Forty years later
Ever wondered how the intricate world of financial planning truly operates?
Tom shares some insight into this world, as a financial planner who’s been in the trenches for four decades.
In this episode, we journey through my 40-year career in financial planning. From my beginnings as a young college graduate (age 20!) through my start with EF Hutton, where I gained in-depth knowledge in investments, taxes, insurance, pensions, and more.
The art of financial planning is delicate and often misunderstood. That’s why Tom sheds light on the importance of tailoring a financial plan to each client’s specific needs instead of opting for a one-size-fits-all approach.
Tom shares why your financial plan can become fragile — as we move further into the future. And how making projections beyond three to seven years can be counterproductive.
Tom reveals how keeping expenses low and remaining focused on the big picture can yield more significant financial success. Along the way, Tom also recommends a captivating podcast, The Founders, which provides fascinating insights into the lives of business owners and entrepreneurs.
Tom also shares a personal story about a Navy buddy, demonstrating the impact of disciplined saving and making small deposits over time. Tom discusses the importance of staying invested in the stock market, despite its volatile nature. And how this has paid off – for so many – over the past 40 years.
An advisor’s role in helping clients avoid major mistakes and stay focused on their financial goals is also emphasized. This episode is packed with financial wisdom derived from decades in the industry. We hope it can help you on your financial journey.
You can find all our podcasts on Apple, Spotify and wherever you listen to podcasts, or you can listen to the Mullooly Asset Podcasts right here on our website.
TIMESTAMPS for Forty Years Later
0:32 – 40 Years of Financial Planning
12:56 – The Importance of Financial Planning
21:12 – Save and Work With an Advisor
25:40 – 40 Years in the Industry
Transcript of Forty years Later
Welcome to the Mullooly Asset Management Podcast. Today’s episode is going to be a little unique in the sense that, well, for two reasons.
One, I’m flying solo today (this is Tom Mullooly).
And two, I’m going to use this opportunity, this episode, to talk about 40 years of financial planning.
The backstory behind this episode:
I happened to go on to Facebook the other day. A buddy of mine – went to high school with me, put a picture of his college ring on Facebook, along with the comment stating “39 years since I graduated,” from the school he went to for college. Next year will be a big anniversary.
And that got me thinking. I don’t know if you’re aware of this – some of you may be – I finished college in three years. I started working on Wall Street almost immediately after finishing classes, in September of 1983.
This year will be 40 years I’ve finished college; and that also means that 40 years I’ve been working in financial planning.
40 years helping people manage their investments.
40 years of helping people manage the risk that comes with managing money and all of the implications that come with this.
And 40 years of helping people plan for their future.
I started at EF Hutton on September 6, 1983. I began working at their office at 26 Broadway, downtown Manhattan. Some of you may know this as the Standard Oil building. My salary at the time in 1983 was $14,000 a year. And I was working in what they called the PFM department, which stood for Personal Financial Management.
Financial planning was a brand new concept for the industry in 1983. Prior to that, there were stock brokers, account executives, and people who were just hawking stocks and bonds and different kinds of investments. But they didn’t really have some type of cohesive plan. And EF Hutton at the time was one of the very first firms on Wall Street to realize this. And they also realized that it was a terrific marketing opportunity for them.
Their brokers sold plans to their existing clients. The plans themselves cost $10,000. It was an upfront, one time cost. And that $10,000 was in 1983 dollars. So inflate them 40 years later. This plan would have cost a heck of a lot more in today’s dollars. But the plan cost $10,000. And it did *not* include any of the commissions the brokers would get, from implementing the suggestions in the plans.
Here I am, this 20 year old, who didn’t really know very much. The first thing they did in the PFM department was put us into a class for financial planning. There were 11 of us who started on the same day. They put together this classroom-style approach. This woman (Linda Bodek), came in and she would teach this class every day, from eight until five, with a couple of short breaks in between. And we were drilled, quizzed, tested on all of these different concepts.
We learned all about different investments, not just stocks and bonds. And what happens with interest rates and what happens with earnings and the markets. And we covered all kinds of different investments unit trusts, mutual funds, limited partnerships. We covered taxes, we covered estates, we covered insurance, employee benefits.
