From the April 2007 issue of Boomer Market Advisor • Subscribe!

It's not what you earn; it's what you keep

By his own admission, David Peterson isn't much of an attorney -- but he's one hell of a financial advisor. After practicing law for 10 years as in-house counsel for a major health insurance provider, Peterson made the leap to the advisor business in 1997, founding Peak Capital Investment Services with partner John Mumford.

In the 10 years since, the Linsco/Private Ledger-affiliated firm has accumulated $350 million in client assets, with 30 employees and offices in three cities.

"It took off right away," Peterson says. "Our growth was fueled by the marketing ideas we all had, which no one person could implement. Once we got together, it clicked, and we're up 30 percent in revenue year over year."

The firm has two major focuses -- baby boomers and tax efficient investing.

Peterson is a perfect fit for our annual tax-reduction issue. He took time to explain the tax efficient investment strategies that fuel his firm's success, and the boomer-centric marketing programs that fuel its growth.

Boomer Market Advisor: What's the biggest tax-related mistake you see your boomer clients make?
David Peterson: The biggest mistake we see from a tax efficient investing standpoint is that boomers don't factor in the tax consequences of their investment choices -- plain and simple. They care too much about the return they're getting, and not enough about the effect taxes eventually will have on that return. We constantly have to reinforce the fact that investment return and tax efficiency go hand-in-hand. It's the old adage, "It's not what you make, it's what you keep."

BMA: What specific tax reduction strategies do you employ with your clients?
DP: Tax efficiency is a major focus of our practice. It's something the partners are constantly examining and discussing, especially in light of the Pension Protection Act and other recent changes. We take it on a case-by-case basis, but we employ a lot of strategies that deal with tax loss harvesting. Exchange-traded funds are really good in this area. They're tax efficient and can be sold throughout the day, which we really like. Variable annuities are also tax efficient when used appropriately. These tax-deferred features help our clients, especially when you consider that, hopefully, they'll be in a lower tax bracket when they retire. Unlike IRAs, they also don't have the minimum distribution requirements.

BMA: Have you encountered any resistance from your boomer clients when recommending ETFs, if only for the fact that they're still not familiar with the product?
DP: We haven't encountered any resistance with ETFs, especially after we sit down and really explain the benefits of the product to them. This really goes for all the newer products we recommend.

BMA: Some of our own research suggests that boomers aren't as enthusiastic about leaving a financial legacy as once thought. How important is estate planning to your clients?
DP: It's huge. It's a major issue with the majority of our boomer clients. But I will grant that there are two schools of thought: leave a legacy vs. "we're spending it all now and our children will have to earn their own." They get really passionate about it, and honestly, it's a fun issue. Ultimately, no matter what I recommend, my feelings don't matter; it's what they want. But I often see the spending-the-inheritance crowd doing it too quickly, so it's a delicate balancing act to make sure they spend it all, but do not run out of money prematurely.

BMA: How do you reach out to boomer prospects?
DP: The sole marketing focus of our firm is baby boomers, pre-retirees and retirees. We have a program called "The Roadmap to Retirement." It's a comprehensive retirement planning checklist. It includes looking at methods for accessing retirement assets prior to age 59 1/2 (if needed), required minimum distributions, stretch IRAs, long term care needs, Medicare and Social Security. We also conduct a lot of seminars in Denver, Dallas and San Antonio, Texas -- the cities where our offices are located.

BMA: Three very different cities. Why choose these locations?
DP: There is a high concentration of companies in those cities with lump sum pension plans. Retirees and pre-retirees will need assistance with rolling over the money, and we feel we're in a good position to help them.

BMA: Certain advisors make the case for dumping lump sum pension payouts into a variable annuity to guarantee the income stream while also taking advantage of new living benefit features. How do you go up against some of the bad consumer press variable annuities have received recently?
DP: Variable annuities have gotten a bad rap, and in many cases, deservedly so. People were putting VAs into IRAs and unnecessarily duplicating the tax deferral aspect. It's like walking out in the rain with two umbrellas. But there are certainly circumstances where a variable annuity is the most appropriate and cost-effective product. Living benefits are [a reason to put retirement assets in a variable annuity]. As has been said many times, "you insure your house and you insure your car. You need to insure the aggressive portion of your portfolio." It gives clients the confidence they need to invest aggressively when they otherwise would not want to do so.

BMA: How do you keep your marketing programs and seminars fresh?
DP: Once people have seen everything is just about the time something new comes along. The Pension Protection Act and inherited IRAs are very hot topics at the moment. We also have outstanding advisors and support staff that have great ideas.

BMA: We often hear about the trouble advisors have in recruiting talented staff. Is that an ongoing problem for a firm that is growing as fast as yours?
DP: If you want to find quality people, look outside the financial services industry. If they're analytical people, the skill set will transfer. The most important thing is to find smart individuals, then train them well. One person I hired, Bret Eberhardt, was a childhood friend who was a sales manager at Oracle. Another, David Estabrook, was an engineer whose parents were clients of mine. They're fantastic, and some of the smartest people I've met. So you really don't know where you'll find them.

BMA: With such a talented support staff, do you have more of an administrative role?
DP: No, and I would absolutely hate that. I have a top assistant that makes sure things run smoothly from an administrative standpoint. I personally have 350 clients and I've lost only one in the past year.

BMA: That's an awful lot of clients for one advisor to manage?
DP: It is, but as I said, my partners and staff are the best in the business. We have systems in place to account for the number of clients we're comfortable with accepting. I schedule three client reviews a day which allows me, at a minimum, to meet with each client twice a year. My staff keeps it all organized, so it's really not bad.

BMA: How does working with a large independent broker/dealer like LPL help your firm?
DP: One of the main reasons we like working with LPL is their payout. While many firms are reducing their payout, LPL is increasing theirs. The compliance guidance they give us is absolutely fantastic. I've been with other broker/dealers whose compliance department is a "gotcha" department. If LPL denies something, they'll give you very specific instructions for getting it approved. From a practice enhancement standpoint, LPL helps round out our business. A client recently wanted to invest in oil futures, which is outside my realm of expertise. I called LPL for assistance, they brought in their experts and we were able to get the client taken care of. Lastly, they have very sophisticated technology. Without LPL's platform, we calculated that we would need five to six more employees in our offices. It really helps it keeping overhead costs as low as possible.

BMA: What are you hearing from your boomer clients as they prepare for retirement?
DP: The biggest concern they have, obviously, is that they'll run out of money and/or won't be able to leave a legacy. But a lot of my boomer clients have been with their companies so long that they are frightened to leave and try something new, even if they don't like what they're doing. So we design portfolios that allow them to do what they want to do, not what they have to do. It's a big paradigm shift and one that we're taking full advantage of.

Reprints Discuss this story
We welcome your thoughts. Please allow time for your contribution to be approved and posted. Thank you.

Most Recent Videos

Video Library ››