Glenn Nevola has spent so many flights talking with his co-pilots about their 401(k) plans that he started a financial advisory business to help them.
“We have a fantastic 401(k), but most pilots don’t want anything to do with finances. Everyone has busy lives and for many of them, retirement is years off,” Nevola told MarketWatch. So he became a Registered Investment Advisor and started Flight Line Financial to help pilots not only invest their 401(k) money, but achieve other goals too, such as saving for a child’s college years.
Pilots are like most people in the U.S., in that they’d rather not spend time thinking about their retirement accounts. Only a third of working Americans are saving money in an employer-sponsored or tax-deferred retirement account, according to U.S. Census Bureau researchers,
“There’s a lot of downtime as a pilot, which enables me to do other things. I ran the financial arm of a real-estate company for years, and now I do financial advising,”
Even among high earners, many people don’t like to focus on retirement planning. The NFL has an annual personal finance camp to teach its players to invest for the long-term; every player in the league is invited to attend for free, but this year only about 30 players attended.
But pilots at the largest U.S. airlines have an advantage many people don’t: Incredible 401(k) plans. Nevola works for one of the big three airlines and says his company has a 16% match. Whereas most companies will match the first 3% of their salary — meaning they’ll add 3% to their 401(k) for “free” — the major airlines put in between 12% and 16%. but it’s even better than that, because the airline will contribute that much even if the employee doesn’t contribute any of his own money.
The most senior pilots make $350,000 a year, so many of them reach the annual 401(k) federal limit of $54,000 in total contributions before the end of the year. That means the pilots put the federal maximum of $18,000 in, but the 16% of their salary that the company puts in leads them to max out (these limits are slightly higher for people age 50 or older).
Nevola, 54, started working as a pilot in 1986. He currently earns $300,000 a year as a pilot and has the seniority to pick his own routes. He usually works three or four days a week and flies from Newark — he lives in New Jersey — to Florida or the Caribbean. He mostly does one-day trips and is home before nighttime.
“There’s a lot of downtime as a pilot, which enables me to do other things. I ran the financial arm of a real-estate company for years, and now do financial advising,” he said.
How he helps pilots invest
He caters to two types of clients: younger pilots and those closer to retirement age. He charges the younger ones $500 a year for all types of financial advice. And he refers the pilots closer to retirement age to one of the large investment firms. One of the retirement challenges unique to pilots is that it’s mandatory they retire by age 65. He recommends that as pilots near that age that they begin working with a firm he has an agreement with.It charges the pilots he refers an annual fee of 85 basis points, of which he gets 20%. Once there, the pilots roll their 401(k)s into IRAs and get access to a wide range of services, including financial planning, distribution schedules, and trust/estate planning.Once these clients start working with the larger firm, Nevola stops advising them.
The pilots Nevola works with have between $1.5 million and $3.5 million in investible assets when they retire, he said.
For the clients he gives financial advice to, he doesn’t have their passwords or trade for them, but gives them a strategy. He has five investing models that he recommends to his clients, depending on their age and risk tolerance. He doesn’t recommend target-date funds — “they underperform funds that use both passive and active management” — and says he’s “big into diversification and proper allocation.” His clients have a combined $110 million assets under management.
Asked for an example of how he would have a 34-year-old pilot invest, he said he would recommend a 90/10 stocks/bonds mix. He said his employer’s 401(k) includes nine mutual funds — a mixture of index and actively managed ones — and he has his clients invest in all of them — for diversification. The percentages change based on their comfort with risk and their age. Nevola recently recommended clients decrease their investments in certain index funds because of how well FAANG stocks have done in recent years (Facebook FB, +1.24% , Apple AAPL, +2.50% , Amazon AMZN, +0.71% , Netflix NFLX, +0.63% and Google GOOG, +1.77% ).
Also see:It’s all over for the FAANG stocks
Other benefits pilots get
First-year pilots at the larger airlines earn $75,000 and then $120,000 the second year, and the most senior pilots earn $350,000, Nevola said. In addition to their enviable 401(k) plan, pilots at his airline can put money into a Retirement Health Account (RHA). It’s especially beneficial for pilots who max out on their 401(k) contributions before the end of the year. These pilots can contribute the rest of their retirement savings into the RHA. The money is invested in target-date funds and grows tax-free. It can only be used for health care, though — for the pilot or any family member. But there is no limit to how much money can be invested in it.
Nevola said that after the Sept. 11 attacks, many airlines went through bankruptcies and restructurings and got rid of employee pensions — as a result, the pilots union negotiated a higher company contribution into the 401(k) and better benefits overall. The pilots Nevola works with are in unions and fly for the largest airlines, so they’re well paid, but many pilots at smaller and regional airlines make much less.
How he hopes to grow his business
He currently has 160 clients and makes about $100,000 a year from Flight Line Financial.There are 12,500 pilots in his company — and about 65,000 total at the larger U.S. airlines, Nevola says. His goal is to one day have 1,000 clients. “My business model is very scalable. Most of my clients I work with over the phone, using a screen-sharing program, even though I do have an office in Princeton,” Nevola said.
In the past he has marketed his services with seminars and fliers, but he said most of his business comes from word-of-mouth. He also has a leg up on other advisers who would like to work with pilots. “I can get into crew rooms. Other advisers can’t do that,” he said.
Nevola said that 80% of his clients are on the younger side. “They’re the pipeline for the future. It’s one of the reasons I only charge $500 a year.”
He also has another notable reason to treat his clients well.
“A lot of these guys are my friends. If I pass a client in the terminal, I don’t want them making a beeline to me to complain. And I have to fly with these guys.”