BROKER'S WORLD: Client's Career Is An Asset For Advisors

1078 words

25 June 2007

07:00

English

   By Scott Stearns

   A Dow Jones Newswires Column

NEW YORK (Dow Jones)--A lifetime of work is the biggest wealth builder for most people, but their financial advisors may be giving it short shrift.

While focusing intently on investments, taxes and other bedrocks of financial planning, many advisors tread lightly around discussion of a client's career and estimates of the earnings it can produce.

Now there is a movement among financial planners to bring clients' careers into the core of their advisory offering. These advisors are putting clients' careers under the microscope and treating them as a financial asset alongside stocks and bonds. For some advisors, the focus is on career counseling, while others factor quantitative aspects of the client's career - such as the volatility of their earnings - directly into investment decisions.

Barry Kaplan, an advisor at Cambridge Southern Financial Advisors in Atlanta, took a client in the film industry through a year-long career counseling process that helped the client triple his income. Jim Bell, president of Bell Investment Advisors in Oakland, Calif., helped a young client who works at Google Inc. (GOOG) to develop a conservative asset allocation to counter a heavy weighting in his employer's volatile stock.

Amid declining stock-trading commissions and intense competition for affluent customers, financial advisors are focused like never before on deepening client relationships and offering more specialty services. Some see clients' careers as a fertile place to do both. Advisors either charge stand-alone fees for these services or use them to enhance the value clients receive for the asset-based fees they pay.

"I look at career asset management as a strategic initiative for our practice," said Michael Haubrich, president of Financial Service Group Inc., an advisory firm in Racine, Wis., who has spoken on the topic at industry conferences. "Every advisor is out there trying to gather the golden eggs. Career asset management is about improving the goose that's laying the golden eggs."

To be sure, few advisors ignore a client's career completely, but many relegate the issue to casual banter in client meetings. For one thing, they may feel unqualified to dispense formal career advice. Or they may be reluctant to get fancy with income projections when anything from a corporate buyout to a balky boss can derail a client's career plans.

What's more, the formal financial planning process taught in academic programs largely ignores career considerations, focusing instead on how much of their earnings people save and spend.

Career issues are "not something that's emphasized" for people studying financial planning, said Karen Schaeffer, chairman of the CFP Board of Standards, the Denver-based trade body that certifies financial planners. She said career topics could be added to the program in the future, but the emphasis currently is on nuts-and-bolts subjects like investments and insurance.

Career Meets Portfolio

Roger Ibbotson, founder of Ibbotson Associates, now a unit of Morningstar Inc. (MORN), is among the researchers pushing the envelope in this area. In "Lifetime Financial Advice: Human Capital, Asset Allocation, and Insurance," a paper just released by the CFA Institute, Ibbotson and his co-authors say advisors can't invest a client's financial assets without also considering the nature of their careers.

Traditionally, many advisors have limited this to basic things like diversifying corporate-executive clients out of concentrated positions in employer stock. Now some advisors are moving toward marrying career with asset allocation in a more sophisticated way.

"This is just beginning to be used in the field," said Ibbotson, a Yale University finance professor and chairman of hedge-fund manager Zebra Capital Management LLC. "The notion of how to connect it into investments is relatively new, and applying it is even newer."

The thrust of Ibbotson's approach is that "human capital" - the present value of future income from work - is often the largest single asset an investor has. Like all assets, it has a risk and return profile. For instance, the income of a tenured college professor is secure and stable, like a bond, while the earnings of a salesperson in an economically sensitive industry like construction equipment will fluctuate more, like a stock.

When building a client's investment portfolio, advisors should choose instruments that aren't highly correlated with their careers. So the college professor might get a heavier weighting of equities to counter bond-like income from work. The salesperson might get more fixed-income investments to diversify away from risky sales commissions, and also have minimal exposure to assets that track the construction industry too closely.

The investment portfolio is "a defense and protection against adverse shocks" to a client's earnings stream, the study said, "not an isolated pot of money to be blindly allocated for the long run."

Like any valuable asset, the client's career also needs to be tended and managed, says Haubrich, the advisor in Wisconsin. He has developed a model, called Career Asset Management, to help clients increase their potential income, extend their careers and address the fit between work and life.

A cornerstone of his approach, along with ongoing career counseling and exploration, is to create a pool of money outside the client's basic emergency fund that is earmarked for career development. This allows clients to develop new skills, weather a job loss or fund a career sabbatical to pursue higher education, develop a business plan or otherwise "repackage their skill set in the market to have that big leap forward," Haubrich said.

Few advisors have embraced this fully. Some prefer to focus on managing financial assets and see career coaching as a separate discipline. Some handle it by forming alliances with career coaches, which can allow them to offer the service and, in the process, gather referrals. Others take coaching courses themselves to add a new dimension to their practices.

"I haven't seen personal coaching merge with financial planning," said James Dalton, senior vice president at Kaplan Financial, a unit of Washington Post Co. (WPO) that provides education for advisors, "although the more successful planners who have incorporated coaching into their practice will generally have deeper relationships with their clients."

(Scott Stearns writes about the transformation of the brokerage business from a transaction-oriented model to fee-based financial advising.)

-By Scott Stearns, Dow Jones Newswires; 201-938-5293; scott.stearns@dowjones.com [ 06-25-07 0900ET ]