Elite Hedge Fund Manager Guides Student Management of Active Fund: Q&A with Robert Scannell, MBA, JD, CFA®

Robert Scannell, MBA, JD, CFA® will be co-teaching the Student Managed Investment Fund course at GGU in which students choose investments for an active fund. Scannell will bring his experience to the class, which includes starting and running the Tradewinds Investment Management, LP, an emerging-market hedge fund that peaked at $400 million and gained 22% per annum over 20 years.


Would you give us a brief overview of your education and career?

I earned an MBA from Penn State, a JD from Purdue, and later became a CFA® charterholder. I spent 10 years at Merrill Lynch in fixed income sales. I also established and ran a hedge fund for 20 years.

What do you bring to the students based on this experience?

Investment management is part art and part science and most business schools just teach the science — it’s really the same everywhere. They give you the tools. The art side of it is about how and when you employ the tools. My hope is to add perspective on the art side, having “been there and done that.”

There is no substitute for real-world experience and that is what the Student Managed Investment Fund course is all about. By managing an active fund they get real experience, and I will bring mine to the discussion.

Robert-Scannel-student-managed-investment-fund
Robert Scannell

Tell us about running the hedge fund.

Tradewinds was one of the first emerging market funds in the US, and it was wonderful. At the time I started the fund the Berlin Wall had come down, and socialist and communist governments wanted to move to a capitalist model. We traveled around the world and looked for unusual securities and situations. During that time, most emerging market countries exchanged debt they had defaulted on years earlier for new bonds, and if you understood that process it was extremely profitable. These sorts of trades helped us generate returns that were in the top 10% of global alternative asset managers (i.e.: hedge funds) from 1994-2015. Besides making money, we witnessed and participated in an economic renaissance around the world. The fund closed after twenty years because I was simply tired and the opportunities had diminished — alas, that is what happens to new markets.

We investigated investment opportunities at the country- and government-levels, talking to the finance ministers and central banks for macro information. Then we’d go to company-level analysis and that experience will play into the Student Managed Investment Fund class.


 “I teach students to always look for corroborating evidence. As Ronald Reagan said during nuclear negotiations with Russia, you want to “trust but verify.”



What did you learn over the course of your travels and how does that translate to students?

The biggest thing is that you learn over 30 years that the markets are a merry-go-round and that cycles repeat. You look for characteristic points in the cycle at which you want to do certain things. Where are we in the cycle of economic growth in the U.S.? The answer is that we are something like 8 years into a 5-year cycle. That is a joke of course, but the point is that the current economic expansion is one of the longest on record, and we are closer to the end than the beginning. This may color the investment decisions we make in the Student Managed Investment Fund course. We’ll probably want to err on the side of caution.

I also learned that people are the same all over. They are economically motivated in the same way, and they have the same flaws in a business context: it is not uncommon to run into lies, fraud, and exaggeration. You learn to be cynical and cautious about what people tell you.

You also learn that sometimes you have to throw out the investment research playbook. A good example is that at one point we had a big investment in Gazprom, the biggest company in Russia and one of the biggest energy companies in the world. Besides the fact that it was cheap, the biggest reason we owned was that we knew that everyone in the Duma owned it as well! And lo and behold it ended up moving much higher.

What is it like to have a fund, day-to-day, when you are in the domestic office?

A client from San Francisco once came into my office for a meeting. He called the next day and was troubled: “I didn’t hear anything going on in your office.” He had a mental image, probably from Hollywood, of computer screens and screaming traders. By contrast, our office was like a monastery. We just read research and tried to get smart. It is not what most people think. At least in our case, being a fund manager was more like being an analyst at the CIA.

Based on your real-world experience, how do you teach students to detect exaggeration when they are sitting at their office desks?

Well, one way is by accumulating experience and learning from your mistakes. Like we said earlier, there is no substitute for experience.

But more broadly, I teach students to always look for corroborating evidence. As Ronald Reagan said during nuclear negotiations with Russia, you want to “trust but verify.”

I also urge investors to get out there and see for yourself. If you are researching a company, walk the factory floor and speak to everyone you can. Speak to the company officers, the Directors, the customers and especially to competitors. I am a big believer in getting up close and personal. It is much harder to bluffed in person than it is on the phone.

What is your understanding of Russia’s macroeconomic and political vector since the 90s? Are we moving like the U.S. from robber barons or oligarchs to managed capitalism?

One vision is that Russia is simply a mutant capitalist country and a mutant democracy; they are sort of a failed experiment in evolution from communism to democracy. Another theory is that it’s a slow and ugly process, but they are gradually evolving. Sometimes it’s hard to tell. It’s interesting that they look at a lot of what goes on here in the U.S. and call it legalized, sanitized corruption. For example, the pharmaceutical industry spends billions on lobbyists and on political candidates and the result is our insane healthcare system. Is that a healthy capitalist economy in action or is it a form of institutionalized corruption?


“The biggest thing is that you learn over 30 years that the markets are a merry go round and that cycles repeat. You look for characteristic points in the cycle at which you want to do certain things.”


Do they eventually go from robber barons to a more respectable model? I hope so. Historically, there is a scrum for money and the winners eventually want to memorialize themselves, so they build foundations and museums and universities. An interesting case in point is Leland Stanford, who was reviled as a Robber Barron at the time he founded Stanford University. Hopefully, over time we’ll see a similar pattern in Russia, where oligarch money is recycled in positive ways for society.

Being that you and Dave Kaczorowski, who will co-teach the class, have so much real-world experience and are CFA® charterholders, how do you teach students to make their own decisions and reach their own investment decisions? Is it training wheels?

In the context of this class, we are not going to hand them a pile of money. We are going to be involved in every decision but want to give them as much responsibility as they can handle. We want to give them the tools, teach them, and then let go of training wheels. That is a perfect analogy.

We asked Robert Scannell the top three things he will bring to students…

  1. See the big picture and not get lost in minutiae.
  2. Take a real-world perspective: Many students at GGU are in the workforce, and they want to change their career. There are major changes happening in finance that will affect their future and we want to speak to some of those issues. For example, there is a powerful trend away from active portfolio management toward passive management (in the form of index funds). Also, the U.S. federal deficit and entitlement spending are both exploding, and this will eventually have huge implications for financial markets. These are tangential issues for the class but we’d like to try to weave them into the discussion.
  3. Infuse them with my enthusiasm for the investment game. It is like being a child on a treasure hunt every day.

More About Robert Scannell

Robert Scannell is the founder of Tradewinds Investment Management, LP, which from 1994 through 2015 managed numerous funds investing in emerging markets, distressed assets and healthcare. Tradewinds’ flagship fund ranked in the top 10% of funds globally over its 20-year history. Prior to founding Tradewinds, he spent 9 years in institutional fixed-income sales with Merrill Lynch Capital Markets. He holds a BA and MBA from Penn State University, a JD from Concord Law School at Purdue University and is a Chartered Financial Analyst. He also holds an MSc in Pharmaceutical Bioengineering from the University of Washington and has completed programs in drug discovery, drug development and clinical trial management at UC Berkeley, UCSF, and the University of Chicago, respectively.

