Chris Gurnee – Proactive Advisor Magazine – Volume 6, Issue 3

April 16, 2015 | Volume 6 | Issue 3

Active investment management’s weekly magazine

European stocks continue on torrid pace

Dow85,000

Managing 403(b) referrals

Jeanette Schwarz Young: Risk on, until it isn’t

Pipedream or realistic possibility?

Chris Gurnee

Quick to listen, slow to speakNavigating clients through market volatility

Advisor perspectives on active investment management

- A custodian that makes your life as an RIA simpler.

Easing client fearsThere is a secondary benefit to active management in terms of client attitudes. Many clients, especially prospects and new clients, are still very concerned with the risk in the stock market. Explaining the active management story and its risk-management focus helps to overcome at least some of those fears. As my practice grows, I continue to move more client money into active management. Active money managers have tremendous resources and models that I cannot replicate on my own, nor would I have the time to monitor them anywhere near as effectively.

LOUD & CLEARSteve Redelsperger • Minneapolis, MN Redelsperger Financial Group • Cadaret, Grant & Co. Inc.

3April 16, 2015 | proactiveadvisormagazine.com

LOUD & CLEAR

85,000on the DowPipedream orrealistic possibility?

85,000on the Dow

Book review by David Wismer

proactiveadvisormagazine.com | April 16, 20154

o, “Dow” and “85,000” in the same sentence is not a typo. And this has nothing to do with Apple joining the Dow Jones Industrial

Average (DJIA), propelling it to astronomical levels.

What this is all about is a recent book by authors Marshall and Trent Schield—“Dow 85,000! Aim Higher!”—that lays out the case for the next great secular bull market for stocks. And the rationale for a target as lofty as 85,000 for the Dow over the next fifteen or so years.

Back in early 2000, record market highs were being made daily, money was easy, and brokerage ads were touting “make your fortune by day trading.” If someone had told you then that the party was over, and that for the next decade stocks would lose money, would you have listened? Probably not.

Similarly, what if sophisticated trading signals showed a way to avoid the majority of the declines in the 2007-09 bear market, and those same signals turned bullish well before the market’s recovery became broadly apparent? Would you have followed that advice, difficult as it may have been to accept?

Of course, conviction around those indica-tors would have led to an extremely valuable course of action in all three cases. The father-and-son Schield team has rarely hesitated in letting their models guide them to bold (and profitable) calls on both the bearish and bullish sides of the market. So when they make a case for the Dow reaching 85,000 by 2030, and support it with a raft of logic and data, it is well worth listening to.

According to the authors, the market moves in long-term cycles, with lengthy underperfor-mance followed often by even longer periods of outperformance. The decade of poor perfor-mance, they say, is behind us, and a new mega secular bull market has begun—one lasting de-cades and potentially producing 700%+ gains. It is, they believe, a rare opportunity. And an opportunity that can be even further leveraged by the use of active portfolio management strategies and tools: Adding to gains in cyclical bullish trends and minimizing losses during the inevitable cyclical bearish periods.

History shows just how persistent gains can be in periods of secular bull markets, even with corrections along the way.

to home construction innovations fueling the post-WWII housing boom and a new consum-er-driven economy, to the great technology innovations of the 1980s and 1990s.

But what will fuel the next secular bull?On Wall Street there is an old saying that

states, “While the market doesn’t always repeat itself exactly, it often rhymes.” Applying that knowledge, it is easy to see that each of the new mega boom markets of the last century had some strong similarities.

First, the obvious. Each mega boom fol-lowed a terrible, long, grueling secular bear market that included several recessions, subpar economic growth, often war, and terrible stock market returns.

continue on pg. 11

N1982-2000

1949-1968

92%

82%

Time spent in rising markets during mega bull markets

0% 20% 40% 60% 80% 100%

The new boom, the new secular bull market.

The new boom—What trends may trigger it?Second, every new boom had a trigger.

