As Richard R. Lee Jr. sees it, attracting a big chunk of money to manage isn't a key sign of success, even though his Dallas firm handles roughly $1 billion for its clients. In Lee's opinion, planners should focus as much on planning as on managing money.

Lee has a record of disregarding sacred cows in a four-decade career that reads like a history - and running critique - of the financial planning profession. His approach has paid off well.

Lee Financial now serves more than 300 clients with an average net worth of $5 million. The 64-year-old advisor has lived through two eras in financial planning, as he defines them, and expects to continue well into a third.

The first era emphasized breaks in federal income taxes. The second era was dominated by strong returns on investment. But a third era, which in his view began after the end of the most recent bear market, will be the heyday of comprehensive financial planning.



Lee entered the field in his twenties after a year serving as an Army infantry platoon leader in Vietnam. He saw hard economic times as an opportunity for innovation.

As one of the first CFPs (he now also has an MBA and is a CFA), he opened a fee-only practice in early 1975 amid a bleak bear market. Making a living was a struggle, since few clients were willing to pay much for financial planning.

Looking for support, he joined a group of about 15 planners in what was then called the Society of Independent Financial Advisors. (It eventually morphed into the now-prominent National Association of Personal Financial Advisors.)

At the time, most financial planners were either former stockbrokers or insurance salesmen serving executives facing a 70% marginal income tax bracket. The typical client, Lee says, was looking solely for tax breaks. Most were lifelong corporate employees.



In 1986, the tax overhaul signed into law by President Ronald Reagan created new possibilities. The decline of traditional pensions and the emergence of IRAs and 401(k)s turned millions of employees into free agents responsible for managing their own money.

This was also a moment when financial planning began to attract people with a broader background, including executives experienced in accounting and finance. "A lot of teachers also came into the field at that point," he recalls.

By the 1990s, it was no longer true that the profession belonged to former brokers. Financial planning had become more interesting - and more prominent in status in the financial world. Clients now sought investment returns, and assets under management became the new benchmark for success. Nonetheless, a large percentage of clients still weren't willing to pay up for financial planning.

For a profession built on investment returns and assets under management, the Dow's 54% slide from its October 2007 peak to its March 2009 valley was a watershed just as significant as the 1986 tax changes. "Poor investment returns, coupled with a lack of actual financial planning among practitioners, portend badly for the future," Lee says.

As we contemplate longer lives, many project smaller returns. Indeed, Lee sees the entire belief structure of traditional economics falling apart, meaning the rational market hypothesis, random walk theory and capital asset pricing model are all subject to question. "We need to rethink our entire approach and accept the fact that the economic world may be moving toward a constant state of disequilibrium," he says.

Lee has staffed his 53-person firm for this brave new world, with a dozen investment analysts and another dozen professionals devoted to financial planning. Many of his employees hold two credentials, combining a CFP and CFA, a CFP and JD or a CFA and a CPA. This equips the firm to meet needs more flexibly and fully as the lives of its clients and potential clients evolve.

Financial planners need a network of on-call professionals to help their clients, Lee says, including management consultants, career counselors and even psychologists.

One member of his staff works full-time as a business consultant for clients. "Our biggest private equity focus is on our clients' privately held businesses," Lee says.

In fact, this staff member took over temporarily as a part-time CFO for a client's startup while the client looked for a suitable hire. The startup is now worth between $5 million and $10 million, and Lee has a very satisfied client. "The more our clients experience success in their lives, the more we experience success in our business," Lee says.



Lee sees the future of his practice in his "WholeVision" model, which lays out four points of discussion with clients:

* Human capital. Wealth you create using your unique talents, skills and education.

* Financial capital. Wealth you save and invest to meet future costs and to cover unforeseen events.

* Fulfillment capital. The wealth you spend.

* Shared capital. The wealth you share with your family and com- munity, as well as with the government in the form of taxes.

"Human capital is the biggest variable," Lee explains. "Our clients' portfolios depend heavily on the volatility of their human capital - their health, age and profession. There's as much volatility in the job market as in the financial markets nowadays."

With so much constant change, Lee says, it's difficult to create model portfolios that will work for any length of time. He often asks clients: "Is your job a stock or a bond?"

The answer can change his recommendations dramatically. A risk-taking real estate broker needs to favor bonds to balance out a job that resembles a high-return, high-risk stock. Conversely, a tenured professor with guaranteed income should buy stock.

When human capital becomes a consideration, the standard recommendations based on age can be turned upside down as well. Younger entrepreneurial types need conservative investments to offset their business risk. And older clients often need to invest more heavily in stocks to fight inflation.

Many (if not all) retired clients will need to use their human capital - in short, to earn income from their skills. Lee's firm might point out to a client that consulting income of just $25,000 can replace the income of a $1 million portfolio of Treasury notes. Save that $1 million for old age, Lee says.

"Our clients will need to examine their expenses and stick to a budget more than they did in previous decades," he says. To succeed in life, clients will need to be more adaptable, drawing on all four forms of capital. Lee is fond of quoting Berkshire Hathaway exec Charlie Munger on the idea that solving problems requires looking at them from more than one perspective.

That said, there's one focus for financial planning that does seem to work, and the upshot of the four-factor model is no surprise: Focus on the client. FP


Jim Grote, CFP, writes regularly for Financial Planning.


Richard R. Lee Jr.

Lee Financial




Assets under management:

Roughly $1 billion (firm)

How I see it: "We need to accept the fact that the economic world may be moving toward a constant state of disequilibrium."

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