Gay Money, Straight Advice

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Hello and welcome to The Way Forward. I'm Jack Otter, and this week we have the pleasure of speaking with Jennifer Hatch, President of Christopher Street Financial. I think we're just going to dive right in. Jen, can you tell us how and why you got started in the space?

Christopher Street Financial was started in 1981, and I am the second generation of ownership for it. The backstory is that it was started by a guy, uh, is basically a dozen years after Stonewall, and he realized that there was a community of people that needed, uh, investment help. And he created an organization that had about 3,000 clients. They were all over the country. They were in every state. It was a broker-dealer. It was an NASD member. It was an RIA and it served the LGBTQ community. The name Christopher Street Financial was great because it didn't identify you as, as LGBT. And people really cared back then what their mailman thought. That era extended to the '90s, '80s and '90s, when advisors and clients started to pass away from HIV. And the gentleman who started the firm passed away as well, but he did something really special. He created a charitable remainder trust and he gave it to the ACLU, the Gay and Lesbian Project. So they actually became the owner of an NASD member firm for a year. They— I know. So they sold it. I was one of the investors and, uh, soon became the sole owner.

So I don't want to spend too much time on history, but I am interested. You obviously must have been a financial advisor before you bought a financial advisory firm. Um, where did you get your start?

You know, I wasn't. I— this was a— I was an institutional, uh, salesperson, equity salesperson. I worked at JP Morgan, um, but I had a real interest in personal finance. And so I was that geek that studied the textbooks at night. So, so when I had the opportunity to move over to an organization where I didn't have to be in the closet anymore, it was, it was, you know, the best day of my life. I was able to actually work in my community. I was able to work where I didn't have to hide. I was able to use the, the, the information that I knew really well Um, I was already licensed, uh, so it was a progression and over time I became a CFP. At this point we have about $580 million under management. Almost all of it is fee-based. Um, and we're about a dozen people right now with, uh, offices in New York City. I'm located right now outside of the city in Nyack, New York.

Uh, that's a neat community. I, I love the, the Runcible Spoon, uh, for a coffee and a donut once in a while. Um, what is the most important thing for advisors, listeners, to realize when they're serving the LGBTQ community?

The instinct of a financial advisor is probably understanding that it's a hard conversation to have when you talk about your money. Also hard for these individuals to feel comfortable necessarily, um, being clear and upfront about who they're family constellation is. And so I think the best way to do it is not to make any assumptions. You know, don't ask a woman about her husband until you understand who's significant in her life. It's about not making assumptions and asking questions.

One interesting change in this community since you started your practice is that gay marriage was legalized, and a lot of those very specific financial headaches for gay couples have just gone away. Does this reduce the need for your specialty?

It does, actually. I'm happy to say that marriage is marriage. And understanding what it gives a couple, no matter who they are, is really important. And it has, it has eliminated most of the complexity. It doesn't mean that everybody gets married. We have plenty of long-term couples that are straight, and same-sex that for various reasons aren't getting married, and we still have to construct the same kind of trust. We still have to manage the assets and the titling and create all kinds of creative ways to get to the same end. And it's never the same end. Marriage is a social, is an economic justice issue. So it's not, you're not able to replicate it, the protections of it, without the actual certificate.

So you've been doing this for 23 years. Over that time period, there have been an awful lot of changes. How does that affect the way you've addressed these issues?

Well, the landscape has changed utterly, of course. Um, initially, for over a decade, the seminar that we would do, the educational seminar that we would do, was called What's So Gay About Money? And That progressed as we started to get marriage equality in certain states, and then we got federal protections, but only in certain states. And it was a checkerboard of different rights and responsibilities. The seminar morphed into what happens when I say I do, and that changed practically every month as the legal process progressed. Post-2015, everybody got married, or it seems like everybody got married who was a long-term couple. Now the question in the seminar is, what did I do? And the issue is, what is in the package of marriage? What is the contract that you signed? What— what— every state is different, and every state has different rights and responsibilities. And part of what we're doing for, for clients now is helping them to understand what they did or what they're about to do. And plenty of clients come in saying, I— we are hoping to get married next year. What does this mean? And that analysis is very powerful because it enables them to actually choose their vows. I mean, they can opt in or opt out of some of the things that marriage puts into the contract in their state.

Speaking of that, though, Justice Thomas just pretty strongly attacked the court's decision that legalized gay marriage. Is there a chance that a different court makeup could reverse that decision?

You know, that should send shivers down my spine, but it doesn't. I don't imagine it's a right that would be taken away. It is too fundamental to families. I believe that— not that what the population believes is important to the court, but I think at this point society has gotten used to the idea, I think, to say to families that you're going to rip them apart and take away their legitimacy and their economic privileges just won't happen. I'm not going to even go there.

