The Power of UMH with Len Reinhart

Jack Sharry: Hello, and welcome to WealthTech on Deck. Our podcast is a series of conversations with industry leaders around the future of financial advice. Our session today is going to be a bit of a departure. As we’ve been reading in the industry press. And I’m finding it almost every business conversation there’s a clear trend toward the unified managed householder, UMH, today I’m speaking with a true pioneer on this subject, my good friend Len Reinhart. Len was among the very first in our industry to talk about separately managed accounts, manage money, and advisory approach. And actually going back almost 20 years, more than 20 years, he started talking about UMH, which I’m sure he’ll share with you. So Len, thanks for joining us today on WealthTech on Deck, it’s great to have you on board and looking forward to our conversation.

Len Reinhart: It’s great to be here with you, Jack. It’s exciting times my little bit of my background, I can use myself as an example. I’m born in 1955. So that makes me sort of dead, middle set of the baby boomers. So I’m a baby boomer in living the trials and tribulations of baby boomer generation that saw defined benefit plans go away, and retirement being thrust on the back of the actual baby boomer through IRAs and 401 ks. So the industry has changed dramatically since I got into it in 1978. I spent 18 years at the wirehouses starting with EF Hutton and it kept getting merged in my final years were Smith Barney. And those were 18 great years. But when I saw there was a transition from traditional stock brokerage business, and I found fascinating the other day I heard that Merrill Lynch was going to stop the process of cold calling for their brokers. And when I got into business, I did not come in as a broker I came in as an analyst. But there was rooms of young brokers who were given a list of 1000s of names and numbers, and they were calling with the Deal of the Day. And the brokers that made it were the ones who could close deals on a daily basis on smiling and dialing. On the other hand, I was in the consulting area of EF Hutton. And we were at the time consulting to large defined benefit plans. And so my function was really talking about how to put the asset allocation and the money managers together to meet the future liabilities of the defined benefit plan, whatever the corporation or state plan was. So I had a little bit different view. Over time, we transitioned the concept of manage money and asset allocation and designing a strategy into a retail service, which became the rap fee industry, the manage money industry, we got that started out at $25,000 account professionally managed. And that business started to grow. But we were inside a big brokerage firm where we didn’t get much space. And it was really a group of a handful of you said Jack pioneers, advisors who bought into what we were doing. And they were typically younger advisors that were saying, you know, why would any, you know, investor listen to a 25-year-old kid about how to invest their money. But what we were doing with manage money, we’re doing something unusual. We were listening to the client first and talking to them about how much risk they wanted to take and what were their goals and aspirations. Then we would recommend a money manager and or involved in mutual funds and ETFs. So we’d put a strategy together that would hopefully meet their risk requirements, meaning they could sleep at night with the volatility in the markets. And it was certainly defined as at that time, as the risk was defined by volatility in the industry. So the business grew nicely. We started to grow rapidly, I eventually became in charge of that business. And it was funny though, the rest of the firm would look at us and say, Wow, you’re doing all this business right now. We got up to 100 billion and assets, and there’s no aussage how do you do it? And so we were sort of a mystery inside of a brokerage firm. Around 1996. We were part of Smith Barney and I got the bug to go out and try to start a new business with a couple friends Jim Siefert, who had worked with me for many years and said could we do this on our own? Could we build what the industry now owns as a Tampa turnkey asset management provider, and provide similar types of services that we’re doing in the in the brokerage industry, do it for independent advisors, both stockbrokers and RIAS. And we did that. And we grew that business nicely. And it was an exciting period of time. For us and the industry, there were a lot of things changing. All of a sudden, the brokers were competing with CPAs, not just other brokers. So the industry was changing rapidly, we developed a successful niche, which was managing after tax money.