CFA® (Chartered Financial Analyst) is a registered trademark owned by CFA Institute.


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Adding Behavioral Coaching to a Financial Planning Career


By Derek Elrod, Certified Financial Planner™ (CFP), MBA, MS
Derek Elrod has been the President of RB Capital Management, LLC and now Partner at Bridgewealth Advisory Group, LLC.


It seems like the longer someone has been an advisor and the busier their days become, the more likely they will get into a routine of jumping straight into recommendations while only scratching the surface on client goals. I said scratching the surface on purpose. Having been in the business for 14 years, I can say that most of us are not diving deep to find out what truly motivates that client. The Master’s in Financial Planning and Taxation program at Golden Gate University has given me the skills to gain a greater knowledge of my clients. It is surprising what you can learn when you step back and listen more. Financial planning is not just about giving broad investment and financial planning recommendations, but also about finding out what really interests your clients, what their deep-rooted goals are in life, and what gives them motivation and happiness.

My fellow students and I, who ranged in experience from one year to over twenty-five, learned a number of techniques in the Coaching Skills for Financial Planners class taught by Saundra Davis. It was a very big class for me, but I can give one simple example. If you say to a client “tell me more” instead of “why,” the tone is much more positive and you are more likely to get a revealing answer from the client versus a defensive response.

Once you find out your clients’ life motivations, they will have a much higher probability of meeting their savings goals, spending goals, and stick to their long-term plans.

Putting Behavioral Finance Knowledge to the Test

Cases in Financial Planning taught by Dr. Dave Yeske, CFP™ and Professor Elissa Buie, CFP™ was one course in the MS in Financial Planning degree I completed in 2018. Whether or not you are a CFP™ practitioner, this is an absolutely fantastic course and project. We watched planners interviewing fake clients – a couple – about all facets of their lives including estate planning, retirement planning, insurance planning, college planning, and investment management. I liked that the “fake clients” were not an easy case.


“If you want to set yourself apart from the crowd, look into the CFP® program, graduate degree programs in Financial Planning such as the one offered by GGU, and try to learn from knowledgeable and ethical employers like Dr. Dave Yeske, CFP™, the Chair of GGU’s Financial Planning programs.”


Quite a few Behavioral Finance issues came up! The professors purposely made the clients difficult in terms of agreeing on their goals, dreams, planned retirement dates, and spending habits. It made for a great case and forced us to come up with creative solutions for both the husband and wife to be happy while meeting their main priorities. It made us really think before giving recommendations that would try to meet the goals of both individuals.

The education was hands-on which was part of why I chose GGU. We developed and presented a comprehensive financial plan in Professors Buie and Yeske’s and it was a great experience. I recently started my own RIA (Registered Investment Advisor) firm and really look forward at implementing what I learned into my own practice.

I wish I could send a new employee just to take this one course! They even taught us how to properly take notes in a client data gathering meeting.

I cannot say enough about Dr. Yeske. He is a pioneer in our industry and continues to shape the direction it is going. We need more like him! His knowledge, experience, and philosophies are a fantastic resource to his clients, to GGU, and to the financial planning industry.

Financial Planning Education & Building a Career

I got into financial planning as a complete coincidence. I was working on our family farm after graduating with a business degree and got a call from a firm that wanted to tap into my agriculture network. I accepted the position with no intention of staying in the industry, but I soon realized how great the profession was and how much I was enjoying it.

Most undergraduate business majors don’t even have financial planning careers on their radar. That is unfortunate. I would tell them that financial planning is a fantastic career choice that allows one to utilize all of their business and personal talents on a daily basis. A lot of people, including myself, do an MBA after completion of their undergraduate degrees. I would highly recommend someone interested in financial planning look at graduate degrees specializing in the field to prepare them for the industry and the CFP™ designation.


“I cannot say enough about Dr. Yeske. He is a pioneer in our industry and continues to shape the direction it is going. We need more like him!”


Unfortunately, clients are not knocking down our doors to give us their money to invest and ask for financial planning advice, so starting out building clients on your own is very difficult. Often the best option is to work for an existing firm and mentor that will help you learn, hone your skills, and not force you to start your book of business from scratch. If you are looking at building your own client base, then you have to network. My niche market is in the agricultural industry where not only does my family have deep roots, but also where I continue to network, market, and belong to organizations in those communities and circles.

One complaint I have about our industry is that it is way too easy to call yourself a financial advisor. An individual may just have an insurance license or a securities license such as the 6, 7, 65, 66, etc. I passed the Series 7 at 21 years old with about a week of studying and the Series 66 a few weeks later without studying. Making it that easy to become an “advisor” does not help give our industry the prestige and respect it deserves. That is why I am a huge supporter of the Certified Financial Planner (CFP™) program, the CFP® exam, and what the CFP® marks stand for. I wish that it was required to be a CFP™ certificant to call yourself a financial advisor or a financial planner. Maybe one day!

If you want to set yourself apart from the crowd, look into the CFP® program, graduate degree programs in Financial Planning such as the ones offered by GGU, and try to learn from knowledgeable and ethical employers like Dave Yeske, the Chair of the Financial Planning programs at GGU.

We asked Derek why he chose GGU

In 2016, eight years after an MBA, and ten years after the CFP™ designation I came back to study at GGU as a working professional. Most CFP™ professionals like me do not have in-depth knowledge about taxation, and this program helped fill in some of those gaps. I had no local universities that offered anything similar to this program, but because of GGU I was able to do the degree online living in Fresno even though the campus is in downtown San Francisco. The online courses forced us to have weekly discussions with both the professors and our peers. The program could be accomplished in a shorter period, but it took me 2 ½ years due to my personal and current workloads outside of school.

[Pictured above, header: Derek Elrod and Analise, his wife, on the family almond farm in central California.]
About Derek Elrod

Derek Elrod is a Certified Financial PlannerTM (CFP) who has been President of RB Capital Management, LLC and now Partner at Bridgewealth Advisory Group, LLC. He is President of the Financial Planning Association of Central California and appears on KMPH Fox 26 as host of the “Dollars & Sense” segment. Elrod holds a BS from Santa Clara University, MBA from California State University Fresno, and a Master’s in Financial Planning and Taxation from Golden Gate University.


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Project Management Graduate Students Win GGU & American Society for Quality® Scholarships For Research Papers

Yoko and Anna Project Management Degree San Franciscoedited

(left to right): Anna Noel, John Sourial, ASQ® San Francisco Secretary, and Ms. Hui-ling (Yoko) Ling


Each year, a few GGU student award-winners have the opportunity to present their research on quality and process improvement to industry professionals belonging to ASQ (The American Society for Quality) and earn tuition scholarships in the process. This opportunity is thanks to the sponsorship of GGU Quality Management Professor Shinmei  Kiyohara.