We covered a couple of new topics, like employee stock options, which had not really existed until maybe 10 years before that. We covered pension plans, profit sharing plans – and something new in 1983 – which had not been widely accepted at that point — something called 401k plans.
So we were in school, pretty much every day, for a little over six weeks and you had to successfully complete the class. It was very difficult! What I did find out, later on, when I went to get my Series 7 Brokers license, I found that I didn’t really need to study that much because of all of this information I had drilled into my head the first six weeks at EF Hutton in their PFM Personal Financial Management Department. It was like getting a master’s degree crammed down into a six-week course. It was excellent. And some of those things, some of those concepts I learned 40 years ago, I still use to this day.
They were very organized at EF Hutton in their PFM department. (NOTE: this link is to a new organization using the EF Hutton name, branding and lettering) . They put together two different levels of how you would work. Your first, entry level, once you got through the course, was to become what the title was “Profiler.” The profiler is basically someone who would take all of the raw data and put it together to build a profile of this client who was getting their plan done.
The amount of detail work that went into the profile was outrageous. Now, people don’t even do this kind of depth when they’re building a profile for a client. It was really pretty intense. And we wound up getting into conversations with clients, their clients’ attorneys and their accountants. Asking them questions about recapture, and how their estates were titled; the details of their trusts with their attorneys; and so there was a lot of in-depth work that was happening at the profiler level.
The next level beyond that was title of Planner. The planner actually wrote the plans. They would take the profile work that that would get passed along to the planner. The profiler would run through the report with the planner and then the planner would take a couple of weeks and actually write the plan.
The profiler work still gets done, to some extent today here in our firm at Mullooly Asset Management. We aim to know as much of a client’s situation, as possible, before we can begin to make recommendations on how your money should be invested; and what steps you need to take to help you plan for your future.
I hate to say this, but much of the actual written plans back in the early 1980s (1983), was boilerplate text. While the planner would take the role of saying, “okay, we want to reallocate this client’s portfolio, here’s how it would look.” The planner wound up doing a lot of math. We did not have Excel! So a lot of this was done with paper and pencil.
The other thing we did not have back in the early 1980s was word processors. We actually had a portion of our office was a typing pool. Six weeks, eight weeks, sometimes 12 weeks later we would wind up getting a report, a 250 page leather bound book. It was really impressive. It was great for sitting on your coffee table. Unfortunately, a lot of the information in these financial plans became obsolete pretty quickly. We used to joke, saying they would be obsolete by the time the ink dried on the paper.
But, back to the profiler. His or her job was to create a snapshot in time. When you would open up the actual leather bound book, when it was delivered by your broker; the first 30 to 50 pages was your profile. It would talk about how your income would be lined up, what your resources were for income. We would project them into the next few years. What that would look like — we now build a balance sheet for clients, but what your – basically – your asset report looked like. And then we would also go through the liabilities as well. And we would build amortization schedules, debt repayments.
Thinking back, it was interesting to see the type of discussions we would have regarding returns from different investments. Remember this was a completely different world that we lived in 40 years ago, in 1983. And so we would talk about the returns on corporate bonds. Investment grade corporate bonds (1983) were yielding 10, 11, 12%.
We were talking about tax-free municipal bonds that were yielding 8, 9, 10% in 1983. So it was a completely different universe we were living in at the time.
The profilers work – they were responsible for building the front part of the report, the 30 – 40 – 50 pages of details about the client, and what was going on in their lives financially. How everything looked. As I mentioned, like a snapshot in time. The rest of the report would be written by the planner. And we’d also get some text added by an attorney – an estate planning attorney that we had working with Hutton to write their plans. And they would go on and make recommendations about trusts and what should be included in their wills.
As you can imagine, 40 years later, a lot has changed. But a lot hasn’t.
The job of the profiler was to create this “snapshot” in time. That’s what financial plans WERE back then. They were merely a snapshot. “Here’s where you are today.” I know you have an idea of you’d like to retire or you’d like to accumulate this amount of assets. The financial plan helped bridge the gap, getting you from here to there.
This reminded me of a very famous quote President Eisenhower said in the 1950s. When he was President, he did an interview with the NY Times. They were talking about his time as general and he talked about the value of making plans. His quote was “plans are worthless, but planning is everything.”
He made this line famous in a NY Times interview in 1957. He said this is something he had heard years before in the Army. But also added — and this is the part that usually gets overlooked when we talk about this quote — he also added “in an emergency, the first thing you should do is take all the plans off the top shelf and throw them out the window.”
And I’ll follow that quote up with the famous line by Mike Tyson “everyone has a plan until they get punched in the face.”
And sadly, when some folks wind up having a “financial kind of emergency,” their plans get thrown out the window too.
And this is where working with an advisor can really bring some value to the table. See, there’s a lot of people in our industry, in our line of work, who will sell a financial plan. But they use it as a sales proposal. You know what they’re preparing for you, and sometimes they’ll even they won’t even sell it, they’ll just give it away. Because it’s a way to get people in the door, or basically provide a framework for you to work with them – in terms of buying some kind of financial product.
We’ve discussed this with several clients over the years. These plans, like the ones that were made 40 years ago, sometimes they’re not worth the paper they’re printed on. A lot of the plans – and a lot of the projections go out 15, 20 years or longer. These projections are they’re usually obsolete very quickly.
One of the phrases Brendan mentioned on a podcast recently was “are you focusing on plan (the noun), or planning (the verb)?
Plans may not be worth very much – especially when you’re in a pinch, or you’re going through some type of financial emergency.
But the exercise of planning can be very, very helpful. That’s because it helps you to think through where you’re at, and what the possibilities may be. While we remain very optimistic people here at the firm, we have to plan pessimistically.
We want to look at the worst possible outcome, and work our way back from there.
I think that is what planners ought to do.
One of the things we’ve pointed out is financial plans can become a lot more fragile, the further we look out into the future. A lot of things can break, the further you go out in time. And that’s why we feel it’s really useless to make projections more than three years, five years, maybe perhaps seven years beyond today.
Beyond that point in time, there are too many things that can change.
Interest rates can change.
The economy can definitely change.
Stock markets can absolutely change.
A lot of things can go in different directions. But, most importantly, your situation can drastically change over just a few years. I am recording this in 2023. I want you to just take a moment and think back to 2013, or 2014. Is your life different today than it was, say, 10 years ago, in 2013 or 2014?
For most people, the answer is yes.
And so building forecasts, and building financial plans for 15 or 20 years into the future really creates a false sense of precision. Like, “hey, we can absolutely predict the future with clarity.” That really does not work.
We found one of the main ingredients in successful planning is to perpetually update – and track – what’s been changing. We sit down with folks today and we try and get a handle on what their monthly expenses look like. That’s one of the biggest variables we find when working with folks – is that as they begin retirement, their expenses start to change. And not in the ways that they planned.
For some folks, it becomes a “happy recap” where they’re actually spending less than they anticipated. For others, their expenses tend to spin out of control. And that might just be a temporary thing – for a few years. We need to spend a lot of money because of certain situations that are going on. And so a financial plan “might just be” a snapshot in time.
And I can tell you from experience. A financial PLAN being a snapshot, this has been the case for at least 40 years that I’ve seen.
But financial planning is a process, and we believe that is where working with an advisor can really help.
They can really help folks out. We’ve also discovered a lot of folks who give away financial plans – or use it as an inducement to get people to work with them – even some of the do-it-yourself investment websites – where you manage money on your own.
Most of them use the very same software. And they crank out the same kind of boilerplate reports. You’re not gonna get a 250 page report anymore, like we did 40 years ago. But you’re still going to see the same kind of text and the same kind of recommendations from place to place.
As a firm, we’ve decided not to be reliant on generic financial planning software, or some kind of “black box” formula. We wanna be able to tailor a plan built for each individual client. It takes us a little longer – each one’s a little unique – but it’s worth it.
Everyone is different and everybody needs their own unique plan, for their set of circumstances. Fast forward, 40 years later. Now I’m age 60, but the message really hasn’t changed for 40 years.
