Harold Evensky, sometimes called The “Dean” of Financial Planning, loves this profession. This year, he was awarded with the P. Kemp Fain, Jr. Award – which is often equated to the lifetime achievement award for financial planners.

The most amazing thing about this conversation with Harold is that he has a history that’s deeply connected to progress and forward-thinking in the financial planning profession. This background provides him with an unparalleled view of where this profession could evolve in the next 40 years, and what the biggest issues we’re facing today.

Talking to Harold was eye opening in so many ways. He covers everything from the future of index funds, to the way he views the fiduciary rule evolving and becoming more prevalent in the profession in the next several years. You won’t want to miss this episode that’s chock-full of insights from The “Dean”!

Hannah's signature

 

What You’ll Learn:

  • How Harold got to where he is today
  • What he loves about the financial planning profession
  • Who has influenced him
  • What he believes the biggest issues financial planners face today as individuals and as a profession
  • Where he sees the profession going in the next 40 years
  • The importance of education in the financial planning profession
  • Reduce the focus on analytics and statistics in academia and instead focus on practical studies that can be used in the field
  • Where Harold believes advisors and students can provide value
  • How to expand your interest as a financial planning student
  • His opinions on investing and the future of index funds

 

Evensky Katz Foldes Financial Wealth Management

Personal Financial Planning at Texas Tech University

Hello Harold: A Veteran Financial Advisor Shares Stories to Help Make You Be a Better Investor

 

Show Transcript

Episode Transcript


Hannah: Well, today we are so honored to have Harold Evensky here with us on the podcast. Harold, you have been named the Dean of Financial Planning. I’ve seen that name thrown out about you. You are regularly recognized as one of the top fee-only financial planners in the country. You have said on multiple boards, the ICFP, the IAFP, the CFP board, various functions. You’ve won the Heart of Financial Planning Award. You’ve written books. You’ve pushed our profession forward. You’ve pretty much done it all.

Hannah: This year you were awarded with the P. Kemp Fain, Jr. Award, which is really the lifetime achievement award for financial planners. I was there when you got the award and it was so neat seeing you up there getting the standing ovation. What did that feel like, getting that recognition from the financial planning profession?

Harold Evensky: It was quite extraordinary. Given all the ones before me, it was most humbling. All I can say is there were a whole lot of other people who helped me get there. It was fun, I have to admit that. I did enjoy it.

Hannah: In your speech you mentioned how much you love this profession and how fortunate you feel, but why do you love this profession so much?

Harold Evensky: I guess the answer is what’s not to love? The work itself and the planning process and particularly for me the investment universe is fascinating and interesting. There’s always something new. The best part is working with individuals, with the clients, and helping them enjoy their life in a way in which they decide they want to enjoy it.

Harold Evensky: And then the other participants, my staff, my associates, my partners, and the other practitioners, it’s just a very … I don’t know how to say it. I guess a nice, comforting, wonderful universe of people.

Harold Evensky: I’m often asked, “Gee, how come you write these books and you do these talks and you tell your competitors everything you’re doing?” That’s just not what our profession is all about. We don’t see each other as competitors. We see each other as friends and associates. It’s a great environment with fun things to do.

Hannah: That connects so much when I talk to these young planners about why they’re getting into this profession is that they just want to be able to help people, so it’s so cool to see that that’s a theme that can be there your whole career.

Harold Evensky: Oh, absolutely. The reality is it’s also a very good career path, simply from a business and financial standpoint. The opportunities are quite extraordinary. I don’t know how many hundreds of thousands of graduates there are from MBA programs and law schools and they scramble for jobs. As my partner, my wife, Dina, says, “When we graduate someone, they walk out with a diploma in one hand and three job offers in the other.” The opportunity, just the personal career opportunity, is extraordinary.

Harold Evensky: Unlike pretty much any other profession I know of the likelihood of someone ultimately becoming an owner of a firm is extremely high because we’re selling off interest to our next gen. Pretty much everyone in our firm has some ownership interest. They in turn need to sell to someone else, which is going to be the younger associates that we’re hiring now. It’s a fun business, it’s financially rewarding, and it’s very entrepreneurial.

Hannah: You mentioned that, when you got the award, there were so many other people that helped you get to where you are now. Who’s really influenced you as a professional?

Harold Evensky: There have been so many. We’ve been involved in a small group called the Alpha Group for … good Lord, we’re probably going on 20 years.