Anna Noel (MS, Project Management candidate) described how a Six Sigma approach to Quality Management was successfully applied to improve nursing-staff performance in a Dallas, TX area hospital. The Define, Measure, Analyze, Improve, and Control (DMAIC) approach was also used and successfully addressed upper management’s goals for the 600-bed facility. As a result, a key medical procedure was reduced from 43 to 30 minutes, an adjustment to the shift-change procedure resulted in adequate staffing — and nurses enjoyed that they did not have to walk as far during their shifts.

Hui-ling (Yoko) Ling’s (MS, Project Management candidate) winning paper, “Improving Production with DMAIC Case Analysis,” describes a company with long-standing delivery-time issues. In her presentation, Ling outlined a case study about the company’s long throughput time (TPT) and the Six Sigma DMAIC methodology used to improve the TPT process.

“I’m proud of these students’ accomplishments.” Says Marie Spark, MBA, PMP®, Project Management Program Director & Lecturer.” To me, Golden Gate University is all about providing our students with hands-on experience and the chance to share knowledge with industry professionals. “

Applying Six Sigma & DMAIC to Healthcare Procedures
A list of papers and reports from Anna Noel, a scholarship winner.

“PMP” is a registered mark of Project Management
Institute, Inc.


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Should I go to a Private, For-profit, or Private & Non-Profit College? Looking at Education Quality, Student Loans, and Return on Investment

By Terry Connelly, former Dean of GGU’s Ageno School of Business


terry-connellyFor-profit colleges have thrived by upending the long-standing operating model of universities. They treat higher learning as a business, students as customers, and “college traditions” as disposable.

The “Clean” Slate

“For-profits did not have the baggage of academic systems or faculty governance that focus on faculty,” says Gregory M. St. L. O’Brien, an administrator with long experience in higher education. In the same Chronicle of Higher Education article, he also says that for-profits were “free” of the traditional faculty structure of tenure-track professors moving through peer evaluations of their teaching and services and teaching faculty serving as department chairs holding tight to how curricula are organized.

The for-profit colleges have designed a business model that enabled enrollment to climb, at one point, at six times the rate of other American universities over the prior four decades. Never mind that promised salary levels can turn out to be much lower after graduation – or nonexistent if you can’t finish – and students, therefore, can take longer and longer to repay the loans they incurred to be able to attend – in some cases well into their 60s. For college-level students, the six-year graduation rate was 66 percent at private nonprofit institutions; 59 percent at public institutions; and 23 percent at private, for-profit institutions according to government statistics.

The way private, for-profit universities have exploited loopholes to get more student loan funding has taken money away from other more efficient ways to support access to higher education, such as community colleges, where no shareholders need to be satisfied with returns on investment. To achieve such returns, for-profits do not leave the design of the curriculum and course structure in the hands of the professors invested in student learning and experience, but instead, construct their learning platform with the interests of investors and owners in mind. University of Phoenix and Trump University were sued through a government class action and a whistleblower case for skirting federal loan rules, respectively.

Just Business

For-profits have focused on honing their instruction products – whether in-person or online – to match their targeted tuition price-points, which in turn are deliberately designed to procure the maximum amount of Federal education grants and loans. These students might be attending part-time in real-world terms, but are considered full-time students in terms of federal aid eligibility.

Investors are also attracted to the education sector by a situation many other industries would be delighted to enjoy: higher education consumers are already conditioned to pay higher tuition pricing every year for essentially the same product, regardless of whether or not it is new and improved. This kind of market can be a bonanza if you can cut production cost further, commoditize the product, optimize to deliver efficiency over quality, and supercharge your marketing pitches with high-pressure tactics.


For college-level students, the six-year graduation rate was 66 percent at private, nonprofit institutions; 59 percent at public institutions; and 23 percent at private, for-profit institutions according to government statistics.


The for-profits’ stocks were pummeled when the Obama Administration proposed an across-the-board requirement that all for-profit colleges track whether the jobs that their graduates actually get provide salaries sufficient to service their student debt with enough left over to live on.

Marketing a College Like a Sub-Prime Mortgage

Some online colleges, like Ashford University, spent up to 28% of its government-subsidized tuition revenue – more than it spent on the cost of its classes – on aggressive student recruitment campaigns. The University of Phoenix spent nearly a $100 million annually on promotion, including the cost of naming a football stadium (the school has never fielded a team). These spending rates – which do not necessarily include their extensive lobbying spend in Washington, DC – run up to ten times more than traditional non-profit institutions (even with the increase in marketing by private and public non-profit colleges to move up in US News ranking by garnering ever more applications to look more “selective.”

Seductive Sales Tactics

Some for-profits seek to drive all prospective student inquiry directly to their call centers by rarely publishing actual class schedules or tuition rates on their websites. This simple tactic forces prospects to contact the schools by telephone placing themselves at the tender mercies of the school’s own or outsourced phone-sales professionals. Some for-profits used sales quotas coupled with pay incentives to push enrollment, a practice that violates federal rules. A Government Accounting Office 2010 undercover Department of Education study presented to the Senate Health, Education and Labor Committee, found “fraudulent, deceptive and otherwise questionable marketing practices” at all fifteen for-profit schools investigated, including direct inducements for fraudulent financial aid application by prospective students, as well as direct assistance to undercover applicants in answering questions on their admission exams.

The same DOE report also described “intimidation techniques,” used by recruiting managers on subordinates who were not meeting targeted enrollment number. Ultimately, University of Phoenix paid a multi-million dollar fine to the DOE to conclude the investigation.

Taxpayer Money

The US taxpayer has unwittingly been the lead underwriter in the emergence of the for-profit higher education sector, bearing most of the downside risks with few upside rewards in terms of actual taxes paid by for-profit institutions, many of which have gone bankrupt. By 2008, the College Board reported that, despite enrolling 10 percent of higher education students, for-profits were accounting for over 40 percent of federal Pell grants and student loans, and also a higher percentage of student loan defaults, which ultimately go against the taxpayer. Much like subprime mortgage lenders during the great financial crisis of the last decade, for-profits have no “skin in the game” when it comes to that risk of loss.

 Assessing Education Quality

Consider also the practice of “buying accreditation” – which is supposed to be an independent evaluation of the quality and integrity of educational offerings. When traditional private colleges that are failing, but already accredited, are converted to for-profits, some accrediting agencies are ruling that those wholesale reorganizations are merely changes in ownership rather than creations of distinctly new colleges – despite the fact that the end result is a complete change in the academic and operational model. When designing their degree programs, the acquirers had the advantage of wiping the slate clean without an independent assessment that prospective students can rely on.


About Golden Gate University

Non-profit since 1901
#1 rated for working professionals in the U.S.
Independent faculty governance
Modest marketing spend
In-house recruiting
Official Military-Friendly School®
Accredited: WSCUC Senior College & University Commission


 

A further major step away from traditional academic quality norms structures, pioneered at the for-profit leader University of Phoenix, was to abandon the traditional amount of student-instructor contact time. Despite more online education in general, U.S. regulators and accrediting bodies only caught on slowly.

