Leading the Way in Values-Based Investing with George Gay

00:00
Charlie Van Derven
Welcome to another episode of RIA Collective. I'm your host, Charlie Van Durban. We're helping take the fear and mystery out of going independent. If you're a captive adviser and you find yourself in a space that maybe doesn't fit what your needs are today, you're in the right place, because we bring great resources together to help you make that move to independence a little easier and help you retain more of those assets when you make the move. I am honored to be able to interview our guest today. Our guest, George Gay, started First Affirmative Financial Network out in Colorado. And George, what, 1986, is that right? 

00:38
George Gay
That's when I started here at the firm, yes. 

00:40
Charlie Van Derven
Okay, so you didn't start the firm. My apologies. I got off I got off wrong right there, George. But you are CEO of First Affirmative. I got that part right. 

00:48
George Gay
That's correct, George. I got my cfp. I started my cfp while I was still in the army at Fort carson. 

00:55
Charlie Van Derven
Okay. 

00:56
George Gay
I knew that I wanted to get into the industry, so I met somebody who had started this company, and I joined him, and I became the chief operating officer a few years later, and then a few years after that, became chief executive officer. 

01:17
Charlie Van Derven
So awesome. I saw on your LinkedIn profile that it was 36 years last month. 

01:22
George Gay
Yeah. That time flies when you haven't. 

01:27
Charlie Van Derven
20 plus years in the industry. Myself, I look back, I gosh, I can't believe it happened so fast. 

01:31
George Gay
Yeah. 

01:32
Charlie Van Derven
George, one of the really cool things that you bring to the table, obviously, is your foundation in ESG, which I think is a buzz term now. Right. Everybody's socially conscious with investing, but you were doing it before. It was cool. 

01:47
George Gay
We were doing it when were just sandalwearing hippies, hugging trees, apparently. Like I said, I came out of the army into it, and I've always looked at it as, people should invest in accordance with their values. They should accept responsibility for what their money does in the world. That's where we try to respect everybody's values and help them to accomplish that. 

02:19
Charlie Van Derven
That's awesome. The group that we're impressing upon, George, is that advisor that's maybe five, seven years into their career, they got their finance degree. Altruistic. Looking at the industry is obviously an opportunity to make a fine living for themselves, but to help people along the way. They get to a wirehouse firm and find out that maybe their greatest skill is the speed at which they dial a phone. Maybe ten years ago, that was the case. Right. It's really the sales versus the investing acumen or the help that they can provide other people that is primary at those firms. What you bring to our conversation today is a demonstration of really one of many paths that someone can take in this industry. My goal is to unpack ESG. You've got the impact conference. Right. You do that every year in Colorado Springs as well. That was just last month. 

03:20
Charlie Van Derven
How did that go this year? 

03:21
George Gay
This year were really pleased. We had a little over 300 people. We got really positive feedback on the agenda. One of the things that I'm hoping is in the previous year, were the first conference to receive the Gold certification from a new organization called Choir, which takes a look at diversity in conferences. Basically you can't be what you don't see, kind of a concept. Were more diverse this year than were last year. We're in the evaluation process right now, but I expect it will be the first conference to get two Gold certifications. We launched a new product. We had a great time. We had a party at the end and danced and did all the things that we're kind of well known for. 

04:32
Charlie Van Derven
Yeah, very cool. I have so much respect for what you're doing for our industry. Right. Our industry, and it's an industry I've served I've never sat on the advisor side of the desk, but it's an industry I've served for 20 years and you for 35, 36. Our industry has had a bad reputation over the years. George. I can't imagine. We tried to change some things with the cfp and pricing models going. Fee based, socially conscious investing, which correct me if I'm wrong, was really a focus even back in 1986 when you joined the firm, or is that something that you evolved into? 

05:19
George Gay
Actually, we started it in 1988. We were actually structured as a co op, which was an unusual structure for advisory firm. The National Cooperative Development Bank in Washington, DC. Hosted a conference in 1988, and the guy who founded First Affirmative went to that event and met the founder of a national nonprofit. The nonprofit wanted to provide financial planning services to their membership, but they wanted somebody who could do social investing. Ed came back and said, we're going to do socially responsible investing. And and I said, wonderful. What is that? We started to look, since we didn't think we could support a 30,000 member national nonprofit out with six people in an office in Colorado Springs, we started to look for other independent advisors around the country who were at least doing some amount of work in that space. In 1988, that was very much individual people working out of their home offices for firms who didn't have the slightest idea of what it was they were trying to do. 

