Jim's Take
Jim's Take
The Story of Vaughan & Co. Securities, Inc.
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Jim tells Tyler the story of how Vaughan & Co. Securities, Inc. was created. They discuss how the firm's expertise evolved over time and their services for their clients expanded to help client families achieve prosperity.
Welcome to Jim's take I'm your host, Jim Vaughn. And I'm here with my co-host Tyler Kennedy.
Speaker 2Thanks for the introduction, Jim. Today, we're gonna be talking about VA and co security zinc . How did it get started?
Speaker 1Uh , thanks Tyler. This is , uh , a family owned business. We started, my father started it many years ago, roughly , uh , 19 60, 19 64. Uh, he was an insurance agent , uh , he and man childhood friend of his by the name of Tom Carney. Uh , uh , both were in the insurance business, were looking for chances and places to sell , uh , life insurance policies. And one of the things they did is they found that small business owners were an excellent client for the life insurance business. Uh, they had families, they had business needs for the insurance and that's where they started. So , uh , Tom and my father started this business , uh, 1960 to now. So over 60 years ago.
Speaker 2Wow. And it's been family owned and operated.
Speaker 1It's been in the family ever since , uh, Tom and my father , uh , just a , kind of a interesting story. Uh, they, they went to several different high schools together. Uh, sometimes they were encouraged to leave whatever high school they were in. Uh, their mothers were very good friends, as you might imagine, they were either gonna be very good friends or not. But , uh , Tom Carney and Jim Vaughn were friends forever. Both of them, very good athletes. And they kept that up , uh , throughout their lives and ended up in the life insurance business , uh , long time ago.
Speaker 2How did your dad, or you get into the retirement plan business
Speaker 1Mid sixties or so there was a representative from upstate New York by the name of Kio . And he had what became his signature piece of legislation, which allowed , uh , small business owners, professionals, really professionals is, is what was important to my father and , uh, Tom Carney. And this man's name was Kio . And he came up with what are known as Kio plans, essentially retirement plans for these small businesses. The K plan was allowed to buy life insurance. Uh, and that's, that's what started the interest into the retirement plan world from these Keo plans. Then the next evolution in the law was that professionals, mostly doctors, but some , uh , attorneys were able to incorporate and created professional corporations. We in New Jersey called them , uh , professional associations. Those small businesses could establish their own retirement plan. Their retirement plan could buy the life insurance. And so that got us , uh , into the retirement plan business. And it's also important to remember that in the sixties income tax rates were rising. And , and so these plans became very effective , uh , tax shelters, essentially for the owners of the businesses and of course for their employees , uh , that, that was a big part of , uh, our retirement plan and these , all these small Kio , which we became professional corporation, retirement plan became the basis for a growing retirement plan business. And frankly, that became an expertise of ours from the sixties until , uh, about, about 19 late eighties, 19, 1980s, that became , uh , an expertise of ours.
Speaker 2Jim people back then bought life insurance in these Keo plans in order to plan for retirement. Is that what you're saying?
Speaker 1Uh, in a world of, and , and we're talking about the 1970s and 1980s income tax rates were 50, 50, 60 , 70% . In addition, interest rates were extremely high it's, it's hard to imagine nowadays , uh, but 10, 12% interest rates were common. The , the effect of this was that, Oh , owners of small businesses were desperate for anything that was tax deductible. And you could put large amounts into whole life, universal life type of insurance policies inside the retirement plan . Most of these professionals needed some life insurance. Uh, they were happy to have the policy. The policies would grow cash value. You could put roughly half the money in the retirement plan into the life insurance. The balance would be invested , uh , and in a world of , uh , 50% income tax rates. These owner, as we're looking for larger and larger tax deductions, meanwhile, the life insurance policies could offer seven, eight, 9% returns because bond yields were 10, 11, 12% returns.
Speaker 2I know , uh , retirement plans have evolved. Are these Kio plans still around? And when do 401ks come into effect?