More Likely to Drop Out

The for-profits less than stellar performance in terms of student retention may be primarily a result of their lower level of resource commitment to the central function of instruction. In many respects, the long-term success of for-profits may depend on whether they will really put the customer first or just put acquiring the customer first.

Although the actual drop-out rate among for-profit college students is difficult to calculate, a report to the U.S. Senate in July 2010 reached its own conclusion: three of the four schools reporting any data at all enrolled more new students over the course of the year than the total number of students at the start. One school started the period with 62,000 students, enrolled 117,000 new students, but ended with just 6,000 students.

…and Less Likely to Pay Back Student Loan Debt

The U.S. Department of Education’s College Scorecard tracks the number of students who dropped out with debt for each college and university in the nation. The figures show a total of 3.9 million undergraduates with federal student loan debt dropped out during fiscal years 2015 and 2016 (from mid-2014 through mid-2016). It found that more than 900,000 of these students dropped out of for-profit universities. That’s 23 percent of all the indebted dropouts, even though only 10 percent of all undergraduate students attend for-profit schools.

Not So Great for Our Military Personnel

Non-profits have long been subject to the federal limit that no more than 90% of their tuition income can be derived from federal student loans and grants. Because they target lower income groups in their intensive marketing efforts, many such colleges risk coming close to or exceeding that limit: but they also know that enrollment of current military personnel who receive educational benefits does not count against that limit. Accordingly, many for-profits also have long been training their in-house or hired marketing guns on our nations’ soldiers, sailors, and marines, many of whom of course are in a position take courses online while deployed overseas. Some for-profit schools have been severely penalized for their treatment of prospective military enrollees.


“But private, non-profit colleges receive comparatively little attention, despite the fact that these institutions enroll a substantial share of students at four-year colleges: 3.4 million full-time equivalent students or 30 percent of all four-year enrollment (compared to 61 percent at public colleges and 9 percent at for-profits).”
–Brookings Institute


Private vs. Nonprofit & Private: Let’s Compare

The role of colleges that are both private and non-profit in expanding educational opportunities deserves more focus than it gets because of controversies surrounding both state university funding challenges and tuition increases, as well as controversies surrounding the for-profit college business models and student outcomes. As a recent Brookings Institute study on private, non-profit colleges observed:

“Public and for-profit colleges both feature prominently in higher education policy debates, usually for different reasons. Rising prices at public colleges and universities have prompted public concern about declining affordability, especially as states have cut back on taxpayer support to these institutions. Weak student outcomes at many for-profit colleges have drawn the attention of policymakers concerned about the waste of taxpayer money and the impact on students who leave college with debt and no degree…

But private, non-profit colleges receive comparatively little attention, despite the fact that these institutions enroll a substantial share of students at four-year colleges: 3.4 million full-time equivalent students or 30 percent of all four-year enrollment (compared to 61 percent at public colleges and 9 percent at for-profits). Consequently, better understanding the role this sector plays in U.S. higher education overall, and in each state, may reveal ways for policymakers to increase educational attainment…

Federal policy plays an important role in the financing of post-secondary education at institutions by providing grants to low-income students and access to loans to all students, in both cases on similar terms regardless of whether the funds are to be spent at a public, for-profit, or private, non-profit college.”


An innovation claimed by for-profits, such as the focus on working adult students and real-world success, has been in place, and delivered with integrity, by Golden Gate University for over 100 years.


What’s Happening Now

For-profit universities are back in the news, most recently in a New York Times editorial last month mentioning Betsy DeVos, a substantial for-profit education investor and the new head of the Education Department, enabling “predatory” practices in the for-profit sector. It should come as no surprise that for-profit colleges are attempting to take advantage of the Trump Administration’s decidedly pro-business / de-regulation agenda. The appointment of Betsy DeVos signaled that there would be a significant rollback of the Obama Administration’s employment rules on abuses in the for-profit sector. According to the Chronicle of Higher Education in 2016, DeVos and company have already “hit pause” on the gainful employment rule.

As The New York Times also reported last month on its front page:

“Members of a special team at the Education Department that had been investigating widespread abuses by for-profit colleges have been marginalized, reassigned or instructed to focus on other matters, according to current and former employees … The unwinding of the team has effectively killed investigations into possibly fraudulent activities at several large for-profit colleges where top hires of Betsy DeVos, the education secretary, had previously worked.”

The Obama Administration team in fact had been looking into advertising, recruitment practices and job placement claims at several institutions, including the DeVry Education Group [now part of Adtalem Global Education]. But that was before DeVos named Julian Schmoke, a former dean at DeVry, as the team’s new boss!

Other ongoing investigations of Bridgepoint Education as well as Career Education Corporation were also stopped by the new DeVos team. Previous federal investigations had been undertaken after reports of misrepresentation of enrollment benefits, job placement rates, and program offerings at multiple for-profits, especially after the collapse of Corinthian College. DeVos also put on more-or-less permanent “hold pending review” the Obama Administration’s rules relating to mandatory disclosure of for-profits’ track records of success (or not) in terms of their graduates attaining “gainful employment” (i.e., enough to pay their student debts and also meet the necessities of life).

As the New York Times pointed out, Bridgepoint also had a high-level contact in the new Administration in the person of Mercedes Schlapp, Strategic Communications director at the White House, who served previously as a consultant to Bridgepoint through the Cove Strategies firm she co-founded with her husband, Matt Schlapp. He went on record to decry what he called the “persecution” of for-profits by the Obama administration because they had brought ‘innovation” to the education field.

An innovation claimed by for-profits, such as the focus on working adult students and real-world success, has been in place, and delivered with integrity, by Golden Gate University for over 100 years. The University has also been focused on the convenience offered by online learning since its inception in the 1990s. For the efforts of its leadership and faculty, GGU has been ranked the #1 ranked university for adult students in the U.S. — two years in a row.


About Terry Connelly

Terry Connelly is an economic expert and Dean Emeritus of the Ageno School of Business at Golden Gate University. With more than 30 years of experience in investment banking, law and corporate strategy on Wall Street and abroad, Connelly analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides. He holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with past Golden Gate University President Dan Angel, Connelly co-authored Riptide: The New Normal In Higher Education (2011). Riptide deconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock, and staggering student debt, and asserts a new, sustainable model for progress. He is a board member of the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Connelly lives in Palo Alto with his wife.


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GGU and Study.com Team Up to Make College More Affordable for Bay Area Working Professionals

A new relationship between Study.com’s Working Scholars program and Golden Gate University (GGU) will give students a flexible option to earn a bachelor’s degree in business management at a fraction of the cost. Working Scholars participants will take online credit-recommended college courses at no cost to them through Study.com that will transfer directly for credit at GGU.

Study.com is an online education platform with more than 150 courses recommended for college credit by the American Council on Education (ACE). Its Working Scholars program gives adult learners the opportunity to pursue a bachelor’s degree while still balancing a job and other commitments.

Students in the Working Scholars program will now have the opportunity to finish their degree at GGU, which has been named America’s #1 School for Adult Learners two years in a row by Washington Monthly. The university is accredited by WASC Senior College and University Commission.

