Featured Advisor Interview: How to Relate to Clients & Work with Plan Sponsors

 

Nick Fuller is the owner of Fuller Wealth Management based out of Tempe, AZ. Read the full interview to learn more about the importance of talking risk with clients, working with 401k plans, the fiduciary outlook and much more.

Luke: Thank you again Nick for joining us for the interview. Before we begin could you give us a short introduction?

Nick Fuller: Thanks for having me Luke. My name is Nick Fuller and I am based out of Tempe, Arizona. Born and raised here. My dad was in the Air Force but we just moved once and then came back.  As for college, I’m an ASU Sun Devil and as for my family, I have a wife and 3 little boys.

My firm, so I started in the financial industry in 2007-2008 at a firm here, a big home office firm and more of a place that specialized in teaching advisors, how to be an advisors. As I was going through my last years of college they asked what I wanted to do and I said that I wanted to be an advisor. I didn’t want to teach people how to be an advisor. So I went out and started my career with that firm, with no assets, nothing, no contacts and trying to find clients and they showed me how. After talking with the mentor I got some advice and then went to another firm and eventually needed to break off on my own.

I envisioned myself breaking off to be either with an IRA, under an IRA or my own. It probably happened earlier than I expected but it was probably the best thing that happened. I broke off and now I register through a firm that helps independent advisors and I run a shop here out of Tempe and its been one of the best decisions. Still a grind, still early in my career,  10 years into it and just happy to be here. That’s a little bit about my path.

Luke: Great, thank you. I appreciate having you here and thanks for giving us a quick bio.  Let me ask you a few questions we have here. Why do you think it is important to have a risk conversation with your clients?

Nick: Well I think that it is vital, it is crucial in everything that you do, as an advisor for clients you’re trying to help manage those expectations, you’re trying to help manage the outcomes and help the client have a bigger picture than what they can see because most times, a lot of the times, you’ll get clients that can see three, four or five years down the road but cannot see the 20 or the 30 years down the road. That is why having that conversation about risk helps them to understand and kind of foresee, “if I take on an x amount of risk now, how does that change when 10 years into this, how does that change when I’m at retirement. What does that look like for me? “

And it also must give a better indication of what type of investment profile or allocation that we should construct for that client. So it’s crucial. I think that having that conversation for me means everything. If they’re a potential client the way that I like to kind of bring it up is to do something that is relatable to them, maybe an analogy or a story to help them relate a sort of, “Oh, I get that.” I have some clients who are hunters. They like to hunt. And I used that analogy of the top of my head. I said when you’re hunting, what’s the risk reward there? You get closer, you get a better shot but there is more risk because as you get closer the thing you are hunting might run away. You know it’s just to help them see a better, bigger picture.

Luke: Now along that same line, do you see any particular common mistakes that maybe some investors start to make when they’re trying to save for retirement, maybe relating to their own individual risk on their own portfolio?

Nick: All the time Luke. I can’t tell you how many times early in my career I thought that something sounds like a good idea. I’d get a client who would say that they’re 5 years out and really want to push the pedal to the metal and my question to them would be why and its always the same answer: I want to make up for lost time, I didn’t save enough or I feel like I don’t have enough, so I want to push the pedal down and really ramp up my risk to potentially get a better reward.

I had a good story with a client about a year ago. He just retired, got his big chunk of money, we’re rolling it over, and he said the same thing. He’s young, he was a fire captain here and they retire young, and he said, I want to put more chips in for personal reasons. And I asked what if you’re wrong?

And I remember around February or March when the market was being pretty volatile, kind of like it is recently and I reached out and asked how he was doing. He ended up not doing that option because he took my advice. I think his expectations were really met and he was a lot happier that we kept him in line with how his portfolio should react to different economic scenarios. He was much happier that we didn’t go with his plan, of pushing more chips in.

Luke: In regards to a 401k plan. When you’re trying to make sure that a participant’s needs are met, including the risk tolerance needs what are some strategies that you utilize to ensure that both of those needs are met?

Nick: It goes back to sitting down with participants individually or in a group setting and helping them see the tools through RiXtrema’s Portfolio Crash Test, that I use specifically.  I found great value in it and it is helping them to understand “how much time I have left”. Some of the questions that I have asked, the prominent question is: when would you get that knee jerk reaction that you’d want to go sell everything, when would you feel like you would go to cash. And that’s a real question for clients, especially how recent 2001 or 2008 was. They all got that feeling. After how much of a loss would you see yourself moving your investments to cash.

