Here is an interesting excerpt from Roger Gibson's timeless investment book Asset Allocation, Balancing Financial Risk
Great words of wisdom from Roger Gibson.
Clients must understand all types of risk and must accurately assess the relative importance of each type in their particular situations. The myth of the ideal investment must be destroyed. There are no liquid investment alternatives with stable guaranteed principal values which can provide real returns by consistently beating the combined impact of inflation and income taxes. Any misconceptions that go uncorrected will have a tendency to surface later, often to the detriment of the investment management process.
Roger C. Gibson Asset Allocation, Balancing Financial Risk Page 18.
Thursday, August 13, 2009
Thursday, August 6, 2009
Heeeeeere's the pitch
And Heeeeeeere’s the pitch
Over the past eleven months, our financial markets have endured a journey of historical proportions. We are now seeing the markets move in a much more rational manner. This is a big change from the 900 point intraday moves on the Dow a few months ago. As a result of market turmoil, financial services firms are cranking out magic product solutions by the truckload and handing them off to motivated salespeople to sell sell sell.
These products take on many forms and are being promoted everywhere. Nobody is safe from marketing noise. I am not even safe in my own car. My favorite talk radio stations switch to financial talk format on the weekends and sometimes I cannot resist listening in to their programming.
A couple of weeks ago I tuned into a very confident host and listened to him sing the praises of his firm. When you go to his website, you quickly understand that he too is pitching products. Your broker or advisor may have already pitched you the “avoid the next depression” fund.
As a family office practitioner, I field calls and emails from firms pitching products daily. Their value propositions are often strikingly similar. Their message is designed to appeal to investors who are still feeling an emotional response to large fluctuations in their portfolio.
If you are beginning to reconsider the risk in your portfolio, talk to your advisor. I recommend retaining an advisor who is serving as an advocate for you and your family. Their position of independence will insure that they do not emerge as another pitchman. They can help you review your strategy and they will keep you insulated from marketing noise.
Recently, I have noticed an increase in investors asking about adding alternative asset class solutions such as managed futures. Alternative asset classes provide many benefits to a portfolio. Most of the time Alternative Assets are added to a portfolio for the non-correlated movement they show against other asset classes like stocks or bonds. In other words they do not fluctuate in the same direction as the core holdings in the portfolio. This helps to reduce portfolio volatility.
The pitchmen are out in droves selling managed futures funds because they understand investors are interested in ways to reduce the fluctuation they experienced in Q4 08 and Q1 09. Marketers see now as the time to remind jittery investors that the next big storm could be on the way. However, a fundamental change in your financial situation is a good reason to consider making some tactical changes in your portfolio. Fear alone is not a good reason to switch horses mid stream.
Sometimes feeling fear is unavoidable. It is a normal human reaction, but do not let fear drive your investment strategy or you will be traveling in circles. Not to mention, irrational behavior can also result in unnecessary fees and tax consequences. As the market finds its legs, investors who stuck to their original strategy will be happy that they did not panic in the midst of stormy seas.
Sometimes in a storm you need to pull in the sails and wait out the heavy winds. Just make sure you resist the snap decision to buy newer “storm-proof” boat as soon as the dark clouds dissipate. Your old boat will probably get you to your destination just as well.
Ryan
Over the past eleven months, our financial markets have endured a journey of historical proportions. We are now seeing the markets move in a much more rational manner. This is a big change from the 900 point intraday moves on the Dow a few months ago. As a result of market turmoil, financial services firms are cranking out magic product solutions by the truckload and handing them off to motivated salespeople to sell sell sell.
These products take on many forms and are being promoted everywhere. Nobody is safe from marketing noise. I am not even safe in my own car. My favorite talk radio stations switch to financial talk format on the weekends and sometimes I cannot resist listening in to their programming.
A couple of weeks ago I tuned into a very confident host and listened to him sing the praises of his firm. When you go to his website, you quickly understand that he too is pitching products. Your broker or advisor may have already pitched you the “avoid the next depression” fund.
As a family office practitioner, I field calls and emails from firms pitching products daily. Their value propositions are often strikingly similar. Their message is designed to appeal to investors who are still feeling an emotional response to large fluctuations in their portfolio.
If you are beginning to reconsider the risk in your portfolio, talk to your advisor. I recommend retaining an advisor who is serving as an advocate for you and your family. Their position of independence will insure that they do not emerge as another pitchman. They can help you review your strategy and they will keep you insulated from marketing noise.
Recently, I have noticed an increase in investors asking about adding alternative asset class solutions such as managed futures. Alternative asset classes provide many benefits to a portfolio. Most of the time Alternative Assets are added to a portfolio for the non-correlated movement they show against other asset classes like stocks or bonds. In other words they do not fluctuate in the same direction as the core holdings in the portfolio. This helps to reduce portfolio volatility.
The pitchmen are out in droves selling managed futures funds because they understand investors are interested in ways to reduce the fluctuation they experienced in Q4 08 and Q1 09. Marketers see now as the time to remind jittery investors that the next big storm could be on the way. However, a fundamental change in your financial situation is a good reason to consider making some tactical changes in your portfolio. Fear alone is not a good reason to switch horses mid stream.
Sometimes feeling fear is unavoidable. It is a normal human reaction, but do not let fear drive your investment strategy or you will be traveling in circles. Not to mention, irrational behavior can also result in unnecessary fees and tax consequences. As the market finds its legs, investors who stuck to their original strategy will be happy that they did not panic in the midst of stormy seas.