Golden Gate University has a long history of expanding access to higher education, and we’re excited to form a relationship with Study.com that will give us the ability to help even more students.
— Dr. David J. Fike, Golden Gate University President

After taking the online credit-recommended college courses, students will take their remaining courses, including a capstone, through GGU at a significantly reduced tuition rate — earning a GGU degree upon completion. Students will be able to choose if they want to enroll in the GGU courses online or on-campus. Study.com success coaches can also help assess credits that students earned prior to entering the Working Scholars program.

“Golden Gate University has a long history of expanding access to higher education, and we’re excited to form a relationship with Study.com that will give us the ability to help even more students,” said GGU President David J. Fike. “Together we can help students fulfill their dream of earning a college degree, which can have such a positive impact on their lives and their earning potential.”

The Working Scholars program began in Mountain View, CA in January 2017 as a philanthropic endeavor with the goal of helping busy adults address the three main barriers to a college degree: cost, convenience, and confidence. The program has since grown to residents and workers of East Palo Alto, Gilroy, and Sunnyvale.


Sign up for an online course here >>


“This partnership makes perfect sense because Study.com and GGU have a shared goal – to help students overcome the barriers to earning a college degree,” said Adrian Ridner, CEO & Co-founder of Study.com. “At Study.com we’re passionate about using our Working Scholars program to give students in our community an affordable way to earn a degree that can have a transformative effect on their lives. By partnering with GGU, we can work together to break down the barriers to higher education so students, who once thought earning a degree was impossible, will now be able to reach their goal.”

With relationships with institutions such as GGU, Study.com hopes to expand Working Scholars to various cities in the Bay Area.


About Study.com

Study.com is an online education platform that helps learners of all ages excel academically and close skills gaps. From test prep and homework help to earning low-cost college credit and developing workplace skills, Study.com’s online courses, short animated video lessons, and study tools have made learning simple for over 30 million students, teachers, and working professionals. Study.com was founded in 2002 and is a privately held company located in Mountain View, CA. Find us online or download the mobile app from the iOS app store or Google Play. Working Scholars is a fiscal sponsorship fund at Silicon Valley Community Foundation, a 501(c)(3) public charity registered in the United States, EIN# 20-5205488.


Request information about GGU’s undergraduate programs >>

Global Philanthropist and Humanitarian Bita Daryabari Will Receive Honorary Doctorate and Deliver Golden Gate University’s 2018 Commencement Address

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Bita Daryabari will receive an Honorary Doctorate and deliver the commencement address at Golden Gate University’s Graduate Commencement Ceremony on April 27, 2018. A global philanthropist and humanitarian, she received a master’s degree in Telecommunication Management from GGU in 1996. After graduating, Daryabari joined GammmaLink, Inc., one of the early pioneers in the field of telecommunications. She later moved to MCI Communications where she received distinguished awards and recognition for her work on more than one occasion.

Philanthropist and Humanitarian

Daryabari has had a long-standing passion for increasing knowledge of the culture of her native Iran, as well as improving the lives of people from Iran and beyond. Her vast charitable work includes establishing the Unique Zan Foundation, whose mission is to promote health, literacy, and peace for women in and from the Middle East. She also launched the Pars Equality Center, a community foundation that supports the full integration of people of Persian (Iranian) origin in the U.S. — including refugees, asylees, immigrants, and the American-born — and to advocate for their perspectives in American society. She works to create a more just and compassionate community in which Iranians of all cultures and beliefs can participate.

In gratitude for her GGU graduate education experience, Daryabari established the GGU Bita Daryabari Endowed Fund for Middle Eastern Students, which supports a scholarship for graduate business students born in a Middle Eastern country, and a graduate law fellowship for lawyers who reside in a Middle Eastern country. She has also endowed GGU with the Bita Daryabari Scholarship Program for Women of the Middle East in Business and Law.

“Bita Daryabari exemplifies Golden Gate University’s mission to prepare individuals to lead and serve,” says GGU President David J. Fike, Ph.D. “She is an inspirational alumnus, not only for what she has achieved in her career but also for her rich legacy of giving back and helping others get ahead. Bita is at the forefront of supporting immigrants in the U.S., and her leadership in expanding access to U.S. education for students from the Middle East is unparalleled. Her establishment of the Bita Daryabari Graduate Fellowship and the Bita Daryabari Scholarship at GGU are only two of many examples of her generosity and commitment to higher learning. GGU is honored to have Bita share her wisdom, optimism, and enthusiasm for positive change with our 2018 graduates.”

I vowed that I would use my influence and resources to create positive change in the world, as I don’t believe any child should have to live in a war zone.

Bita Daryabari (MS ’96)

Awards and Honors

Daryabari’s awards and honors include the World Affair Council Honoree of the year (2015), Ellis Island Medal of Honor (2012), the United Nations Appreciation Award for Outstanding Leadership, Commitment and Support of the UN and Achieving the UN Millennium Development Goals (2011), PAAIA Philanthropist of the Year Award (2010), and GGU’s Alumni of the Year Award (2008). Gentry magazine also listed her among the Top 50 Bay Area Philanthropists (2015).

Creating Positive Change

As an immigrant who came to the U.S. at the age of 16 with virtually nothing to my name, I worked my way up through the telecommunications industry,” Daryabari says. “I was also fortunate enough to be part of the Google family during its inception, which resulted in my journey into philanthropy. I vowed that I would use my influence and resources to create positive change in the world, as I don’t believe any child should have to live in a war zone.”

She adds: “I hope to convey to this next generation: that anything is possible if one applies himself or herself; and I see my story is a living example. I also want to put emphasis on the importance of our daily intentions and relationships. These are the most important aspects that determine the outcome of our life stories.”

The Gig Economy: What is it? What’s It Mean, and What’s Ahead? Q&A with Tom Cushing, Senior Adjunct Professor at Golden Gate University

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Tom Cushing, JD, MBA has operated within the evolving structural environment of work throughout his careers as an attorney, corporate executive, legal recruiter, and freelancer (As he says: “an Adjunct Professor, after all!”). Cushing is a Senior Adjunct Professor at Golden Gate University teaching employment law, negotiation, and Corporate Social Responsibility-related courses.


What is the Gig Economy?

It’s an environment in which work is temporary, done primarily by so-called independent contractors and moderated by the internet in several ways.

What can people expect to hear at your seminar on the Gig Economy?

The seminar will start with some big picture context about the evolving economy and then define terms. There’s a lot of overlap among non-traditional work types. We’ll look at the slippery numbers associated with the obvious growth of the Gig Economy, and the two primary types of gig workers. Then we’ll talk about the messy ways the law currently sorts workers, and why that’s so important to all concerned. Folks will get a chance to be the judge and try their hand at applying the current rules to an actual case. Then we’ll conclude with some reform proposals and takeaways for workers or next year’s budding (or is it “bro”-ing?) “Kalanicks.”

 

What has changed socially and economically that has birthed a Gig Economy?