Harold Evensky: So it’s a lot of those members. Some are practitioners, like Peggy Ruhlin and John Ueleke from Memphis and Don Phillips. Don was the one who, many years ago, before he was the dean, which has been joyful all these years. David Dugan, Ross Levin, Mark Palazzo, Mark Tibergien. I can go on and on. Then one of my very closest friends, my BFF, Patty Houlihan, who followed me as chair of the CFP board. Non-practitioners, Tucker Hughes, and as I said, Don. Then there’s our fiduciary committee, Skip Schweiss, Ron Rogé.

Harold Evensky: There’s so many. I’m leaving out so many I feel guilty, but there are just so many that been major influences for me along the way.

Hannah: Yeah. When you got started in your career, what could you have never imagined that’s actually happened?

Harold Evensky: Being where I am today.

Harold Evensky: I grew up in the building business. My undergraduate and graduate was in civil engineering and business. I started off working for a family firm and ultimately started my own. It’s called Production Home Building. You put up a number of models and then build houses from there and have a fairly large business. One of the larger ones in South Florida, but the ups and downs of the economy convinced me that either need to be one or two, or number two thousand, but being midsize was a non-starter.

Harold Evensky: I looked around for something and investing in the market looked interesting. Ended up getting a job with … the time it was Bache & Co., now Prudential. After a few months of training a month in New York they sat me down at the telephone and said start calling.

Harold Evensky: The first lady I got sounded like my grandmother and she hung up on me. I said whoa, this is going to be a short career. I happened to see an ad for something called the College of Financial Planning said well gee, that looks interesting. I enrolled in the program and started doing what we call the yellow pad planning, which literally was what we did back in those days. I gave seminars six days a week. Sat people down at the secretary’s desk and talked about Tax Act. There was always a new tax act.

Harold Evensky: That’s how I built my business, was through the planning process. It took a lot of time, but it was successful. I was BP Investments at Bage and decided I wanted to work in a little more sophisticated universe, so I joined Drexel Burnham downtown in Miami. It was a good experience. About three years at Bache and about three years at Bexel and left before they had their problems. The only issue was they never understood what I wanted to do. It was always here’s a good bond, here’s a good that. So I said, “Well, I need to do my own thing.” So I started my practice on my dining room table and grew the business from there.

Harold Evensky: We were in business. I had one other partner and a year or so later I met Deena Katz who subsequently became my partner and my wife. We became professional friends. This is … went way back … Famous story. She was in Chicago, had her own practice and we were talking one day and she said “Well, I’m thinking of moving down to Florida. My Mom’s retiring and I’d like to be down near her.” I said why don’t you come join us. At the time I had one partner and not much of a business. She said “Let me think about it.” and she called back a few days later and said “I’m interested, but I have 2 conditions.” I said okay. She said ” I’ve always owned my own business so I want to be an equal partner. I know you have one other. Whatever is fair price, I’ll pay it.” I said okay. Since we weren’t much at the time, that wasn’t a big issue. What’s the other one? She said “I’ve always run my own business. If I come down, I want to be president.”

Harold Evensky: So I went to my partner, who was supposedly running the business, said what do you think. He said “How fast can she get here?” Dina came down and said “You know. You guys are terrific, you do wonderful stuff, but you haven’t billed some people in forever.” I said we’re not real comfortable with that. Long and short is we had our own what’s called a broker-dealer. She said “We’re selling that off. We’re going fee only.” She’s the one that really built the business and made us a financial success.

Harold Evensky: It was a fun trip. I still shake my head when I see how big we are, how many people we have. I still can’t believe that but it has been a fun ride.

Hannah: In your firm, how many people do you have?

Harold Evensky: In Miami, there are about 25. We have about 5 in our Lubbock office. I think in Miami, we have 7 graduates of our financial planning program at Texas tech. We have 3 in our Texas office.

Harold Evensky: One of the nice things about Dean and I both teaching there is we have the opportunity to cherry pick what we think are the very best. We have some extraordinary young people, young professionals.

Hannah: You’re a professor, so academia has always been important to you. How did you get into that world and into the world of researching and really contributing to the knowledge base of the profession?