Sometimes in a storm you need to pull in the sails and wait out the heavy winds. Just make sure you resist the snap decision to buy newer “storm-proof” boat as soon as the dark clouds dissipate. Your old boat will probably get you to your destination just as well.
Ryan
Wednesday, July 22, 2009
Separately Managed Accounts
Here is a brief history, introduction, and commentary regarding Separately Managed Accounts. Enjoy.
The financial services industry has traveled a long way. With volatile markets and lots of investment choices, both advisors and investors want to know now more than ever, what is the most effective tool for growing investment capital?
There is no one solution suitable for every individual. One thing is for sure; today’s investor has access to some truly advanced asset management vehicles. Looking back in history helps us to gain perspective on the available tools and strategies used to manage private client and institutional assets in the modern era.
The first pooled account arrangement hit the U.S. in 1893. It originated at Harvard University 15 years before the first production Model T. Europe already had pooled investment vehicles in the 1850s. The first public fund was born in this country in 1924. It came from Massachusetts Investors Trust. By the late 60s there were 270 funds holding approximately 48 billion in assets. Today we have over 10,000 funds holding over 7 trillion in assets for over 86 million investors.
Today, the proliferation of new products, fee arrangements, and marketing budgets leave many investors unsure where to place their investment capital. Today perhaps the most popular and modern tool is the Separately Managed Account (SMA).
SMAs have always been available to institutions and super wealthy individuals. Beginning in 1979 these account arrangements became more accessible to the private client world. They are now one of the fastest growing segments in the financial services industry.
SMAs are private account arrangements managed by third party money managers. They might look and feel like traditional pooled account vehicles, but because the assets are not commingled with other investor’s funds, they can offer the client more effective tax and fee management.
Throughout history, SMA portfolios have been an essential tool for pension funds, foundations, and endowments. Up until recently, high account minimums have kept most investors dependent on mutual funds for structured portfolio access. Here is the good news; I have seen some investment counsel firms offering as low as $25,000 account minimums.
Understand the tool
As with any specialized tool, it should be used in the most prudent way by a trained expert. It is essential for advisors to have a solid understanding of the SMA manager’s role and how they are impacting the client’s overall portfolio. I will cover portfolio performance and risk metrics another time.
Not all SMA account relationships are consultative
Consultants are independent. They have no internal product to sell. Big Wall Street firms, banks, insurance companies, and other financial service firms are using SMA account platforms as a captive forum to sell their own internal products or give special access to managers who conduct trading business with the firm. Independent third party SMA firms can offer clients an authentic advisory relationship. Direct access to boutique asset management firms are also an excellent option.
Catch the wave
Large powerhouse financial services firms are constantly at the drawing board trying to position their products to catch the next wave in the private client market. SMA portfolios can give clients tremendous value in reducing fees, eliminating dilution, and managing capital gains. The SMA wave is already breaking on our shores and they can give individuals the same ultimate ride institutions have been experiencing for years. Enjoy your endless summer!
Regards,
Ryan
The financial services industry has traveled a long way. With volatile markets and lots of investment choices, both advisors and investors want to know now more than ever, what is the most effective tool for growing investment capital?
There is no one solution suitable for every individual. One thing is for sure; today’s investor has access to some truly advanced asset management vehicles. Looking back in history helps us to gain perspective on the available tools and strategies used to manage private client and institutional assets in the modern era.
The first pooled account arrangement hit the U.S. in 1893. It originated at Harvard University 15 years before the first production Model T. Europe already had pooled investment vehicles in the 1850s. The first public fund was born in this country in 1924. It came from Massachusetts Investors Trust. By the late 60s there were 270 funds holding approximately 48 billion in assets. Today we have over 10,000 funds holding over 7 trillion in assets for over 86 million investors.
Today, the proliferation of new products, fee arrangements, and marketing budgets leave many investors unsure where to place their investment capital. Today perhaps the most popular and modern tool is the Separately Managed Account (SMA).
SMAs have always been available to institutions and super wealthy individuals. Beginning in 1979 these account arrangements became more accessible to the private client world. They are now one of the fastest growing segments in the financial services industry.
SMAs are private account arrangements managed by third party money managers. They might look and feel like traditional pooled account vehicles, but because the assets are not commingled with other investor’s funds, they can offer the client more effective tax and fee management.
Throughout history, SMA portfolios have been an essential tool for pension funds, foundations, and endowments. Up until recently, high account minimums have kept most investors dependent on mutual funds for structured portfolio access. Here is the good news; I have seen some investment counsel firms offering as low as $25,000 account minimums.
Understand the tool
As with any specialized tool, it should be used in the most prudent way by a trained expert. It is essential for advisors to have a solid understanding of the SMA manager’s role and how they are impacting the client’s overall portfolio. I will cover portfolio performance and risk metrics another time.
Not all SMA account relationships are consultative
Consultants are independent. They have no internal product to sell. Big Wall Street firms, banks, insurance companies, and other financial service firms are using SMA account platforms as a captive forum to sell their own internal products or give special access to managers who conduct trading business with the firm. Independent third party SMA firms can offer clients an authentic advisory relationship. Direct access to boutique asset management firms are also an excellent option.
Catch the wave
Large powerhouse financial services firms are constantly at the drawing board trying to position their products to catch the next wave in the private client market. SMA portfolios can give clients tremendous value in reducing fees, eliminating dilution, and managing capital gains. The SMA wave is already breaking on our shores and they can give individuals the same ultimate ride institutions have been experiencing for years. Enjoy your endless summer!
Regards,
Ryan
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