Malcolm A. Makin founded Professional Planning Group Inc., an independent investment advisory firm in Westerly, in 1975. Through investment banking company Raymond James, Makin and his team of professionals at PPG provide a range of wealth-management services for individuals, families, businesses, and foundations and endowments.
In 2018, Makin was again listed on the “Top 100 Independent Wealth Advisors” list by Barron’s financial and investment news and on the “Top Wealth Advisors” list by Forbes magazine. Also last year, and again in 2019, both Barron’s and Forbes ranked him first in Rhode Island. The Wall Street Journal noted it was the 11th year in a row that Barron’s ranked him first in the state.
PBN: Which financial services do you find are most in demand these days and how has that changed through the years?
MAKIN: We find that our clients and prospective clients are much more sophisticated and knowledgeable today than they were 10, 15, 20, or even 30 years ago. However, what people are seeking from financial advisers has remained pretty constant over the years. Advice. They want advice that is unbiased, accurate, clear, personal and cost-effective. They want advice that they can trust and depend on. They want clients that they can rely on.
In the past, “financial services” often referred to particular products such as insurance, mutual funds, annuities, stocks and bonds. Financial advisers were typically salespeople who gave advice on what to buy in order to meet certain goals or objectives. Advisers were typically compensated by commissions attached to the products that they sold. The potential for “conflict of interest” was enormous and, while the vast majority of financial advisers did the best they could to put their clients’ interests ahead of their own, it was still a sales-oriented mentality. It was not unusual for consumers to not understand exactly what they had purchased, the risks involved or the various layers of cost or restriction that the product might contain.
PBN: Are all the services you provide channeled through Raymond James or how does that arrangement work?
MAKIN: In general terms, financial advisers will either be brokers who sell products and are compensated by commissions for those products, or registered investments advisers who charge fees for the work they do, or both – hybrids. Brokers are regulated by [the Financial Industry Regulatory Authority], which was formerly the [National Association of Securities Dealers]. Registered investments advisers are regulated by the [Securities and Exchange Commission]. A registered investments adviser is required to operate as a fiduciary, which means that the client’s interests must be placed ahead of the interests of the adviser.
Professional Planning Group is a hybrid firm. The great majority of our work is fee-based. We charge a fee to manage individual portfolios for clients, which are designed to help them achieve certain goals and objectives. For example, one of our specialties is working with clients who hope to retire, are retired and taking income, or are retired and plan to stay that way. A client with a $2 million portfolio would typically be charged an investment advisory fee of 75 [basis points], or three-quarters of 1 percent. No commissions would be charged. The portfolio would be held at Raymond James. The client would receive statements, either hard copy or online, whichever they choose. Raymond James would provide a variety of reports to the client and us as advisers to help make the portfolio as understandable and transparent as possible.
PBN: As someone who has been recognized as a top performer in your field, what do you think separates you from the majority of your peers?
MAKIN: I’d like to say that I was really smart, but I think that I was really lucky. And truly blessed. My first job in financial services was selling life insurance. I had never done anything like that and found that I really enjoyed the interaction with my clients and felt like I was doing something worthwhile. After two years, I opened my own office in Westerly because I wanted to be able to do more and not be tied to only one company.
The financial planning movement was in its infancy. Around the country, agents, brokers and financial salespeople were beginning to realize that middle-income Americans were going to need professional advisers to assist with things [such as] retirement, education and general financial planning. [Individual retirement accounts] became a reality in 1975 and 401(k) plans came into existence in 1978. I had worked with teachers in New York around that time and in 1981 created Professional Planning Service as a membership fringe benefit for members of the [National Education Association Rhode Island]. I was truly in the right place at the right time.
PBN: How did the financial crisis of a decade ago impact financial planning and how does that compare to today’s conditions in your field?
MAKIN: It was a tremendous wake-up call and scared the daylights out of many investors – and many advisers as well. I actually had staff members who offered to take pay cuts because they weren’t sure what the impact on our business would be.
The market decline and recession of 2008 was a clear reminder that investing is a long-term process. We tell our clients that the time to protect their portfolios is before the market turns downward, not after. Be sure to own the stock of companies that have cash flow, a good product mix, a good balance sheet, strong management. In other words, own good companies. Don’t speculate. I like to use low-cost mutual funds and [exchange-traded funds] because it provides for great diversification among both individual companies, as well as asset classes. Diversification is a key to long-term success.
It’s fine to be aggressive when investing for [the] long term. It’s not fine to be greedy or foolish. We might advise a retired client who is taking about 5 percent from their portfolio as income to only have 60 percent in the stock market and have about 40 percent in some form of fixed income. The reason is simple. A $2 million portfolio would provide distributions of about $100,000 a year. The “unpardonable sin” in investing is to sell equity/stock when markets are down and then wait until it “feels better” to get back in.
By having 40 percent, or $800,000 of our $2 million portfolio in fixed income, it means that distributions can continue at the same level for an extended period of time. It might be four, five, even six years, but it will give the markets and economy they represent time to heal and recover, as we saw in 1987 and 2008-2009. There is, of course, no guarantee what markets will do or the time periods that they will do it in. But I believe that history is a good teacher.
PBN: What is the most prominent threat or challenge to those in your field and their clients?
MAKIN: Wow, what a great question. I believe that there are several prominent threats to our clients, our profession and the financial advisers who serve both.
Drama vs. data: We are living in a crazy time. We speak of our president and are either thrilled or chilled. Nothing in between. Our economy is as strong as I have ever seen it. Unemployment is low. Consumer confidence is high. We should be celebrating. But many of us aren’t. We have members of Congress who believe that “wanting it” is rationale enough for “having it,” no matter what the cost.
The field of financial services is highly regulated, as it should be. As in all fields, there are unscrupulous advisers who disregard the needs of their clients. There seems to be a growing belief on the part of government that cheaper is better; that the less a client pays in advisory fees, or mutual fund costs, or transaction costs, the better the client is being served. I believe that fees should be fully transparent and fully disclosed in a way that the client not only knows what they are but actually understands what they are.
The related issue to this is the debate over fee vs. commission. In spite of the fact that we typically charge fees as opposed to receiving commissions, I don’t believe that one form of compensation is intrinsically better than the other. They are different and should be used in different circumstances.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.