Harold Evensky: Once again, that was really Dina, for a variety of reasons. Going back to some heaLth issues, she decided she needed to make a change. We had been friendly with a couple of people that really established the program at tech over 20 years ago. She told them. She said “Well, I’d like a job.” And they said “Come teach anytime you want.” She said “No. I want a tenure tracked opportunity.” They said “Well, come on.” So, she went to tech and became a professor. I shuttled back and forth from Miami for a number of years. Then after quite a few years moved here. And since I was coming here, I got a role as an associate professor, and adjunct professor, that’s the word I’m looking for.

Harold Evensky: But then after a number of years the opportunity came to become a full professor, what’s called a professor of practice. So I had a half-time appointment as a full professor, but only taught one class a semester. The wealth management class, which was masters and doctoral students. That’s what I taught for many, many years until I retired last semester.

Hannah: Going from a practitioners’ perspective to a professor perspective, what changed for you? How did your perspective about the profession change with that change in role?

Harold Evensky: It really didn’t. What I was trying to change was the academic orientation. Trying to relate the two somewhat more. Probably the best example was at the end of the semester student would write a critique or notes about the professor. One of the students wrote, in a very negative and pejorative manner, “He treats us like we work for his firm.” My reaction was “Fantastic. He got it.” So that went into my syllabus, I said “I am going to treat you like you work for my firm.”

Harold Evensky: The difference being, in acidemia today, there’s something called rubrics, which are sort of guidelines that students are used to getting. So if you give them assignments, you give the rubrics, which are the steps you expect them to follow. Except they never made sense to me so one of my major assignments would be, you’re boss just called you into the office and said “The firm needs to replace its small cap domestic value manager. Come back and make a recommendation to the investment committee.” And that was it, that was all I told them. Everyone said “What’s the rubric?” And I said “Boss isn’t going to get you a rubric. If you got a question, I’m your boss, come back and ask me.”

Harold Evensky: That was the orientation, or the nature of the way I taught the class, and I got some interesting responses. But all in all, my students were ultimately happy with it, and subsequently I would get nice notes. But my point was, I said “I want you to go, when you join a practice, I want you to blow the socks off your boss about how much you know, and how valuable you can be day one.” For me that was the difference. Try to encourage the doctoral students to do research that I as a practitioner would find useful. In acidemia today, I guess is been this way forever, its publish or perish. The problem with that is to publish you need to write papers that are interesting to the publications that have prestige.

Harold Evensky: Typically, that means a lot of analytics and data and statistics. That requires a whole lot of numbers. Most of the research is what I call “sociological research”. For example, women are more conservative than men, and I believe that’s probably very true, and, if I were setting policy, that would probably be important to know. As a practitioner, if I follow that as kind of a rule of thumb, that may be a disaster if I’m sitting with a couple whose wife may be far more less tolerant than the husband. The problem is doing research on individual issues doesn’t lend itself to … on a statistical analysis.

Harold Evensky: One of my soapboxes has been to try and get some students to focus on, again, research that a practitioner can use.

Hannah: You talked a lot about helping students be very valuable day one working with their new bosses and within their new roles. What are the other pieces of advice for people who are listening to this and they’re like “Hey. I want to be valuable. What do I need to be doing? How do I need to be thinking differently about my work and what I’m doing?”

Harold Evensky: One, don’t just focus on the academics, attend or become an associate member of your local FPA chapter. Read the publications. Financial Advisor, Financial Planning, and Journal of financial planning. Read what the profession is reading. Read what your client are going to be reading. Read Money magazine. You may want to pay attention, read the Wall Street Journal, but Money magazine and Kiplinger are going to probably be more useful to get a feeling for what your clients are really reading and paying attention to.

Harold Evensky: Get involved. We have a program at tech called “red to black”, where the students provide counseling to members of the university community. That’s a great experience. Some are involved in a program that assists people in doing their tax planning. And anything like that, that provides some, really, client interaction experience, is going to be just terrific.

Harold Evensky: The other is, don’t just limit your interests to the firms like ours. There’s great opportunities in firms like through the wirehouses like the Merrills, the UBSs. They have training programs. The institutions, for good reasons, often get some bad publicity. But the individuals working there, they are a lot of really terrific professionals. So that can be great experience.

Hannah: There’s so much opportunity in the profession right now for new planners. It’s quite remarkable.

Harold Evensky: It’s unbelievable, you know. We had one or two people come down to what we call “career day”, which is where the students do interviews. I tell my partners, when you’re interviewing, if you have someone that you think is really terrific, make a job offer on the spot because if you wait until the end of the day, you probably won’t get them. I mean it’s that competitive.