Jack Sharry: Len, as you’re describing this, if you can maybe provide some context, when you started. The were at least a part of the start of the Hutton separately managed account business advisory business, talked a little bit about who else then followed because I know other firms started and followed your lead there. And then, as you talked about what you did at Lockwood, again, you were a real innovator in that regard, as I recall, maybe talk a little bit about sort of how you started with the ideas behind you what you’ve described, but then like to know when did the other big players start to catch on that this was important because it became a big wave, big trends.

Len Reinhart: I recall back to the back of the day, one of the important things we learned as we were growing the business, we started a fountain, it was original home of manage money. But as time went on the competition saw the success as I was saying, all of a sudden, we were doing big numbers, big revenue numbers, big asset numbers, without lawsuits, and without client complaints. And the rest of the industry started to see that and join in. And at the time, I hated it. I thought this is horrible. We have a lead, and everybody’s copying us and saying, you know, we’re doing it just like they do it. But that was actually the best thing that happened to us. It’s like having all the fast food restaurants on the same, you know, strip of road. At first it seems like competition, but the reality is, everyone’s business grows. And it was in that period of time. In the 80s when everybody was jumping on the managed account baton bandwagon that if you were going to be in the brokerage business, you had to have a fee-based business also. The business exploded. So yeah, we had a leadership position. And I think today, Morgan Stanley is still the largest manage money producer, you know, which the roots of EF Hutton so the weed position helps, always helps. When we moved on to Lockwood, and we started the business I was talking about our own business. We specialized in after tax management, which wasn’t being done at the time, again, sort of taking what’s the next step. And we believe that was the next step. And a similar thing happened we were out there at first, the only ones championing this concept of doing it after tax and competing with mutual funds because we could do it for larger investors, we could do it better than in a mutual fund on an after tax basis. And all of a sudden, we started to grow in a short period of time we went from zero to 10 billion in assets. And with that came the competition, other tamps are starting to get in that business and to our benefit, then some of the big banks said, you know, we really need to be in this business. We need to be the in the separately managed account business, we need to be in the after-tax business of managing money. And basically, we ended up selling our firm to the bank in New York Mellon, there was a competition for the business. And that was a nice financial benefit for myself and the other employees of Lockwood. And then I spent five years working with a bank in New York Mellon and growing that business and integrating it with Pershing. And it still exists today. So I’ve really seen a lot in this business. You know, some of the biggest transition points were the fact that the baby boomers, their parents had defined benefit plans. My father’s 95 years old, he’s still the beneficiary of an AT&T defined benefit plan even pays his phone bill, and all those medical expenses. But all of a sudden, the baby boomers lost that I have a remnant of a defined benefit plan for about a year or two before they ended it. It’s about enough that pays for my lunches when I go off. That’s about it. So we had to do it on our own. And for the past 12 years, I haven’t gotten the W two in 12 years after I left at bank in New York. I started investing in my home money as well as doing some minor private equity type and venture capital type investment. And what the big thing that really changes when you move to the distribution side accumulation is the horse race really disappears. It had disappeared and manage money to a large extent already. But once you approach retirement, you say this is the majority of the money I’m going to have. And now you move into the distribution phase, the definition of risk radically changes from volatility, to running out of money, and winning the horse race and having the fastest, you know, the fastest car, the fastest horse in the best performance becomes very much secondary to where I am I in my plan. And so this, I think, is really broad on the concept of integrating financial planning more into the concept of manage money, as well as the entire financial services industry. If you look at financial planning, which was growing and has been around for 30 years, 40 years, originally, planned financial planning was designed to sell high end estate insurance plans. These were incredibly profitable plans for the salesman of these different estate plan packages. So financial planning focused on that piece of it. At the same time, you had managed money growing and on the investment side, and you had traditional stockbrokers talking about investing. But the two never really lined up. And Jack, you said in your introduction, you know, I’ve been talking about this for over 20 years in in 2000, I wrote a paper called managed account policy 2010. I was at Lockwood that time, and I was talking about in the evolution of where this business is going and the merger of financial planning and investing to take it straight through and to make sure clients don’t run out of money and keep adjusting the plan to do this. And there were a handful of people, Dave Loper being one of them, who saw this same vision and Dave Loper as myself grew up in the defined benefit consulting business. So he was used to the concept of how do you fund a future liability? And that’s what we’re really talking about for anybody that’s approaching retirement or in retirement, which are the baby boomers are in the majority of money still is, is how do you fund their future liabilities. And even back in 2000, I can see this as what we needed to do. But the analogy I used at the time was everybody’s building railroads. But unfortunately, we’re all using different size tracks.