The issues that you're just talking about, social justice, have become a little bit of a part of the investment thesis for some organizations now as ESG becomes of greater and greater interest to the investing population. And in fact, we just found out that Morgan Stanley is buying Eaton Vance, which has a strong ESG component to its fund lineup. Is ESG important to your client base?

Yes, it has become incredibly important. 10 years ago, 20 years ago, I couldn't get anybody to pay attention. I did ask the question because I thought it was important, but there was a belief, and there probably was, uh, it was correct, that, that you couldn't get the same kind of results performance-wise unless you use traditional investments. But the world has changed. Everybody asks for it now. It's, it's actually more rare that somebody says, no, I'll stick with the core index portfolios. Most people, uh, as long as you can show them that the performance can be as good or better, definitely want to do the right thing.

It is interesting, the COVID connection. I mean, one thing that strikes me is that if your employees will suddenly be spread across the country, it requires a certain amount of motivation, whether it's to homeschool your kids and do your job or just to not slack off. And I would think that therefore, how a company treats its employees and treated them pre-COVID will have a huge impact on how hard the workforce works going forward.

That's right. I think that that's really evident right now in the performance of the ESG stocks or the stocks that are rated highly.

So it is tricky to even now with a lot of offerings in the ESG world, it's still tricky to construct a fully ESG portfolio, right? To get good management in all asset classes. Have you found everything you need or is there a bit of mix and match? How do you do portfolio construction?

It is a bit of mix and match and it's, it's a bit of a moving target. There are enough good diversified index funds that employ this kind of analysis. They don't tend to be as thorough as some of the active managers. So while we are philosophically more inclined to use low-cost indexes and asset allocation optimizing, We are, in the case of ESG, employing a number of active managers who have just a smaller set of companies, investments, securities in their funds, which is unusual, but I think it's important because that's where we're getting the real in-depth analysis.

And you're seeing returns that are on par with or exceeding your passive, the passive parts of your portfolio?

We passed the tests.

So I want to talk more about your investing philosophy, but let's stick to how you run your firm just a little bit more. There is increasing focus on diversity of teams. Barron's is writing about it. Firms are trying to address it. I suspect that this is particularly important for you serving a diverse community.

The interesting thing about being LGBT is that it it runs across all demographic categories. It is no matter where you live, no matter who you are, how much money you have, what your needs are, it includes a percentage of everybody. And so we really need to be very versatile to be able to understand and, and hopefully provide the kind of resources to all people. In our case, unlike a lot of firms, we have many women advisors, and that's I think that's one area of diversity that a lot of RIAs or advisory firms don't have. That to me is really surprising. I see women in our industry as being— I think I see it as a giving role. I see it as it's akin to social work in some ways. Yes, because we're really helping people to figure out where their best life is. This is a really intimate process. And I think that women naturally are very good at this. And so, there should be more women in our profession.

I do think the gender issue is fascinating. I speak to, of course, a lot of financial advisors. And while I hate to stereotype, it is true, I have found that women are very good listeners. And sometimes it's more important as an advisor to listen than to talk. And so I think that has led to some of the success we've seen among female advisors.

It's one of our superpowers. Yes.

Two ears, one mouth, right? You know, one question that all firms face as their team grows is how, what happens in the initial stages of onboarding a client? How do you decide? Which advisor works with which client? And as you bring people with expertise onto your firm, but probably a little bit junior, how do you transition a client who may need that expertise to someone when they feel like, geez, my relationship has always been with Jen? Is she pawning me off on this new person I don't know?

Have you been listening into our office meetings? Yeah, it's a challenge. Especially as you grow. And I think that we have a big emphasis on training, and we actually work as a team. And that has— we've been doing that, I don't know, for a dozen years, and that has been really helpful. So we are always in, in almost every meeting, there's a, a senior advisor and somebody who is more junior. Somebody's taking the notes and doing all the follow-up. But also making, um, making a connection with the client and getting them to the point where they are ultimately more comfortable with them. And the senior advisor can just pop in for, um, the more complicated situations. But you always have to have a relationship with the whole firm. You can't just have one advisor to one client. They can't be these little silo relationships. I think clients really like Christopher Street because they tend to know everybody. They tend to feel like it's, it's a home. So it is tricky.

One thing I want to ask before we move on to investing, obviously on the technological level, the way you are communicating with clients is, is different, but is there anything more profound about your service model that you have had to change, whether it be fees or what services you're offering or offering new ones as a result of the pandemic?