Hannah: Wow. That’s impressive.

Harold Evensky: It is impressive.

Hannah: So what are the things that your known for in … especially in the investment field? In a lot of your research, you were one of the people to bring the investment strategy of “core and satellite”. How did that come about?

Harold Evensky: Quite a few years ago, and as any practitioner, financial planner, should be doing. Looking ahead. What I thought the long term future was going to be, and my conclusion was that returns across the board, stocks, bonds were likely to be extraordinarily modest compared to the historical returns that we had been used to. And so, I was trying to think of what’s that mean? What are the consequences of that? And my process for doing that is, I guess an academic, crunching some numbers.

Harold Evensky: I wrote a couple of articles, I did a paper, for The Journal of Financial Planning. My conclusion was , we needed to be hypersensitive to expenses and taxes. We had always talked about risk and return but didn’t really pay a lot of attention to that third element. Because when you’re running 12, 14 percent it wasn’t all that critical. But when I did my analysis, I concluded that just saving a half a percent by managing expenses and taxes could make a huge difference in the, what I call, “net net net”. After taxes, after expenses, and after inflation, which was really the killer.

Harold Evensky: And then, trying to figure out what do we do about it. Nothing changed in my investment philosophy. Diversification, large and small cap, domestic international value, et cetera. Looking around at what strategies or approaches were out there, I came across, at the time it was primarily an institutional strategy. It wasn’t something I invented, which was corrin satellite. The idea being you take the bulk of your investments, and invest them in a very cost and tax efficient manner.

Harold Evensky: So instead of taking little pieces of extra risk throughout the portfolio, you take that whole risk budget and you can concentrate it on what’s referred to as the satellite. It’s really a fairly simple idea. In our case it became 80 percent of the investments, and this is the equity, this core. Very diversified, very traditional large cap, small cap, with an international because we believe in Fama–French. Slide over weighted value. That pretty much was all allocated to index funds, ETFs. But then we had that whole, quote, risk budget, we could focus on the satellite, which in our case is about 20 percent, so that was the change we made.

Hannah: You’ve spent your career dedicated to the financial planning profession. What do you think are the most important issues in financial planning today?

Harold Evensky: Certainly one is the whole fiduciary debate. What is the relationship between client and who they’re working with? Who, either is providing, or purport to provide advice. What are the relative responsibilities. To me that is at the very tippy top of issues. Next would be realistic forward looking returns and markets. What can people reasonably and realistically count on. I’m afraid there’s a massive amount of unwarranted optimism, or naive ism on the part of the investing public. And then, actually I should put at the top, real planning.

Harold Evensky: There’s way too much, in my opinion, either no planning, or pseudo planning being offered out there. Planning is not necessarily easy, each individual has pretty complex lives and issues. It requires a lot of effort to do a good job. But to plan the quality of the rest of your life by rules of thumb and simplistic planning, I think is dangerous. To say that if someone doesn’t have much money or resources they can do simpler planning. I think that’s absurd. I think they need better planning.

Harold Evensky: The reality is for most of my clients, if I did a lousy job, their grandkids might get less money, but they are not likely to miss a meal. If someone has limited resources, and the planning is not very good, the quality of their life might be significantly negatively impacted. I guess those would be my list.

Hannah: I’m really interested in this idea of real planning, and what is real planning. Especially for the people who are new to the profession, and they’re working for somebody right now, how do they know if they are in those, what you called, the pseudo planning versus the real planning?

Harold Evensky: The distinguishing differences are how detailed is the process. In other words if you’re using the typical robo-planning that has 2 built-in assumptions that, in many cases, you have no idea what they are. A number of my academic associates and I did a paper, it’s now in submission for publication, or the advocacy of public retirement planning software. Our original premise was, it might not be very good but it would be a good useful guideline or educational tool.

Harold Evensky: Our final conclusion was its not very good and its potentially very dangerous because you come up with, depending on which of these softwares you use, radically different conclusions. And many of them, for example, they ask a question trying to figure out how long you need the money. And there’s nothing about if you’re a smoker or a non smoker. Something as simple as that makes a huge difference in expected mortality.

Harold Evensky: And that’s a simple example of the kind of information that you would need to make a reasonable suggestions or plans for yourself if you’re doing planning. And then, even those who were using the very powerful institutional software such as money guide which is what we use. Often they may have one or two goals. You can’t do much planning if you don’t break down what someone’s needs are in a whole lot more detail than one or two goals.

