From the July 2005 issue of Investment Advisor • Subscribe!

Family Planning

Paul Hixson, along with his brother and cousins, make financial planning a true family affair

Faith and family are the cornerstones of Paul Hixson's life and, by extension, the financial planning profession. The family part is easy to see, since four principals at Financial Management Professionals, which has offices in Lake Charles, Louisiana, and Austin and Beaumont, Texas, are all named Hixson. They include Paul's brother and two cousins, each of whom holds the CFP designation. The role of his religious faith is more subtle.

That the different cousins should be in the business is not unusual--branches of the Hixson family have been in business together for generations. "We've always been a family, regardless of what business we're in, that requires excellence," says Hixson. "There's nepotism, but it's nepotism with requirements that you be qualified. That's how our family has been able to operate so well. We understand each other and understand and expect that level of excellence." He adds with a laugh, "And we know where to find each other."

Most of the firm's financial planning is done in the Austin and Lake Charles offices. The Beaumont office concentrates on administering qualified corporate retirement plans for many of the firm's business-owner clients. Even though Paul and his brother John are in Lake Charles and first cousin Milton and his nephew Kevin are in Austin, the four principals remain in constant contact and make all investment decisions collectively. Each brings his own background to the table, which they feel gives them the ability to arrive at a balanced decision. It also allows each to know what the others are doing. That, Paul notes, gives the firm a continuity that is important to clients. If one of the four is unavailable for some reason, another can step in and help any client.

"The family element is, I guess, one of the things that make us unique," says Paul Hixson. The Hixson family business history goes back at least to Paul's grandfather, who went into business with his brother in the late 1800s. In the 1930s, that same grandfather began a new venture with his three sons (two of whom were the progenitors of FMP's principals) in the funeral business. "Before that, they had been in multiple types of businesses, but that was the business that stuck," explains Paul, joking that "we understand death and uncertainty." The funeral business was started in 1933 and grew to include an insurance company. By the time the company's founders were ready to retire, Magnolia Financial Corporation owned funeral parlors throughout southwestern Louisiana and Texas and had life and health insurance business in 14 states. The company sold the funeral business in the late 1970s and the insurance business, where both Paul and Milton Hixson began their careers, in 1992.

As family members began to look for new business opportunities, Milton, a CPA by training, opened a fee-only advisory practice and moved to Austin, where he thought the business had a better chance of getting off the ground than in Lake Charles. He founded FMP in 1987. After two years, the business had grown large enough that his nephew Kevin joined the firm. Paul came on board in 1995 to open the Lake Charles office. The fourth principal--Paul's brother John--joined the firm in 1996.

"We always seem to migrate back together because we trust each other. Integrity and trust is important, particularly in the financial business," says Paul. "When you're dealing with other people's money, it's everything."

The Planning Business

Today, the seven advisors at FMP serve around 500 clients, primarily in Louisiana and Texas, with total assets of $265 million. The firm charges clients a base fee to cover overhead costs, and then a percentage of assets under management, which starts at one percent and migrates down as the asset level increases. With few exceptions, the minimum for new clients is $250,000.

Hixson describe the firm's clientele as individuals and small businesses with some variation according to the market. Austin has a high-tech community, meaning a more white-collar clientele. "Lake Charles is more of a blue-collar market," Hixson says of the city that owes much of its prosperity to the oil business. "We help retirees that have saved a million, a million and a half, from the refineries, which have excellent retirement plans. So there's a broad spectrum of clients that we serve."

One niche is physicians. "They need planning, but are usually too busy to do it, and are often taken advantage of because of their lack of time to pay attention to their money. We take discretionary control and manage their assets actively."

Hixson notes that the firm's physician clients are usually in the top tax bracket and have asset protection issues. "Both of those factors give us a way to provide additional value by helping them tuck away a larger number of dollars pre-tax," he says. "We don't place a major focus on asset protection, but there are ways to maximize their protection based on the types of instruments used."

If the doctor has outside income, such as from an investment in an MRI cooperative, Hixson will often suggest an additional qualified retirement plan. "Because there are no employees, they can max that out as far as their contributions," he explains. "For a lot of doctors that have been practicing for a while, a defined benefit plan works extremely well. Typically their staff is younger and there are not a large number of people involved, so [the doctor] can tuck quite a large sum away pre-tax and because of their [high] tax bracket, even if they're providing some benefit for their employees, it's a sweet deal for them. It has to be the right situation and structured properly, but there are creative ways of doing that within the code."

For all his clients, however, Hixson stresses the importance of having a plan. The firm tries to arrange face-to-face meetings with every client once or twice a year, although, as Hixson notes, clients are welcome to call anytime. Every three to five years, they sit down and go over the financial plan and make adjustments as needed. "We have some clients that have no desire [for a formal plan], but by and large we encourage our clients to plan because the way we invest is a reflection of their plan. We're trying to keep them on track relative to that three to five years down the road. If we go through a three-year bear market, like the one we just experienced, what happens? We're able to tell the client, 'These types of environments have been factored in and here's where you stand and you're okay'."

