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Helen Modly is the president of Focus Wealth Management, an SEC registered, fee-only wealth management company with offices in Middleburg and Fairfax, Virginia. Focus works with clients to understand their complete financial situations and objectives, helping to manage assets and plan for clients’ financial futures. Helen is a member of the National Association of Personal Financial Advisors (NAPFA), chairs the 2015 Financial Planning Association National Capital Area (FPA NCA) Board of Directors, and was selected as Financial Planner of the Year by the membership of FPA NCA in 2010. An accomplished writer and distinguished authority in retirement income planning, Helen regularly contributes to MorningstarAdvisor and Horsesmouth.com, and has been quoted in the Wall Street Journal, Forbes, Money Magazine, Businessweek, and The Washington Business Journal.
Helen Modly spoke with citybizlist founder Edwin Warfield for this interview.
EDWIN WARFIELD: What are some of the challenges you’re facing in your industry at the moment?
HELEN MODLY: One of the things that is confusing to any individual investor is how the industry itself is structured, and what our role might be in it. You have your traditional Wall Street wirehouse firms where the broker calls you up and says, “I’ve got this great stock, but you have to buy it by Tuesday.” They typically were paid a commission for transacting a trade, and that was the very basic old model. And then you have the new, registered investment advisor model—it’s not really new, but it’s only 20 years old, I suppose—and I’m registered investment advisor, our firm is. So we all have a fiduciary liability that we have to put our client’s best interest first. We do not have the luxury of saying, “Well, either one of these is good for the client, but this one pays better, so I’m going to sell him that one.” We have the legal responsibility of serving their interest, and that’s different in the industry as a whole. It’s one of the reasons why we’re having this big fight now with the Department of Labor and the SEC and FINRA—which I have always called “the deceptively named FINRA,” because FINRA stands for Financial Industry and Regulatory Authority; they used to be the National Association of Securities Dealers, and that’s exactly who their membership still is: the securities dealers, the big brokerage wirehouses. And the SEC is the one that monitors or regulates registered investment advisors like our firm when they have over a 100 million in assets. You have these three competing regulatory agencies. All of them want bigger turf—they want more turf, they want higher numbers of firms to regulate because that’s how they justify their budgets from congress. So, now you have the Department of Labor who has decided that they really are going to enforce: that anybody who gives advice on a retirement plan and that includes IRA plans, must operate as a fiduciary. And Wall Street is screaming like a stuck pig because it means that their brokers would have to operate under a higher and better standard of service. Their viewpoint is “well, that’s going to cost too much money and that means too many people will not be able to have any advice at all.” Somehow the logic that bad advice is better than no advice just simply escapes me, and I think that it would escape most rational people.
Are there any recent financial trends or pieces of research you’ve found interesting and would like to share?
One of the most interesting aspects of my practice and my business, and maybe this ties back to the days when I was a neurosurgical nurse, is the whole field of behavioral finance. Behavioral finance is the study of how people make financial decisions: what biases they bring into those decisions, what tools and techniques that you can use to help them recognize their biases and overcome their biases—because Wall Street knows about our biases, the advertising industry knows about our biases. For example, the fear of loss is twice as strong as the reward sense from gain, so the advertising industry designs campaigns to really trigger right on those fears, right on those senses of greed, and we need to be aware of this. We need to be aware of what our particular and individual motivators and fears are. You can overcome a lot of those with intellectual arguments, but many of these types of things are emotional biases. We carry around this sense of money that we developed in childhood, depending on what kind of a situation your family was in. We have a whole generation of people that we call “Depression era mentality,” and you can see how strong these influences can be.
Part of our job as advisors is to explore that whole financial decision making arena, so that our clients can make the most informed and the best decision for them. I want them to sleep at night. I want them to get the amount of growth they’re willing to take the risk to achieve, but more importantly I want them to sleep. And behavioral finance is a new field of research. It’s coming out of Harvard and Princeton and some of the other great fields. To me it’s very interesting to see how these different biases can affect decision making. I talk to people about their biases and the ones I observe, and I have to be aware of my own—and I’ll tell you my bias is I tend to be optimistic, which I think any entrepreneur is—but I have one client who said, “Well, I certainly don’t have any of those emotional biases.” So I was able to go, “Denial!” And that’s another bias. It’s important to go through that, and it’s a fascinating field to study, and it’s becoming more and more relevant to our clients.
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