The following is a transcribed record of an interview of Scott Stanley, Financial Advisor and Founder of Pharos Wealth Management, a firm based in Novato, CA - the San Francisco Bay Area.  The interview was initiated and facilitated by The Suit Magazine in April 2017 covering fiduciary standards in the financial industry.     

The Suit: "Scott Stanley, you are the a founder of Pharos Wealth Management. Tell us about the journey? Explain the gradual evolution of the business? What were you doing before then?" 

Scott: "My career started with passion. I found my affinity for the stock market ruled my every thought.  I would wake up at 4AM every morning (before I found a job in the industry) just to create analysis reports – reports that no one would ever read.  I did it just because I loved learning about the companies and projecting the stocks ultimate direction based on what I learned. 

As I was completing my corporate finance degree, I held an internship with a financial advisor in Marin.  My experience there ultimately helped me land my next job as a portfolio manager for a financial advisor with LPL a year later.  After years as a portfolio manager, I was struck with the realization that I loved interfacing with clients more than I loved sitting behind a computer screen all day.  It was a perfect transition – portfolio manager to financial advisor – because I could apply my passion and skills for the stock market to helping people pursue their financial goals. 

I spent the rest of my time there as a financial advisor - meeting with clients, managing portfolios, managing the team (admin/support staff), and planning my future.  As the last year passed, I realized how much I actually enjoyed being a financial advisor.  I noticed that there was a need/an opportunity for someone with a personal touch to customize portfolios (you know, all of the stuff advisors do) but with a focus on transparency.  I grew enough to start my own firm – so I did.  And then, Pharos Wealth Management was born.  We are headquartered in Sausalito, California, which is in Marin County – a part of the San Francisco Bay Area."

The Suit: "Talk about your approach and a bit about your client philosophy? What type of client do you enjoy working with?"

Scott: "Our client philosophy is one of trust, honesty, and communication. We work to uphold a fiduciary standard and strive to create transparency.  We pride ourselves on our honesty and our drive to do what is in the best interest of the client.  We’re able to achieve such openness by getting together for regular review meetings which happen on a monthly, quarterly, or annual basis.  We make ourselves available for constant communication: every call answered, every email replied to, no questions left unanswered. 

An important aspect of our client relationships are the relationships themselves.  It’s incredibly important that we like working together, talking together, and growing together.  Typically, our clients are nearing retirement or are in retirement and in need of professional guidance.  Pharos Wealth Management is roughly translated as a guiding light.  We are the guiding light that helps cut through the darkness of the opaque financial world. 

We focus on helping affluent individuals and families, members of the LGBT community, and other high-net-worth clients. Of course, we're all inclusive and open to helping anyone that could potentially benefit from the services that we offer – affluent or not.  We offer financial management services in Sausalito, CA but we're not limited geographically.  We work with clients all over the country, remotely and in person."  

The Suit: "Sometimes people avoid dealing with their finances or investing because they feel overwhelmed by numbers and have no understanding of stocks, bonds or mutual funds, etc. How do you help walk your clients through that process?"

Scott: "Part of building a prosperous client relationship comes from education. Having an understanding for what you’re investing in is incredibly important.  Part of the reason you hire someone to manage your finances is to get to the point where you trust the decisions that are being made.  How can you trust the investments if you don’t understand them?  So, we always start our transparent relationship by explaining in plain English what is being invested in, how it works, what the associated fees are, etc.  For people that don't do well with numbers, we use analogies that clarify the topic of conversation.  If someone is extremely analytical, we’ll work with them from that perspective. Whatever your level of understanding for investments is, we'll work with you on a level that makes sense to you.

With understanding comes trust, ease, and a more prosperous relationship for both of us."

The Suit: "The paradigm suggests that the conversation has shifted away from the alpha approach to a more conservative approach which provides a more customized solution. Do you agree with the premise?"

Scott: "I would agree that an alpha based approach has fallen out of favor – slowly over the past 10 years, and more rapidly in recent years. This is evident in the dwindling number of hedge funds as well as in the changing financial planning/wealth management landscape.  The advisors and money managers that are seeking alpha by being overly active are falling off, while advisors with sustainable investment strategies are shining.  The point to be made here is that having a well thought-out and EMOTIONLESS process is paramount to longevity and growth.  In other words, advisors need to work with their clients to create a well-balanced approach with the objective of withstanding the pressures of the market.  You can be a conservative investor or an aggressive investor and still have a tactical, customized strategy – it’s about aiming to preserve on the downside (could mean getting out of the markets when the risks are too high)."    

