investment professional in that it takes some time. It takes time to drive, come to a meeting, coordinate spousal and children's schedules, and so on. We were aware of that even as recently as five years ago, but we were never forced to adopt it, and when we had to stay at home, it had to happen. I think what we've all discovered is the efficiency behind it.
I would say most people have adopted that. Some even prefer that outside of the health-related issues of meeting together in person.
Doug Houser:
Yeah.
Doug Feller:
It's been refreshing because what I think has done is, is really broken down geographic barriers to the point where we have clients out of state. The dynamic is the same here as it is for my client in Chicago, or Montana, or Arizona. There's a lot more connectedness and it's still facing to face. If I'm surprised by anything, it was the response to technology going forward. That's just in a meeting, right? Your technology infrastructure for companies, and we know this, is critically important.
Rather than having a financial plan as a 64-page document, they have to dust off every year and revisit it, now it lives and breathes online, and we're able to interact with a client. In live time, they're able to go in and make changes. Well, what if I want to retire a year earlier? How does that impact things? So, there's an online dynamic, which is pretty efficient. I think that'll be part of everything that we do going forward, but to the degree that the client wants to do that or meet in person, then we of course meet them at that level.
Doug Houser:
Yeah. Now What about access to data and information? Obviously, so much is out there, so much more accessible, is that part of what drives some of this? I'll use a loose term, pseudo investments, or maybe markets that aren't quite as well-established like when you're talking about cryptocurrency or the stuff that happened with GameStop and things like that. What do you think drives those kinds of behaviors? Is it psychology? Is it the access to data and information? I'm just curious as to your professional view on that.
Doug Feller:
Yeah. If I was going to put my finger on it, I think it really comes down to the 24-hour news cycle. Yes, maybe, to your point, it's the frequency of information and the fact that we have all of this data. More than the data at our fingertips, the news around these stories is led to some interesting outcomes. I have to be careful for compliance reasons about speaking about cryptocurrencies, but take something like GameStop. I think it was the market's opinion that it was a $20 stock before all of that happened, and as a result of simply the news stories, everybody piled in. And we've subsequently seen the aftermath of that as well. It's different, I would say the bigger picture. It becomes more challenging in a way. Our world has changed, both over your career and mine, in terms of how we consume data and the source is so large at this point that the challenge has actually changed to sorting through what's relevant and what's not.
It's overwhelming. I kind of joke sometimes you can find a lot of the answers of advice that I would give on Google, right? But you're going to find conflicting opinions. So, trying to understand what is actually valuable, and what's not number one. Secondly, to have the confidence and courage to execute on that. It's different between knowing it and having the experience. When the shooting starts, how are you going to react? Because in finance, it's been my observation over the years, that it's much more driven by behavior than intelligence and that's a primary determinant in your financial outcomes. Being able to execute the right decisions and not make one single big mistake that could undermine everything, it's important, and it's difficult with all the data that's out there.
Doug Houser:
Yeah. That's so very well said. And ultimately that's serving as that professional filter is really so, so valuable. That's where, for example, what you do, that's a large part of it is kind of filtering out that noise for clients so that they can understand the approach that works for them. It's consistently delivered over time and they're not bombarded with all these outside influences.
Doug Feller:
That's the value of experience. It's the same issue that we had in 9/11. We had all the data, we just couldn't sort through it efficiently.
Doug Houser:
Yeah.
Doug Feller:
How do you make sense of all of that? Having lived it, having advised clients that have gone through certain situations, I think brings a lot to the table.
Doug Houser:
Yeah. So well said, and that's why you need to be in front of a professional like Mr. Feller here and listen to his sage wisdom. Very much appreciate that Doug, and always great to have you on, and look forward to having you on again sometime soon, as well. So, thanks.
Doug Feller:
Yeah, it sounds great. I always enjoy these and I think Rae's doing a fantastic job here with this podcast series.
Doug Houser:
Appreciate it. And we'll have to catch up for a beer at Three Tigers here sometime soon.
Doug Feller:
Sounds great. Look forward to it.
Doug Houser:
All right, and if you want more business tips and insight, or to hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast. And while you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show, be sure to subscribe to unsuitable on apple podcasts, Google podcasts, or wherever you're listening to us right now, including YouTube. I'm Doug Houser. Join us next week for another unsuitable interview with an industry professional.
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