Hixson also notes that in the early stages of retirement, some people get carried away with their spending and having a plan helps keep outlays in perspective. "We can keep them on track so they don't wake up some day and say, 'I'm out of money,' or, 'I'm going to have to significantly reduce my lifestyle.'"

The Investment Business

The investment strategies at Financial Management Professionals are centered on mutual funds. "We tend to stay away from individual securities with the exception of exchange traded funds. We do make use of those in some of our strategies." The firm has constructed a variety of portfolios ranging from all bonds to all stocks with a number of blended options in between.

"We have strategies that we'll blend for a client, but we strictly skew the emphasis towards specific areas of the market. Those have been very effective as well, both in bull and bear markets." Hixson believes that sticking to a strict asset allocation strategy does not provide much value to the client. "You can significantly improve the return over time just by skewing the allocation toward areas of strength, whether it's small-cap value, or growth, or internationals. We proactively make those changes and movements for the client. It's been very effective and our clients have been pleased."

To help keep track of individual client holdings spread across the firm's various strategies, Hixson and FMP's other advisors use a spreadsheet program customized by the latest family member to join the firm, Milton's son Les, who is working toward his CFP. "We have a set number of strategies. Even if we mix them up, we're able to keep track and make sure everyone is where they're supposed to be."

Hixson explains FMP's reliance on mutual funds and "mutual fund-like instruments," by pointing to the low cost and consistent returns they offer. "What we look at, regardless of the investment, be it an annuity, a separately managed account, or anything else, is 'How is the client benefiting, versus what they're paying to get it?' That carves out a lot of what's in the market today. Our ultimate objective is always the best interest of the client." Since the firm's compensation is based on investment performance, "we tend to be very critical of investment choices," says Hixson. "There's some good stuff out there, " he notes, "but there's a lot that's fee-heavy."

The only vehicle that has made Hixson consider expanding beyond the mutual fund arena is exchange traded funds. Since ETFs are very tax efficient, Hixson says, "it's amazing the amount of gains we've been able to defer and convert to long-term capital gains. It all depends on the clients' assets, their tax bracket, and what they're trying to accomplish."

In conversation, Hixson often returns to the idea of providing value to clients. "Clients going forward are looking for what value can they get. The bear market actually woke up a lot of people. The firms they were with, they thought were managing their money, but they were just sitting there and doing nothing proactively. Our business has grown over the bear market because our new clients want value for what they're paying. If there's someone managing their money, they want true management."

As part of what Hixson refers to as true management, his firm has made adjustments to all its portfolios to respond to changes in the market. "We're more in a rising-rate inflationary environment. Life has changed and you have to change to the environment. If you're not actively managing, it's going to catch up to you."

As the financial planning profession matures and competition increases, marketing has taken on a more important role to help bring in new clients and retain current ones. It's a trend that FMP has resisted. "We haven't done a lot of entertaining," says Hixson, with characteristic understatement. "It doesn't fit the character of our firm."

New clients typically come from referrals, either from existing satisfied clients or from other professionals. For several years, Hixson and his brother John have put on one-day continuing education workshops for CPAs and attorneys at McNeese State University. "It keeps us focused, because when you're presenting to them, you've got to know what you're talking about. It causes us to research even deeper. It also helps us develop relationships."

Hixson says that he hasn't seen much growth in recent years in the number of fee-only advisors in his market, which may help explain why marketing may be less important to FMP than in a large metropolitan area. He has, however, noticed a lot more interest in financial planning. "People are becoming more and more planning focused," he observes. "They realize they're not going to get there by accident. They've come to realize, too, that's it's going to be up to them to provide whatever's going to be there, with the demise of the Social Security system."

While the typical financial planning client early in his career was someone nearing retirement, now Hixson says he sees more people in their 40s or even in their 30s. "The younger generation has become more aware."

Personal Business

It's the interaction with others, whether it's his wife and two daughters at home, brother, cousins, and clients in the office, members of his church, or others in the community that seems to give Paul Hixson the most satisfaction. "I tend to be a people person," he says with typical modesty. "I guess what I enjoy most about the business is the relationships. We so seldom lose clients and you get to know them, and their families. The personal nature of that and being able to provide value and helping [others] avoid some of the pitfalls out there and have some quality of life--I get a lot of gratification from that."

In his spare time, Hixson enjoys spending time with his children and doing Christian outreach. He stresses that his faith is something personal, not a marketing tool. "I'm not an 'in your face' person. I just try to live it, I guess. So many people use [their faith] in their business, but that's not what it's about. If you have to say it, there's some kind of problem, and that cheapens what it is.

"It's not about me. Making a difference in somebody's life, even if it's just to offer encouragement, that's the thing that matters. Money's important and so is helping people in the right way, but there are other issues underlying."

If you ask Paul Hixson, he'd likely tell you that at the top of those issues are faith and family.

Staff editor Robert F. Keane can be reached at bkeane@investmentadvisor.com.

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