The Suit: "Financial literacy among clients remains to be a problem. With the advent of more online tools to like the robo-advisor, the robo-hybrids and educational apps, how do you think these platforms will help "gamify" that financial planning experience, potentially creating a more savvy more educated investor or clouding judgement?"

Scott: "Financial literacy is a huge problem that we, as Americans who will one day retire, need to take steps toward improving. Without getting too deep – it’s unfortunate that our education system today doesn’t promote lessons of personal financial management. 56% of Americans have less than 10k saved for their retirement and that’s a huge problem.  With a little help in understanding finances and getting educated on how important it is to prepare for retirement, those statistics could improve.

As our younger generations enter the work force they need to start thinking about saving for their future.  The advent of robo-advising is a step in the right direction in getting them prepared.  Robo-advising has given investors (young and old) access to less expensive investment management solutions that can help prepare them for retirement and other goals.   That said, it’s important to maintain a relationship with a human advisor.  Robo-advisors are not a replacement for financial advisors, rather, they’re a good supplement.  A computer is not able to detect the nuances that are involved in personal financial management – like a human may be able to. 

The release of new personal financial apps has actually made investing fun by “gamifying” the experience.  Clearer, more understandable information has made the process less intimidating and more interactive.  In the end, technology and interaction with the new wave of financial education has ultimately led us to a more financially literate world…but we have a lot of work to do.  That work should start at an early age in a school setting."

The Suit: "Do you think the new rule oversteps the departments authority, creating unwarranted burdens and liabilities that undermine the interests of retirement savers? Define fiduciary and how do you think your clients understand it?"

Scott: "I can’t profess to be an expert on the impending Department of Labor rules – it takes an expert legal mind to understand all of the implications of the ruling. That said, on a simplistic level, the idea of requiring anyone who is managing retirement assets to be a fiduciary makes all of the sense in the world.  The professional managing investments for a regular retirement investor should be required to keep the investors best interest at heart.  I’m all for the requirement of a new fiduciary standard.   

Fiduciary is one of those often overly used words that is sometimes incorrectly used and many times misunderstood.  A fiduciary is someone that has the legal obligation to manage the client’s investments according to the best interest of the client.   I explain this concept to each and every one of my clients which I find very important in building a trusting relationship.  It’s one thing to trust someone on a personal and professional level, but it’s another thing to know that the law requires it."

The Suit: "Communicating with clients is key, but plans don't always go as planned. How do you insure plans stay on track, level set client expectations and handle unforeseen circumstances like the passing of a spouse?"

Scott: "The world is full of unpredictable events that can either directly or indirectly affect one’s investments. Even with a sound investment plan, there are often life changes or external factors that complicate things.  Staying in constant communication with a client is the first step we take in understanding where the client is and how real life events are working with the investment strategy in place.  Even though constant communication is a good thing, it isn’t necessarily a proactive tool, which is why planning for unforeseen events is one of the foundations of financial planning. 

Implementing the proper use of insurance, emergency savings, and a well-diversified mixture of assets (liquid, tax benefited plans, etc), can potentially save someone in an unfortunate turn of events.  For example, in some cases Long Term Care insurance (not traditional LTC!) is an important step to take when striving to ensure that your entire life savings doesn’t get wiped out by a sickness – almost 70% of people turning age 65 will need long term care at some point in their lives.  It’s an incredibly expensive ordeal to get sick and it could easily deplete all of the assets that someone worked their entire lives to save – it’s their legacy that gets hurt if they’re not properly protected. 

Estate planning is another good example of properly planning for unforeseen life events."

The Suit: "With Americans enjoying increased longevity, what methods are you using to help clients create enough savings to last through what could be a retirement lasting as long as their working years while still maintaining their desired standard of living? What methods are you using to combat the potentially draining effects of long-term care?"