Jack Sharry: You mentioned Dave Loper, who I think is an important figure in this saga, if you will. And when he talked a little bit about his background, he was the guy that created welfare and envision, which is used at Wells Fargo I think plays an important role. But it might be useful for our audience to understand who Dave is and the role he played.

Len Reinhart: Dave Loper is, I believe a mathematical genius. And as I mentioned, he grew up working with large defined benefit plans as I did, and where the goal is really different. You the actuaries determine a future liability that the corporation or plan has, and you have to build a funding strategy, and an asset allocation strategy and return strategy to meet that future liability. And while he was at wheat for securities, the CEO at the time, an individual named Danny Lunamon was a pioneer in the fact that he thought every client of wheat for security should have a financial plan before they started investing. And he asked Dave, to create the software package to do that. And so he created the ENVISION program, which is basically what is still used at Wells Fargo. And it’s it was created and one of one on a type kind of a product in that it did connect investing, to financial planning. And it was designed to do that rather than sell insurance. So this was a big breakthrough. Wealthcare, another company I’m involved with, you bought, we bought it from Dave Loper and still use that software. And every client of Wealthcare goes through that process of financial planning and then building a strategy investment strategy that will meet that plan. So Dave was one of the critical people in the evolution of this business and this concept of connecting financial planning to investing.

Jack Sharry: You raise the topic of unified household or UMH. And I loved your analogy, even though I lived through it. I never really thought about the fact that planning really needed to conduct to investing. I’ve always thought that’s the right thing to do. But you were early on as you always are in terms of determining how does that come together? And what we’re seeing now in the marketplace. love to hear your thoughts on that is, as we move toward this unified manage household, our experience now is virtually every large firm is doing some is moving in that direction, for sure. Many are very busily working on and finding out the complexity just inherent in putting all this stuff together. It’s not just the planning and investing, but you have to consider taxes you’ve talked about, you’ve got to consider costs, you got to consider risk increasing, especially as you’re determining income stream, you got to consider social security, and how you put all that together as sort of the modern day UMH, I think when you and I were talking about it 20 or more years ago, it was basically what you’re describing as planning, moving to investing, but love to hear your thoughts on how that evolution took place in real time, you know, when it started, when you started talking about it with that paper you mentioned earlier? And then where do you see it going? And other words, where’s the world headed toward around those whole concept of unified managed household?