06:44
George Gay
What were able to do was create a community of advisors that had a shared set of values and a shared mission of supporting clients. Like I said, started with this nonprofit, but then grew from there. 

07:01
Charlie Van Derven
Yeah. That is so cool. One of the things I think that most advisors struggle with is differentiator. I had a presentation last week. I did a little research prior to that presentation. Finra's number of registered reps is 612,000 and some change. There's about 65,000 iars in the country as well. We're talking like upwards of 680,000 advisors. Of course not all of them are practicing, but that's a big number. In the years I've been talking to advisors really struggle with the differentiator. Right. If I ask an advisor what makes them different, 99 out of 100 say my service. Honestly, if everybody's service is what the differentiator is. You guys truly have created a differentiator for the advisors that are part of the team at first affirmative. 

07:55
George Gay
Yeah. And we've built different things over time. One of the things that we did, were the first firm to offer managed mutual funds using only socially responsible mutual funds. 

08:12
Charlie Van Derven
Cool. 

08:14
George Gay
We then added another custodian that supported umas, with third party money managers and individual securities. So we did that. Then, as you mentioned, we started hosting the industry. Well, in 1990, it was just 45 people in a hot tub in the mountains. We started doing a conference in 1990, which kind of grew into the industry conference. One of the things before the last conference I just counted up. Over 30 years, we had over 6000 different people attend at least one of our events. Now what we've been able to develop is a customized values client values driven direct indexing solution. We've tried to stay kind of out in front of the market and offer people so that somebody who wants to invest with their values has multiple options of how to do it. 

09:29
Charlie Van Derven
Yeah, I love it. Of course, investing with the values, but also it is their money. Right. The returns are as important as whether you're investing in whatever other slate of companies, let's say. 

09:47
George Gay
Right. 

09:48
Charlie Van Derven
How have you found performance is on par with other portfolios? 

09:54
George Gay
I mean, this was a case where were always having to address this. The theory that if you reduced your investment universe, that you were by definition, therefore going to underperform. We're the only kind of investing that theory apparently was going to apply to. I mean, a value manager was never assumed to underperform because they reduce their universe to value stocks. A growth manager was never assumed to underperform. A small cap manager was presumed to probably do something different, but not underperform per se. Were always struggling with the question of does reducing your investment universe cause you to underperform? The first serious test of this was a little over 30 years ago when Amy domini created the domini social index, which was intended to be a comparison to the s and p 500. This was a 400 socially screened, 400 stock large cap index that was intended to be compared to the s and p. 

11:25
George Gay
This index has been out there for a little over 30 years. On an average annual basis, the dsi has outperformed the S and P by about 40 basis points a year with a 102 beta. On a risk adjusted basis, almost no differentiation at all. This year actually is the worst performance year of the dsi against the S and P in history because energy has done so well. The socially screened index, it's not fossil fuel free, which some investors want now, but it is below market weight in energy. The energy outperformance has led to the biggest underperformance in history. Usually in the growth part of the cycle, the index outperforms. In the value part of the cycle, it somewhat underperforms. On rolling periods, again, it's very competitive. That's the oldest thing. Other issues that were effective, especially when mutual funds were really the only way you had to go was the funds tended to be smaller certainly, than American funds or some of those kind of products. 

12:57
George Gay
So you had an expense ratio disadvantage. So gross of expenses. You almost always saw competitive returns for competitive risk, but expense ratios tended to be higher. After expenses, sometimes you did have underperformance to deal with. This newest product that we brought out, right now we're seeing tracking errors between zero point 85 and 1.1. Whatever index or benchmark we're shooting for to date and it's not a real long track record so far, but again, to me it's the quality of the manager, not the way they create their universe. 

13:48
Charlie Van Derven
Agreed. Over the last three decades, we're very much on par with S and P, if not exceeding that in most years. 

13:57
George Gay
Very close. 

13:58
Charlie Van Derven
Yeah. Very cool. 

14:00
George Gay
Gross of expenses. 

14:02
Charlie Van Derven
Yeah. That's awesome. You and I first met probably three or four months ago. We talked about sitting in my car on the highway, roadside, getting an idea for who you were because as soon as I started the podcast, I was drawn to you. I think probably we met through LinkedIn. And I think I just reached out. I don't even know if it was a mutual connection or anything. George, first off, I'm impressed with what you've done over the last three and a half decades. 

14:33
George Gay
Thank you. 

