Robert Pagliarini’s winding path to wealth management began in a psychology class at Loyola Marymount University.
He had come to Los Angeles from the Pacific Northwest with the intention of getting a graduate degree. But to make ends meet, he got a part-time job at a Beverly Hills brokerage firm. This was during the heady bull market of the late 1990s, and Pagliarini quickly fell in love with the energy and enthusiasm of Wall Street.
“I went to the first class and walked out thinking, ‘This just isn’t the right time for me to go to school,’ ” he says. He later went back to get a master’s degree in psychology and a master’s in financial services, and is now getting a Ph.D. in psychology.
But in 1996, he left college to work in the back office of J.B. Oxford, a controversial brokerage firm that was eventually purchased by TD Ameritrade. Pagliarini wasn’t a broker and had little experience in finance. But he was hired to provide technical support for the firm’s developing online brokerage efforts, and wound up managing Oxford’s online trading operation until 1999.
Oxford was under intense regulatory scrutiny at the time, partly because regulators believed the firm was secretly controlled by a Canadian stock swindler named Irving Kott. But the online trading division operated separately and was physically segregated from the rest of the brokerage. Thus, while Pagliarini says he recalls hearing a few rumors, he was otherwise blissfully unaware of the controversy.
Hired away by a private equity firm in 1999, Pagliarini hoped to create an online platform for investment banking, much like the crowdfunding platforms of today. Companies seeking capital could publish corporate profiles and business plans, and connect with angel investors willing to fund them.
But the idea was way ahead of its time. Pagliarini says his team spent most of their working hours consulting lawyers about the legality of the online model. In the end, their company, Seeking Capital, ended up pursuing a traditional investment banking model, but in the wake of the 2000-02 bear market, customers were scarce.
FINDING HIS NICHE
So Pagliarini switched careers again, taking an entry-level planning position at a Los Angeles wealth management concern. When a client came in wondering how to handle a windfall from a legal settlement related to an injury that had permanently affected her ability to work, Pagliarini knew he had found his niche.
Dealing with sudden wealth — no matter whether the windfall comes because of a death, divorce, legal settlement or a sports or movie contract — marries Pagliarini’s two loves: finance and psychology. “People think it’s all about the wealth, but if you don’t get control of the emotional part of it, you’ll end up making all sorts of mistakes,” he says.
Indeed, roughly 90% of sudden wealth ends up being lost — squandered to bad decisions made too quickly, he says. In his recently published book, The Sudden Wealth Solution, Pagliarini says the only decisions you should make in the months after receiving a windfall are where to open a bank account and how to hire an advisor.
Sure, you may also want to look at tax-mitigation strategies and upgrading your insurance coverage — after all, you now have more to lose if you’re sued. But buying a car, quitting your job and giving money to friends and relatives are all decisions that should wait for another day.
The unique thing about becoming wealthy suddenly, as opposed to over time, is that everyone appears to have their hand out, he adds.
“You and I never get hit up for money, but these people who sell a business or get a legal settlement or win the lottery have people asking them for money all the time,” he says. “I have a whole chapter in the book on how to say no.”
GETTING MONEY TO LAST
Pagliarini says his job isn’t to tell his clients what they can and can’t do, but to set a framework for how to make economic choices and make their money last. Individuals who come into a windfall must figure out the people and things — including their own economic security — that matter most to them before mapping out a plan for how to respond to financial requests.
His simple solution for clients is to have all the requests for cash go through him. “I tell clients that they should never agree to anything on the spot,” he says. “No matter what you’re asked for, no matter how much it is, your answer is, ‘That’s interesting. Let me talk to my advisor about it.’”
While Pagliarini says the focus of his practice has remained sudden wealth since the day he counseled his first windfall recipient, the practice itself has changed several times.
The first change occurred in 2006 when he decided to start his own shop in Mission Viejo. The move was aimed at finding a more kid-friendly environment in which to raise his young daughter, he says.
Fortunately, his clients — assured that he would continue to meet with them in Los Angeles — were willing to stick with him. These clients remain the cornerstone of his practice today, he says.
Still, going from working for an existing operation with multiple planners and an office staff to becoming a one-man shop presented some logistical challenges. Namely, he needed an office and a secretary. Pagliarini looked up the Financial Planning Association’s listing of planners in his ZIP code and started making phone calls to inquire about renting office space and office support.
Financial Management Network, which was conveniently located six minutes from Pagliarini’s home, answered the call, renting him an office and letting him pay a pro rata rate for clerical support.
Now, nine years later, Pagliarini says the two firms are increasingly intertwined. Though he maintains his stand-alone RIA, he also shares some clients with Financial Management Network and uses an increasing number of its services and software. Meanwhile, the affiliation gives the planner, who is now 43, a natural succession plan.
While he started as a fee-only planner, Pagliarini now also takes some commissions on insurance products. Why? In the past, when a client needed a term-life policy or disability insurance, he had to send them to a separate agent and make sure they followed up. Frequently, they didn’t. Now he can make sure it gets done.
While commissions can be a hot-button item among financial planners, Pagliarini thinks they’re a nonissue when they’re not the core of the practice. “The clients don’t care,” he says, adding that only about 1% of his revenue comes from commissions.
He invests client assets primarily in low-cost mutual funds and ETFs and has recommended whole life insurance only once, as part of an estate plan. Being able to write the policies just makes it simpler to execute all elements of a comprehensive plan, he says.
“It’s hard for me to delegate,” Pagliarini admits, “because I have a standard of service that I want met. This, he adds, “allows me to control the process.”
Kathy Kristof, a Financial Planning contributing writer in Los Angeles, also contributes to Kiplinger’s and CBS MoneyWatch. Follow her on Twitter at @kathykristof.
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