USAA sets sights on financial advisers

The financial services company that targets veterans and their families wants to develop an adviser channel

Sep 30, 2017 @ 12:06 am

By John Waggoner

If you're looking for a financial company with military expertise, you don't have to go much further than USAA, the San Antonio, Texas, insurer and mutual fund company.

USAA's mutual fund family grew out of its insurance arm, and launched in the early 1970s as pure no-load, direct-sold offerings. Its largest fund, the $7.6 billion USAA Income fund (USAIX), ranked in the 13th percentile of the intermediate-term category over the past decade, according to Morningstar.

Today, USAA's mutual fund arm has grown to $75 billion spread across 50 funds. While you don't need a military background to buy the funds, the company estimates its target market of veterans and their families at 60 million.

In the 1970s and 1980s, USAA, like many no-load complexes, saw no need to court the adviser channel. In recent years, however, that has changed.

"Over the years, our customers have said, 'We love you and your services, but my financial adviser is at …'" said Keith Sloane, head of USAA's third-party platform distribution program. "We realized that even though we have pretty good scale, by adding another channel, we'd increase our scale."

Entering the race for adviser dollars at this point is a bit like starting the Indianapolis 500 after 150 laps. One perception USAA has to overcome is that those in the military don't have enough in assets to make them good clients. That's not true, Mr. Sloane said.​

"While some veterans are living paycheck to paycheck, many are extremely successful," he said., for instance, ranks the U.S. Military Academy at West Point fifth in salary potential among U.S. colleges, with the U.S. Naval Academy at Annapolis in sixth place.

"What we say to advisers is that this is a demographic that is often underserved by the industry," Mr. Sloane said.

Another perception is that the military's specific programs and problems can be quite complex, and that's true. It now has a blended retirement system, for example, which offers some benefits to those who don't reach the 20-year service mark. The plan includes Department of Defense automatic and matching contributions to the Thrift Savings Plan, midcareer continuation pay and a lump sum payout option. Advisers who want to serve the military need to understand the many options veterans and active-duty members have.

How is USAA reaching out to advisers?

• Getting on the platform. USAA has introduced institutional and R6 retirement shares to get on adviser and retirement platforms. USAA Short-term Bond Adviser (UASBX), for example, has seen net new inflows of $5.4 million this year, according to Morningstar. Its R6 shares have seen inflows of $8.1 million. USAA also plans to roll out six ETFs in the near future.

Getting out the word. USAA estimates that 8,000 to 10,000 advisers have served in the military. The company will roll out a LinkedIn page for advisers who are veterans, and plans to target areas with heavy veteran presence, such as California, Florida, Texas and Washington.

Getting automated. USAA is testing a robo-advice platform.

Getting planners. USAA has been hiring certified financial planners and offering their services to select clients. The planners are salaried, but do receive bonuses based on assets gathered, among other considerations.

Dryden Pence, chief investment officer of Pence Wealth Managment, uses several USAA funds in his clients' accounts. "I never have to explain who they are, or have to field a question about their ethics or performance," he said.

Most veterans connect with USAA at an early age — as Mr. Pence, a retired army colonel, did. "I signed up for USAA the day I was eligible," he said. "My dad was a Korean War veteran and the next thing he told me after telling me to join ROTC was to sign up for USAA."

Not all advisers are convinced USAA will work best for their clients.

"I stopped recommending USAA funds several years ago when their performance fell noticeably below peer funds," said Trey Bizé, a planner with First Allied. "For military veterans, I do selectively recommend USAA's insurances — home, auto, life. I myself am a Navy veteran, so I use USAA for some of my insurances, but have none of my own investments with them."

Despite the funds' generally low fees, some advisers feel that the company doesn't quite fit the bill.

"I have been a long-time client of USAA, and have the utmost respect for the organization," said Harold Evensky, chairman of Evensky & Katz/Foldes Financial. "However, in selecting funds, my clients' interest comes first, and in comparing USAA funds to an ETF alternative, USAA comes in second for those asset classes of interest to us."

Mr. Pence, however, feels that the benefits of USAA's good name overcome any drawbacks, including its occasional slowness to innovate. "I think they have to get the world out to the rest of the investment community about how robust the wealth opportunities are among veterans," he said.


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