14:36
Charlie Van Derven
With the help of a lot of people have created new opportunity for advisors, new opportunity for investors. You've taken an industry that what is our industry like? I think attorneys maybe rank less trustworthy and I think there's a car salesman in there somewhere. Right. Of course, there's been a lot of work over the decades done to change that opinion of the industry. You bring something very pure and very, I don't know, very human to it. Man, and that's so cool. And thank you for that. Now, long diatribe getting to my question, all those successes and all these great things that you've been a catalyst for. Look back on those 36 years george, is there anything in there that I like to ask this question? There anything in there that maybe you look at that gosh, I wish I'd have done that differently. 

15:38
George Gay
One of the things that this is something based on your audience. If there are people who are considering becoming independent, when you don't just simply create your own firm, if you associate with another firm, that firm has a responsibility to supervise you. I would say that one of the places where we had failings was we would supervise people and maybe were a little too autocratic in how we did it so that some people would say, well, I can do what you guys do and you don't need to be the boss of me anymore. That's a hard thing because, when especially, were an ria for went fee only in 90, 99. Were the first firm that required their irs to be accredited investment fiduciaries. 

17:00
Charlie Van Derven
Cool. 

17:02
George Gay
We lost people from time to time. I think it's partly because people who want to be independent want to make their own decisions. The thing that they don't recognize is that there are just some things in this business that aren't good ideas. One of the big questions I always had because while you're a fiduciary, it's your duty to put the needs, the best interests of your clients first. 

17:43
Charlie Van Derven
Right? 

17:44
George Gay
I spent one full day trying to research what the definition of the best interest of the client was, and I couldn't find one. I finally came to the conclusion that, you've acted in the best interest of your client. If after they die, nobody sues you. 

18:08
Charlie Van Derven
I would think that's maybe an easy hurdle, but maybe not. 

18:12
George Gay
Well, fortunately, we've achieved that so far. It's interesting you mentioned the cfp in our prep, because I've been a cfp for 36 years, and you have to take your ethics code of ethics every two years. The interesting thing is the cfp fiduciary standard is different than the aif fiduciary standard is. Tell me that in a couple of ways. One is aif fiduciary standard is you're always a fiduciary if you're a fiduciary, whereas the cfp standard kind of gives you an out. Well, sometimes I'm not acting as an advisor. Sometimes I'm just doing investments. The other thing is that both standards have the duty of care and a duty of professional. Sole benefit and professionalism. The cfp board, the third choice is do what the client tells you to do. Which was always an issue for me, which was, when the client tells you they want to do dumb things, how do you get them to not do it? 

19:42
George Gay
The cfp solution is tell them that you think it's a dumb thing. If after you've told them it's a dumb thing, they still want to do it. You should do it. That's still kind of a mysterious point of view for me. That's what comes up, especially now with the values based investing is there is so much more research on impact and the impacts of investments and people can really come up with restrictive sets of impact desires. We used to be confident that having screens didn't affect performance. Well, we've learned now that if you have enough screens it will affect performance, it will certainly affect portfolio construction. What we've had to do is say if you ask us to do all the things you've identified, you need to understand your portfolio will be different than other clients with different values. This is a long way from your original question which was what would I do differently? 

21:13
George Gay
I would like to have kept some of the people who decided to go on their own. We've been the founding ground for an awful lot of individual practices that are out there today. 

21:30
Charlie Van Derven
I know some of them. I think that's a struggle for. 

21:39
George Gay
Every firm, any firm that takes on people that they have to supervise. 

21:44
Charlie Van Derven
Yeah, but isn't that every firm right if you're more than one? I think that is a struggle because you've got obviously the compliance concerns but you've also got brand concerns. You're building a brand and you've got all kinds of people representing that brand. Certainly I think that is probably if you've got two advisors at a firm I think that's a struggle that everybody goes through. Yeah, let's flip the coin on that question. George, anything that you can point to that you did particularly well that maybe you didn't notice it at the time but it was a pivot point to the future. 

22:25
George Gay
Well, there was a few. I mean, making the decision to do managed mutual funds rather than which led to getting out of the rep managed business and that's one of the things that some people didn't like. They wanted to be portfolio managers. We made the decision and we did a substantial research. We looked at the performance of our client accounts and we just said every client that is in a similar situation should have a similar outcome. Well, he wasn't our chief investment officer at the time but he later became our chief investment officer but he was trained at Frank Russell company and we basically decided to take the Frank Russell process and apply it to the universe of socially responsible mutual funds. That was the first really right choice that we made and we did that at the time that went fee only so that we could, instead of being restricted to a broker dealer relationship that we could work with anybody who wanted to work with us. 