In the very big picture, there has been a “war on overhead” (fixed costs) since roughly the 1980s. If major expense items like labor are made “variable” with the amount of business activity, then companies can be agile enough to stay competitive across the business cycle. US workers may be hired or shed “at-will“ — meaning that those individuals, rather than their companies, bear most of the risk in that business cycle.

Technology has also tended to replace human labor, and the jobs it does create are often lower skilled and lower paid. That, combined with a relatively abundant, inclusive workforce (as well as global outsourcing competition) has reduced workers’ relative bargaining power. They’re settling for fewer benefits and less security at work, making it possible to convert large numbers to contractor status (albeit with some legal risk). Contractors are “purely“ variable, as they are only engaged – and paid – when they’re specifically needed.

Connectivity via the web has certainly accelerated these changes. It has also created whole new approaches to businesses like urban transportation, as just one obvious example.

It’s now good to be an investor or an owner, rather than a worker, as U.S. wealth-disparity problems demonstrate. As an aside, I’ve noticed that how various commentators weigh the relative importance of these factors, and whether they consider these trends to be problematic, seems to depend on whether the writer expects to profit from them.

(Whew.)


FREE SEMINAR
Gig Economy: What is it? What’s It Mean to Me, and What’s Ahead?

Tom Cushing will be presenting a seminar on the Gig Economy on Tuesday, April 24 from 6:30-8:30 pm at GGU (Room 3201). You can attend the seminar either in-person or online (via ZOOM).

Register now >>

The seminar is open to GGU undergraduates and alumni. Graduate students have priority for registrations, but space is limited.


What about this phenomenon in California and the Bay Area?

The Bay Area tech industries are at the epicenter of these trends, as demonstrated by the likes of Uber, Task Rabbit, Upwork, Craigslist, and others. Tech firms are busily creating the future, and flexibility is an important element in their thriving. At the same time, it’s instructive to note that most of the California legal rules were established in the context of the ebbs and flows of agricultural work during the last century. There are similarities to today’s circumstances, but it’s not clear that those rules well-serve this fast-changing economy.

Can you give an example of career paths that are relevant to the Gig Economy?

“Path” is an interesting term, as it implies proceeding and building in some career direction. There is much to be resolved, as above, but “staying current” and “seeking growth sectors” (e.g., health care?) are relatively timeless good advice, if not comfort.

I think the term “career” is being redefined. “Thirty-years-and-out” is an artifact of a much more stable time and worker heyday. I think that today’s worker has to be ever-vigilant for the next new opportunity and accept the dislocations and turmoil that come with job-hopping. They also need to retain their own “agility” – meaning low, fixed personal costs, and high investment in retraining.

Does surviving in the Gig Economy have to do with transferable skills or building new skills?

“Yes.” We’ll see that there are those who dabble for some extra dough on the side, and many others who are treading water – only staying afloat by hustling among several ‘gigs,’ all of them insecure. Those latter are usually lower skill and lower paid.

/Rant on: As is typically American (and implied in the question), we tend to look at this as everybody’s individual responsibility –  to accept the system as it is, and to protect your own personal interests as best you can. But there’s a dawning, systemic public policy issue here – that nobody wants to address. What kind of society do we want to be – and what kind of social contract will there be among us? Is the Gilded Age really something we want to repeat? You know we’re a lo-o-o-ng way from constructively dealing with these issues when even Social Security, which we’ve paid into for decades, is labeled an “entitlement” for political purposes. /Rant off.

That said, in the short-run, micro sense, you are captain of your skillset. A significant trend in education is gaining specific vocational skills via certificate, rather than degree. You want to be among those higher-paid “giggers,” so tending that skill set by adding new capabilities in the programming arena, for instance, will be important.

How does one discover one’s secondary talents?

Learning to juggle?


You can register for the Gig Economy seminar or any seminar in the Innovation in Practice series on Eventbrite.

Diversity & Inclusion at Golden Gate University Law School in San Francisco


By Justin McNealy
Director of Diversity, Inclusion, and Student Affairs
Golden Gate University School of Law

At GGU School of Law, we want to make sure we continue to forge a path as one of the most diverse law schools in the nation. As Director of Diversity, Inclusion (D&I) and Student Affairs, as part of the Office of D&I, my role from one day to the next can be wildly varied. Ultimately, my role is to provide a framework for how each department can do more to foster D&I. This can mean Law Student Support providing more learning and development opportunities for students or Career Development providing more networking and mentoring opportunities for first-generation law school students who can be frustrated by a lack of guidance and resources. It is my job to identify the D&I need for each department in the law school and facilitate conversation about those needs, provide solutions about how those needs can be addressed, and move toward solutions.

The biggest impact that all of our departments hope to have is to ensure students from diverse backgrounds feel included in the law school environment. We also want to make sure they leave the GGU School of Law with a network of diverse attorneys who can help guide them through their first years in the legal profession and ultimately become lifelong mentors. Additionally, we want to identify and improve student retention, create programming geared toward student inclusivity and belonging, identify mentorship and job opportunities for students of diverse backgrounds, and work with admissions on student recruitment and matriculation efforts.


Fact: 62% of GGU School of Law students identify
as a racial minority, 64% are women,
and 11% identify as LGBTQ.


Why I became a Diversity and Inclusion Professional

As a gay man of color, I often see the inequity that exists for my community and other communities of historically underrepresented people. My own experiences in law school and the legal field helped build a basis for empathy for students who do not feel included or feel as though their concerns will not be taken seriously. Inclusion, especially in an environment as challenging as law school, is the essence of surviving those challenges. People naturally build communities as a means of support, and I always want to connect people to those inherent support systems. Also, I want to see the legal profession become as diverse as the communities in which they serve.

During my first year of law school, I was surprised that two of the professors teaching 1L courses were black. While it did not seem like much of a big deal to many of the students, which is in itself a mark of progress, it was a big deal to the other black students in the course. Those professors became de facto mentors to many of us — not just because they were black, but because they understood what it was like to be “the only one.”

We also want to make sure [students] leave the GGU School of Law with a network of diverse attorneys who can help guide them through their first years in the legal profession and ultimately become lifelong mentors.

Diversity and Law Schools

Law is one of the least diverse professions in the country. If we talk about barriers to access of legal education, whether it is the LSAT, or cost (or even self-confidence), those who have been historically underrepresented have the hardest time breaking through institutional obstacles. From the perspective of many law schools, D&I bridges the gaps and the destroys some of those barriers. A diverse legal education environment creates an opportunity for dialogue among people who may not understand one another. In the end, this dialogue and exchange of ideas foster not only tolerance but also a deeper level of understanding that makes for a more empathetic attorney.

There are many reasons D&I is important at law schools. It creates a classroom environment feels more welcoming because people see a representation of their group. Diverse faculty members are also more likely to approach a student of a similar background and can offer nuanced advice, from having gone through similar experiences as the student that they are trying to reach. For instance, Dean Niedwiecki of GGU School of Law is a first-generation law school graduate (and a gay man) so he can speak to many of our students who are also first-generation in a way that someone else could not. Similar background and experience makes finding common ground and creating relationships much easier, whether it is financial stress or the discomfort many students feel when they enter a room full of attorneys.