A couple of things to keep in mind. You wanna keep your expenses low.
That is so, so important. I spend a lot of time listening to a great podcast. And I would recommend, when you’re done listening to this, flip over to a podcast called The Founders podcast, hosted by David Senra. Each episode is devoted to the biography or autobiography, of business owners, entrepreneurs or very famous people, especially those in the financial community.
(The podcast) spends a lot of time talking about people who, very famously, started their own way or started their own business. Or legends like Warren Buffett and Charlie Munger. Over and over and over, you hear in these Founders podcast episodes where the person who started the business (or became an entrepreneur) learned pretty early on “keep your expenses low,” and that is just great advice for everybody. Just keep your expenses low.
One of the other things that I’ll add that are always, always, always, a given is to save more money. You cannot not save (enough) money. And you have to be sometimes creative and you also have to be diligent about saving money.
I’ll share a story with you. I have a hunch the person I’m gonna be talking about will also be listening to this episode. I had a buddy of mine, who was in the Navy. And even while he was away, on a ship, for a couple of years, he would send checks to deposit into his brokerage account. That forced habit of saving money — even when he wasn’t making any money!
We would get checks at the office for $25, for $50, for $75, whatever he could handle. And this is through the 1980s and into the 1990s. So we’re talking 30 years ago. 40 years ago, almost. That money compounded. And (then that money) paid off car loan, a down payment on a house, an engagement ring for his wife, it paid off part of his wife’s student loans.
I mean, this money went a long way. And here’s a guy who was a sailor, not making a lot of money. But he found a way to sock away a couple of bucks every week. The best part of getting those checks in the mail from him was seeing all the postmarks from around the world where he was, wherever he was stationed. And it didn’t take long. But he built up a really nice pile of cash and did a lot of great things. So, “save more money” has been a mantra for me that I’ve passed along to plenty of people over 40 years.
One of the last things I want to mention before we wrap up is the role of your advisor. And I’ve kind of landed on this a couple of times already. There’s three main things I think an advisor ought to do for their clients.
The first thing is they’ve got to keep their clients focused on the big picture, “the why.”
Why are we investing?
Why are we saving money?
Why are we keeping our costs low?
Why are we doing what we’re doing; along the lines of our financial plan?
The big picture is we don’t wanna work forever. We want to do what we want to do with our own free time. Keeping you focused on the big picture is very, very important.
The second part, the second role, of a good advisor would be to keep you IN the game.
There’s been so many points in time over the years where clients – even who have been really good at staying invested and socking money away on a regular, periodic basis and dollar cost averaging into different investments, (even they) get nervous, they get scared, they want to jump out, they want to go to cash, they want to “get defensive and then we can get more aggressive later.”
It’s been a mistake.
It’s been a mistake to do that. A good advisor is going to keep you in the game.
The third thing a good advisor is going to do for their clients is they’re going to stop the client from doing something really stupid. Now, part of that may be “hey, I want to go to cash, because I’m scared about the stock market,” or “I don’t like who’s in the White House,” or “I don’t like the way the economy looks,” or, fill in the blank.
You have to properly allocate money you need for emergency purposes and then another amount that’s for a cushion. Everything above that ought to be invested for the long term. And when we talk about long term, I just want to point something out. Every day the market goes up or down. I can think of maybe four or five days – over 40 years – where the market did nothing that day. Most days the market is either going up or it’s going down.
My first day in the industry was September 6, 1983. The Dow Jones at that time was 1239. That was the Dow Jones in September of 1983.
Today, as I’m recording it, the market closed at 33,879.
I don’t know what the math is on that kind of return. But if you sold anywhere along the way, you’ve made a mistake. As I mentioned, a good advisor will help you from making bad mistakes or errors in judgment.
So I hope this episode has been helpful to you in some way. Kind of an interesting anniversary point, in the sense that I nearly forgot it’s been 40 years since I’ve been out of college and that means it’s been 40 years I’ve been in the industry.
Thank you very much for tuning in, hope you’ve enjoyed it and we will catch up with you – on the next episode.