NOTE: Since doing this interview, Tony Noto is no longer based in China. He is now based in Honolulu, Hawaii and still deals exclusively with American expats, with most of his clients being based in Shanghai or Singapore. Find out more by visiting his website.
Tony Noto is a Fee-Based American Financial Advisor
If you’re an expatriate American looking for a financial advisor, I found someone you may be interested in.
His name is Tony Noto, and he builds portfolios of indexed investments, much as I described in my book, Millionaire Teacher. Here are the advantages:
- No sales commissions
- Low taxable consequences for portfolios
- No back-end loaded penalties for selling funds
- He’s the lowest cost, most highly trained fee-based advisor I have encountered in the region
For just 1 percent per year, Tony Noto will create and manage your portfolio, while offering broad financial advice on retirement planning, taxes, college savings and insurance
He’s rare in the financial service community because he puts your interests ahead of his own. This is how fee-based advisors roll, when they build portfolios of index funds.
Recently, I had a chance to interview Tony.
Andrew: Was becoming a fee-based advisor a tough decision when you knew that you could make more money being a bit more….conventional?
Tony: My first job as a financial advisor was actually with one of the companies selling offshore pensions to expats in Shanghai. I thought commissions could be fine since that is how most of the industry operates. Before selling a single offshore pension, the first thing I did was research the product to make sure I understood it well, thinking this would help me be better at the job. Instead, I learned enough about the product to make selling them impossible. Since the highest commissions are paid for recommending the worst investment products, I quickly realized I did not want to work for commissions.
Long-term, I expect commissions for financial advice to disappear. Commission incentives have caused so much advisor misbehavior that regulators in the UK, Australia and Netherlands are banning them for Independent Financial Advisors (IFAs) in 2013. In countries where they have not been banned, better educated clients are their biggest threat, and the internet makes it easier than ever for people to learn how much ‘free’ advice actually costs them. Along those lines, your website certainly helps.
Andrew: I know that at Singapore American School, many of the teachers are still paying 5.75% loads on their mutual funds. And a few are paying advisor wrap fees of up to 1.75% on their investments—not including the 1.5% they are paying in expense ratio charges. I’m thrilled to hear that you said no to such options yourself. When and how did you learn that index funds were better for investors?
Tony: While I was an institutional stock trader, I believed in an active investment approach [actively managed mutual funds and stocks] at work and with my personal investments. When speculative positions worked out well, I liked to think it was skill. When they did not work out well, I beat myself up for not being better able to predict market prices.
While preparing to transition to financial advisory, I read a lot of personal finance books. The first person to convince me of the benefits of index funds was William Bernstein, a colorful writer with strong opinions. Jack Bogle, Rick Ferri, Charles Ellis, and Larry Swedroe were also big influences as I made the switch to a passive [indexed] approach.
It is rare for an actively managed fund to outperform its benchmark [index] over the long run. Using a passive approach with index funds puts the odds back into your favor, and it is also very empowering as you learn how to tell the difference between luck and skill, and between speculation and investing.
Andrew: Do you think most advisors realize that most of their clients would be better off if they invested passively, with indexes?
Tony: I believe the vast majority of financial advisors are trying to do the best they can for their clients. A big part of the problem is the multi-billion dollar marketing campaigns promoting the idea of outsmarting the market. Just like the public, financial advisors succumb to the belief they can outsmart the market, even when they know the odds are stacked against them.
Academic and empirical studies have shown that actively managed funds cannot keep up with index funds over the long run. Another part of the problem is that no one is paid to promote these types of studies, and no is paid to sell index funds. As Upton Sinclair pointed out, it is difficult to get a man to understand something if his salary depends on his not understanding it.
Andrew: I was giving a talk at an EARCOS teachers’ conference two years ago in Borneo, and I mentioned that the minimum requirement to sell mutual funds in the U.S. is a certification called the Series 7. The test can be studied for and passed in just 3 weeks with no prior experience required. I didn’t realize that I embarrassed a woman in the audience. In attendance was a woman who probably sells more mutual funds in south-east Asia than anyone else. As a rep with Tie Care Financial, she’s enormously successful, and she and her husband challenged the presentation until the audience told them to be quiet. She has a Series 7 certification. What qualifications do most advisors tend to have? What are your qualifications, and while being trained, did you learn about the better odds associated with indexed investing?
Tony: I am a Certified Financial Planner (CFP) for US-related planning issues and a Chartered Financial Analyst (CFA). The curriculums for both address efficient market theory, which the passive [indexed] investment approach is based upon. But it was not until I read books by Bernstein and others that I became convinced of the benefits of a passive approach.
