Tag Archives: financial adviser

Jacob Gold AZ Business Magazine Sept/Oct 2010

Jacob Gold, President Of Jacob Gold & Associates

Describe your very first job.
My first job came in high school, when I worked at a retail clothing store at the Paradise Valley Mall. I learned to appreciate and respect all customers, and that they were always right.

Describe your first job in your industry.
While studying economics at Arizona State University, I realized that I wanted to follow in my grandfather’s and father’s footsteps and become a financial adviser. Fortunately, my father gave me an opportunity to begin working at his company in order to gain experience. I learned that all things of great quality come over time and you must be patient with yourself.

What were your salaries at both jobs?
I made $4.75 an hour at the clothing store and less than $15,000 my first year out of college.

Who is your biggest mentor?
My father, Bill Gold, has been the biggest mentor of my career. He taught me lessons of money management and business skills that otherwise would have taken me decades to learn on my own. He also gave me the encouragement to start my own company and to write my first book.

What advice would you give to a person entering your industry?
The responsibility of managing the investments for major corporations and individuals is not for the faint of heart, especially after the economic collapse of 2008. You must be able to analyze situations, create a strategy and then be able to effectively communicate your conclusions to others.

If you weren’t doing this, what would you be doing?
If I was not a financial adviser, I would surely be teaching economics at a college or university.

Arizona Business Magazine Sept/Oct 2010

Weaknesses And Strengths Of Wealth Management Advisers, Service Models - AZ Business Magazine June 2010

The Recent Market Turmoil Revealed The Weaknesses And Strengths Of Wealth Management Advisers, Service Models

The market turmoil of the last 18 months has caused investors to ask a lot of questions. Am I properly diversified and allocated to withstand additional market gyrations? Is my risk tolerance really as high as I think it is? Do I trust my financial adviser and those I’ve placed in charge of managing my wealth?

The answer to the last question — particularly within the past two years — rests largely on the issue of client service. Since no investor was immune from the market declines witnessed in 2008 and 2009, the issue of client service has become increasingly important to many investors.

The recent market turmoil has not changed the wealth management client service model; it has revealed it. Weak models have been exposed and strong models have withstood the pressure.

A strong service model has a clearly defined process. And while every service professional has a process, not all can readily identify or communicate theirs. For many, the process is merely a set of reactions to client concerns, questions and requests. But therein lies the problem, as such a reactive model inevitably leads to inconsistency in delivery.

For example, say an investor’s portfolio profile calls for a 70/30 mix of equities to fixed-income investments. Following the recent bull market run, the equities portion of the portfolio becomes over-weighted, and the investor has not objected as he/she is enjoying watching their overall portfolio increase in value. Therefore, no change to the equity/fixed-income model is discussed by either the investor or the financial adviser. Suddenly, the portfolio mix is 85/15. Is there a service process in place to rebalance the portfolio back to its original target allocation percentages? Without a detailed model, a financial adviser may find out that he/she has unknowingly subjected an investor’s portfolio to more risk than desired simply by not having a proactive process in place.

A well-articulated service process outlines deliverables, timeline and accountability for completion. This process can serve wealth management professionals as a guide during times of turmoil and as motivation when market activity hits a lull, ensuring consistency regardless of external circumstances. In short, managing wealth should be handled the same way as running a successful business. There must be a business plan defining your goals, consistent performance reviews to assess whether goals are being met, and accountability of every member in achieving these goals.

There are five important characteristics for every service process:

  • Repeatable — Consistency of service is oftentimes more important than the service itself. Whatever the model, an adviser or team must be able to apply the same definition and process multiple times for the same client or different clients.
  • Scalable — Whether the business is small with just a handful of clients or much larger with a broad, complex client base, a service model must be scalable and work for all clients. Tailoring service is inevitable and appropriate, but models that don’t enable an adviser to “franchise” the model are far too cumbersome.
  • Deliverable — While this characteristic is fairly intuitive, many businesses identify a service model that is unrealistic in its delivery structure based on time, resources and other limitations. Recognizing limitations and appropriately weighing the service needs of the clients with an honest assessment of resources is critical. The focus of the communications should certainly be centered on the clients’ best interests. However, over-promising and under-delivering is never a recipe for successful client service.
  • Measurable — Just as an investor needs to measure the results of his/her investments, so too should financial advisers be able to measure the results of their service. Don’t be fooled into thinking that such a measure is merely a reflection of client satisfaction. There are many ways — quantitative and qualitative — to measure client service. Retention, accountability, success achieving client goals, consistency of message, tone and frequency of dialogue are all factors that should be considered.
  • Proactive — Ensure the delivery of service occurs regardless of market conditions. Market lulls often draw advisers into a false sense of complacency. The discipline of consistently applying the pre-established service model pays dividends in the end.

