Essex Financial on a comeback
Editor's note: The original version of this article gave the incorrect number of financial advisers at Essex Financial Services.
Essex — When the founder of Essex Financial Services was accused of paying an illegal referral fee to secure a large account, then covered up his misdeed, government investigations sent ripples throughout the company.
Essex Financial, a subsidiary of Essex Savings Bank, lost some of its top financial advisers. It also lost customers.
Into the breach stepped an insider, Charles R. "Chuck" Cumello Jr., who was quickly tapped as chief executive officer and president of the company while founder John Rafal, for a time, stayed on as vice chairman in what appeared to the public to be a succession plan. But Rafal eventually was fired and agreed to a ban from the securities industry under pressure from the U.S. Securities and Exchange Commission.
"We handled it the way we should," Cumello said in an interview this month at an Essex Financial conference room. "At the end of the day, this is a trust business; there is a right way and a wrong way. ... We navigated some rough waters, but we did what we had to do."
Essex Financial wound up having to pay a fine for the incident, but many of Cumello's colleagues agree it was Cumello's steady hand and insistence on transparency that earned Essex Financial their continuing trust.
One of Cumello's advocates is John Patrick, president and chief executive officer of Farmington Bank, which has a joint marketing arrangement with Essex Financial that allows its customers to have access to financial products and services.
"Chuck kept me abreast of everything," Patrick said in a phone interview. "He's done a terrific job considering the (situation) that he inherited."
Now with nearly 50 employees and a reported $3.4 billion in assets (down from nearly $3.9 billion at the end of last year), Essex Financial is one of the biggest independent financial-services companies in the state. In addition to its money managers here, the company has offices in Southport, Madison, West Hartford and Farmington.
In his office sprinkled with Giants football posters and a depiction of a large sailing ship with a prominent American flag, Cumello keeps track of the market on several computer screens perched on his desk. He pointed out some of the huge gains seen so far this year: Amazon and Facebook both up more than 50 percent, for instance.
"One unique part of the market is the lack of volatility," he said. "In fact, it's the longest streak of the S&P 500 (Index) ever without a 3 percent interday drop."
Despite his interest in the market, Cumello, like many advisers, tries not to be too swayed by the trends. Even with stocks showing remarkable results this year, he often still recommends a percentage split of 60-40 between stocks and bonds, which he noted also are doing well in 2017.
Anything approaching a 75-25 percentage split, he said, "is way too much risk."
Still, there's no one path for everyone. The custom portfolios that Essex Financial builds can vary widely, he said, depending on a person's age, financial situation and risk tolerance.
"Everything is possible if you have a plan," he said. "A lot of our work is retirement income planning."
With what is known as Monte Carlo analysis, Essex Financial is able to run a string of scenarios through the computer to help make the planning process easier to understand. Financial managers consider a wide range of factors, including life expectancy, paying for kids' college, charitable giving and whether clients want to leave a legacy.
It is this personal touch that Patrick at Farmington Bank sees as the sweet spot for Essex Financial.
"Real people are assigned to accounts, and they require an ongoing dialogue with clients," he said. "We don't need somebody selling something just to get a commission. ... They react to the changing dynamics of clients."
Patrick said he liked that wealth-management specialists at Essex Financial get back to clients within 24 hours to talk about their concerns. He also believes the company invests clients' money safely, something that is particularly important to a community bank like Farmington.
Still, a lot of it is timing, Cumello said. Those unlucky enough to retire in 2007 to 2008 needed a lot of time to recoup losses, he added, but they didn't necessarily have the time.
Today is a different story. The runup has been so powerful this year — all markets having risen by double digits, and most up in the 20 percent to 30 percent range — that there is a need to rebalance and put some of the gains into safer bonds, he said.
"It's been a heck of a run," he added.
Much of the market runup has been in the expectation of Congress passing new tax legislation benefitting investors, so Cumello noted that financial gurus are a little hesitant about getting too excited lest Washington backtrack once again.
In this climate, he said, it makes sense for high tax bracket investors to look seriously at fixed-income, tax-free bonds. He also likes to use funds that mimic the performance of bundles of stocks, known as Exchange Traded Funds, to keep costs down while reducing the volatility of individual stocks.
Cumello, a graduate of Bentley College who previously worked at Union Trust Co. and Fidelity Investments, admits he is always nervous about the market, whether it is doing well or poorly. But he said that just because the current market is one of the longest-running bull markets in history doesn't mean it will necessarily end anytime soon, so he doesn't recommend timing the market by pulling out of stocks.
"A bull market doesn't just die of old age — something happens," he said, whether a terrorist attack, a political event or some action by the Federal Reserve. "Our biggest job is not to make emotional decisions."