Bert Whitehead Bert Whitehead

Maverick financial advisor Bert Whitehead is systematically retiring, but he’s far from retiring his unwavering stance that asset-based fees “poison” the FA-client relationship.

In an interview with ThinkAdvisor, the outspoken fee-only planner and tax attorney — for 30-plus years, famed Dr. Andrew Weil’s financial advisor — opines on how AUM-based comp, which poses a conflict of interest, he says, encourages clients to lie to their advisors.

Whitehead, 73, began as a part-time FA 46 years ago and ultimately built his practice into the nationwide Alliance of Comprehensive Planners (ACP), now based in Wilmington, North Carolina. His behavioral approach provides integrated advice on investing, tax planning, insurance and real estate, for which ACP FAs charge clients an annual retainer.

With three years to go on his succession plan, the innovative Whitehead still serves, as an independent contractor, 35 high-net-worth longtime clients. Last year he sold his original RIA, Cambridge Connection, which managed $350 million in client assets.

ACP’s annual conference, set for Nov. 6-9 in Miami, will not only deliver FA training but celebrate the evolution of Whitehead’s business and publication of the fifth edition of his bestseller, “Why Smart People Do Stupid things With Money: Overcoming Financial Dysfunction.” Dr. Weil, a pioneer in integrative medicine, penned the foreword.

ThinkAdvisor recently held a phone interview with Bisbee, Arizona-born Whitehead, speaking from Tucson. Before launching his practice full time, he sold computers for the Burroughs Corp., later moving up to become its director of fair employment practices.

Here are excerpts from our conversation:

THINKADVISOR: How did you acquire Dr. Andrew Weil as a client?

BERT WHITEHEAD: He was referred by his massage therapist. When I started out, most of my clients were small businesses. Massage therapists turned out to be some of my best referrers because while people are getting a massage, they talk about their money.

You wrote the book, “Why Smart People Do Stupid Things With Money.” What’s the stupidest?

As [comic-strip character] Pogo said: “We have met the enemy, and he is us.” It’s in the behavioral parts of financial planning because people make financial decisions based on emotion — and that’s the hardest thing to break.

What are your thoughts about the demise of the Labor Department’s fiduciary standard rule? The DOL said that AUM [-based compensation] doesn’t meet a fiduciary standard because advisors charge different rates on different asset classes. That sets up a bias in pricing where the advisor has an incentive to over-emphasize the asset class paying the highest rate.

How does that affect the advisor-client bond?

It poisons the relationship because the client knows about it; so they don’t tell their advisors all the assets they have. Not only are clients lying to their advisors, but the advisors know they’re lying — and yet they’re trying to do asset allocation. That’s preposterous!

You and the National Association of Personal Financial Advisors (NAPFA), on whose comp committee you served, had a falling out over the conflict of interest you perceive. Please explain.

About 80% of NAPFA members use assets under management [for comp]. I took a very hard stance [in 2011] that AUM [comp] didn’t meet a fiduciary standard. In [2015], the issue came up again, and [I did] a lot of press about it. NAPFA got really upset and asked me to resign from the committee.

And you did?

I agreed because I knew I wasn’t going to win. Afterward, people on the committee came up to me at the NAPFA convention and said, “What the Department of Labor said [via its fiduciary rule] is exactly what you were talking about.” So I felt vindicated.

Are you still a practicing tax attorney?

Yes. The only one I’ve ever sued is the Commissioner of the Internal Revenue Service [IRS head]. That’s heaven because you can always find him, and he’s always collectible. [That is], when filing an appeal in tax court, you’re suing the Commissioner of the Internal Revenue Service. Whenever [a client and I] didn’t agree with the IRS, I went straight to court. It’s a lot easier to make a deal that’s favorable to the client when you’re working with the attorneys than with the IRS staff.

How did you build your practice?

I started out part-time going to people I knew that were my age — 32. I did their wills, taxes and reviewed their insurance policies. I bundled all that together. They kept referring their friends and relatives. In 1972, my retainer was $100 for the first year. By 1995, it was $1,500 because I was able to add much more value, particularly by integrating investments with their tax situation.

What are ACP’s chief benefits to advisors and clients?

I’ve found advisors who wanted to do financial planning but didn’t want to end up being an agent of financial institutions; they wanted to be agents of their clients. ACP prefers an advisor to be not only a CFP but an attorney, CPA or [IRS] enrolled agent so that they can represent their clients before the Internal Revenue Service.

You sold portions of your practice to proteges 17 times. What prompted that?

I wanted to grow my concept — I felt like I was Johnny Appleseed. Years ago, I put in advisors’ contracts that after [say] three or five years, if they decide to split off, they need to give me 45 days’ notice.

What happens with their clients?

We send out a joint letter announcing that the advisor is forming a new ACP firm and that if they want to continue working with them, please sign the attached release and we’ll transfer the file.

What do you get out of that arrangement?

There’s a formula as to how much the advisor pays us to buy out the clients. Some of the ACP firms are now bigger in assets under management than those that Cambridge Connection had — though [measuring by] AUM doesn’t make sense because we include advising on real estate, not only mutual funds.

What do you think of the robo-advisor concept?

It’s better than a commissioned salesperson selling mutual funds. But you’re just getting the robo and not anyone who really knows your situation. For example, robos don’t react to a change in your tax bracket and how that should change your investments. But at least [digital] is a step forward because it’s unbiased and inexpensive.

What do you do for fun?

I have two children, three stepchildren, 14 grandchildren and three great-grandchildren. Every Labor Day all of us get together at a dude ranch. One of my grandsons was born on the ranch: His mom’s water broke while she was riding in a stage coach — but we got her to the hospital in time.

Besides enjoying your family, what else do you do off-hours?

I like to travel. I’ve walked the seven continents, and I’ve sailed the seven seas. Now I’m starting on the seven longest rivers.

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