Harold Evensky: Or if you’re doing planning and you assume “Well gee, you’re spending $50,000 now, and you extrapolate that by inflation, 8,000 of that is a mortgage. A mortgage isn’t going to inflate. It’s going to disappear. So not taking those fairly simple and obvious things into account, you’re likely to end up with nonsense as a result.

Hannah: Looking in the broad sense, the future really is planning. Would you agree?

Harold Evensky: Absolutely. We have no control over markets, but we have a great deal of control over the planning process.

Hannah: I always remember, and I’ve said this a number of times on the podcast. I remember pitching financial planning to a client that we had had at this … where I had worked for several years. And their response was “Oh my gosh. This is what we’ve been looking for, but we never knew what it was.” And it was like yes. Planning is very critical.

Harold Evensky: I think any good planner has heard that on more than one occasion. Our job isn’t to make our clients rich. Hopefully its to see they don’t get poor. But to help them enjoy their lives in a manner in which they define it.

Harold Evensky: One of my very favorite stories, and it’s true, it’s probably 20 years old now. I had an elderly physician, he was in his 80s, and he was still practicing, and I did a plan for him. But when I say practicing, you know, he would go in maybe one or two days a week for a few hours, and when I did the plan and he came back in, I said “Doctor, you need to sit down. I’ve done the analysis and my conclusion is, if you keep working it’s going to cost you” … I don’t remember today but Let’s say $30,000 or $40,000 a year because your overhead and your insurance and everything is far more than you’re making from an income. And he just deflated like somebody popped a balloon.

Harold Evensky: And I said “I’m not finished yet.” And he said okay. I said “My recommendation is that you keep working.” He said “Harold, that makes no sense whatsoever. You just told me id lose money if I keep working.” I said “Doctor, you have substantial resources. If you don’t keep working it’s going to probably cost you three times as much in psychiatric bills. And your kids and grandkids will never know the difference between $30,000 or $40,000 a year of extra cost. No question, you ought to keep working. He said “That’s the best news I’ve ever heard.” So that’s what planning is all about, to tell someone to keep working when its costing him $30,000 to $40,000 per year. That’s the difference between what we do and someone who’s trying to tell you how to beat the market.

Hannah: What are we selling clients? Are we selling them on planning or are we selling them on some investment strategy?

Harold Evensky: Right. And that is the difference between brokers and planning. And there’s a rule for both, again, it’s not to say one is good and one is bad. They are just different professions and different goals.

Hannah: If you were starting over fresh, if you were a 22 year old coming out of school. What would you do differently in your career?

Harold Evensky: Good question. I don’t know that I’d do anything differently. Admittedly, I bumbled through the whole process but I was lucky in my bumbling I guess. I would say in addition to just trying to do a really good job of your job, get involved in the profession. Get involved in whether it’s the FPA or NALFA or the AICPA, or for that matter, all of the above. I’m members of all of them. Because it’s not just working with your clients, its working with your peers and paying back to the profession. You’ll get far more in return than you can ever put into it.

Hannah: Where do you see financial planning in the next 40 years?

Harold Evensky: In 40 years I see it ultimately becoming a profession. It may take 40 years to get there. I think it will continue to be a slow growth, but I believe that, what I think is going to be, a low return environment, it is going to move it along a little faster pace because people who today may not realize how important good planning is are going to learn the hard way. We always found that bear markets were the best time for us form a business standpoint because when the market is going straight up, everyone looks brilliant, and no ones really interested in hearing our story about planning.

Harold Evensky: When things turn around, it’s kind of a wake up call. It’s not uncommon. I had, years ago, someone come in and I did a plan and said I think you can earn whatever percent. And he turned beat red, slammed his fist down and said “Well my barber can do better than that.” And he walked out. But about a year later, we went through a serious bear market. He came back in and said “Harold, I think I am ready to listen.” If indeed markets are kind of rough, I think that will expedite the public’s awareness and interest in planning and help us move towards a profession faster. Plus we have the growth of the academic programs, so I think we’re on a really good path right now.

Hannah: Mm-hmm (affirmative) what would be your hope for the students you taught or these new planners who are coming into the profession?

Harold Evensky: I would hope that, if they do join and stay in the profession but do more than just their job. I would hope that, like a lot of my friends and the ones before me, that they get actively involved in building it as a profession. Not just building their business practice.

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