And using Portfolio Crash Test we can show clients that as long as they stick with their comfort level of risk that the markets would reward them and the system really gives us a great resource to show so many different scenarios. I had this pulled up for a client who retired two years ago, and I didn’t even know it was in PCT at the time, but he was given a scenario about Russia and people taking over and I showed him and I brought up the Portfolio Crash Test and we found his scenario! We found it and uploaded to his portfolio. It was under “Ukraine hostile”: Ukraine revolution or a possibility of a war with Russia. We showed him what his portfolio might do if this happens along with the best and worst case scenarios and he felt really comfortable. He established that he can handle that and see where his portfolio. So I try to explain how they can construct this stress test without going into too much detail or over their head where people can’t understand it. It’s a matter of education and taking a person through a scenario like that so they can see and visualize.

Luke:  Great. It is great to hear that some of the scenarios we have in there which may be a bit obscure but end up being quite useful.

Nick: Right, I had no idea it was in there. It was sitting in front of me and the client said pull up that one. We looked at the description and it gives a great description. It sounded exactly like the scenario the person was afraid of.

Luke:  Looking at the plan design of a 401k plan. When you’re looking for a good 401k plan design is there any particular factor that will set you off as a red flag, anything that you will look for in particular when you’re evaluating the 401k or the plan’s fund menu?

Nick: It’s always good to work with 3rd party administrators as they are amazing at plan design and we work cohesively together. As far as plan design red flags, it comes down to funds that are not giving enough diversification. Through the 401kFiduciaryOptimizer tool that I use, we can pull up the menu and we can see right off the bat how many options they are giving. I think that would be a big red flag.

I’ve shown many time to sponsors, that for example, if they have a diversification of 45, which is in the red zone that you really need to pump it up and we can show you how to give your clients more options. I kept looking at the plan menu and plan options that a 401k has, if they are not giving target dated funds, if they are not giving models, those are some red flags to that say something is not right here. That there’s some sort of flaw with the construction of this lineup.

Plan design always falls back on the owner, as far as how you’re designed that lineup for the owner and for the highly compensated employees. It all kind of centers around that person. That’s conversations we had with owners, saying are they maximizing tax deductions, can they highly compensate, defer more, are they deferring enough. As far as more in depth of plan design I think it’s a conversation we’ve had with owners or finance directors. But regarding the lineup that’s where the 404c menu really plays a big role if something might be a red flag here or most likely is.

Luke: Looking at the 404c diversification and making sure it’s up to par on the plan. A lot of the talk going on right now in the 401k industry is about lawsuits going around, there’s a new DOL fiduciary rule coming up. Do you have any specific ways that you have adjusted yourself or maybe not even needed to, in the current era where being a fiduciary is becoming more and more important? Has that affected how you practice at your firm at all?

Nick: That is a great question. No, I mean the rules have changed but we are a fiduciary by choice, not because we have to be, not because we are supposed to be orsomething that someone told us to be. We want to be and we are fiduciaries. Whether the law says this, that or the other, we are still going to go to the client with we’re fiduciaries, legal responsibilities, this is what it means and this is why we have your best interest. Let us show you how and what this means for an overall plan design and plan construction for you and your participants.

As far as the lawsuits go, there’s a lot of talk. About a year ago it was a really hot topic. People were really slamming sponsors with lawsuits this and lawsuits that. Let us come in, let us benchmark and as it kind of faded away, it didn’t mean as much, we’ve gone in with the same conversation: “your plan has some flaws, we can tell that we have 95% of the data at our fingertips through RiXtrema and through 401kFiduciaryOptimizer and always have what we need to be able to tell you that there is some flaw here. We wouldn’t be calling on you if there weren’t any flaws and we want to be able to get an opportunity to show you what this means.”

 Now if they don’t care there is nothing we can do. We went to a 32 million dollar plan maybe 3 weeks ago and one of the guys assigned to the 5500 was in on the meeting and we showed him that a third of the funds would not pass an expert. We invited an expert witness on fiduciaries for the courts to the meeting and said that a third of the funds would not pass in the top quartile of the funds with its peers. What that means is that there’s a 3-5 million dollar liability that the owner, the committee has. Now whether they want to do anything, that’s on their boat. We followed up and said we told you what we told you, now do something, just don’t do nothing.  Whether its with us or with somebody else because now you know.

Luke: Thank you Nick that was a really great answer and thank you for joining me for this interview and a great conclusion.

Nick: Thank you Luke. I appreciate all the tools and resources of RiXtrema that I use. It’s made life a lot easier dealing with sponsors and working with clients. I can’t tell you how many conversations I’ve had where clients and sponsors can visualize and what that means to them. 

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