From the September 2007 issue of Investment Advisor • Subscribe!

September 1, 2007

Young Rebel With a Cause

Among the younger generation of planners, Aaron Coates of Compass Wealth Advisors in Elkhart, Indiana, is a visionary. He embraces the revolutionary approach of letting his clients spend their post-retirement savings on what they wish--either a dream trip down the Nile or retaining enough assets so that they can leave money to charity. His rebellious approach to planning--in which he allows his retiree clients to spend all of their savings, if they so desire--has even garnered criticism from older generation advisors who he says characterize his methods as "malpractice."

Most financial planners don't call extra money by its name, Coates argues. They call it "rebalancing the portfolio so it will be there to protect clients against future bad times," he says. "We don't have that." Coates--who just turned 34--believes he is deviating from the older generation's institutionalized approach to advisory practices by "getting into clients' heads and seeing things from their framework." Not surprisingly, Coates is also a founder of Next Generation of Financial Planners or NexGen, a community for financial planners aged 35 and under. (See a report on NexGen's recent annual meeting.)

"Getting into a client's head" and then serving her needs, means, for Coates, telling a woman client of his that she could spend her extra money on a trip to Germany, and also travel Europe for two months. Because of the untimely death of her daughter, Coates was well aware that the client knew how short life can be. He recalls how this client started getting choked up in the office when Coates told her she had the financial resources to make the trip.

A serious problem with the industry, he argues, is that advisors think retirees just want income. Planners are too focused on that, Coates says. At Compass Wealth, if the client is ahead of the game in terms of asset growth in any given quarter, the advisor calls the client and asks what the client wants to do with the money--save it, invest it, or spend it. A lot of times, they spend it, he says--even down to zero.

Salt of the Earth Clients

Elkhart has been called the RV (recreational vehicle) Capital of the World, and is also the place where car trailers were invented, but it isn't the land of milk and honey for wealth and flashy living. It does, however, have a fair amount of salt-of-the-earth working-class Midwest types who have made money over a lifetime and need advice. The local population is also sprinkled with the descendants of the Amish who are focused on the practical things--making sure the money doesn't run out, Coates says. Many of Coates's clients are retired, with 94% or so of them being what he calls income-type clients.

Elkhart residents first seek stable investments, then income and growth, he says. Some money is put aside in income-producing assets and the rest is used for growth. The client decides, using an interactive spreadsheet designed by Compass Wealth, whether she wants five years of income set aside that will protect her if the market turns downward. The target is to hit the rate of return every quarter to build up that cushion of income, Coates says.

What Coates does offer clients is to have cash sitting off to the side so that in bad times, they won't be forced to sell their equity holdings. "If we have a bad two years, then they may be forced to sell or...we put three years of income off to the side," he explains. The point is that Compass Wealth has devised a way to respond to the client's wishes while fully informing them of their options.

Michael Kitces, director of financial planning for Pinnacle Advisory Group in Columbia, Maryland, and a co-founder with Coates of NexGen, says Coates "is a pretty active go-getter type," who has "big ideas" and looks for new approaches. "His style is to help create things and get the ball rolling." Twenty-nine-year-old Kitces was another young industry wunderkind who with Coates attended the 2004 Financial Planning Association retreat in Colorado. "We were shocked at the sparseness of young planners at the meeting," Kitces recalls. Perhaps there were four or five under age 35. "Aaron came over to me to start the idea of a community of young planners," says Kitces, who chaired this year's NexGen meeting in July. Now, NexGen has taken on a life of its own.


Elizabeth D. Festa is a freelance business writer based in Washington, D.C. She can be reached by e-mail at elizabeth.d.festa@comcast.net.

Reprints Discuss this story
This is where the comments go.