Scott: "One great thing about the vast world of financial products is that there are tools out there to help manage any goals an investor might have. We approach the management of a portfolio by aligning the investments with the goals of the investor – every investor is so different (ex. Some people want to spend all of their money and some people want to pass it all on to their kids or a charity).  To properly account for the differences in investors, creating a comprehensive financial plan leads us toward a more appropriate asset allocation. 

Annuities can potentially be an effective way to help ensure that an investor wont outlive the assets that they’ve saved.  Annuities aren’t appropriate for everyone, but some investors benefit greatly from the valuable investment options they present.  Today, annuities are flexible and customizable and as long as fees, options, and pro’s/con’s are discussed, it can potentially be an effective tool. 

The same goes for Long Term Care planning.  We’ve avoided traditional long term care insurance because of the ever-increasing premiums and the dwindling benefits.  Instead, asset based long term care has been a haven for people who want to protect themselves from the potentially inevitable – sickness. 

Please keep in mind that this is not a recommendation: Without getting too detailed, it’s a single premium life insurance policy that has a long term care rider.  Basically, it a 100% money back guaranteed policy if you ever change your mind, and it provides better long term care protection than traditional policies out there.  Asset based long term care is worth exploring but for the purposes of this interview, it might make more sense to point you in the direction of your advisor. 

The last strategy I’ll touch on here is proper portfolio management – that means making disciplined investments with a sound investment strategy (stocks, bonds, mutual funds, etfs, alternatives, etc).  The most important aspect in considering a strategy is making sure that there is a process devoted to dealing with volatile markets."

The Suit: "Do you think the current 401(k) fee disclosures are enough to fully inform savers or retirees of what they are paying for their accounts?"

Scott:  "It’s not just 401(k)’s that present an issue of transparency and clarity with relation to fees – I believe the industry as a whole does a poor job at clearly presenting fees in an understandable way. Part of our process here at Pharos Wealth Management is focusing on fee management and creating an understanding for how fees are processed.  Mutual funds are another tool in helping investors pursue their desired investment exposure – but they do a poor job at presenting a clear picture of how fees work.  As an industry, we have a duty to create understanding and transparency. 

401(k) fee disclosures are full of jargon and legal speak that may make it difficult for the common investor to understand.  I would highly recommend that investors consult with their financial advisors to fully understand what their 401(k)’s cost them. 

Quick comment: one thing I like about the managed accounts (advisory accounts) that we provide, are that every statement clearly shows what the fees are.  Having a line item that makes that number clear is an effort to be transparent and one step closer to creating more trust."

The Suit: "What needs to fundamentally change in the investment industry that you feel has been missing in the dialogue and approach for investors today?"

Scott: "A greater effort toward ensuring that everyone is involved in some sort of retirement savings is a priority in our industry. If we go on like we have (many people not saving for retirement) our country is headed for a huge problem down the road."

The Suit: "What has been your greatest success in this industry and what has been the failure or challenge that you learned the most from?" 

Scott: "My greatest success in this industry has been overcoming adversity, both as a young advisor and as a member of the LGBT community, and starting a successful wealth management firm – a firm that has helped many individuals, couples, and organizations by guiding them through the opaque world of financial information.

The biggest challenge I’ve faced and learned from over the years has been saving investors from themselves.  We’ve endured a tumultuous market environment riddled with unpredictability.  Bruised portfolios don’t want to experience the horror of the financial crisis all over again – and with good reason!  It’s our job to connect with investors (that might have had bad experiences or trust issues before becoming a Pharos client) and guide them with our professional experience.  Many investors are rightfully warry about investing – but sometimes at their detriment.  That natural resistance might get in the way of reentering the market.  Employing an investment strategy that is sound and dynamic can help you avoid the upset like we saw in the crisis, and pursue your goals as an investor." 

The Suit: "Goals for 2018?"

Scott: "Continue to navigate the choppy political environment in a way that seeks to preserve client assets while growing the value of their accounts. More than anything, my goal is to ensure that my clients get the best financial management out there and that we all have a little fun along the way. 

In addition to growing Pharos Wealth Management, we’re also going to be focusing on giving back to the community by donating to financial literacy programs.  We’re also very active in the LGBT community – I’m on the board of the Spahr Center – the LGBT organization of Marin." 

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Investing involves risk including loss of principal.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service.

Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.

Scott Stanley is a registered representative with and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC