In a new episode of the Financial Planning Podcast, Spuds Powell explains why having a strong defense is the best offense when the market starts to play rough.
Powell, managing director at
But since 2004, he’s been flying the Kayne Anderson Rudnick flag, leading a team with a “defense wins championships” game plan that may take some cues from his time as a college football player for Cornell University. Part planner and part zen master, Powell believes in helping clients make safe choices and manage their emotions during difficult times.
Powell has also dedicated a large portion of his practice to helping financially independent widows. He understands that managing financial obligations during a time of loss can be overwhelming, but he has made it his mission to become a confidant for his clients during these tragic life events, advocating for their best interests and making sure the defense they’ve established is up to the task.
During his conversation with FP Podcast host and lead editorial producer Justin L. Mack, Powell talks about how difficult the market has become in early 2022, his fascination with financial psychology and how he manages to stay so cool under pressure.
Listen to the new episode — as well as all future and past episodes — by subscribing to the FP Podcast on
Transcription:
Transcript:
Justin L. Mack: (
Good morning. Good afternoon. And good evening. Welcome to the financial planning podcast. I'm your host, Justin ack reporter with financial planning. And it's my pleasure to introduce this week's guest Spuds Powell, managing director of Kayne Anderson Rudnick. Spuds, thanks so much for stopping by the podcast to hang out
Spuds Powell: (
Justin. It's my pleasure. Thanks for inviting me to join you this morning.
Justin L. Mack: (
Absolutely now spuds brings to this week's episode, nearly 30 years of experience in the investment management industry, advising clients across multiple stages of their financial life and hitting those long term financial goals along the way before his current gig of being a leader at Kayne Anderson Rudnick spuds worked as the national mid plan sales manager for financial engines. Before that he was a retirement plan consultant for retirement plan strategies. And before that, he held a variety of roles at Franklin Templeton funds throughout the first four years of his career Kayne Anderson Rudnick became his home team in 2004. And over the years, his team has put a strong focus on playing great defense during down markets, a part of the playbook. I'm sure he's going to now quite a bit in early 2022, we'll talk about how he's had success in that area over his career. What sparked his passion to become a planner, a client base he finds working with very rewarding and more, but first I wanted to dive in and talk a little bit about your approach to planning as a whole, because as we talked about a little bit before, you're very interested in financial psychology, how we think as it relates to investing and saving and spending. Really cool stuff. So what about that is so interesting to you and how does that play into your work every day and play in that strong defense?
Spuds Powell: (
Well, I've always felt Justin that, um, the, the psychological side to investing is critically important and, and I've learned that one of the, the most important ways I can help my clients out is to serve as their financial psychologists. And, and so I spend a lot of time trying to sort of educate my clients and empower my clients with the goal of, of helping them become the more, the most successful investors they can be. And so, as part of that in just about all the meetings I I have with clients, I talk about what differentiates the most successful investors from the masses. And, and so with that in mind, I'll talk about the importance of taking what you hear in the media with a grain assault. Unfortunately, we live at a time where the media has learned that fear cells. And so, um, in a 24 7 world, like the one we live in today, we're constantly sort of beaten up with, with, with scariness.
Spuds Powell: (
Uh, and so I think it's important to take that with a grain of salt. I talk about the importance of never trying to time markets. You know, we all wish we had a crystal ball that enabled us to predict the future. The reality is we don't. And so the most successful investors, don't try to play that game. I talk about the importance of being disciplined about asset allocation and diversification. You know, a lot of folks understand the importance of being diversified, but what differentiates the really successful investors is that they're disciplined about that. They recognize that if they're gonna spread their investment eggs out, across a variety of different baskets, any time to look at their portfolio, some of those investments are gonna stand out as strong performers. Others might stand out as disappointing performers, but, uh, so long as the, the performance of the blend of all of those investments is meeting there or exceeding their expectations.
Spuds Powell: (
They can claim success and, and you never wanna make the mistake of selling recent losers and buying more of recent winners. Cause invariably yesterday's lousy performers are, are tomorrow star performers and, and, and vice versa. And then lastly, and most importantly, I, I talk to clients about the importance of never ever, ever making the mistake of letting their emotions influence their investment decisions. Mm-hmm, , it's remarkably common to me to see even some of the smartest, most sophisticated, most experienced people fall into the trap of getting panicky and, and making the mistake of letting that nervousness cause them to shoot from the hip. And, and invariably, they end up making investment decisions. They regret down the road.
Justin L. Mack: (
Absolutely. And I can definitely see you, keeping people even keeled. You seem like a very zen guy. So I know having those conversations, you probably have some clients that come to you at times a little bit concerned, maybe concerned about what they have seen as you alluded to on their phone, because maybe you have a meeting with a client on Tuesday, but on Monday they spent the entire day on social media or something, reading news that had them con convinced that their finances were now in shambles. When you have that client come to you on that Tuesday meeting, how do you keep them calm? How do you, I guess, reaffirm the plan you had already been working on with that client? Cuz I imagine you're planning with that kind of reaction in mind.
Spuds Powell: (
Uh, one of the things I, I mentioned to my clients is if you looked at the performance of the S and P 500 over the last 42 years, what you'd find is that it generated a positive return in 32 of those 42 years. So roughly 76% of the time, the stock market generates a positive return between January 1st and December 31st. However, what you'd also find is that in a hundred percent of those years, there was some period where the stock market misbehaved. And if you looked at the, the most extreme intra year decline within those years, what you'd find is stocks declined by an average of 14% at some point throughout the course of a year. So the odds are, are very good, better than 75% that you're gonna make money investing in the S and P 500 year in and year out. Despite the fact that there will be some period where the stock market pulls back.
Spuds Powell: (
Another statistic that, um, you know, I share with clients is if you looked longer term at the history of the stock market, what you'd find is we've navigated through many bear markets and, and many bull markets. Um, the average bear market lasts approximately 1.3 years. And during those bear markets stocks decline by an average of four 41%. On the other hand, the average bull market lasts approximately 8.9 years. And on average, during those bull markets stocks appreciate by a little over 400%. Uh, so it's very clear that over the long term, the good times far outweigh the bad mm-hmm , but I, I share those sort of statistics with clients so that when times are scary, again, I can refer back to that data and the, that information and that has proven to be very helpful and, and, and, and helping people, um, be even keeled, be unemotional, avoid making the mistake of, of letting their fear, motivate them to make some bad investment decisions.
Justin L. Mack: (
Absolutely. And then on that same topic, uh, how does that conversation, I guess, unfold for a client you've been working with for years, as opposed to a client who might be brand new? Cause I imagine you kind of mentioned earlier, how do you keep your clients stable in, in, uh, moments of instability? And you kind of mentioned that track record both in the market, but in yourself as a planner, being able to refer to what we've done, what we've set up, what we have in place. Um, but for clients who are newer, you don't quite have that kind of legacy to fall back on. So how do you work through that with someone who is new as the amount of folks looking for financial advice increases year over year in recent years, we're seeing more people than ever work with planners for the very first time. So you have one of those inexperienced investors coming to you in a tizzy. How do you manage that?
Spuds Powell: (
Well, it's certainly more difficult to be an effective financial psychologist for newer clients than it is for clients that have invested with us for years. You know, one of the ways I've had a lot of success serving that role for my clients is to have developed very strong, very close, deep trusting relationships. Uh, I, I, I feel that it's my greatest strength is, is earning the trust and confidence of those folks who have decided to invest with us, but in many cases that takes time. So for, for clients that have been invested with, with me for 15 years or longer, they've seen that we walk the walk, you know, we set cautious expectations with our clients so that we consistently exceed those expectations. You know, they've seen firsthand just how great we are applying defense during lousy markets for those clients though, that have hired us more recently, we, we just haven't had the time to develop as strong and as deep and as trusting of relationship.
Spuds Powell: (
So, so it certainly makes it more difficult to, to kind of help them hang in during an environment like the one that we're living through today. But, but, but fortunately we've proven to be successful for even the newest clients of ours. And I think one of the reasons that that we have is during, uh, prospective clients due diligence process, we put together a very detailed and a, and a totally personalized and customized proposal for each one of our prospective clients. And in that proposal, we quantify what the long term historical performance of the blend of investments we're recommending has been. And as I walk prospective clients through that proposal, I, I focus a lot of attention on our track record during scary markets. And I quantify for clients how we did in years, like 2008, which I would argue was the worst year to invest in our lifetimes.
Spuds Powell: (
And I show our clients how we did when the tech bubble burst back in 2000. And, and I, I show them that, yeah, our investments declined during those extremely challenging periods, uh, and that was difficult, but, but thankfully our portfolios hang in there much better than most during those tough times. Uh, and I, I show them that over the long term, despite those relatively temporary periods of, of angst, um, the recoveries were very strong and robust and, and over the long term, the results have been strong and the good times of far outweigh the bad. So, so for those clients that have only invested with us for a year or two, and therefore we really haven't had the opportunity to develop as strong and as deep of a relationship, you know, because I've set realistic expectations with them before they hired us. Uh, and I'm able to refer back to some of that data. They've, they've been comfortable and confident with the investment strategy and I've been willing to hang in there with us.
Justin L. Mack: (
Definitely. And then last thing on this topic, how does 2022 stack up, you mentioned the scary times 2000, 2008 years that you can just simply say and everyone kind of nods and says, oh yeah. Um, how does 2022 stack up right now? Is it the market as scary as those times? Or is this really just another day of the office when you're having these meetings?
Spuds Powell: (
I, I think that what we're suffering through now is, is certainly unsettling, but it's, it's nowhere near as challenging as what we suffered through back in oh eight or, or back in 2000 through 2002. Um, there is a lot of uncertainty today and investors hate uncertainty when, when the future is uncertain, it's, it's, it's human nature for most folks to assume that the bad scenarios that could unfold will unfold. People don't focus on the good scenarios that could unfold. Uh, and, and, and if I look at the world today, there is more uncertainty across a broader array of important issues than normal. There's obviously a lot of uncertainty around the war in Ukraine. You know, how long will that last, how much worse will things get before we eventually reach some sort of a resolution? There, there is a lot of uncertainty around inflation. You know, the obvious question people are asking themselves is, are we gonna be looking at high inflation for years to come?
Spuds Powell: (
Or is this more of a temporary challenge? There's still a lot of uncertainty around COVID, you know, here in the United States to a large degree, we've, we've moved on and the economy ISED, but, um, the second largest economy in the world, China is for all I intents purposes shut down right now. And given that so much of the world's manufacturing takes place there, uh, the fact that their economy shut down is creating major problems for the supply chains among other issues. And there's certainly a lot of uncertainty around the fed. The feds stated very clearly that its intentions are to tap on the brakes of the economy to try to slow down inflation. And the question we're asking is will they do that successfully or not? And so with all that uncertainty, there's just a lot of nervousness and a lot of pessimism, but beneath all that uncertainty, we've got an unusually strong job market.
Spuds Powell: (
We've got healthy consumer spending and we still have healthy corporate profits and earnings. And, and, and so with those healthy, underlying economic fundamentals, our expectation is that the economy will continue to grow. And our expectation is that over the course of the next six to 12 months, we'll start to see some evidence that inflation will start to trend back in a, in a better direction. And at some point it might be over the next few months, it might take quite a bit longer, but at some point we'll get some resolution, uh, with the, with the war and Ukraine. And as the uncertainties that exist today, start to subside. We think investors are gonna refocus on some of the healthy, underlying economic fundamentals, and that things will take a turn for the better.
Justin L. Mack: (
All right, well, a little positive forecasting from spuds Powell, always a good thing. And we are going to take a quick break and hear a word from our sponsors. You're listening to the financial planning podcast. We'll be right back and welcome back. You are listening to the financial planning podcast. I am your host, Justin Mack, and we are chatting this week with spuds Powell, managing director of Kane Anderson, redneck and spuds. As we come back from break, I wanna talk a little bit about your passion for the business at a core level. What made you want to get into it? What sparked that passion to become a planner for you?
Spuds Powell: (
Well, Justin, I, I was very blessed to have amazing parents and, and one of the mantras in our household growing up was the importance of the more you give, the more you get. Um, I've always been a big believer that, um, that, that, that helping others is important and provides great gratification and joy. And, and so, as I, you know, when I graduated from Cornell university back in the early end nineties, it was and was trying to figure out what I wanted to do with my career. I was drawn towards the wealth management industry because I felt like it was gonna give me an opportunity on a daily basis to, to pay it forward and to help others. And, and thank goodness I, um, pursued the career because I absolutely love what I do. I, I get huge, personal pleasure and gratification by, by, by helping my clients achieve their financial goals and objectives and providing them with, with peace of mind.
Spuds Powell: (
I also am a people person. I, I, I love interacting with people. I, I love the fact that with what I do today, I am able to interact with a broad range of different types of people, different personalities, you know, people across all industries, people with incredibly interesting backgrounds, I'm able to learn a lot from the folks that I'm interacting with. And, and I take great pride in developing deep, strong relationships with clients. Um, and, and, and in many cases, I consider my clients to be close friends. So I'm one of the lucky few that, that loves what I do and, and look forward to doing it for many years to come.
Justin L. Mack: (
Absolutely. And in connection to that, let's talk about a client base of yours that you are particularly passionate about working with and helping through times of difficulty, uh, financially independent single women or women who have had to deal with some difficulty, and now are putting together a lot of financial responsibility. Tell me a little bit about that, how you got into that work. And what about that is so rewarding for you?
Spuds Powell: (
Well, as I mentioned earlier, Justin, uh, the more you give the more you get, and if I look across the various clients that I have, you know, in, in many cases, I feel like I've been able to help single women out the most about a third of my clients happened to be single women. Most of whom are, are widows. And when those widows husbands passed away, needless to say, it was a very scary period. It was a traumatic time. It was a very painful time. You know, in many of these instances, these, these women were, were terrified about the future. Um, in many of these cases, these women were not all that actively involved with their, their financial affairs. Um, and, and, and so given the emotional trauma, given the, the grief, given all the, the pain and suffering that was happening, uh, it was really important that I step in and help in whatever ways that I could.
Spuds Powell: (
And, and, and as part of that, the first step in the process is to be sort of a rock of support and, and to be a shoulder to cry on and, and to be empathetic and to sympathetic and, and to be a good listener and, and to, to, to meet with those clients and reflect back upon just how wonderful their husbands were and how wonderful their relationships were and to talk about family. And, and as the process unfolds over the course of several meetings, eventually my role was to help them understand what decisions they needed to make and, and what steps they needed to take from both, uh, a legal and a financial point of view, and to kind of help them develop a timeline with which to make those decisions. Uh, we've created, what's called a surviving spouse checklist. That is a very helpful tool for these single women to, to use, to navigate through that process.
Spuds Powell: (
You know, the third step in the process is for me to coordinate meetings with my clients sort of key advisors. So typically that would include their estate planning attorney and their accountant, uh, and myself, and during those meetings, you know, I wanna sit on the same side as my client and serve as their advocate. And, and in that role, I, I, I make sure that my client understands what each of her advisor's roles are. And I make sure that each of the advisors, again, the account, the estate planning attorney and myself, I make sure that everybody understands what their deliverables are. I make sure that everybody is accountable for following through on those deliverables. And I'm, I'm there to kind of hold my client's hand through that process. And then as the process unfolds, I put a lot of time and effort into educating and informing them about their investment strategy and doing all that I can to empower them and, and, and to help them become the most successful investor and to help them become confident with the investment strategy that's in place. And then finally, in most cases, I put a lot of time and effort into to incorporating their children into these conversations. I find that for many of my single women clients, they gain a lot of satisfaction and a lot of confidence knowing that their, their children are involved with their investment strategy and, and are familiar with me and, and the role that I play and are participating in those financial discussions.
Justin L. Mack: (
Absolutely. Now something that stands out as I hear you explain, you know, what it's like working with that group, your focus is your goals. How the process unfolds. I hear a lot about education. I hear a lot about support. I hear a lot about maintaining peace. Um, don't hear a whole lot of focus, even really on the sheer money management side. We know that's the job, but from your approach, it sounds like that is one component, but very much the people management, the relationship building seems to stand out for you. As far as working with this client base. The reason I bring that up is in relation to fulfillment in being someone who's done this job for a lot of years and held a lot of different roles, um, through a lot of different eras, difficult, good times as we've kind of gone, uh, over throughout the show.
Justin L. Mack: (
When I have a veteran like yourself on the show, I always love to maybe provide a little bit of word of wisdom, some seeds of hope for that next generation. We've got new advisors coming into the business every day or individuals who might be working in other industries who found out that, Hey, I'm perfect for wealth management. We cover it a lot. We always like to raise awareness that that is a path, and there's not one way to become a financial planner for that next generation. How much of, or how do you prepare rather for all the people management, cuz you're getting the classes for the money management, you can get all the help you can, you know, get continuing education, all that. But when it comes to doing all the things you're doing, as far as support peace, education, confidence, how do you develop those skills and how has that benefited you over the years?
Spuds Powell: (
That's a really interesting question. Well, let's see. I, I think there are a few things that are critically important. Um, you know, first and foremost, you have to be able to look yourself in the mirror as a wealth advisor every day and feel really great about what you're doing. Um, it's imperative in my opinion, in order to be successful in this industry to have impeccable integrity and to be honest to the core and to be totally consumed with doing right by clients and, and going above and beyond on a daily basis to do everything within your power to help clients achieve their goals and objectives. Um, it's also critically important as I've said to develop the closest, most trusting relationships that you can with the people who have, um, who have, who have decided to invest with you. Um, I think it's also very helpful to put yourself and your client shoes and to treat others as you would like to be treated.
Spuds Powell: (
Uh, it's common for advisors in our industry to make the mistake of, of not communicating as effectively as they possibly can with clients. In many cases, advisors use industry jargon that that, that investors don't understand or are not comfortable with. So you need to develop the skill to be able to adjust your communication style, to appeal, to a broad range of different investors. Uh, and, and, and to read body language, uh, it's imperative that you ask great questions and, and, and as importantly, be a good listener. I think it's all too common for investors to make the mistake of talking at their clients and, and, and telling clients what they think they want to hear. But in fact, they really don't want to hear, I've always felt that I'm at my best when I'm listening and when, when my clients are sharing feedback with me, and, and there are lots of examples of investors who are open and, and are perfectly willing to share information, but there are also examples of investors who tend to be more reserved and, and close to the vest. And so for them in particular, it's very important to be able to ask good open-ended questions and to try to flush out as much information as you possibly can. And so those are some of the qualities that I think differentiate successful investors or wealth advisors from others. And, uh, you know, I think those are things that newer wealth advisors should try to focus on.
Justin L. Mack: (
All right. Some words of wisdom from Spuds Powell, like he said, at his best when listening. So a perfect opportunity for me to thank everyone for listening to this week's edition of the financial planning podcast. This episode was produced by Arizent with audio production by Kellie Malone special thanks again to our guest, Spuds Powell. Rate us, review us and subscribe to all of our content at www.financial-planning.com/subscribe from financial planning, I'm Justin Mack. Thanks for listening.