In addition to these process characteristics, there are other important service functions such as real-time availability, open discussion and dialogue, and regular reviews of the clients’ long-term objectives. But it is the consistent execution and the extent to which advisers have built these functions into a broader, well-defined service model that separates the mediocre from the great.

The recent market turmoil didn’t change the fundamentals of wealth management client service as much as it emphasized it. Advisers who did not have a definable service model were often themselves traumatized by the unfortunate events in late 2008 and 2009, and were thus less effective in working in their clients’ best interests and in addressing their concerns. They were exposed, though exposed in a different way from their more successful industry peers.

Regardless of market activity, wealth management professionals who develop a strong client service model and apply it consistently will have success.


Arizona Business Magazine June 2010

Valuations For Financial Institutions Are Falling — And Presenting New Opportunities For Estate Planning

“Strange,” “Nothing like it before,” “Astonishing” are a few ways to describe what has transpired in the financial institution industry over the last several months. As liquidity and asset concerns for financial institutions have become magnified, national economic trends have exacerbated the situation.

Despite all of this gloomy news there is at least one silver lining: If you own stock in a financial institution and need to do some estate planning, now is a great time to consider gifting some of those shares to family members or other beneficiaries. While gifting has many advantages, one of the most important benefits is the removal of assets from your estate and lowering your future estate tax.

Valuations of shares in financial institutions (and many other privately held businesses) are likely to be lower than in recent years due to many factors.

Some of the external factors include the uncertainty and volatility of the public stock markets, the effects and duration of the current economic downturn, the potential estate tax law changes that will occur with a new administration in the White House, and U.S. Treasury programs that are still being finalized from the financial-system bailout.

Each financial institution is unique and specific facts will dictate whether a substantial decline in value exists for each institution. The following are some noteworthy items that should apply when determining the value of any financial institution in today’s environment.

Liquidity and capital concerns may lead to financial institutions tightening their distribution policies to ensure capital levels are maintained.

Distribution policies can significantly impact the value of an entity. If lower distribution levels are expected to be maintained for a significant period of time, lower values for an entity can be substantiated.

There have been 139 bank failures since July 1, 2008, according to the FDIC’s Web site. As many as 115 of those bank failures have occurred in 2009. To put this in perspective, from 2001 through 2007, there were only 24 bank failures. This trend suggests that problems are more prevalent with financial institutions than in the past and that earnings expectations for future years may be lower than in recent years. Lower future earnings generally equate to lower valuations of stock prices.

The ability to achieve recent historical earning levels for financial institutions may prove to be difficult. According to the FDIC’s quarterly banking profile for the fourth quarter of 2008, annual net income for all financial institutions was at its lowest level since 1989, and return on assets for the industry (0.08 percent) has not been this low since 1987. During the second quarter of 2009, the FDIC noted that more than one in four institutions was unprofitable and industry assets declined by $238 billion. With future earnings unlikely to mirror recent historical earnings (prior to 2008), valuations for shares in financial institutions should be lower.

Many valuations of privately held financial institutions rely on publicly traded information as benchmarks for establishing values. While the markets have rebounded since early 2009, the publicly held banks are still trading at considerably lower levels. Specifically, a review of publicly traded banks in Yahoo! Finance’s Pacific and Southwest Regional Banks category indicates the average price-to-book value for the 184 publicly traded banks was 0.70 as of October 31, 2009. This is considerably lower than price-to-book ratios prior to 2008, and will likely impact buyers of private financial institutions leading to lower valuations.

The private marketplace is another source of information that appraisers rely upon when determining the value of financial institutions. The amount of activity in mergers and acquisitions of private financial institutions in the Southwestern U.S. significantly dropped during 2008 and 2009. Of the 20 transactions in 2008, only five were announced in the second half of 2008. Like the publicly traded banks, private banks in the Southwest also have seen a decline in the average price-to-book multiple above 30 percent from 2007.

Moving shares at lower values seems counter intuitive, but the tax advantages may be beneficial in planning your estate. With the current potential for lower stock valuations of financial institutions, owners may be able to gift more shares for the same dollar amount than they would have been able to gift in the past. These conditions should reduce the applicable gift tax and/or unified credit that would be used in connection with a gift. While the timing may be right for gifting shares of stock in your financial institution, be sure to visit with your financial advisers to determine when gifting is the best option for you.