Speaker 1Well, in the seventies, Congress passed Arissa, E R I S a , which formalized and created a federal structure for retirement plans, compliance rules , uh, all had to be followed by the way. My father started a second business at that time called pension administrators, Inc. These retirement plans had to be administered. Uh, there was many rules that had to be met. And of course these small business owners had no expertise in retirement plans, or Rissa
Speaker 2Sorry, I don't mean to jump in here. What , what does Rissa stand for?
Speaker 1Uh, the employees retirement income security act and was passed in the early seventies with a variety of different effective dates on the , uh , legislation. So it, it was designed to protect the participants in these plans. It also had the effect of limiting how much the owners and could receive out of these plan , uh , pension administrators, and my father's then right hand man, Paul Brady , uh , founded pension administrators created this company and , uh, our business evolved to where we were , uh , seen by CPAs, seen by attorneys as experts in retirement plan administration, as well as my father continued the life insurance business, the pension business continued to evolve. Uh, and in many ways in response to Ronald Reagan and the acts act of 1986, if you remember back in your history, there was kind of a famous compromise , uh, between Reagan and , uh, house member Rosen. Kowski , I'm throwing a blank on his name is from Chicago. They, they came up with this compromise that lowered in income tax rates down to 28% in the tax act of 1986. The effect of that was that the motivation to make large contributions into retirement plans was decreased substantially because tax rates were only 28%. They were not the 50, 60, 70% rates that they had been at one time. Uh, earlier in the eighties, meanwhile, there also became an evolution that the retirement plan business started becoming the 401k plan business. Uh, employees would make contributions out of their own funds into the plan. The employee would make a matching contribution. The net effect was that the employer cost of the contributions went down and went down significantly. Uh, pension administrators made a decision not to become much of a player in the 401k business because that was moving to the internet. But we did start to get involved with the investment side of the business. And we became a firm that invested the funds inside these retirement plans, which were evolving into 401k plans. And so that was the big motivation was both the tax law changes as well as the nature of the plan became 401k plans. And it's important to point out at this this time that this was the start of our evolution from investing a pot of money for a group, which is a retirement plan to investing a pot of money for a specific and participant. And this was important. Uh, the 401k plan has a virtually taken over the retirement plan landscape. The providers of services in that business are all internet based large organizations, and yet the need for individual advice to the planned participants continues.
Speaker 2So the retirement plans that you're talking about for that one pot of money, a lot of times that's referred to as a pension and then the 401k , each participant in the 401k that's their money. That's not like even though it's part of the plan ,
Speaker 1Uh, I keep it quite call it their money yet. Certainly it's in an , in , in account with their name on it. Uh, but the IRS still thinks that the IRS has a claim on that money and certainly no taxes have been paid on this money. So the IRS to an extent is accurate. Uh, they have a claim on the taxes due on the funds, but in almost all 401k plans, there is a planned participants whose name is attached to an account with that. Our firm evolved away from investing large , uh , account retirement plan dollars pension land dollars . As you correctly point out , uh , into this 401k plan world, where we are investing for a plan participant it then became a very natural step for us to start providing advice to the owner of the business regarding personal funds. Uh, it became a very natural step for us to start doing retirement planning for the owners of the companies.
Speaker 2We'll be right back after this. Jim, can you tell us a little bit about your background and how you ended up joining pension administrators?
Speaker 1I had a traditional way . I went to college, went to law school clerked for a judge, started practicing law , uh, and had a , uh, very short first , uh , relationship with the law firm , uh , decided to go on my own and really looking to join another law firm. But I , uh , came here, in fact in this office started practicing law, doing wills and trusts. Uh, did some estate planning for clients closed some houses and so started opening up , uh , and practicing law as a local small town lawyer , uh, still looking to go join a larger firm, but while I was doing that , uh, I got more interested in the pension administration business. In fact, I, I ran it at one time and I developed quite a bit of expertise , uh , regarding retirement plans. All of that was taking place at the time. Uh, this was, this was early eighties. So the tax rates were high. Retirement plans were being sold as tax shelters for the owner, which by the way, would help the employees, the , uh, the evolution that occurred because of the 1986 tax act, which lowered a rates substantially, and also had the , the side benefit of having 401k plans take off because 401k plans were much more directed towards employees and helping them because a dollar amounts were smaller. So I was, as this business evolved into the investment business, that was really the time when , uh, I, I joined
Speaker 2You joined pension administrators and you end up running pension administrators. When did VCO securities get created?
