Hucksters of Tax Planning
 On a recent Saturday morning airing of their radio show, Your Money, Your Wealth, on AM 760 KFMB in San Diego and AM 870 KRLA in Los Angeles, Anderson and Clopine were talking about—you guessed it—taxes. While other pay-to-play radio shows are thinly veiled advertorials selling annuities or money management services, the Pure Financial show is a thinly veiled attempt to sell financial planning and tax-efficient investment strategies.

“We often see people’s safe money in a taxable account and stocks in retirement accounts,” Clopine said on the show. “It should be just the opposite. … Come in to our offices for a free 50-point diagnostic. … We’ll look at everything you have.”

Anderson repeats Pure’s toll-free number. The number, 888-994-6257, translates into 888-99GOALS.

Tax-efficient investing wouldn’t seem to be a topic most listeners would flock to, but the show has relatively good ratings, and Anderson and Clopine keep it interesting with small talk and investment-related banter.

A good chunk of their airtime is devoted to their favorite strategy, Roth IRA conversions. “Getting money into a Roth is so important—it’s all tax free,” Clopine explains to listeners. “There’s no tax on your principal, the income or the growth. It’s tax free forever, for the spouse, for the kids, the grandkids. That’s pretty powerful. But you have to know how to put money into a Roth.”

You may have a $100,000 IRA, but remember that only $70,000 of that belongs to you, the taxpayer, Anderson adds. “But by moving that $70,000 into a Roth, you’re buying your share back from the IRS. You’re getting the [IRS] monkey off your back so your IRA can grow forever, tax free.”

As for conversions, “anyone can do those now [but the law] probably won’t stay that way,” Clopine warns.

Listeners are also encouraged to look for opportunities to take tax losses year-round, and use the losses to shelter money pulled from taxable accounts, trusts and IRAs. Mix in some tax-free Roth withdrawals and “you can pay very little in taxes by withdrawing up to the 15% tax rate,” Clopine says.

A TV show with the same format is in the planning stages. If it works, Anderson and Clopine plan to leverage the video version online. The same tax-focused investment lessons are taught at the classes Anderson runs.

About five years ago, Brown took the class at Mira Costa Community College north of San Diego. Brown, then 55, was contemplating an early retirement from Raytheon. “I was not thrilled with the job. It was stressful, so I had [a desire] to punch out. But I wasn’t sure about having the money to do it.”
Anderson “just reeled me in—not from a sales perspective, but more from an investment philosophy perspective,” Brown recalls. “The stuff he covered just made clear sense to me. I did engineering for 30 years, so I have a good mind for numbers. … What he was discussing just aligned with my thinking, and I learned all kinds of things I’d never thought about.”

Like the impact of taxes on investments. “You will spend more money in income tax than you’ll ever lose in the stock market,” Brown recalls Anderson saying, “because taxes are not properly managed in a retirement scenario.”

Another Pure client, Stan Jorgensen, a retired 30-year veteran airline pilot with Delta, took the class through the University of San Diego. “About that time, the government came out and said anyone can do Roth conversions and take three years to do it,” says Jorgensen. “The Roth had never been available to me because I made too much money. … I attended the first class presented by Joe Anderson, and he had so much energy and passion, and he never said a word about Pure Financial. I liked the strategy, his personality, the presentation—and I’ve attended a lot of chicken dinners in my time.”

Jorgensen, a do-it-yourselfer, had most of his accounts at Charles Schwab. “I wanted to diversify my bets a bit. Schwab was OK, but I was missing someone who had the big picture.” Schwab representatives kept telling him to see his attorney and accountant for tax advice, but “that takes a lot of energy, having to put it together yourself,” he says.
 
Strained Capacity
 At Pure Financial headquarters, a 15-minute drive north from downtown San Diego, promotional plaques for the Your Money, Your Wealth show adorn the walls, along with rankings from local business publications proclaiming that Pure is one of the fastest-growing private companies in the area.

It’s an impressive showing for a young company. But Pure is suffering growing pains, namely a capacity problem.

The challenge is finding enough advisors to handle the constant flow of planning prospects. “For most planners, their problem is demand. Our problem is capacity,” Fenison says.

Each Pure advisor is capped at 125 clients. So more clients require more advisors. For client-facing advisors, Pure wants CFPs with five years of planning experience. It can find potential hires fitting those qualifications, but finding the right person can be tricky. The firm’s business model and culture is different from any of the firms it might recruit from.

“It’s hard to find good planners because most aren’t doing good planning, certainly not the kind of tax complexity we get into,” Fenison says. “It takes an advisor six months to a year to get up to speed with our process. … Even when we hire experienced people, they go to [work in the] planning department first” before seeing clients.

The firm has had just one bad hire, Anderson added, due to “a bad cultural fit. The person was transactional at heart.”

New hires tend to come via word of mouth. “We get inquiries from advisors at other firms who may be in a stagnant environment,” Fenison says.
Pure also uses some recruiters as well, but headhunters don’t seem to be able to find the right mix of skills. The firm also recruits interns from San Diego State’s personal financial planning program to work in its planning department. So far, the firm has had one entry-level CFP rise through the ranks to become a client-facing advisor.

Fenison says his biggest growth challenge now is attracting people to open new branches. He wants to expand the firm northward into Los Angeles. “Getting the quality of person we want to attract is hard, and there’s a lot of competition out there,” he says.

Fenison is brainstorming with some business consultants about how he might offer equity to advisors who open new Pure offices. “We run into [advisors] all the time with $20 million [to] $100 million in assets, and they recognize there would be a benefit in being associated with us, but it’s very difficult for them to give up the equity stake” in their current firm, he says.

Not to mention that at Pure, “there’s no room to do your own thing,” he adds. On the other hand, advisors joining Pure can expect to see plenty of new prospects delivered to them, thanks to the radio show, the classes and a growing stream of referrals from the expanding client base.

“We go to [industry] conferences, and client acquisition for other firms is a big issue,” Anderson says. “We hear about other [advisors] who have a goal of five or eight new clients a year.”

Pure’s goal this year: 300 new clients and $250 million in new assets. With more advisors, “we could probably double” in size, Anderson says.
 

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