We sat down with Darren Zagarola, Principal and Senior Wealth Advisor at EKS Associates, to discuss a wide range of financial planning issues.
Question: Darren, what’s the single most important thing a financial planner can provide for his or her clients?
Darren Zagarola: For me, the single most important thing is to not just “hear” what my clients care about, but to really listen to their stories. It’s vital to our relationship that I understand their concerns and what drives those concerns. Only then can I implement a financial plan that will help relieve their stress. Their priorities might be retirement planning, properly investing an inheritance they received, or ensuring they care for their heirs. Each one of these things represents a financial worry, and it’s our job as financial planners to ease their minds.
Also, financial planners provide the gift of perspective. When it comes to investing (and spending), emotional decisions are the enemy, resulting in underperformance and regret. We help clients through difficult times, whether it’s market turmoil, a recession, a pandemic, or a personal loss. We help take the emotion out of the decision-making process so they can make strategic long-term planning decisions about the things that affect their lives.
Question: In terms of investments, EKS Associates firmly believes in a buy-and-hold strategy and opposes efforts to “time” the market. Can you explain why you believe in those concepts so strongly?
DZ: One of the misconceptions about “buy-and-hold” is that it means “set it and forget it.” That’s not what we do.
We begin by setting an investment allocation based on the client’s specific situation and risk tolerance, and we continually monitor the investment portfolio to determine whether rebalancing is needed.
We look at the environment to determine if what is held within the asset allocation should change. Although we do not overreact to short-term market conditions, we implement a tactical approach within our overall asset allocation models.
For example, we look at what’s going on in the economy. If interest rates are not likely to rise in the next year, we rebalance to meet current conditions; maybe use intermediate-term bonds instead of shorter-term bonds. We set an overall asset allocation between equities and fixed-income based on the client’s needs. We then implement tactical changes when necessary, within the overall allocation.
Tactical asset allocation is different from market timing. Market timing is making decisions based on short-term volatility and what you might see and read in the news. It’s important to separate fact from opinion. Research shows that when investors try to time the market, their results are 50% less than those who buy and hold. Therefore, when investors engage in market timing, they inevitably miss out.
Timing the market is allowing your emotions to dictate your financial decisions. As financial planners, we want to buy low and sell high, which almost always means doing the opposite of your knee-jerk emotional response.
Question: Each client is different and has different financial needs, but is there an overriding thread that you try to instill in interacting with each client and approaching financial planning and investment management?
DZ: Our approach is to deliver a comprehensive financial plan to every client. It begins with understanding their personal and financial goals and carefully incorporates eight different areas that can impact their financial independence. We provide guidance on retirement planning, estate planning, tax planning, charitable giving, protection planning (i.e., insurances), family wealth planning, education planning, and cash management, including budgeting for retirement.
When it comes to investment management, we are not concerned with generating the maximum investment return but generating a return that meets one’s risk level. For example, we want retirees to set aside cash needs for a 3-to-5 -year period in a cash ladder. That will reduce the impact that market volatility could have on their lifestyle choices. By using mutual funds and ETFs, we are reducing volatility. The other key is rebalancing back to the original goal. At least once a year, we do that and check in with clients to learn if any plans have changed. We are consistent with that approach throughout our firm.
Question: What is the most common mistake people make in their financial planning?
DZ: The most common mistakes people make are not starting early enough in developing a plan, thinking it’s too late to create one, or allowing emotion to drive their planning and investment decisions. Those are the reasons we see when talking with people in more trouble than those prepared. The mistakes are so common that we published a series about the financial mistakes people make in different decades of their life, and how they can avoid them.
Question: Many people believe that hiring a financial advisor is too expensive and may try to do it themselves. How do you reassure people – make them feel better – about the expense?
DZ: Working with a financial planner should be viewed as investing in your future and your family’s future. When done right, a financial plan should address far more than just your investments. Our advice’s comprehensive nature can save money in areas like tax planning and estate planning and better positions individuals for an enjoyable retirement. Having a financial plan gives people confidence in their decisions and eases their worries about outliving their money. Not seeking out expert advice can be very costly in the long-run.
Question: What makes you love the work you do?
DZ: People make me love what I do. I’ve been involved in finance since I graduated from college, but I love people more than numbers. I realized early on that while the numbers are important, it’s ultimately what people want to achieve in their lives that drive those numbers.
I want to hear the stories people tell and understand the background behind the financial decisions they are making. We ask things like: “What financial lessons did you learn from your parents? What was the biggest financial mistake you’ve ever made?” The key is to get a feel for what a client needs and wants and understand why they make their decisions. We can then construct a comprehensive financial plan that goes beyond what the client is even thinking about. I enjoy helping clients dream bigger, and it makes me feel good when it’s clear I’ve made a difference in someone’s life.
Question: Last question: what are some of the biggest challenges you face in dealing with your clients?
DZ: We have a lot of conversations with clients that involve emotions and the challenges of life. When someone is going through a tough time – a health crisis, a job crisis, or the loss of a loved one – it’s our job to be there for them and their families. What people need most in these situations is someone they trust, and we are committed to providing clients with financial advice that will help ease their stress and protect their financial futures. Especially during these challenging times, we can show clients that the impact on their finances is likely short-term and give them a strategy to get through. As fee-only financial planners, we act as fiduciaries to our clients, always putting their interests before ours. We care about people, and it’s evident in how we work daily.