From the November 2006 issue of Investment Advisor • Subscribe!

November 1, 2006

On the Frontier

Percy Bolton says planners should clean up the 401(k) arena

Percy Bolton stands out in several ways. He's a thoughtful financial planner and investment consultant to individuals and institutions who nevertheless loves his technological tools, though he's also quick to point out that "We're in the people business, not the computer business." He started his professional life as a rep with an independent broker/dealer, though his interest in financial planning led him to become fee-only 20 years ago. He's a solo practitioner with a relatively small staff of four, but he's eager to point out that many people, "most of them legends" in the profession, gave him crucial help and direction in his early years. Finally, he's built a successful practice--Percy E. Bolton Associates, with offices in Pasadena and Oakland, California--as an African American in a business environment that's, frankly, quite pale. Put all those accomplishments together, along with a flair for pithy statements like "The retirement industry is abusive," that reflect his client-centered principles, and you've got yourself an IA Leader. He spoke to Editor Jamie Green in mid-October.

What's the current state of your practice, and is your motto "Designing Retirement Solutions for a Better Way to Live," new?

It's always been where we focused. We started out with "For a Better Way to Live," but as the retirement issue is reaching a crescendo, it resonates as the major issue on everyone's mind--whether an individual or an institution. It will be the same 30 years from now. Retirement is what all financial planners plan for--that's why we came into existence to a large degree. Now we know whether the plan--for clients who have been with us for 15 to 20 years--[will allow them] to retire. If they can, we did our job. That's the advantage of being around so long--you know if what you put in place, in partnership with your client, worked. It's a great feeling if it did. It's great to see, too, that all the things I've been taught actually work.

I have 75 clients and four staff members who all do something different from what I do. It's a team approach.

How did you get started?

In my early years, I wanted to be an institutional consultant to pension plans. So I came in with a Ph.D. and started to work with an independent brokerage firm in Long Beach, California, called Universal Securities. Since I was new to the business, and came out of academia, I kept searching for a way to do a financial plan. I did my first plan on the computer, an XT with a 10-megabyte hard drive (see "Staying on the Leading Edge" on page 32). Universal was patient, and allowed me to produce plans at $250/plan, and they were all by hand. But that plan covered everything in the financial planning process, so I used the templates from my classes to create the balance sheets, the income statements, the tax analysis, cash flow sheets. I've seen some of those original [plans] from my existing clients; they've kept them on their shelves because they were like books. What was incredible is that they predicted the future, they were masterpieces--this was the mid-1980s.

When I first came to the B/D, they didn't have anybody doing plans. They realized this was an important revenue source. I was doing about four a month, but every time I did a plan it had all the client's assets. They saw that as a great marketing tool to get a sense of the value of a client. I had no idea that this was going to be used that way; I wanted to know everything I could about the client to give the best advice I could--I wanted to be very thorough, the cost of the plan didn't matter to me, it was the excitement of it. The broker/dealer created a financial planning division, using my templates in that division.

How did you get more business in those early days?

It was word of mouth, but it was also the book. People would put that book on their shelves and show their friends, who'd say "I need that," because it was so integrated and thorough. It looked nice, I had it bound.

That's when I realized that I didn't need to sell product anymore.

I left the broker/dealer in 1986. I was in a broker/dealer that was selling securities and insurance. I would go to a meeting and they would talk about products and I would talk about planning. I knew I was out of place and I made a decision to separate, gave up my licenses, so I went through an adjustment period of income.

In 1986 I became fee-only. I just sold my time. I realized that I could sell that talent to CPAs and lawyers, especially for their clients that they didn't know much about in terms of finances and investing, and I started to specialize in the athletic and entertainment industry. They let me do the book on their clients.

I took a wealth management approach in those early years. Wealthy clients already had product sellers, they already had stockbrokers, and they weren't giving those relationships up. I was different, I would do the work, but I wouldn't need the relationship to do the work. That's how my firm grew. Lawyers would hire me, CPAs would hire me, brokers would hire me. I got a reputation for doing good plans.

They [the clients] were the super-rich. I couldn't steal any clients from anyone. But because I was not part of their inner circle, didn't see them on the golf course, never saw them socially, I had a reputation as an outsider and that worked for a long time.

I then came to the conclusion that dealing with the ordinary individual--that's the greatest challenge with a life. I made a decision in 1999-2000 to go back to my roots--working in the affluent market, individuals who have money but not enough to get where they want to go without professional advice.

When I first came in I was starry eyed, young, thought I could save the world. That has not changed. Most of my colleagues came in with the same view. We came in to tell people that they should not pay a commission for things that are free. Now we have new frontiers to go after.

Is that new frontier retirement?

The retirement industry is abusive. You consider what's going on in the administration of 401(k) plans, it's abusive. From the time I've been in this business, I've tried to make my fees transparent. In the 401(k) arena, you don't know what you're paying for, you don't know who's getting paid, and nobody can tell you. You begin to realize that everything they taught us in the financial planning arena should have been used in the 401(k) arena to give people a chance to make it. Most of the top planners have stayed away from that arena, because you're dealing with ordinary people. But when we started, we didn't have access to wealthy clients. It's only within the past 10 years that we've gotten that access.

The rich are getting richer with our help, and the middle class is disappearing with our lack of help. That's the new frontier. We cleaned up the brokerages, we've got to clean up this arena.

Like the lawsuit filed against Northrop Grumman--$11 billion in their 401(k), but the fund fees are retail--they're paying 90 basis points for a fund! [The class action lawsuit, the latest in a series filed by a St. Louis law firm, charges the company, its investment committee, and 16 executives for "breach of fiduciary duty" regarding expenses in its 401(k) plan.] If you've got $11 billion, nobody's paying 90 bps, maybe 10. That's a problem for everyone. The 401(k) plan has been the stepchild of the DB plan, placed in the hands of the HR person. I'm not saying that HR person isn't sophisticated, but the DB plan was placed in the hands of the chief financial officer; they should have both been in the hands of the CFO so he can make financial decisions that would be better for the participants and better for the company.

We as financial planners cannot make a large impact anymore one-on-one. We have to make a larger impact in big groups, and the only place where the group with money is, outside the wealthy, are the individual investors in 401(k) plans.


Staying on the Leading Edge

My first conversations with Percy Bolton some years back were all about technology--how he uses the latest hardware and software to run his business and monitor the investments he recommends to clients, but also to help tap into the skills of his staff and above all communicate with his clients. Here was a sole practitioner who was one of the first advisors I knew to install a smart phone system that when a person called his office would track him down on his cell phone or his home phone, and give you, the caller, the option of getting him on the phone--wherever he was--or leaving him a message.

Bolton is no tech Johnny-come-lately. When he started in the business in the early 1980s, he notes, he did his first financial plan for a client at a broker/dealer "on a computer, an [IBM PC] XT with a 10-megabyte hard drive. That was such an innovation, because you could store the plan on the hard drive, and boilerplate it, so that your numbers were crunched in your MS-DOS programs." Buying a then state-of-the-art NEC dot-matrix printer, which he jokes "sounded like an airplane taking off," the setup "made me very efficient, because once I got the boilerplate down, I could cut and paste, instead of doing it by typewriter."--J.G.

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