23:40
George Gay
Those two things went together and that's when we really started to grow the business. Obviously the conference just year after year and we were at the conference on 911. We had a strong community that were able to build, and so people knew who were, and we offered a lot of ways to work with us. We didn't require people to be iars, though we did accept people as irs if they wanted us to handle the back office functionality. We did selling agreements, we did solicitors agreements, we did subadvisory agreements. Basically were just in a position, if somebody wanted to specialize in social investing, that we could help them do it. So I think those were all good. 

24:56
Charlie Van Derven
Decisions, reducing the friction. 

25:00
George Gay
Yeah. 

25:01
Charlie Van Derven
Which is I'll tell you the whole theme of the podcast, right? Helping people move towards independence with less fear and less fracture. 

25:09
George Gay
Bob veris spoke at our conference five or six times, and one of the things Bob talked about was finding that blue dot, that focused blue dot of what is it that you do better than anybody else? 

25:24
Charlie Van Derven
Love that. 

25:25
George Gay
Give away everything that isn't that. That was kind of what our focus was. You decide what you want to do and we'll take care of the rest of the stuff for you. And I think that's a good idea. I see so many people that try to start a business and try to do everything themselves. One of the things I would always tell a newer advisor, and of course your target group is not new advisors, but if they switch over to become independent, you still are in the situation where when you first become independent, you have a lot of time and you don't have very much money. You should spend your time and conserve your money as you grow your practice. Over time, you will have less and less time and you'll have more and more money. You have to figure out when you stop spending your time and start spending your money and how you make those decisions. 

26:39
George Gay
One of the biggest ones is when you hire somebody else. It's like, well, of course it's like, now we're up to $15 or $20 an hour. Still, if you're an advisor, you should be making $100 an hour or more every hour you spend doing work that you can pay $20 an hour to do. You're losing money if you're busy enough. Those kind of things where were in a position where we could tell an advisor that you can put off hiring that $20 an hour person because we'll do some of those $20 an hour tasks for you. That's the kind of thing that I think, again, if somebody is to leave a wirehouse or a larger firm environment where that kind of stuff is provided to them at a much lower payout, what are they going to hire and who are they going to hire, who's going to do that for them? 

27:49
George Gay
And a firm, like, first to firm. We technically are what's called a tamp, a third party asset management provider. We do more work for people than kind of the average tamp does. 

28:07
Charlie Van Derven
Yeah, that's very cool. I've had the same conversation so many times in helping advisors who move to their independent space, whether that be an independent broker dealer or ria. Right now you're solo. The other problem that I think the advisors run into when they go solo that way is the timing of that first hire. Whether that's outsourcing something at 1099 or whether that's w two hire getting to that point is so difficult. Right. If you're starting this new adventure without deep pockets, are backing First Affirmative Financial Network being a good option for a lot of advisors? George, are you guys still growing that advisor base? 

29:01
George Gay
We are, yes. One of the things that has happened, and I think it's an industry wide concern is we have a lot of baby boomer advisors. 

29:16
Charlie Van Derven
Sure. 

29:16
George Gay
To try to find the Gen X advisor that can move in and create a succession plan relationship or something like that, we're very much looking for people like that. One of the primary goals of this year's conference was to try to focus on client facing advisors that we didn't know that we might be able to work with, and especially to find those younger I'm not talking about 25 year olds. But, somebody in the late 30s that wants to I we have people that have been with us 25, 30 years and want to sell their business to someone. Yeah, and of course I want them to sell their business to somebody who's. 

30:07
Charlie Van Derven
Going to keep the money with us. Of course. 

30:14
George Gay
We are looking for advisers. Like I said, we can take irs, we can take selling agreements, we can take all kinds of relationships. It needs to be somebody that is like I said, our specialty is Sri now. I'll just take the ESG thistle right now. ESG has become a political powder cake in the last year. The ESG, in my opinion, there is not such a thing as ESG investing. ESG is data evaluation. 

31:02
Charlie Van Derven
Okay? 

31:03
George Gay
You use the information to make investment decisions. Again, if you look at individual clients and say what are the values they want to represent? Whether they're Catholic values or progressive values or conservative values, the information is the same. Which securities you select are based on the value set that you're trying to reach. People that work with us need to at least be interested in doing that because we don't add a lot of value to somebody that's not going to work in that space. 