I would say that we are not offering anything new. What we are doing is, is bringing in more, more professionals into the relationship. We have always been, for certain clients, able to, to bring in an estate planning attorney or a CPA. In fact, one of the things that I think is really special about Christopher Street is that in our office we have created a suite of professionals, all of whom are experts in what I would now call unmarried couples. Everybody knows how to manage same-sex or unmarried couples and what they need. We have CPAs, estate planning attorneys, project financial planners, Christopher Street Financial Investment Management. We have that all under one roof. So we've always been able to pull in different resources to solve people's problems. And that's been really amazing. And, and people really like to be able to get everything under one roof. But if it's not under our roof, we will go out and work with their estate planning attorney. So we get our hands pretty, pretty deep into the process in, in doing the problem solving, identifying the risks, the issues And also the most important part is nudging the individual through the process to actually get it done.

The personal trainer part of the FA's job.

Yeah, that's a good description.

So Jen, let's pivot to investing. Obviously every single market has its own quirks and oddities and uncertainty is always with us, but right now it just sure seems to be particularly interesting. Equity and bond valuations both seem very stretched. They appear to be pricing in awfully optimistic scenarios. Scenario. And if everything works out perfectly, then, then that's great. No inflation, um, people continue to be using Zoom, um, at massive numbers forever. But just in case those things don't work out, are you making any changes to your portfolio, or is it just a question of being a long-term investor and making smart choices?

I think it's a matter of, of communication, education, and having separate long-term buckets of money. I hate the term bucket, but it's, um, but it works. Um, and people need to, for their long-term money, to continue through all these peaks. I mean, we are— I can't tell you, every year it seems like we're having the same conversation. Aren't valuations high? Well, they're always high as they continue to make records. I mean, 3 out of 4 years the market is up, so we're always going to be in this dilemma. So If you're a short-term investor, yeah, you really don't want to be here. But for long-term, uncertainty, volatility is your friend. So it's, it's a matter of just being comfortable and riding the wave and being focused on the long-term goal. Short-term money, we separate it. We make sure that they have their cushion money, their allowance or paycheck as we call it, and all of that safe. And so we don't have any short-term concerns. It works.

So with that cash part of the portfolio, the paycheck, as you called it, it used to be there are a lot of attractive options for parking it in risk-free opportunities with pretty decent interest rates. Those are gone. Do you try to eke out a few bips on that money, or is it basically just in cash?

Oh yes, government funds. It's— there's nothing we can do about it. We just have to manage clients' expectations. We see the cash portion or the bond portion of the portfolio as the cushion. We're not trying to get alpha out of it. We're not trying to squeeze it for total return. We're using it to stabilize and soften the volatility of the equity side of the portfolio. So managing expectations, communicating with clients about what to expect and what we want is safety for this pocket of money. So. That's what we get.

Speaking of communication, a lot of investors think that given current valuations, we are bound to see muted returns in the coming years. That's not predicting a crash, a boom, whatever, but just looking over 10 years, current valuations suggest that double digits in the equity markets could be difficult. Is that a message you are trying to convey to clients or Do you take the opposite, that we just don't know what Mr. Market will serve up?

Mr. Market?

Sorry, an old Ben Graham reference. Sorry.

That's great. We want whatever the market is going to give us. And in our projections, we use really conservative expectations. So it's fine. On average, we get double-digit returns out of the equity markets. If we don't for a while, that'll work out too. We just want to make sure that we get as much as the markets will deliver. We don't want to get less. We don't want to try and, and put ourselves in a position that's too far away from the market because we don't want to underperform. And it's not worth risking things to— risking much to outperform. So the market is the market. We're going with Mr. Market.

Or Jack Bogle, if you prefer. You could have been channeling him right then.

There we go.

Barron's tradition is whenever we speak to somebody like you to ask you to share one actionable idea, something listeners can just put into practice right away. What do you have for us?

So, the world has changed a lot since I've been working at Christopher Street. And, and I think one thing to be aware of is how the younger generation looks at the issue of, uh, of sexuality and gender equality. In my generation, the baby boomers, 8% of us identified as LGBTQ. If you look at Gen X, it's 13%. Millennials, 20% of them identify. And Gen Z, 31% say that they are part of the LGBTQ group. So that is a big shift. And so I think, again, you don't want to assume anything. And the one thing that if somebody comes to you and it is always polite to ask them what their pronouns are, you don't have to ask any follow-up questions. It's just— it's just a courtesy. You can say, what pronouns do you prefer? Everybody will know what you mean. I'm she/her/hers. And some people might want to give you something that might surprise you. It's just a way to say that you're open-minded, that you're welcoming. You really need to put this person at ease. But you can actually find ways to demonstrate that you are happy to work with them and that you're making an effort to try and get them.

Certainly safety and expertise are things that absolutely everyone should want in an RIA, or any financial advisor for that matter. Uh, so that's great advice, Jen. Thank you so much, uh, for your time. And thanks to our listeners for joining us. If you have any questions or thoughts you want to share, email us at advisor.editors@ @barons.com. And be sure to tune in next week for another episode of The Way Forward.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.