Len Reinhart: Okay, to go back he and the unified manage household and in in 2000, what, you know, I was envisioning? And was how, you know, how do you bring this process together and get people working on the same tracks. And I’m not a technology person. So I was no expert on that. But the problem was, there were no API’s as we consider day to do this. So every firm, including my own, Lockwood was developing this on their own and trying to develop all the components to do that, which is very complex, and time consuming, and expensive. So what has started to happen and really accelerated in the past six or seven years, is the ability to interconnect many of these processes together with API’s, so that you don’t have to build everything on your own. And that’s been the biggest breakthrough. And I can, I think that will continue in the future and even become easier and easier. The end goal of the unified manage household is to take all the client’s assets, their goals and aspirations, you know, meaning what are they trying to accomplish with their life, and put them together? And I think the further you take this, the better so that if somebody’s into environmental issues, they can blend that into their portfolio and see and measure the outcome of investing that way. If there’s certain goals, a handicapped child, for instance, and what you have to fund for that, how do you do that? And how do you make sure they are taken care of, forever, these are all pieces of the goals and aspirations that have to be measured. And then you’re looking at the probability, the way to correctly do this is the problem looking at the probability of success, you know, and that will change over times. Because life changes, things happen, people get sick, people lose jobs, they get big bonuses, all those things happen. And this plan has to be constantly adjusted. What happens when you do this properly? Is the actual investing piece, the actual securities mutual funds, all the stuff that was, you know, 40 years ago was the selling point almost become secondary? Because the conversation with the client for something as simple as okay, we want to remodel our kitchen and spend $50,000, what does that do to our probability of success if he didn’t hitting all of our other goals, in our process, so that every sort of big decision can be put into this process, and evaluated of how, what the impact is, in the long run. You know, we all do things, I’m a big person with toys, you know, as far as you know, ATVs, boats, things like that, I have a collection of these things. And each one in might be a second home, anything you do like that, the toys of life, which are fun, they have a tail on them. And the tail is you have to maintain them. And you have to upgrade them. And so you have to look at all these decisions. And that’s where the unified managed household, I think really evolves into and it starts with the baby boomers because we’re the ones facing the retirement but the baby boomers kids, the millennials, I’ve seen are much more outcome oriented than they are horse race oriented. Millennials like to fund a lifestyle. And all the research I’ve seen is the lifestyle is more important to them than the job. And that’s an interesting change in philosophy. I think between the two but I think the unified man or household can address both of those. Because with the baby boomer tip out, okay, how much money have you saved? Now? What do we have to do spending wise to make sure you do not run out of money over time. And for the millennial, it’s what’s the lifestyle you want. This is how much money it’s going to take to give you that. So you have to figure out how to accumulate that much money to get there. So this sort of lifestyle approach is something that can be used for all investors. It’s not simply for retirees. There’s two aspects of it, there’s the accumulation and decumulation pieces of it. But it’s not that different. And then blended into all of that every one of these decisions these life decisions comes with it is there’s taxes and fees involved. And all that has to be orchestrated, and brought into this. So security, when to take it, you know, how much is that going to be what how big a piece of that is your funding over your lifetime horizon. So the unified manage household is evolving into something that I think will be sort of a guidepost and merges many of the things that were handled separately. Part of that is taxes, as we talked about the single biggest hurdle in investing. Traditionally, the brokerage industry has shied away from ever giving tax advice. But the unified manage household has to give guidance on taxes, maybe not the same level, certainly of a CPA, but they need to have that input. And there needs to be tax guidance on how to de cumulate your money, which monies to take first, how to build tax lots, how to tax loss, harvest, all these processes that go on that can be very complex, and take hours of somebody on a spreadsheet trying to figure it out. There’s no technology that can do that in seconds. And so it’s the combination of all these things, and then keep building links into it. It’s almost like an evolving net worth statement of your goals and aspirations. And your funding probability is where I think this, this really leads us to.

Jack Sharry: So Len I know that as the story has unfolded, and really appreciate your sharing with our audience that I happen to live a good part of it, actually pretty much all of it, certainly you were not only living it, but you were leading it. And I know as you sold Lockwood, and you were looking for the next chapter. I know you’re a relatively conservative investor, but you also set aside some money to, to invest in, in those areas that you knew a lot about. And also you sought to be the future specifically leading toward, if you’d be kind enough to share with our audience. What moved you to do that, why did you do it? Maybe a little bit about what you invested in and why you invested? So maybe you share that if you would with our audience?