A new innovation or breakthrough is needed. The book offers several compelling arguments:

• Continued technology breakthroughs in domestic energy production, leading to increased American energy independence and “plentiful, dependable energy for de-cades to come.”

• Cheaper (and cleaner) energy in turn transforming a “Rust Belt” mindset into a manufacturing rebirth in the U.S., which will also trigger a reversal in the trend of outsourcing production and jobs abroad.

“While managing market risk remains paramount, the biggest risk might be in missing the next great secular bull market.”

—Marshall Schield & Trent Schield, “Dow 85,000! Aim Higher!”

So what lies ahead? What will spark the next big boom? Despite market gains since early 2009, pessimism still runs high with investors and most are hard-pressed to envision a long secular bull market.

The authors believe all of this pessimism is unfounded: “Conventional wisdom that we are in an extended period of subpar growth is wrong. That many experts believe investors should be prepared for a ‘new normal’ of below average returns for the next decade is simply wrong.”

The Schields’ fundamental thesis is that big powerful bull markets (18-20 years or longer) are a “breed by themselves; not just rebounds in a secular bear.” These new bulls, they say, are the result of the world changing in surprising ways that fundamentally alter the future. They come as a pleasant surprise to investors, grad-ually changing their pessimism to optimism, and driving prices to new highs that are hard to imagine at the onset.

They cite historical technological break-throughs and trends that helped trigger past secular mega bull markets, leading to stock market gains of 700% or better over decades. Their examples range from Henry Ford’s initial leadership in manufacturing mass production,

Source: Dow 85,000! Aim Higher!

April 16, 2015 | proactiveadvisormagazine.com 5

9000

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MAY JUN JUL AUG SEP OCT NOV DEC FEB MAR APR2015

European stocks continue on torrid paceew money poured into Europe’s exchange traded funds and products (ETFs/ETPs) during the first quarter of 2015, with Europe’s share of funds

flow gathering pace as the European Central Bank (ECB) started its quantitative easing program.

CNBC reports that a record net 60% of fund managers were overweighted to European equities in March 2015, up from 55% in February and 20% in January (citing a Bank of America-Merrill Lynch Fund Manager Survey).

The significant drop in the euro, lower energy prices, and the likelihood of a Fed rate hike have further contributed to the impressive rally in European stocks. Barron’s notes that the Stoxx Europe 600 has notched a 21% gain in 2015 through Friday (4/10), compared to the U.S. equity market’s stop-and-go increase of about 2%. They say, “When 2015 began, few market observers would have guessed that European stock markets would leave the S&P 500 in the dust.”

What might be even more impressive in the European rally is the fact that it has occurred in the midst of the ongoing Greek debt drama, the Ukraine situation, and global tensions over the Iran nuclear deal. However, CNBC’s reporting indicates that many fund managers are viewing the Greece situation as “a market hiccup at best. While a Greek exit from the euro zone, dubbed a Grexit, might be tragic and chaotic for Greece, financial markets might not react much.”

Michael Strobaek, global chief investment officer at Credit Suisse, says, “That’s not a black swan thing. It’s a grey swan, I guess. I don’t think the markets are going to riot. Even if interest

N

Source: Bloomberg data, Deutsche Boerse AG German Stock Index DAX

rates were to go up because Greece went out, it’s not a disaster.” Other heavily indebted countries such as Spain and Italy should still have access to relatively low financing rates, he believes.

The ECB’s move to further expand quanti-tative easing, announced in January, has perhaps had the most profound impact on Europe’s stock rally. With bonds in Europe offering record low returns, investors are instead pouring money into stocks of solid, well-rated companies that pay regular dividends. The bond-buying program has pushed government bond prices higher, reducing yields, and forcing investors to look further afield for decent returns.

Germany’s DAX index, for example, has had an unprecedented string of record closes in 2015. The Wall Street Journal interviewed Tony Lanning, who manages multi-asset funds at J.P. Morgan Asset Management. He said, “You are getting people selling traditional fixed income to buy equities. This hunt for yield is only just beginning. We think with German government bonds yielding next to nothing, buying a good quality German company yielding 2.5% is a safe way to buy equities.”