Speaker 1Uh, we were, were at that time part of a larger investment firm, and we didn't understand why we should be paying them , uh , a portion of all of the back then they were all commissions earned on any investment that you received, why should we should be paying them? So we started foreign company securities, and I'm gonna say it was about 1984 that we decided to go out on our own. And back then to start your own broker dealer. Uh, we had had to , uh , range a , uh , clearing firm, which was the firm was actually going to hold the securities and place the trades. And at that time there were many firms on the floor, the New York stock exchange and Rob heck and oui was one of the firms were referred to by a personal friend. So they were our first clearing firm. We hired a consultant for a modest amount of money. Uh, we had to put a modest amount of money into a deposit. And within a few months , uh, we had wanted company securities and we were operating in the investment business. The , and , uh, so that would be 35 years ago,
Speaker 2Just to recap everything so far, your dad started off selling life insurance, which evolved into retirement plans and pensions, which he created pension administrators to help business owners set up pensions and retirement plans. You , you join with your dad and Paul Brady. Then you see this opportunity in 401k plans as investment advisors, which in turn you and your father create VCO security , Inc. How did your investment expertise evolve and change over time?
Speaker 1As you know, and most, most people listening would know , uh, mutual funds are the investment of choice in 401k plans. So in order to set up a 401k plan, we had to , to set up a menu of mutual funds for the client to invest in evaluating those mutual funds, evaluating literally thousands of mutual funds became part of what we did. You then had to go the next step of continuing to evaluate these mutual funds , uh, for the clients, the trustees of the 401k plans , uh , each year related to that is that you also had to help the plant participants select the mutual funds for themself . So we started evaluating mutual funds and, and you have to invest and analyze the investment advisor of those mutual funds. From there, we moved on to evaluating specific investment manage firms . Uh, all of these mutual funds are actually run by a firm that picks the individual investments. We decided we'd take a look at, for some of our larger clients hiring the investment managers themselves. We then kept evolving and we decided that with our expertise and with our knowledge, we could manage the client's accounts for less, for lower fee than what they had involved with their current program. And so, approximately 30 years ago, 25 years ago, we began managing client accounts using mutual funds. Uh, we then moved from mutual funds, which as a rule are more expensive than exchange traded funds <affirmative> . And probably about 15 years ago , uh, we began to evolve into using exchange traded funds for our clients' accounts. We continue to use some investment management firms because they have either a longstanding relationship with our clients or have some expertise, special expertise that the client wants to utilize , uh , for the investment program. Uh , today we're an investment advisory firm and we manage our client's account using ETS
Speaker 2Phone and co has actually gone through quite a big transition there from when it was first created as a broker dealer . And now it's a registered investment advisory firm.
Speaker 1Uh, we did, we did have a , a big change. A , a broker dealer is designed to collect commissions from clients based on selling a product. Uh, and that's how the investment business worked forever. Uh, registered investment advisors, only collect fees from their clients. Uh, we, about two years ago, we, we made the decision to drop our broker dealer registration and become a registered investment advisor only , uh, that, that involved us changing our custodians. Uh , but more importantly, we now have a relationship with the client where we're the fiduciary. We make the investment decisions for our client's accounts. Uh, and we're an investment advisor only firm
Speaker 2Jim. So our fee is cash as a percent of assets under management,
Speaker 1Correct? That's correct. We get paid a fee from the , the, the most important part is that we get paid only from the client. We do not get paid from the mutual fund company or anybody else that we , uh, you know, sell their, sell their product. We only get paid from the client clients. Uh , they pay us a fee based on a fee schedule that fee decreases as the value of the client's account grows. The goal is the client wants the account to grow. The client wants to prosper. And we're lucky in that our firm prospers as our clients prosper.
Speaker 2We've talked about the past, we've talked , just talked about the present. What's the future for VCO ?