The ability of a faculty member from a diverse background to connect with students on a granular level cannot be understated. Having faculty from diverse backgrounds creates a sense of belonging in the law school environment. Even among students who may not be of that same background, it is powerful when faculty members understand what it is like to be in a field where they are historically underrepresented. The feeling of belonging is valuable because it goes a long way toward students graduating and becoming successful professionals.

The ability of a faculty member from a diverse background to connect with students on a granular level cannot be understated.

D&I in the Business & Legal Professions

The legal profession is built on relationships and is customer driven. Similarly, the business world has taken D&I very seriously ever since the argument for the practice moved from one about moral failings to one that was about “what is good for business.” Law firms have taken note of this shift and are now being pressured by their corporate clients to follow suit. In the past year, HP has threatened to withhold legal fees from firms who do not match or exceed their business expectations for D&I. Facebook has begun instituting a hard quota requiring 33% of an outside counsel’s legal team to be composed of gender and ethnic minorities. Even for a smaller firm, which is typically serving clients who do not have the economic power of HP or Facebook, it still makes business sense to put D&I initiatives in the forefront — both from a human resources standpoint and from a marketplace-viability standpoint.

A number of D&I studies have proven that more diverse and inclusive work environments reduce turnover, increase retention of employees, foster better decision-making among senior leadership, improve client relationships, and foster better talent.

From a law firm’s perspective, D&I programs boast many benefits to their bottom lines. Aside from the economic incentive, D&I build a stronger, more resilient, and happier workforce. This impacts everything from turnover to productivity. Moreover, areas as sensitive as client management are positively impacted when a more diverse workforce is recruited.

How to Get Involved in Diversity and Inclusion in the San Francisco Bay Area

There are so many organizations in the bay area that promote inclusion. Whether we are talking about La Raza, the Charles Houston Bar Association, Queen’s Bench, or BALIF, the organizations are numerous and represent many diverse communities. Many students are connecting to these organizations through the GGU Law Student Bar Association’s organizations. We are also actively reaching out to each of these organizations to provide mentorship opportunities for our students.


You can read Dean Niedwiecki’s related article in the Advocate, A Gay College Dean Takes on Betsy DeVos’s Transphobia, or check out Diversity Managers: 10 Key Job Skills, Salary, and Required Education on this blog.

More about the GGU School of Law >>

Which Financial Industry Designation is Right for Me?

SPECIAL EVENT PRESENTED BY CFA SOCIETY SAN FRANCISCO
Thursday, March 1st (12:00 P.M. – 1:30 P.M.)
Golden Gate University, San Francisco [Map]
Room 6208 (6th Fl.)

Whether you’re searching for a new career path or just curious about the different finance credentials, this panel will help guide you through some of the best known professional designations in the financial industry: Chartered Financial Analyst (CFA), Certified Financial Planner (CFP®), Certified Public Accountant (CPA), Certified Management Accountant (CMA),  Financial Risk Manager (FRM), Master of Business Administration (MBA) and Master of Finance (MFin). Each of these has a core career focus, and although their abbreviations often sound interchangeable, each designation gives you something unique. Join us for lunch* on  March 1st to discover what careers each designation typically leads to.

Register Now >>

Registration is free for Golden Gate Unversity Students. For the special registration code, contact David Kaczorowski Professor of Finance and Program Manager at GGU.


Speakers


Lu Cheng, CFA, CPA
Associate Portfolio Manager, BlackRock

Lu Cheng, CFA, CPA, is an Associate Portfolio Manager within BlackRock’s ETF and Index Investments (“EII”) group, currently responsible for the US iShares ETFs. Prior to joining BlackRock, Ms. Cheng was an Assistant Vice President at State Street managing the Equity Index Client Operations team providing fund accounting, custodial services and financial reporting for index equity and asset allocation portfolios. Ms. Cheng earned her B.A. in Economics and International Relations in 2009 from University of California, Davis.

Bryan Hasling, CFP, EASenior Financial Planner, JW Harrison

Bryan Hasling, CFP, is a certified financial planner and enjoys using his expertise to guide clients through their various financial topics, such as tax planning, investments, stock options, retirement, and more. Previously, he worked with firms in the Dallas-Ft Worth and Lubbock, TX areas, serving high net worth families and business owners. Mr. Hasling is Co-Director of his local chapter’s NexGen group within the Financial Planning Association – a group dedicated to helping young professionals with their personal growth and continuing education. Mr. Hasling attended Texas Tech University, receiving a degree in Personal Financial Planning and a minor in economics. In addition to his CFP® designation, Mr. Hasling also earned the IRS Enrolled Agent certification, which marks one of the highest degrees in tax education.

Jonathan Short, CMA, MBADirector of Revenue Management – Wine & Spirits, Constellation Brands

Jonathan Short joined Constellation Brands in 2008 to build out the company’s Grape Strategy capabilities. He was responsible for optimizing the $0.5 Billion spend on Constellation’s annual grape and bulk wine purchases and 12,000 acres of internally farmed fruit. Since 2014 Jon has worked in his current role where he manages pricing and promotional effectiveness for Constellation’s Wine & Spirits business. Mr. Short holds a B.A. in Economics from UCLA and an M.B.A. from UC Davis. He earned the Certified Management Accountant credential in 2016 and is the Director of Outreach for the San Francisco chapter of the Institute of Management Accountants.

Valerie Wong, MFinVice President, BlackRock

Valerie Wong, Vice President, is an Equity Index Strategist within BlackRock’s ETF and Index Investments group. Ms. Wong joined BlackRock from MSCI where she spent almost 8 years, most recently as a Senior Associate and part of the Index Client Coverage team supporting West Coast Asset Managers. Before MSCI, she served as a Financial Analyst at HSBC. She began her career as an Auditor at KPMG. Ms. Wong graduated Summa Cum Laude from the EGADE Business School (Tec de Monterey) with an MFin. She earned a B.Sc. in Accounting with a minor in Public Accounting and a B.A. in International Business with a minor in Economics from John Brown University. Ms. Wong passed Level II of the CFA Program.

Gene Yoshida, CFA, Senior Director of Enterprise Risk Management, Prosper Marketplace

Gene Yoshida is the Senior Director of Enterprise Risk Management at Prosper Marketplace and became a CFA charterholder in 2014.  Gene is a practitioner of operational, credit, and new product risk at the line and in an oversight capacity. Diverse background in asset management, insurance, real estate, and consumer finance.

Moderator

Dave Kaczorowski, CFA, MBAProfessor of Finance & Program Manager, Golden Gate University

David Kaczorowski has experience in the finance industry that spans both academic and industry practice.  He is a Professor of Finance and Program Manager at Golden Gate University.  He has also worked in both equity research and portfolio management.  His most recent industry position was as lead manager of a startup family office. Prior to that position, he spent five years as an equity research associate, covering technology companies.  Dave has both a CFA charter and an MBA in Investment Management from Yale University.