Len Reinhart: Yeah, when I got out of the W two world 12 years ago, you have to sit down and basically do what I tell every investor to do is look at what my lifestyle is and what I’m trying to accomplish and, and create that sort of future liability for myself. And I had to put assets away to make sure I could fund that. And I did that. Basically, I’m not a big believer in bonds, you know, so I spent a lot of time and built a portfolio dividend growth board portfolio, which has done very well for me, some of it managed, some not managed. I use my IRA more as my growth component, where I put my higher tech stuff in there, the fang stocks, things like that. So that’s, you know, relatively conservative investing, I don’t leverage it. I don’t trade it. Very seldom ever trade, tried to take a position on short term position. I just over the years haven’t seen that work. But then when I was done with that, you also have to be mentally stimulated in one thing, the most exciting period of time in my career was when I left and created Lockwood, the excitement and adrenaline rush you get by having hit payroll every two weeks and growing a business and watching it grow and watch it become value was the time when the weekend came. You were disappointed when it was Friday. Most people look forward to Friday’s. I remember for that period of time, every Friday, I was disappointed. I wanted to keep working. It was so exciting. So I took some money. Then after I came up with my plan on how to fund our lifestyle. I said, How can I go out and look at some other businesses where I might be able to help them but also become the future and I invested in in a number of them. What I found was I invested in a couple that I didn’t have expertise in and I didn’t find that rewarding. But then I invested in some that were in our space. One of them Wheelhouse Analytics was one that we sold him that’s not one of the very first ones was LifeYield where I could see the vision of what you were you were taking the software Aaron, I thought that was absolutely critical. Because the businesses I traditionally been involved in were asset accumulation businesses, you built things to accumulate assets, and you got paid a fee basis on those assets. And what you were doing was creating software that any asset-based business could use to deliver the unified manage household and do it in a highly technical and efficient manager. manner with proven formulas that you could show the enhancement in total assets for the clients year over year by taking a unified approach to management in the assets. So I invested there, I also invested in as I mentioned, table over before we ended up myself in a private equity firm, buying Wealthcare. And we’ve been growing that business, we bought it, we have about 400 million in assets, it was using the Envision Software to grow it, and we just crossed 4 billion. So it’s growing there rapidly. And this has been a very exciting period of time for me as these businesses grow and develop, and eventually take the next step either being sold or going public. So it’s exciting period of time, I’ve really enjoyed it. I’m always on the lookout for something, what’s sort of the next big thing. The next big thing is making more inputs into the lifestyle management of things into the unified manage household with a 95-year-old father and my mother, well, with the 96. We are the baby boomers, we’re also the sandwich generation, I have six grandkids, and I also have parent that’s alive, who at times needs help and funding that and figuring that out. All those things really have to be those types of things have to be put into the unified manage household over time. It’s not there yet. But I think the hardest part is over. As far as being what the API is be able to hook all these things together. Now I look forward to these new pieces, these components that can fit into this to really fine tune that process.

Jack Sharry: It’s great, great context around this evolution, but in your role in it, but also where you see it headed. So as we look to wrap things up, I just like the two last questions. First is maybe three highlights three takeaways you’d like to share with our audience. So we’ll start with that one. You’ve covered a lot of ground both as the history but also terms the importance and role that that manage money has played and how it’s evolved and continues to evolve. So maybe three takeaways for our audience, maybe sort of summary of the key things to be on the lookout for?

