Mark Cortazzo likes to think a few years into the future.
That is how he is able to spot opportunities for his clients that other financial advisers might overlook. And colleagues around the industry consider this foresight a valuable resource.
Mr. Cortazzo, 44, is particularly well-regarded for outfoxing insurance companies by paying attention to the nitty-gritty details of variable annuity contracts.
For example, he became enamored of variable annuities in 2006 and 2007, which turned into a terrific downside hedge for his clients during the credit crisis.
Variable annuities were getting trashed in the press at the time, pushing insurance companies into a corner, Mr. Cortazzo said.
“Back then, there was an article almost every day that said how bad variable annuities were, particularly because of the fees. That caused insurance companies to add bells and whistles to the products, such as lifetime-income riders,” Mr. Cortazzo said.
“At the time, it was insurance companies versus low-cost mutual funds,” he said. “They had to make variable annuities as attractive as possible.”
PHOTO GALLERY 15 transformational advisers
Mr. Cortazzo has shown financial planners and advisers that variable annuities, despite their faults, can help clients meet their goals and objectives, fee-only planner Sheryl Garrett said.
“His analysis and evaluation of variable annuities is top-notch,” said Ms. Garrett, whose firm, The Garrett Planning Network Inc., works with 325 planners.
“He has shown that while variable annuities are oversold or missold, they are not evil. And if you really learn what's out there, you can put together something extraordinary,” Ms. Garrett said, adding that the planners in her network at times work with Mr. Cortazzo's firm, Macro Consulting Group.
“What we do is look three years out, and it's almost as if what's least attractive right now creates a buying opportunity,” Mr. Cortazzo said.
“Now it's the exact opposite with variable annuities,” he said. “If you want the protection, you're going to pay for it.”
Mr. Cortazzo's firm focuses on retired clients or those near retirement.
He said that he enjoys working on the “distribution side” of a client's wealth, versus the “accumulation phase” because of its different risks.
Through efficient tax strategies “you can see net spendable money that the client has incrementally grown because you did better planning,” Mr. Cortazzo said.
Like so many independent representatives and advisers in their 40s and 50s, he got his start in the business on Wall Street, training in the famed Merrill Lynch & Co. Inc. program.
“I went to Merrill University for three weeks. We lived on campus, and they brought in experts from every line of the business,” Mr. Cortazzo said. “It was a great education.”
Echoing the thoughts of other leading independent advisers who cut their teeth at a wirehouse, Mr. Cortazzo said that the emphasis at the firm of selling its own products pushed him to eventually become an independent adviser.
“The focus was on proprietary product, and doing managed money was not as strong a focus,” Mr. Cortazzo said. “I was in my 20s, and building a block of business with recurring revenue was more attractive to me than it would have been to a 55-year-old broker on the last leg of his career.”
He became an independent rep in 1997, and Macro Consulting Group now has $700 million in client assets.
UNCOMMON STRATEGY
Mr. Cortazzo showed his finesse almost immediately by being in the vanguard of identifying what isn't a common strategy in retirement planning. Called net unrealized appreciation, the strategy applies to company stock inside employer retirement plans.
“If you have company stock in a 401(k) plan, and you have bought it with contributions of $100,000 and it's grown to $1 million, you could take the $1 million in stock out of the plan and pay ordinary taxes on the $100,000,” Mr. Cortazzo said. “But the rest of the gain, the $900,000, was a long-term capital gain, and that's a 15% bracket for many clients.”
Mr. Cortazzo hasn't lost his ability to spot opportunities for his clients.
He said an arbitrage opportunity exists right now in VA contracts he bought a few years ago.
“A high portion of client fixed-income allocation is in insurance contracts, variable annuities,” Mr. Cortazzo said.
“The bucket is high-grade corporate debt that returns 3% annually and is liquid,” he said. “Our clients have tens of millions of dollars in credit-quality companies. They have a base that's guaranteed and an upside from that. That's very appealing.”
Mr. Cortazzo's effort to find obscure or hidden benefits of variable annuities is a boon to advisers, who often are suspicious and wary of the products because of their complexities and fees, Ms. Garrett said.
“Mark has become to so many of us a walking resource of knowledge, a font of information and a trusted source,” she said.
