Beacon 3.0

When I started Beacon almost 20 years ago, I wanted to do one thing for my clients: Grow their wealth faster than they could grow it elsewhere. That’s still true today, but everything else has changed.

Beacon 1.0 was all about speed, or in investment-ease the “return” on assets invested with us. Our value proposition was aimed at the center of the ‘fat part of the curve,’ i.e. the largest segment of the investing public who by nature desires better-than-average results on their investments. During the last few years of the 1990’s (the first few years of Beacon Investment Management) we generated annualized returns in the 25 – 35% ranges for our clients. We grew fantastically fast as word of our results and ‘investment prowess’ spread. We could scarcely keep up with the new clients pouring in, some of whom we never met personally.

As 1999 plowed ahead and the fundamentals of investing gave way to new paradigms of the new millennium driven by the Internet, dot coms, and lofty business plans that would change the world, we experienced quarterly gains of 20%, 30% and even 40% (non-annualized). It was surreal – a ‘party like 1999.’

Then, in what seemed like the flip of a switch, the music ended. During 2000 the NASDAQ index would drop 70%. The technology and bio-medical stocks that had powered our growth were suddenly Pariahs, despised and avoided at all costs by investors. We struggled to find investments that would stop the bleeding, but with no success. Asset values fell first and then our client roster began to shrink, but fast.

First out the door were the ‘fast-money clients’ – those with whom we had no personal relationship, but were with us only for the out sized returns. Next we started losing our friends. The newer ones went first, then the longer more established ones reluctantly followed suit. The losses became deeply personal, on both sides. I can remember every conversation and the looks of their faces as they struggled with the difficult process of ending years-long relationships. Emotions ranged from anger to the sadness of personal loss to disappointment.

On a summer day in 2005, a dear friend, neighbor, and longtime client called to schedule a meeting. There was no doubt in my mind why she was coming in. After five long years of lackluster returns and steady client attrition, phone calls meetings became foregone conclusions of ending relationships. Passion for excellence had been beaten down to near-instinctive survival mode. My longtime prayers for God to show me a different vocation had seemingly gone unanswered without hope. But for reasons, I still do not understand, this client’s call, on this day, at this low moment in my life, my prayer changed – ‘Lord it seems your will that I stay in this vocation, please show me how to do it.’

The next morning, my client came in and we talked. As expected, she announced she was leaving. I asked her why, given that her performance had been so good, despite all the market carnage (she was conservatively invested). Her response shook me to my core. “Sam, you only talk about my money. You never ask me about the things I want to do with it. You don’t know the things I truly value.” Deeply shaken, I looked her straight in the eye and said, you are absolutely right . . . I apologize, I completely understand and will make your transition to a new advisor as easy for you as I possibly can.

Shortly after my eye-opening meeting, I had lunch with a good friend and financial advisor with whom I had started my career. During lunch he could tell I was down and asked how things were going. When I shared what my exiting client had told me, he told me about a goals-based planning tool he was using in his company to keep his clients’ most valued aspirations and priorities at the center of their process. On a napkin he explained how probability analysis was used to ensure adequate confidence of meeting their goals. The process kept emotions where they belonged – on the goal-setting, planning side. Logic and statistical confidence entered in where they belonged, on the investment side.

In five short hours, I had learned what was wrong with the way I was working with my clients and about a radical new process that addressed what I was beginning to understand was a far superior way to work with them.

That afternoon, I received a call from another long-time friend. Five years earlier I had invested in his company as an angel investor. He needed my signature for a refinancing to remove the venture capitalists from his capital structure. The FedEx’d signature request had gone to my previous home, which prompted his call.

As busy as he was putting together all the documentation he needed at what was the eleventh hour of his deal’s closing, Dave Loeper, founder of Wealthcare Capital Management, sensed my professional exhaustion and confusion and gave me the gift of dropping everything to listen. As I recounted the financial and personal devastation of the past five years and the hopeful encounters earlier in the day, he asked me a question. “Sam . . . what value do you offer your clients?” I quickly answered – we attempt to provide market-superior returns for our clients enabling them to do things sooner and bigger than they might otherwise. He then asked “Can you guarantee that?” I harrumphed and said Dave, you know we can’t guarantee that – or course not. He responded ” . . . then what value do you offer your clients?”

The question, like a bolt of lightening, both at once convicted and inspired me. I had mistakenly assumed that higher returns somehow made my clients better off relative to their goals, when in fact the volatility that accompanies higher returns actually reduces confidence. I had lived the consequences of that fact for five years. But all was not lost. Two friends, now three had shown me a better way. The better way shown to me at lunch by my friend was in fact the very same process my friend Dave Loeper had been developing for five years, and was now being offered to me.

After six months of white papers, training conferences, and certifications, Beacon 2.0 was born. During the next six months we introduced each of our remaining loyal clients to a new way of planning and managing their financial futures. The initial results were remarkable. I learned more about each of my clients’ values in those 90 minute meetings than I had learned in ten to 15 years of working with them. We later changed our name from Beacon Investment Management to Beacon Wealthcare to better reflect our value.

Since the roll-out of Beacon 2.0, it is no exaggeration to say that lives have been fundamentally changed. Through our goals-based planning process we have learned what our clients value and have watched them achieve them with confidence. Our clients enjoy their lives while worrying less about their finances.

Since 2.0 Geoff Hall and Jared Korver have brought to Beacon their own unique talents and energy. They have been responsible for several innovations to engage and educate clients and prospective clients in more appealing and effective ways. We have recently added my daughter, Langley Cumbie to our team to help with initiatives aimed at making Beacon more effective and efficient in managing our client processes.

In the last couple of years I have been particularly struck by how fast improvement and innovation are now happening at Beacon. We have completely replaced our operational systems with industry-leading software to improve reporting, scheduling, website presence, rebalancing, and risk analysis. We follow industry thought leaders and trends to ensure that we own and operate with the best tools and methodology to ensure excellence in the delivery our value proposition.

Our forward thinking, innovative spirit, and size-enabled agility have kept us years ahead of our industry. Since Beacon 2.0 in 2005 we have offered the highly touted and desired portfolio services of the so-called Robo-Advisors. We have used tax- and cost-efficient exchange traded funds since the beginning. Also since 2.0 our tax-location management has ensured both short-term tax efficiency during the accumulation years and long-term tax-efficiency during the spending years of retirement. What’s more we regularly harvest tax losses to reduce current and future taxes. Our portfolios are efficiently allocated to survive deep market shocks and to fully participate in strong bull-market rallies. Our clients will attest to how well they did during the credit crisis of 2007 and 2008 and in the excellent market years that followed.

As we continue to make incremental improvements in our services, we envision a more significant leap to a Beacon 3.0. Currently, our ideal clients exist in the skinny side of the distribution curve (a relative few) of the investing public. They value planning and what wise management can do to optimize their lives. It is our dream that one day, Beacon 3.0 will make the process of planning and investing so appealing and the benefits so compelling that more investors will see the promise of fast returns for the distraction it is.