So an SEC attorney and a Congressman walk into a bank...
If that sounds like the start of a comedy routine, then your name isn't Roderick Day.
Day, 37, is a financial advisor with Securities America who works out of the U.S. Senate Federal Credit Union on Capitol Hill in Washington, D.C.
He has been a financial advisor for 16 years, the past seven of which he's been working the Capitol Hill market. Before his current job at the Senate credit union, which includes other federal agencies in addition to the Upper House, Day worked at the Congressional Federal Credit Union, which serves House members and their staffs.
Day has seen his share of government workers—some of whom are on financial services committees and others who actually write financial laws. But he notes that their lack of financial literacy, on a personal level, is astounding.
"I've had career members of Congress come to me in a panic saying they had bills to pay or a child's college tuition coming up, and they needed to know how to manage their budget or to raise more cash."
And that SEC attorney wasn't just the set up for a joke. Day recalls when said SEC staff attorney came in to his office looking for a financial advisor. He remembers that talking with her was an "almost surreal experience." She admitted—though quite sheepishly—that she had never actually viewed a prospectus. She subsequently became a client, and is one of Day's three current clients from the Commission. None of them, however, "were at all knowledgeable about their personal investments," he says.
Another SEC client who needed to do an IRA rollover, came to Day as a referral. A client brought a friend to "hear what I had to say." As he explained the rollover process, the friend listened quietly. "Then she spoke up, saying, 'I wasn't going to say this, but I'm an analyst at the SEC, and I'm embarrassed to admit it, but I know nothing about this. I've always been afraid to go to a financial advisor, but now I'd like to do the same thing with my retirement funds,'" Day says. "It was amazing to me; she didn't know step one. When she first announced that she was from the SEC, my first thought was, 'Uh-oh! Is this how they audit people, like the mystery shopper kind of thing?'"
But now she's a client. "It turns out everyone needs guidance—at some point—with their personal finances, even those who make policy decisions or who provide the oversight," he says.
Day was first lured to the Congressional FCU by a headhunter who had contacted him when he worked as an advisor with Northwestern Mutual Financial Network. "This guy told me about how credit unions have this real customer loyalty, but that because financial advisors tend to move around a lot, they don't get to take advantage of that. I basically took a leap of faith and moved."
Still, Day describes his first few years as "torture." He says that he didn't do well at all. "There was no book to take over, and the credit union wasn't referring people. There was a total lack of trust by the CU staff in financial advisors because of their short tenure." He worked hard to change that, he says, partly by taking on the 401(k) and group benefits program for the CU staff. He worked out of eight credit unions that were affiliated through CUSO Financial Services in the capital. "But it was the Congressional and Senate FCUs where I got the most traction."
CUSO's idea was to have a pool of advisors serving the capital's credit unions. When Day started, he was one of five, but four quickly dropped out, and for 18 months he was alone on the job. "I circulated, went to sporadic referrals and spoke at meetings," he recalls. "After a couple of years of this, I knew what was working for me and realized that the Congressional and Senate FCUs were it, so I gravitated to them."
Day eventually narrowed his focus even further—to the Senate FCU, and subsequently hired someone to handle advising at the Congressional FCU.
Over time, he managed to build up a relationship with the Senate FCU staff and the referrals started rolling in. "I began by explaining my business to the employees of the credit union, and explained how my success would depend on their referrals, he says. "Now 60% of my referrals come from the credit union and 40% are word of mouth from my clients." Business has really taken off over the last two years, with his production growing from $250,000 in 2009 to $350,000 last year.
One of the hurdles Day had to overcome with his client base was a widespread fear of the private sector among federal employees. "These people were scared of the stock market and they wanted their assets insured," he says. "So I got their feet wet with small investments in a balanced fund and then, when they saw that the world hadn't ended, they could add assets," he says. "But it's not a one-step process. It can take a number of meetings. They have led very secure lives—I've never met a federal employee who's been fired or terminated—and they can be pretty skittish."
Working with members of Congress can also require a certain sense of discretion, Day says. "I have to be careful not to let my own views on controversial things like Social Security enter into the conversation," he says, "so our discussions can tend to be pretty one-sided. Most of these people don't talk policy, but when they do, it's usually a very strong opinion, almost like they're trying to prod you to get a response."
So what does Day really think about the issue of Social Security and the pressures it faces from the baby boom generation? "I'm pretty conservative," he says. "I like the idea of privatizing the system, but I don't think it should be done all at once or drastically."
To address the general lack of financial literacy, he believes there should be some level of education required in school. Young people need to understand the importance of putting some of their money away when they earn their first paycheck. "As it is, right now there are kids getting out of college who don't even know how to use a checking account."
Another common personality trait on Capitol Hill that he's observed is the tendency to keep personal viewpoints out of political policy opinions. "These people tend to [consider] their political policy views and their personal views very separately, and often they can be very different."
For example, he says there is a congressman who is a "very staunch advocate" of the Social Security program. Yet, when it comes to his own retirement, he's very solvent and "has absolutely no expectation of relying on a public retirement program for his retirement. He has never even wanted to count on it, or to consider it in his financial planning."
Of course, as Day points out, members of Congress do pretty well when it comes to retirement. Most members fall under the Federal Employee Retirement Program, which vests in five years and takes into account years served and the average of the last three years' pay. So a member of Congress who has served 22 years and earned $153,900 each of the last three years would retire at $84,645 a year. But as Day notes, "Most of these people in Congress, including staff, don't retire when they leave. Even when they lose an election, it's not such a bad thing for them. They end up getting hired by lobbying firms and can get paid over $1 million, significantly more than their old salaries. For some of these people, Congress is just a stepping stone."
And sometimes, what's good for the goose is good for the gander. "Actually, that's where I'm going next for developing my business," he says with a laugh. "To the lobby groups; it's a very lucrative market."
Name: Roderick K. Day
Bank: U.S. Senate Federal Credit Union
Location: Capitol Hill, Washington, D.C.
2010 production: $350,000
2009 production: $250,000
2010 AUM: $20 million
2009 AUM: $16 million
No. of branches: 4 (3 in Washington, D.C.; 1 in Va.)
No. of clients: 300
Product mix: 75% mutual funds; 25% annuities