Arizona Business Magazine

February 2010

Wall street bull

Volatility Can Be A Portfolio’s Greatest Threat

The up-and-down swings of the markets are giving everybody vertigo. Yet most people fail to understand how critical it is to minimize the volatility within their investments. Besides getting a better night’s sleep, there are sound mathematical reasons. Most people are astounded to learn that they can actually earn a lesser rate of return with a portfolio with reduced volatility, and yet end up with more money left to spend. Although some may find this counterintuitive, this is the message financial advisers should be emphasizing to their clients.

It is essential to use strategies that protect your principal, minimize losses and reduce volatility. Did you know that if your investments are down 40 percent, you will have to earn 67 percent to get back to even? Worse yet, if your investments go down 60 percent, you need a return of 150 percent just to break even.

Historically, with previous downturns it has taken years for investors to recover their losses to get back to even. For example, from the start of the downturn in 1929 (which lasted 10 years), it took the stock market 25 years to crawl back to break even. It took seven-and-a-half years from the start of the 1972 bear market, and more than five years from the March 2000 high for values to creep back to break even. The more volatile the investment, the larger the potential problem.

So how can you mitigate risk and reduce volatility in your investments?
Diversification — It’s a time-honored strategy. However, most people are shocked to discover that despite all the various investments and different mutual funds they might own, after doing an “overlap for duplication” analysis, they uncover surprisingly large amounts of investment replication.

Proper asset allocation — This involves placing investments in a mixture of different asset categories, including U.S. and international, large cap and small cap, value and growth, emerging markets, as well as various types of bonds. Typically, a portfolio having 12 to 20 asset classes is considered well positioned. However, following last year’s “perfect storm,” almost every asset class was down, including most types of bonds (typically a safe haven during turbulent times).

Investments with upside potential and principal protection — Structured notes can provide principal protection, while simultaneously providing the upside of a particular index. On a related front, there are “fixed index” annuities. Although an alternative, I generally find the insurance company’s “trust me” position difficult to accept, especially their “black box” philosophies. Although you could always move your funds elsewhere, the high and oftentimes long-term surrender charges tend to lock you in for 10 to 18 years.

Guaranteed growth and income riders — When offered on “variable” and “fixed index” annuities they can provide a safety net to override actual account losses. One needs to be sure to navigate the various rules, understand there may not be a legacy to leave behind, as well as take the oftentimes high and long-term surrender fees into consideration. However, in the right circumstances, this strategy can make sense.

Multiple strategy investments — These did the best over the last 20 months, in addition to having a respectable long-term track record. Investments of this type vary between aggressive to conservative, and include hedge funds, managed futures, commodities, PIPEs (private investment in public entities), private equity, senior debt, etc. The “buy in” on these types of investments can be a drawback, as many are not available unless your investment account is $1 million or larger, as they can require a certain investment minimum or certain investor qualification.

Overlaying an “advance and protect” strategy — This is essential to help preserve principal, as well as help lock in gains. Although there are no perfect systems or guarantees, for most advisers utilizing this type of approach, it has delivered meaningful results and peace of mind for their clients.

We are experiencing what is being described as “a deer-in-the-headlights” market. The questions on many people’s minds today are “What should I do now? Should I stay the course and wait for things to come back? Or should I change strategies or possibly even my adviser?”

One should consider that not all investments come roaring back. Although the S&P 500 got back to even in May 2005, other investments performed less well. For example, the Nasdaq is still 63 percent underwater — more than nine years after reaching its high in March 2000.

A recent article in the Wall Street Journal commented on the results of an investor survey:
81 percent of the investors stated they were contemplating or in the process of changing their financial advisers.

90 percent of the investors with “brand named” firms planned to move some of their money; 70 percent planned to move it all.

86 percent of those planning to change were so upset, they recommended others avoid their current adviser.

No one can control the risk and volatility of the markets, so unless one thinks they can do it themselves, it is crucial to work with an adviser who understands how critical it is to reduce investment volatility in order to lessen a portfolio’s exposure to risk. Done correctly, reducing volatility should provide more consistent returns and dependable growth, and ultimately provide more income and a greater end value in your retirement years.

We are in very interesting times, and many people are now realizing they are in trouble. One does not need just any financial planner, but rather a true, unbiased professional adviser who can help guide them through the treacherous waters investors will undoubtedly have to continue to navigate. The decisions being made today could very well have a lasting impact on the rest of your financial life — so make them wisely.