GERMAN DAX INDEX OVER PAST 12 MONTHS


TOPPING THE CHARTS

Proactive Advisor Magazine: Chris, how do you view your role with clients?

Chris Gurnee: My role is to continually build relationships, manage risk, and set clear client expectations. All require me to be “quick to listen and slow to speak.” One of the best ways to accomplish these goals is by meeting with clients on a systematic basis.

I put myself in my clients’ shoes and ask, “What would I expect from someone helping to manage my investments, goals, and expec-tations?” I would want communication on a regular basis to seek clarity amidst all of the

financial noise out there and to hear about the plan for the path ahead.

Describe the risk side of the equation.

When it comes to managing risk and put-ting my clients’ best interest first, active money management is paramount. I have a commit-ment to navigate my clients through market volatility.

I have not had many potential clients say, “Chris, I saved too much money for retire-ment,” but I have had a number of potential clients say, “I do not want to experience another

2008 market correction—especially without some type of preparation or protection from steep losses.”

Active third-party money managers provide a team of experts who are dedicated to keeping the financial noise at minimum and seeking suitable opportunities for my clients to keep them on target in terms of their overall invest-ment plan. This is a team effort, so to speak, and requires multiple strategy elements, including a role for active investment management.

I explain this concept to a potential client by summarizing one simple aspect of risk-adjusted returns: Our objective is to take on less risk than

Quickto listen

slow to speakNavigating clients through market volatility

By David WismerPhotography by August Miller


Chris Gurnee President, Cornerstone Financial and Associates Inc.

Ogden, UT

Broker Dealer: Foresters Equity Services Inc.

Estimated AUM: $60M

Licenses: 6,63,65, Life and Health

Christopher Gurnee has been a financial services professional for nearly 15 years and is the president of Cornerstone Financial and Associates Inc., based in Ogden, Utah. He is a Registered Representative of and offers securities through Foresters Equity Services Inc.

Mr. Gurnee says, “My background includes 20 years of experience as a successful and self-motivated small business owner. My career in financial services started just prior to the dot-com crash and 9/11. It was baptism by fire in managing client expectations and risk in the first years of my career. I credit these early experiences to forging an understanding of the importance of managing risk and developing shared expectations with clients.”

After spending his early years abroad growing up in a military family, Mr. Gurnee has been a resident of Utah for many years. He and his family enjoy a variety of outdoor activities, including hiking, biking, and camping. Mr. Gurnee, his wife Rebecca and two children also love to travel, with warm weather scuba sites a favorite destination. He says, “While there is never a shortage of family activities in these great Utah outdoors, a tropical vacation is a welcomed brief escape from the tough winters.”

Mr. Gurnee is active in several charitable and faith-based activities, including Compassion International, a Christian organization dedicated to the long-term development of children around the world.

continue on pg. 10

a traditional market index but to attain fairly comparable returns over time. This disciplined approach puts our team in a great place to move towards the client’s investment goals. While there are never any guarantees on this, and the suitability of strategies has to be strongly considered, histori-cally we know this can be achieved for most clients. So, simply put: Take less risk while finding returns that can meet our investment plan objectives.

When were you introduced to active management?

I am relatively new to it, just since 2014. After the lessons learned during the dot-com crash, and then the 2008 credit crisis, I knew there had to be better answers than traditional asset allocation. I knew intellectually and

emotionally that there had to be alternatives, but it took me some time to find the right solutions.

You can put together sound investment plans and allocations that fit with all of the prin-ciples of Modern Portfolio Theory, and be on pretty legitimate ground doing so. But to me, it was increasingly becoming obvious that that was not the optimal solution for client investment needs, especially those planning for retirement.

This was a definite need for my clientele—and I felt I was not truly serving the best interests of my clients if I did not at least offer the option of active investment management. I have been extremely busy since making that decision and finding a strong third-party active manager as a partner. I have placed a substantial portion of client money toward the active platform since making that change within my practice.