Price:

$15 Member/$25 Non-Member

This event qualifies for 1.5 hours of continuing education credit for CFA Charterholders.

*Lunch Provided.


Register Now >>

Looking at Risk Tolerance after the February 2018 Market Plunge–7 Tips to Lower Blood Pressure

After last week’s stock market drop, it’s fair to say that a few panicked emails landed in the in-boxes of financial planners and finance professionals. The writers of these emails may not have realized that their tolerance for risk was not what they thought it was, lulled by a multiyear bull market or an inadequate planning session with their advisors. For professional advisors, a more realistic determination of how much risk an investor can tolerate before a downturn can lighten their inboxes if the market dives and perhaps even prevent a few client defections.

“During stable moments in the market, you might say: I can tolerate X amount of risk,” says GGU Adjunct Professor of Behavioral Finance Richard H. Lehman. “They think they knew their tolerance for risk and then all of a sudden they are confronted with a 5 or 10 percent decline, and it is not always easy for them. They don’t know if there is another 10 percent drop coming or what’s next. Recency bias – a tendency for people to assume things will continue as they are – makes the drops even more shocking.”

A process for determining risk-tolerance that works a lot better than simplistic client surveys is needed. Says Lehman: “The advisor needs to be able to assess their clients psychologically in a way that clients cannot effectively do themselves. You cannot just ask people directly about their risk tolerance because it is a concept most people cannot articulate well.”

The Problem & Challenge

Advisory practices have by and large failed to take advantage of what academia now knows about financial behavior and the psychology of financial decision-making. The basic role of the advisor is to help tailor a financial plan and strategy for each client. The implicit assumption is that to do that, they need to fully understand the client’s risk tolerance, goals, and objectives — which is essentially their legal requirement as fiduciaries.

“The advisor needs to be able to assess their clients psychologically in a way that clients cannot effectively do themselves. You cannot just ask people directly about their risk tolerance, as it is a concept most people cannot articulate well.”

Lehman knows first-hand how challenging it has been to get the financial industry to embrace behavioral concepts. When he was at the NYSE more than 30 years ago, he managed a major study of investors that showed how psychographics are integral to the investing process. Like proper capitalists, however, Wall Street denizens couldn’t see much further than how much money their clients had to invest. The NYSE study told another story, though the results were way ahead of the industry’s thinking.

The challenge to make change happen brought him to roles as an author, teacher, blogger, and conference organizer. In 2013, he teamed up with a technical analysis and behavioral finance legend, GGU’s Hank Pruden, to create the Behavioral Finance Symposium. At the time, it was a new discipline with few courses available and almost no industry-targeted events. The Symposium, a first-of-its-kind, has been successfully held at GGU every year since.

How do you determine the real risk tolerance of an investing client?

How can Behavior Finance help clients (and their advisors) better understand their own risk comfort so that blood pressures don’t spike when the market goes down? Here are some of Lehman’s insights on risk tolerance that are part of his Behavioral Finance course at GGU’s San Francisco campus.

Differentiate risk, volatility, ambiguity, and loss.

Richard Lehman

People have misconceptions about the concepts of risk, volatility, loss, and ambiguity, frequently assuming they are all the same. They don’t fully understand risk (the potential for negative returns) versus volatility (the dynamics of up-and-down movement) and loss (the actualization of a negative return). Ambiguity is the sense of how much uncertainty one can deal with in terms of future returns.

Prospect Theory teaches us that when we evaluate the probability something is going to happen, we do it in biased ways. For example, consider the probability of a major earthquake in the Bay Area. It is so small on a daily basis that most people think it is essentially zero–but it is a finite number. On the other extreme, people overestimate the probabilities of winning the lottery, where the chances are infinitesimal–but people are willing to bet that it’s greater. Prospect theory also tells us that losing X amount of money feels roughly twice as bad as the pleasure of gaining the same amount of money. Understanding such ideas leads to much more realistic assessments of risk and reward.

Don’t sugar coat risk.

Even bonds can blow up, and people need to understand that. They also need to understand that occasionally companies do go bankrupt. It is better to understand and plan for risk than to be blindsided by it later.

Consider scenarios.

Investors need to appreciate all possible scenarios and plan ahead for how they might deal with them. For example, before the recent decline, people should have already had an idea what they might do in the event of a 10% decline.

Lehman knows first-hand how challenging it has been to get the financial industry to embrace behavioral concepts. When he was at the NYSE more than 30 years ago, he managed a major study of investors that showed even then how psychographics are integral to the investing process.

Examine trade-offs.

Investment choices produce numerous trade-offs between risk and return. Examining alternatives works well as a way of developing a portfolio that one is comfortable with. For example, you can construct model portfolios with various different asset classes and easily backtest them to see how they performed in historical periods.

Recognize downsides as well as upsides.

Clients will tend to focus on upside potential more than downside risk. It is important to change the focus to risk-reward or risk-adjusted return so that both are given proper emphasis.

Understand reference points.

A fundamental tenet of Prospect Theory, which informs much of Behavioral Finance, is that when we evaluate possible outcomes, we do it differently because we each have different reference points. When you are young, a $10K loss has much more impact than to a 50 or 60-year-old. Also, people who experienced a big negative impact from the financial events of 2008 are more sensitive to current risk than people who are older and who have seen several downturns. There are studies that indicate differing risk attitudes in different countries as well. Some Asian cultures, for example, will characteristically tolerate more or less financial risk than US investors. Investors in China, for example, exhibit a greater tendency to speculate; while Japanese investors are more risk-averse.

Consider Interactive games for assessing risk

A standout from the 2017 Behavioral Finance Symposium was Dr. Shachar Kariv, a well-known UC Berkeley Economics Professor and experimental researcher. He argues that interactive methods of assessing one’s risk tolerance represent a substantial improvement over classic risk surveys. Dr. Kariv shows that a simple computer game can reveal clients’ attitudes about risk much more scientifically than simply asking what they think they are. A company called TrueProfile is already using Dr. Kariv’s ideas in its profiling service.

More to be done

Lehman has made progress as an educator and continues to work at connecting industry with academia on the subject of Behavioral Finance. In recent years, more Nobel Prize winners in Economics (such as Yale’s Robert Shiller and University of Chicago’s Richard Thaler) are providing more visibility and acceptance of Behavioral Economics. However, Lehman says: “Human nature is very hard to change, and that will continue to challenge both investors and the financial industry for a very long time.”


About Richard Lehman

Richard Lehman has more than 30 years of experience in the financial industry, including eleven years on Wall Street with EF Hutton and the New York Stock Exchange. He later worked for financial data giant Thomson Reuters, startup Avenue Technologies, and the Wealth Management group at Mechanics Bank. Lehman has authored three financial books published through Bloomberg/Wiley and has been teaching Behavioral Finance and Options courses for three years at Golden Gate University. He is also the founder of the website BehavioralFinance.com and the San Francisco Behavioral Finance Symposium.