Len Reinhart: Well, I think the, you know, the things that have evolved, and take the most change. And why does it take so long in this industry? Okay, the first change in manage money was the biggest change was moving from a transaction-based system to a fee based business. And I think the industry has done that. It took longer than we might have liked or might have thought it would take, but it’s done. The second is the redefinition of risk. A lot of what I’ve been talking about is traditional investments have been sold by how much return they can produce and volatility. And yes, that’s a tool in looking at investments. But the real risk foreign investor is running out of money and not having enough money to accomplish their goals and attributions. And that that’s a double edged sword, meaning sometimes you can’t solve it by investing, it has to be solved by saving by cutting back expenses by getting rid of that third country club, if that’s the case, you know, those types of tough decisions have to be made to make sure the client’s on the right path to doing it. So I mean, those are things that have to happen, I think. Yeah. And then the third one is really the impact of taxes. We have a new administration right now they’re talking about raising taxes. I think that’s going to raise the awareness of the concept of taxes and impact on everybody’s investments. And I think the timing is good for that. Do I want to see taxes raised? No. But I think the timing is good to make everybody think taxes. It’s impossible to put this unified, manage household together without a really good understanding of taxes, and what the decisions mean to you on an after-tax basis. So that’s got to be something that that’s driven by the advisor. So, you know, we’re really talking about the biggest, one thing that’s changing is the way advisors work with their clients. You know, we have over this 40-year time period transition from My transaction, horse raced sort of sale to one of a lifestyle management change. And the weed investing becomes secondary in that process. And that’s a big major shift. And at the time this was going on over the 40 years, and I do get frustrated with the timing of things. It really is until later when I can look back and say, why was this so hard to do? And the biggest thing I see is because we were changing, not we are changing the way advisors do business. We’re changing the way these big financial services firms do business. And that’s why, you know, the classic, how do you you know, turn a an aircraft carrier around in the ocean, it takes a long time, the momentum pushes the thing in the direction it was going, and it takes a very long time to turn a ship like that. But the business is turning. And I think right now, the unified manage household is in the lead position of where the business wants to be. It’s not in the lead position on where it is today. But it is in the lead position of where the business wants to be. And I look forward to the next 10 years of incredible amount of really intriguing and enhanced additions to this process to really improve this lifestyle management process.

Jack Sharry: Len, this has been really terrific. And if I may summarize what you covered, you covered the past 40 years of an evolution that started in a stock and bond, you know, you were given a list of cold call, if you’re a broker back then, to now a lifestyle management and it’s all about outcome early on, we thought outcome was going to come from beating the market, we’ve come to learn over time, that doesn’t happen so easily. We’re rarely if ever, and now it’s really about how do you manage cost risk and tax in a way that provides for not only greater accumulation, but greater income. So thanks for that history lesson. Thanks for the leadership you displayed throughout. Let me close with one last question if I could, what do you do outside of your day to day job? I know you’re largely retired, but you pay close attention to the markets and the businesses that you’re involved with. What do you do that for fun or something you’re passionate about? I know you got six grandchild every time I talk to you seem to have another one. But what do you do outside of your day to day work that you particularly enjoy or passionate about?

Len Reinhart: Well, I think you know, another piece of retirement or getting off a W two is finding what you don’t like to do. So I experimented with a lot of things. I started to play a lot of golf, and realized I don’t like golf, but I don’t like it that much. You know, I don’t like it enough to play it every day. And then sit around lunch with a bunch of old guys and talk about what you just did. Yeah, I’m about a once a week golfer, one of the things I love to do, I’ve always loved racing. And so now we have a place up in the Pocono Mountains. We have an adult go kart race track where the cards go about, you know, 5060 miles an hour and we do family get togethers we do racing, I find you get the adrenaline rush, it sounds stupid. But when you’re two inches off the ground, and you’re going 55 miles an hour, it seems really fast. And it’s exciting. It’s fun. The other thing I do is I do some woodworking stuff. Again, I like building things.

Jack Sharry: Interesting. I have to say I’ve had the pleasure of being at your place in the Poconos. And it was ATVs that you’re into at the time, it’s been a while but going airborne for a few seconds. At my age is a lot of fun. I couldn’t believe you and I were doing that. But there we were having a blast. So and I also know you are quite passionate about your family, which is a lot of the people a lot of your kids have wound up in our business, which is a great contribution I have to say because they’re all good folks. So it’s been a blast to catch up with you. I have the good fortune of speaking with Len on a semi regular basis and we trade war stories, some of which are true, but he’s really been a true leader in our industry and a very good friend of mine so glad I could share with you through our podcast, his wisdom and his experience and also his leadership sometime. Thanks so much for joining us today on WealthTech on Deck.

Len Reinhart: My pleasure.