How have clients responded to this? Very positively. It does take a substantial

amount of education. So many people have been told their entire lives that investing is all about setting and rebalancing asset alloca-tions—essentially to buy-and-hold and every-thing will work out fine in the end.

But it has become increasingly clear, as we saw during the 2008-09 period, that people just do not have the stomach for that type of market volatility. They will make bad decisions under stress. They may have said prior to that period that they wanted the types of returns that the market can produce in big up years, yet did not fully understand the level of risk associated with those returns.

“Our objective is to take on less risk than a traditional market index while attaining fairly comparable returns over time.”


Christopher Gurnee is an Investment Advisor Representative offering securities and advisory services through Foresters Equity Services Inc., member FINRA, SIPC and a Registered Investment Advisor. Cornerstone Financial & Associates Inc. is independent of Foresters Equity Services Inc.

The reality is that there are bear markets. We know there will be other major downturns, we just do not know when. We need to prepare for those. How can we best do that? Is it through asset allocation? That can be very helpful, un-doubtedly. However, taking it a step further, we can add an active management component to a portfolio to help manage risk better. That may not be the key for everyone, but it plays a big role for a lot of clients.

I can show clients the returns of the market for periods such as 2001-03 and for 2008, and look at the results of several active strategies. For the most part, they were able to minimize losses or, in some cases, even show a positive return. We then look at the results of a typical well-allocated mutual fund portfolio. There was really no place for most investors to hide.

When you combine that type of analysis with the difficulty of making up for losses in down years, and then compare it to the compounding of smoother, less-volatile returns, the active

approach has a lot of appeal for most clients. Average investors, myself included, are concerned about volatility returning, and we are looking for ways to help mitigate and reduce that risk.

Which types of clients are more receptive to active management?

I have built a focus for my practice around serving the needs of clients in transition. These can be upsetting situations such as a layoff or death of a spouse, or much happier circumstanc-es such as new employment, marriage, the arrival of children, or moving fully into retirement.

The commonality for all of these clients is their desire to move forward with their financial lives in a well-planned, structured, and disci-plined fashion. This is where I think I can add great value. Active investment management is becoming an increasingly important tool that I can use on behalf of my clients as they plan for the major changes in their lifestyles.

continued from pg. 9Chris Gurnee

10 proactiveadvisormagazine.com | April 16, 2015

• The demographic trends of Millennials providing a new investment tailwind, as peak earners 35-49 years old replace aging Boomers.

• A secular bond bear market that will benefit stocks.

• An improving deficit situation that becomes a smaller percentage of U.S. GDP, coincid-ing with a lower ratio of imports to exports; the right slope of these “Twin Deficits” has forecast prior secular bull markets.

continued from pg. 5

continue on pg. 14

85,000 on the Dow

trend and momentum of over 100 sector or in-dustry groups, providing both a filter for sector selection, as well as an important gauge of the market’s overall health. They write of MEI:

By combining numerous indicators measuring the trend and momentum of all the underlying parts of the market, we be-lieve MEI gives a more timely and accurate view of the market’s direction and health than looking at one or two indicators. No indicator is perfect—it is impossible to sell consistently at the exact top or to buy at the exact bottom. A successful risk management indicator, however, is: (1) right more often than wrong, and (2) leads to participating in large gains and avoiding large losses.

Why Dow 85,000?

$400

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$0

$363

$97

S&P 500 earnings forecast

2011(actual)

2030(with 7.2% growth)

Here the Schields posit that growing U.S. manufacturing and GDP will lead to the levels of historical earnings growth and P/E expan-sion seen in prior secular bull markets. Using a conservative figure of 7.2% average annual earnings growth over the 2011-30 period (compared to the 8.1% earnings growth rate of 1982-2000), and a P/E expansion less ag-gressive than that earlier period, they arrive at a rather remarkable, but logical, target for overall total U.S. earnings by 2030.

