Being a certified public accountant helps Rhonda Arnett in her work as a Primevest adviser at Columbia State Bank in Tacoma. It's especially helpful for the wealthy clients she now serves as a partner to private and commercial bankers.
For example, when a client wanted to withdraw enough money from her individual retirement account to pay off some low-interest loans, Arnett helped her save some money in taxes. "When we did her numbers, I realized that it would bump her into the highest tax bracket, so we called her CPA and suggested it might make more sense to break the withdrawal in two, one this year and one next year," Arnett said. "That way, she's in lower tax brackets."
Since Columbia doesn't allow its advisers to give tax advice, Arnett is careful to defer to her clients' CPAs.
"I try to approach it that I think this might be a good strategy, but always run it by their CPA and they're starting to respect me," she said. "I definitely think it's a huge advantage for me being a CPA. If you don't have any understanding of how taxes might affect an estate or succession plan, that can do some damage."
Arnett was on the fence about whether to be an accountant or a financial adviser after excelling in business in college. But after spending time in an accounting firm, she tired of working mostly in the back office as a junior staff member and only seeing clients to deliver bad news: the tax bill. She dove into investments headfirst by getting a job at Edward Jones in 1999, and she spent a year "door knocking and cold calling." That wasn't what she had in mind when she decided she wanted to help people accomplish their financial goals.
An acquaintance told her about an opportunity at First Community Bank in Tacoma. She was both surprised that banks had investment programs and excited about the prospect of getting referrals, she said.
"Edward Jones was so focused on just prospecting and selling certain securities," she said. "I wanted to get referrals and be able to focus more on the clients' goals." but Arnett's four branches were so far apart she was spending more time in her car than in front of clients. In 2000, she found a job closer to home at Columbia State Bank, which has 15 branches that were much closer together and had a lot more in deposits.
Referrals didn't just fly her way. "There were no quotas and it was more or less building relationships with people in the branches over time," Arnett said. "In the end that was better anyway, because when I got referrals they were really good quality, because we had a relationship and they trusted me." It helped that her program manager decided to dedicate half the investment advisers to working with private and commercial bankers. In 2006, Arnett was tapped for that program. Again her CPA came in handy. "My CPA background gave me more of a feel for business, so I got involved in both private and commercial banking," she said. Arnett is now one of three advisers dedicated to teaming up with private and commercial bankers. "It was exciting and interesting because working with the high net worth, you get more complex sophisticated clients with a more comprehensive approach and that was more rewarding," she said.
Arnett kept about $20 million of her $60 million in assets, but she quickly worked back up to $64 million last year. She has fewer clients now, about 100 households, with an average net worth of about $5 million. Last year her production jumped from $300,000 to $570,000, much of which she attributes to her sales assistant taking over the administrative work.
Arnett has had success working with her private banking partners, but still faces resistance from commercial bankers. "Working with them has been a slower process," she said. "It's more a matter of changing their thought process. Our culture doesn't force cross-selling. It's taken a good year and a half to get them on board, but I'm starting to show results." Currently about 40% of her book is business owners whose companies run the gamut from manufacturers to construction to professionals such as doctors and lawyers. The rest of her clients are retirees. Smaller accounts she can hand off to the program's junior broker.
About 15% of Arnett's business is helping clients with their 401(k) plans, and that in turn has helped Arnett make headway with commercial bankers.
"I sit down with bankers and their clients and say, 'Do you have a 401(k) and have you reviewed it in this environment?' " she said.
"A lot of them appreciate a full analysis of costs, investment performance and servicing." While most business owners already have 401(k) plans, they often want to switch sponsors. "I have one client right now whose plan was at Fidelity and he wasn't happy with his servicing and investment choices he was limited to Fidelity funds," Arnett said. "We offer him a Hancock plan which has a variety of funds, including Fidelity funds and a feature called guaranteed income for life." This rider lets clients lock in their account assets on anniversary dates. When they retire, they get a guaranteed 5% of the highest anniversary date amount for life. The feature costs just 0.35% a year.
"This is particularly popular with business-owner clients, because many of them have a lot of their own money in the plan and the commercial lenders are happy that it clearly adds value to the relationship," Arnett said. Arnett also helps clients figure out how to withdraw money from their 401(k)s in the most tax-efficient sequence, she said. "That's very timely and because I'm a CPA, I can really help with that."
Business owners will often start out with a simple retirement plan, because it's low-cost from an administrative standpoint, but later they want to put more money away on a tax-deferred basis, she said. "We try to show them that there are other ways to do it, like combining a profit-sharing plan with a 401(k)." Currently she is noting a trend among physician clients, who used to be in private practice, going to work for an institution and going into company 401(k)s. "One doctor didn't have that option," she said. "We're setting him up with a variable universal life insurance policy to put away about $100,000 per year in a retirement vehicle, so he can access that cash value with a tax-free result."
Another focus of Arnett's practice is evaluating clients' insurance, which may be with a carrier whose financial status has changed or the actual tables may have changed. She recently reduced a retiree's six policies to three. "In many cases, they can exchange their policies for a better one," she said. "Or they may have purchased the insurance for estate-planning purposes that have changed. We do side-by-side comparisons."