Speaker 1Well, first , uh , on the future, let's, let's see if I can answer that question from the client's point of view. Uh, we attempted frequently successfully to help the client accumulate enough assets to actually retire. Many of our clients have retired. Uh, they have left their practice. They have left their business. They're able to live on the investments that they've accumulated by the way, our philosophy on investing has become equity oriented. Uh, recall that in the, when we got it into the business in the seventies interest rates or 10, 11, 12% , uh, today interest rates are 2% equity market returns have been high. Recently. They fluctuate at all times. And we , part of our philosophy is that we encourage clients to be equity oriented investors. Part of this philosophy is not only so there's enough money for the client to retire on and also enough money to give them an annual raise, to respond to inflation. And we haven't had to worry about inflation for quite some period of time, 10 years. And now we do so it's important that clients see that they or assets are expected. Boy, we don't know the future, but the client's assets are expected to grow over time and they'll be able to maintain their standard of living. All of this is very important from the clients' point of view because the clients are going to pass their assets along to their children. Uh , they not only wanna pass the assets along to their children, but they have to pass along. We believe they have to pass along in investment philosophy so that the assets in the children's hands will continue to grow. And that becomes part of our job is that we have from investing the clients' funds to retirement income planning for clients to becoming the family financial advisor. And we are very active with our clients and with their children in trying to make their investment programs grow from my personal per interview, I kind of started at the end of this, in that I did a lot of estate planning and wills and trust, which makes me very comfortable with the estate planning process. I also think I'm comfortable teaching my clients and teaching , uh , the fellow employees that we have here. Uh, we are actually, we've been pleased that we have approximately 135 households as clients. Their assets that they have entrusted to our management is approximately , uh , 270 million of clients , family assets. Uh, I'm pleased Tyler that you have come and joined us and intend to become a financial advisor and keep this moving. Nicole and totally is an important part of our, a service and advice to you. Now, she is my right hand and will be a very important part of our service to our clients going forward. I hope that we're able to keep her until she stops working. That's my plan. And we are also looking to have some mid-career people come and join us because we'd like to grow all of which would be consistent with our philosophy of investing for retirement income, utilizing equities. So the client's accounts grow and then teaching our, their children, our clients' children, how to do it all over again, for more information about foreign company securities, please see the show details, please like, and subscribe wherever you get your podcast. Thanks for listening. See you next time,
Speaker 2Bon and co securities , Inc. Disclaimer, they should not be assumed that your account holdings will correspond directly to any comparative indexes or any of our existing client accounts. Investment in foreign securities have additional risk, including the risk of adverse currency fluctuations. Please remember that different types of investments involved, varying degrees of risk current and future results may be higher or lower than those shown figures shown are past results and are not predictive of results. In future periods, share prices and returns will vary. So investors may lose money investing for short periods of time, make losses more likely. It should not be assumed that recommendation is made in the future will be profitable or will equal past performance for the bond dividend growth program performances based on that was managed for the longest period of time and results are illustrated from inception. All income dividends, interest and other earnings are reinvested. Performance based fees can only be utilized by individuals who meet the following qualifications. A natural person who are a company that immediately after entering into the contract has at least $1 million under management of the investment advisor or a natural person who, or a company that the investment advisor entering into the contract and any person acting on his behalf reasonably believes immediately prior to entering into the contract has a net worth together. In the case of a natural person with the assets held jointly with spouse of more than 2.1 million , the allocation program performances based on an account that was among the earliest to use the program VA and co secur Inc believes that these results are representative all income dividends interest in other earnings are reinvested. There may be economic or market conditions that affect performance VA and co securities zinc by concentrate positions for our portfolios, which may ache our performance more volatile than that of broad market indexes. And our performance may diverge from an index positively or negatively as a result. Investments are not F D I C insured nor are the deposits of, or guaranteed by a bank or other entity VA asset allocation program and bond dividend growth accounts results are net of all fees, reflecting trading, commissions, maintenance, custody, advisory, and performance fees. If any, it should not be assumed that the recommendation may in the future will be profitable or will equal past performance data and information contained in any chart used by VCO security , Inc has been supplied by sources. We believe to be reliable, but is not guaranteed. Accounts held at fidelity investments are covered by civic .