Financial commentator Larry Kudlow is fond of saying, “Earnings growth is the nurtur-ing milk that feeds the stock market.” Applying P/E assumptions to this 2030 earnings level and using some simple calculations, the Schields arrive at targets of 8,800 on the S&P 500 and 85,000 on the Dow for 2030.

But here is where it gets truly interesting.

better performance over the long term than a passive investing approach.

While there are many components to their active strategies, it comes down to two basic principles: (1) taking action with conviction when their indicators signify a new trend is developing, whether that be bullish or bearish, and (2) employing systematic methods in bull-ish market trends to identify “market leaders.” They also apply a judicious use of leveraged tactics when conditions warrant, increasing returns during favorable environments.

Using their proprietary methodologies, the Schields focus on sectors with the highest probabilities of market outperformance. They cite an eye-opening statistic from actual results for 2013: leading market sectors were up on average 75%, while lagging sectors had average gains of just 20% (as the S&P 500 was up 32%). They argue, “Doesn’t it make sense to overweight the winning sectors while avoiding the laggards as much as possible?”

They combine these analytics with sev-eral other proprietary tools used by STIR Research LLC. One of these, STIR’s Market Environment Indicator (MEI), measures the

Aim higher!

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Possible bull/bear moves within the DJIA 2011-30

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85000

Marshall and Trent Schield have been studying and developing active portfolio strat-egies for decades. One of their core beliefs is that active investment management can lead to

The bottom line.Marshall and Trent Schield believe, with

supporting evidence, that markets have the po-tential to deliver mega secular bull market gains over the next 15 years. It might not be a steady path, as the chart shows, and will still require serious risk management. But the bigger risk is perhaps missing out on the huge gains that may materialize.

Source: Dow 85,000! Aim Higher! Source: Dow 85,000! Aim Higher!


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The new era of low stock returns?Future returns on stocks are likely to be far slimmer than the fat gains of the past few years, averaging 2-2.5%, says Jason Zweig of The Wall Street Journal.

5 great myths about referralsWhat might be stopping you from getting the quantity and quality of referrals your practice deserves?

Is there really a battle between active and passive investing?

While the debate swings back and forth depending on market conditions, neither approach has to be “all or nothing.”

L NKS WEEK


Risk on,until it isn’t

Jeanette Schwarz Young is the author of the Option Queen Letter, a weekly newsletter issued and published every Sunday, and the OPTIONS DOCTOR, published by John Wiley & Son in 2007. She was the first director of the CMT program for the Market Technicians Association and is the current president of the American Association of Professional Technical Analysts.

risk-off trade occurs when investors or market players become scared or frightened about financial events or global happenings. Their tolerance

for pain from a loss becomes limited and the asset of choice becomes something safe like a Treasury bill or note, AAA bonds, and other vehicles that are perceived as safe and, of course, cash.

The employment of this type of investment removes risk of loss from the investments and at the same time gives up growth and yield. This behavior is generally seen during times of crisis such as the Greek debt problems, the 2008-09 financial crisis, European Central Bank issues, currency problems in Russia, etc., or in other risks to the economy or global arena. Typically, during a recession, or perceived recession, the risk-off trade prevails and we see money put to work in safe government bonds or insured bonds. Is there growth in these portfolios? Not much, but the minuscule return is more pleas-ant than the chance that a loss will occur. The iShares 20+ Year Treasury Bond ETF (TLT) is an example of a risk-off vehicle. SPDR Barclays High Yield Bonds ETF (JNK) is the opposite.

Notice on the chart that the black line, that of TLT, seems to go in the opposite direction as that seen for the red JNK chart. TLT is a risk-off trade and JNK is a risk-on trade. What are the differences? Risk and yield. Also notice that when these lines cross (the red going down and the black going up), the chart is telling you that complacency and good feelings are not abundant in the markets. You do not need a newsfeed to observe this change in mood.