Unfortunately anyone can call themselves a financial advisor, regardless of qualifications or services provided. Some advisors have no credentials, and some credentials serve no purpose other than to provide a false sense of credibility.
The Wall Street Journal’s “Your Financial Dream Team” highlighted the CFP, CFA, and Certified Public Accountant (CPA) as top credentials for financial advisors, as they all require significant coursework. I would add that CPA financial planners should also have the Personal Financial Specialist (PFS) credential.
Andrew: Tony, what fees do you charge and what is your investment philosophy?
Tony: I charge 1% of assets under advisement for a one-year retainer that includes financial planning and investment advisory. I include financial planning with my services because some things are more important than an investment portfolio, such as adequate emergency funds and insurance coverage.
My favorite book on investment strategy is Tim Hale’s “Smarter Investing.” His book explains many aspects of the investment approach I recommend. We construct passively managed portfolios with index mutual funds and ETFs. Risk is managed primarily through the balance between stocks and bonds, and we rebalance over time as cost and tax efficiently as possible. Adjustments are based primarily on changing personal circumstances instead of market expectations.
Andrew: I’ve read plenty of books on investing Tony (more than 400) but I haven’t read Tim Hale’s book, Smarter Investing. I’ll check it out. If it passes my inspection, I’ll add it to my honor roll of investment books. As a financial advisor, you are managing people as much as you are managing money. Could you explain the challenges associated with this?
Tony: Behavioral finance comes into play in a variety of ways, for example in dealing with emotional ties to long-held investments and employer stock. With index based passive investing, the challenge is that the concepts are straightforward, but implementation can be difficult. Emotions and lack of understanding can easily throw people off track, especiallyduring times of crisis.
Another challenge is that index investing is nowhere near as exciting as trying to pick the next Apple or Google. The financial media pulls people off track during good times and bad, with stories like ‘Top 5 Funds to Buy/Sell Right Now!’ Aside from explaining what approach and products to use and why, a good financial planner also helps clients follow through with their plan.
Andrew: As a financial writer, I’ll admit that I’ve pushed the excitement of investing in individual stocks in the past. It’s dull for writers to recommend buying and rebalancing index funds for the rest of their lives, even though it’s the best approach. I’ve tried to make up for that stuff with my book, this blog, and this recent article I wrote for Assetbuilder. As a low cost fee-based advisor, what challenges have you found?
Tony: It is challenging to be 100% transparent while most of the industry still hides its fees. The most dramatic example is when I have someone that was sold an offshore pension tell me that a 1% fee for a comprehensive plan is too expensive. These situations present good learning opportunities about the cost of ‘free’ advice.
Another challenge is investment fund selection in Asia, which is weak compared to western markets. I think this will improve if Hong Kong or Singapore ban commissions for IFAs [Financial Advisors]. Without commissions, product providers are forced to compete based solely on customer benefits, which should lead to more index fund selection and lower fees.
Andrew: I’m very impressed by your philosophy, low fee structure, extensive training and honesty. What is your firm called, and are you accepting clients (and from where?)
Tony: Noto Financial Planning is based in Shanghai, China, and I am accepting new clients. Since the US taxes its citizens on worldwide income and I earned my CFP designation in the US, I specialize in working with American expats. Most of the people I work with are based in China and are introduced through referrals. I work with non-American expats and people based outside of China on a case-by-case basis.
Andrew: How long have you been in business and how many clients do you have?
Tony: I began my career in finance at the New York Stock Exchange in 1999, and worked as an institutional stock trader until 2007. In 2008 I passed the CFP exam and then established Noto Financial Planning. I have worked with about 50 expat individual and family clients, focusing primarily on corporate executives and entrepreneurs.
Providing holistic advice, along with an ongoing relationship for support with follow-through limits the number of clients an advisor can take on. I went the more customized route because I wanted to develop closer relationships with my clients, and it also improves the likelihood that people actually get action points accomplished. The benefits of financial planning are only realized if it leads to action.
Andrew: Many American expatriates might wonder why I am recommending that they pay someone to manage their money, rather than building indexed portfolios themselves. Some people have the emotional discipline to do so (and may not need an advisor) but most people are swayed, unfortunately, by fear, greed and the media.
Tony: You’re right Andrew. Plus, good investment managers help their clients develop an investment strategy and stick with it, but in working with my clients I also try to help them see the bigger picture and address all aspects of their financial situation. For example, it is also important to look at employee benefits, emergency funds, how to deal with foreign currency risk and look for ways to minimize income taxes. Having insurance coverage reviewed by someone that is qualified, but not paid to sell it is another significant value-added service. I believe people are better served with this type of holistic approach.
Andrew: Thank you for offering an honest, complete investment service at such a great cost Tony. I wish your business well…very well in fact.