31:51
Charlie Van Derven
Yeah, well, and going back to a point I made earlier, if you do align with values based investing right. Such an incredible differentiator and I'll tell you, George, I've interviewed some of the people that you talk about that have moved on from first affirmative to do their own thing, and they recognize that. Right? I mean, that's the differentiator amongst those hundreds of thousands of people that make this the second most competitive professional services industry in the country, right? Yeah. So wonderful. Well, first, you said something earlier I want to just comment on. You said Gen xers are young, so I want to thank you for that because more and more I don't feel like it anymore. Listen, from what I know about your firm, now, having a chance to get to know you better, if I were sitting on that side of the desk, like, your firm would be the top for me, frankly. 

32:50
Charlie Van Derven
For any of those listeners who are looking for a new home, something that aligns with their values, are you open to being a resource of them? Do you mind if they reach out to them? 

33:00
George Gay
I enjoy that. One of the things that especially you came to miss during the COVID we used to do regional events, so the personal contact with advisors is something that and of course, as CEO, I try to delegate at least some things. Some of the advisor contacts are now done by my business development people and other folks. I really enjoy trying to be a mentor to advisors or resources. It's one of the things that you feel the best about being able to do. 

33:52
Charlie Van Derven
That's very cool. We've had Zoom, so we've had the personal communication. I was at a conference in person for three days last week and got an opportunity to get on stage and talk . And that man, I missed that stuff. 

34:07
George Gay
Yeah. I've been to three conferences this year. I went to the Us sif conference in May. We had our conference in October, and then I was able to go to tiberon in Chicago. Zoom calls are way better than just telephone calls. Unfortunately, nothing takes the place of face to face and hanging out together. 

34:42
Charlie Van Derven
Well, part of that is so if you're watching on YouTube right now, you see I'm sitting in my camper, and others who listen know that I've done plenty of interviews from this camper because I do. Like, two weeks ago, I was in Memphis, right. Hanging out with an advisor that was on the program, played golf with another adviser in Nashville prior to that. It's not conference setting, but the ability to get out and have lunch with people again. Man, how great is that? George, I know you're very responsive on LinkedIn. That's how we got connected. What's the best way for people to reach out if they've got some questions? 

35:16
George Gay
You know that LinkedIn is good because the thing with my email address is if you email me and my system doesn't know who you are, you go to spam. I have to periodically dig through my spam filter to find the real people that come there. Really, LinkedIn is the better place for the initial thing and then I can whitelist you so that when you do email, then my system knows who you are and then we can carry on. The initial contact on LinkedIn is probably better. I try and at least share a reasonable number of useful pieces of information on LinkedIn, especially as we see what's happening with other social media. LinkedIn becomes a more reliable source of information, but I'm happy to. 

36:21
Charlie Van Derven
Wonderful, George, thank you so much for that. And I agree with you with LinkedIn. I think LinkedIn has got a problem, though. I think it's really noisy with salespeople shouting sales messages, and you got to cut through that to get to the value that's out there. 

36:35
George Gay
That's true. Those folks you can usually identify pretty quickly. 

36:42
Charlie Van Derven
Pretty quickly? Yeah, pretty quickly. I got a message today that said, hello, name, and I wrote back and I said, hey, you called me name. I've just pointed out so that when you revamp your automation, you get it right. Hello, name. I got to chuckle out of it. George, listen, man, I thank you so much, not only for being on this podcast, but for all the positive changes you've made to this industry over the years, for providing advisers, the right differentiation, the ability to go to a firm that has values in mind and create that true fiduciary environment. I thank you. I'm humbled for our time together and I'm glad to know you, man. Thank you for being here. 

37:27
George Gay
Thank you. Thank you for having me. Charlie, it's been an interesting thing and I don't know if we're able to use it's going to be on YouTube. 

37:37
Charlie Van Derven
You say there will be YouTube and then the audio get uploaded to all the normal listening platforms. 

37:44
George Gay
Super. I appreciate it. I like being asked questions, as you can tell. I like even more to answer questions. 

37:57
Charlie Van Derven
Well, I appreciate that because if you don't have a long answer, George, it makes for a pretty boring podcast. 

38:01
George Gay
Yeah. 

38:03
Charlie Van Derven
All right, so you got to bear with me for 1 second while I do all the things all the podcasters have to do, right? I'm still getting used to this too, George. I think we've got maybe 13 or 14 episodes published and I think maybe this is recording 20 or 21 or something like that. So I don't have a routine yet. All I say is thank you for tuning into another episode of raa Collective with my new friend George Gay and your host, Charlie Van derven. We do not have big backing, so the way that we reach more people who need that move to independence is by you sharing it with people you think that will find this interview valuable. Please do that and of course, subscribe. If you give us a review, more people. Will find us. I appreciate you tuning into ria Collective and have an awesome day make a positive difference in someone's life.