A

In recent days we have seen the risk-on trade return. We have seen the iShares Russell 2000 ETF (IWM) approach an all-time high. This ETF is the poster child for U.S. growth companies. If the market perceives stability and no threats to our economy, this ETF becomes the vehicle of choice for many investors. Additionally, this ETF is less adversely affected by the strong U.S. dollar, as most of the companies in this index are not as reliant on exports as larger companies. The emerging markets ETF (EEM) similarly seems to be a magnet for risk-on trades.

The market is in an interesting position now, hanging on the words of Fed Chair Janet Yellen and other members of the FOMC. While markets have recently reacted positively to the statements that the Fed will move slowly on increasing hikes, the consensus is that the hikes should begin to appear sometime in late 2015.

What happens when interest rates go higher? The U.S. dollar should rally further and U.S.

multinational companies will face further chal-lenges in exporting their products. How will that impact the S&P 500? Will it be negative for the markets as earnings are impacted by the strong currency? Frankly, the FOMC is in a very difficult position. In my opinion, if they keep interest rates at almost zero, they risk inflation. We are probably at greater risk currently of deflation. A strong U.S. dollar is deflationary, not inflationary.

The lesson to be learned is that no one asset class or sector trades without reflecting the in-fluence of macroeconomic events and monetary policies around the globe. Markets are more interconnected than ever before and analysis must be employed that looks at the bigger pic-ture. Take a look at the seemingly contradictory influences in our markets these days. We have higher interest rates than most of Europe and therefore money moves into our markets from abroad, which in turn supports our markets and a risk-on trade … until it doesn’t.

Proactive Advisor Magazine presents weekly commentary provided by well-known market analysts, financial authors, investment newsletter publishers, and economists. The opinions expressed each week represent their personal perspectives and not necessarily those of the magazine.

Source: UDATA

April 16, 2015 | proactiveadvisormagazine.com 13

HOW I SEE IT

There can be no assurance that any investment product will achieve its investment objective(s). There are risks associated with investing, including the entire loss of principal invested. Investing involves market risk. The investment return and principal value of any investment product will fluctuate with changes in market conditions. Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC. Securities offered through Guggenheim Funds Distributors, LLC. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC. x0516 #17180

Explore how a tactical approach may help maintain diversification.

How diversified are investor portfolios? The answer is that, when diversification is needed most, portfolios may not be as diversified as investors assume. In this paper, we will explore the concept of portfolio diversification, the impact of evolving financial markets, and why we believe tactical management is playing an increasingly pivotal role.

Request your free copy.Call 800.258.4332 or visit guggenheiminvestments.com/dilemma

The Diversi� cation DilemmaTactical Management and Today’s Evolving MarketsBy Douglas C. Mangini, J.D., Senior Managing Director

Chicago | New York City | Santa Monica

continued from pg. 11

Within this secular bull market environ-ment, they also believe that their specific proprietary strategies, grounded in active investment management, can deliver even greater gains than the overall market averages.

Jerry Wagner, president of Flexible Plan Investments Ltd. and author of the book’s foreword, provides a closing thought:

This book is unique. It presents a strong case for its end goal—Dow 85,000—just as other books have argued eloquently for their predictions. The difference is that Trent and Marshall present us with a quan-titative methodology that not only seeks to improve on their prediction (with superior investment results), but also gives us a set of defensive tools to defend against cyclical bear markets, as well as the possibility their prediction does not come to pass.

Editor’s note:Readers can learn more about “Dow 85,000! Aim Higher!” at http://www.dow85000aimhigher.com/

85,000 on the Dow

Marshall Schield is the chief strategist for STIR Research LLC, a publisher of active allocation indexes and asset class/sector research for financial advisors and institutional investors. After graduating from college in three years, he became the youngest stockbroker in the nation in 1968 at age 21. As an active strategist for over four decades, Mr. Schield has received national recognition from several leading industry publications and services that track strategy performance. He is proud of the fact that he avoided much of the carnage of the early 2000s and 2008, while “participating in the majority of every major bull market since 1970.”

Trent Schield, Marshall’s son, is a regional sales manager with Flexible Plan Investments Ltd., and was first introduced to investment management at his father’s firm. He has over 20 years of experience and has helped hundreds of advisors understand the concepts and principles of active strategies. His first love is active sector allocation strategies, and he says, “Investors need to know they can do better, much better, than simply buy-and-hold.” Mr. Schield has the experience of working one-on-one with advisors and their clients and addressing groups well into the thousands at national conventions.

20%

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0%

11.5% 11.6%

16.3%17.8%

Secular bull annualized returns

1949-1968 2011-2030 (forecast) 1982-2000 2011-2030“Aim Higher!” goal

Source: Dow 85,000! Aim Higher!

14 proactiveadvisormagazine.com | April 16, 2015

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Copyright 2015© Dynamic Performance Publishing, Inc. All rights reserved. Reproduction of printed form, whole or in part, without permission is prohibited.

EditorDavid Wismer

Associate EditorElizabeth Whitley

Contributing WritersDavid Wismer

Jeanette Schwarz Young

Graphic DesignerTravis Bramble

Contributing PhotographerAugust Miller

April 16, 2015Volume 6 | Issue 3

Proactive Advisor Magazine is dedicated to promoting and educating on active investment management. Distribution reaches a wide audience of financial professionals who advise clients on investments and portfolio management. Each issue features an experienced investment advisor who offers insights on active money management, client service, and investment approaches. Additionally, Proactive Advisor Magazine offers an up-close look at a topic with current relevance to the field of active management.

The opinions and forecasts expressed herein are those of the author and may not actually come to pass. Any opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. The analysis and information in this edition and on our website is for informational purposes only. No part of the material presented in this edition or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any portfolio constitutes a solicitation to purchase or sell securities or any investment program.


Managing 403(b) referrals in a tight-knit academic setting

Johnathon DavisLexington, KY

Retirement Tax Advisory Group

Retirement Tax Advisory Group Inc. (RTAG) is a Kentucky-based Registered Investment Advisory Firm. Securities offered through American Equity Investments, member FINRA and SIPC.

Acquiring new clients has been 100% referral-based. I do not ask people for a long list of referral names but rather ask them to think about people they really care about who might also need help with their retire-ment planning. It might be a short list, but if they have a close bond with that person, they are more likely to ask if they would be willing to hear about my approach to their 403(b). So when I call, the person is not just waiting for my call—they’re expecting to do business with me when I do see them. That one referral is worth far more than receiving random names of associates.

aving attended the University of Kentucky, I have a great affinity for the university and do a lot of work

with several employee groups there.The university has an excellent benefits

plan and matching contribution schedule for employees. Those employees have over 100 investment options. That is great, and it is coordinated with basic enrollment education on the nature of the 403(b) plans and the investment selection process.

But frankly, no one is designated to help them actively navigate their way through the investment decision-making process. This is where our firm comes in. I have had success in building a 403(b) client base, especially among the university’s medical staff. They are caring, career-oriented people with de-manding schedules. While concerned about retirement planning, they have not been able to devote time to learn about it.

The story of active management has been my calling card, bringing risk-managed, quantitative, active investment strategies to essentially middle-class workers. While their account balances may not be all that high, a sound investment approach can make a huge difference in their retirement outlook over time.

UK has a strict solicitation policy. Financial firms cannot advertise their way to success, which has actually worked to my advantage as I am good at the one-on-one process and willing to do a lot of legwork. I’ve been welcomed by the administration because they know I am very respectful of their policies.

H

TIPS & TOOLS

Active ManagementThere is a great deal of confusion surrounding the term “active

management” created by the business press. When one reads a headline in any given year that “active managers” are underperforming or overper-forming their benchmarks, this typically is referring to “active” managers of a mutual fund—who are being measured against a specific index or competing funds within that style.

Within the field of true active portfolio management, this narrow and misleading definition really has little significance.

Active investment management is not about exceeding a specific benchmark or “beating the market.” Active management seeks favorable risk-adjusted returns in any market environment, generally employing sophisticated algorithms and models to capture gains and protect against losses in a wide variety of sectors, asset classes, and geographies.

It is about controlling risk in the markets, finding new ways to dynamically diversify, and smoothing out the long-term volatility typically found in any asset class. Active managers tend to rely on quantitative approaches for asset allocation, exposure to the market, and adjustments to portfolios based on current market conditions. When it comes to evaluating returns, they generally will not compare to the S&P 500 or global total market indexes, but are far more interested in risk-adjusted returns and in meeting their portfolio objectives.

In theory, it is fundamentally about a long-term approach to portfolio management that is diametrically opposed to “buy-and-hold.”

Fee-based assets continue to grow among advisors

101

DynamicStrategic

Diversification

Tools Models

Strategies

5 reasons to consider active management

Buy and hold is dead(ly)—While bull market runs are impressive, history shows it is not a matter of “if ” but more a matter of

“when” for the next bear market. Investment expert Kenneth Solow sums it up: “Patiently waiting for stocks to deliver historical average returns does not rise to the level of an investment strategy.”

Bear market math is daunting—It takes longer than most in-vestors think to recover from bear markets—a gain of 50% is

needed to overcome a 33% portfolio loss.

Risk first: always—As one prominent active manager has said, “No one would ever jump into a car without brakes, so why

would investors even consider having an investment strategy that did not have a strong defense?”

Active management aligns with investor psychology—Behavioral finance studies have documented the tendencies of investors to

operate on the destructive principles of “fear and greed.” Disciplined active management takes emotion out of the equation.

Does “set it and forget it” really make sense?—For retirees or those approaching it, the “sequence of returns” dilemma can

have a devastating effect on future income needs. Active management offers a prudent path to achieving the twin goals of asset preservation and compounded capital growth.

Resources for AdvisorsWebsitesProactive Advisor Magazine: Active investment management’s weekly magazine, providing advisor perspectives, topical issues in active management and commentary on strategy and tactical tools. www.proactiveadvisormagazine.com

National Association of Active Investment Managers (NAAIM): Peer-to-peer networking in the active investment management community, providing best practices among successful advisors and advisory firms. www.naaim.org

Market Technicians Association (MTA): Leading national organization of investment analysts, stock market analysis professionals and certified market technicians. www.mta.org

Advisor Perspectives: Audience-generated and vendor-neutral forum where fund companies, wealth managers and financial advisors share their views on the market, the economy and investment strategy. www.advisorperspectives.com

Whitepapers“Bucket Investing with Dynamic Risk-Managed Portfolios,” Flexible Plan Investmentsgoto.flexibleplan.com/download/whitepaper-bucket-investing.pdf

“Comparison of ETFs and Mutual Funds—The True Cost of Investing,” Guggenheim Investments guggenheiminvestments.com/rydex

“Understanding Leveraged Exchange Traded Funds,” Direxion Investmentswww.direxioninvestments.com

“Small Accounts, Big Opportunities,” Trust Company of America www.trustamerica.com/resources

“Why Gold? Seven Enduring Reasons,” Flexible Plan Investments goldbullionstrategyfund.com

“The State of Retail Wealth Management, 4th Annual Report,” PriceMetrixwww.pricemetrix.com

2011 2012 2013

Fee-Based Assets (% of Total Assets) 25% 28% 31%

Fee-Based Revenue (% of Total Revenue) 43% 45% 47%

Fee Accounts per Advisor 85 92 101

Average Fee Account Assets ($000s) $240 $258 $293

Source: PriceMetrix Insights – The State of Retail Wealth Management 2013 – 4th Annual Report (Aggregated data representing 7 million retail investors and over $3.5 trillion in investment assets.)

Chris Gurnee – Proactive Advisor Magazine – Volume 6, Issue 3

Economy & Finance

Transcript of Chris Gurnee – Proactive Advisor Magazine – Volume 6, Issue 3