The article discusses an interview with financial advisor Rich Ralston about his experience moving to a fee-based advisory model and active investment management. Ralston found success utilizing third-party managers for dynamic, risk-managed strategies after experiencing market crashes. This allowed him to focus on client needs while ensuring their assets were carefully managed. He addresses clients' primary concerns around preserving capital and making assets last in retirement. Ralston educates skeptical clients on the benefits of active management for long-term, risk-adjusted returns compared to traditional buy-and-hold strategies. While fees and performance in strong markets present challenges, Ralston finds most clients appreciate the transparency and real-time monitoring of their portfolios.

1. A cruel
September? pg. 7
Benefits of the
fee-based model
pg. 3
The perils
of predictions pg. 4
RICHRALSTON’S
pg. 8
WATERSHED
MOMENT
September 4, 2014 | Volume 3 | Issue 10
First magazine focused on active investment management

3. opportunity to take advantage of po-
tential market returns in a more con-
trolled and disciplined fashion.
There are two other benefits to this
combined approach. First, employ-
ing highly qualified third-party active
managers frees me up to focus on client
needs and prospecting. It also allows
me to conduct unbiased client reviews.
If something is not working the way
it should or if the client’s circumstanc-
es have changed, I do not hesitate to
make alterations. Clients have come to
understand that I am managing their
assets for the long haul and this has
led to a high degree of satisfaction and
retention.”
have made several changes to
my advisory practice over the
years. The two biggest were moving
almost exclusively to a fee-based
model and using active investment
management for my clients’ portfolios.
The fee-based model allows me to
build a transparent and totally objec-
tive relationship with clients. I develop
a financial strategy that clients know
is not influenced by the motivation
of selling a product. And because my
fees are largely paid via a percentage
of assets under management, I do
not charge a fee to review an exist-
ing financial plan. I will handle some
commission-based products, but that
comes within the framework of what
is in the clients’ best interests in their
total financial strategy construct.
The move to active management
has had many benefits. It fits in with
my desire to employ a high level of
risk management for clients after the
experiences of the two market crash-
es of the 2000s. I do this by utilizing
third-party managers that are highly
proficient at developing risk-mitigat-
ing strategies.
Active management helps clients
feel confident that they will have the
Why fee-based active
management works
Jim Mardock
Portland, OR
Transamerica Financial Advisors, Inc.
I“
Jim Mardock is a Registered Representative and an Investment Advisor Representative with Transamerica Financial Advisors, Inc.
Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA), Transamerica Financial
Group Division—Member FINRA, SIPC, and Registered Investment Advisor. Non-securities products and services are not offered
through TFA. TFG004351-08/14
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TIPS & TOOLSPOLLS

4. PREDICTIONS
PERILSThe of
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ByDavidWismer
proactiveadvisormagazine.com | September 4, 20144

5. n early July of 2014, Citigroup issued a
thoughtful and nuanced market perspec-
tive to its clients. The chief U.S. invest-
ment strategist at Citi, Tobias Levkovich, is a
well-respected and oft-quoted figure on Wall
Street, and market participants take notice of
his outlook. In this particular case, the note was
obtained by the press and characterized in two
very different headlines and leads by two of the
most well-read financial news sources.
Bloomberg: “Concern Over ‘Severe’
Pullback Sends U.S. Stocks Lower. ‘Many inves-
tors wonder if the ride is over,’ Tobias Levkovich,
chief U.S. equity strategist at Citigroup Inc.,
said in a report today.”
Forbes: “Raging Bull Market Still Has
Stamina, Citi Says. The firm’s chief equity strat-
egist, who predicted in 2011 that the then-de-
veloping bull market would eclipse 2007 peaks,
writes in a note Tuesday that the rally still has
room to run.”
Neither of these news sources necessarily
“got the story wrong,” as Mr. Levkovich was
reviewing both sides of market sentiment in his
note and presenting a carefully hedged perspec-
tive. This case simply illustrates in one succinct
example how a confusing and often contradic-
tory flow of news and opinion is constantly
washing across the investment landscape.
Warren Buffett is fond of saying, “Forming
macro opinions or listening to the macro or
market predictions of others is a waste of time.
Indeed, it is dangerous because it may blur your
vision of the facts that are truly important.”
Why might this matter to advisors and their
clients? Simply because many of the principles
of behavioral psychology—and their relation-
ship to investing—have taken on increased
importance during the dramatic market cycles
of the past fifteen years. Investors have seen two
huge market troughs, each followed by raging
and record-setting bull markets.
The time-worn fundamental beliefs in
passive, buy-and-hold investing have been
challenged, with often disastrous—or at least
less-than-ideal—results. Even though markets
in each bear market case cycled back up to new
market highs, many investors have not reaped
the full benefits of the market recovery in their
portfolios.
And that is understandable, as panic-strick-
en investors in 2008-09 often sold out on the
way down and have since been hesitant to
wholeheartedly commit to equities—with some
even “swearing off” the stock market forever. A
recent MarketWatch column declared, “Buy-
and-hold investing is impossible,” citing the
extreme bias of basic human nature toward
wanting to avoid pain—making the very long-
term mean reversion tenets of passive investing
unrealistic for most.
The most recent run-up in the markets over
the past five years has been called the “most
unloved bull market of all time” for exactly
those reasons. Too many investment profes-
sionals, advisors, and individual investors have
either been “on the sidelines,” under-allocated
continue on pg. 11
Market predictions generally tend to be worth about what you pay for them.
The onslaught of 24/7 financial news, opinion, and market “noise” can often be
detrimental to the health of investors’ portfolios. Can active investment management help?
I
to equities, or spooked by market fears into a
whipsawed in-and-out lack of commitment.
The blaring headlines of the European debt
crisis that reached crescendo levels throughout
2010-12, combined with the threat of a U.S.
government budget/debt ceiling crisis in 2012
and 2013, hardly have provided a backdrop
fueling investor confidence through much of
the current bull market. For example, the 2013
consensus forecast from the top fourteen major
Wall Street banks and investment houses for
the S&P 500 was in an unusually tight and
conservative range. This averaged out to a pre-
dictive call for 1540 on the S&P by year-end
2013, for about an 8% annual gain. This fell far
short of the index’s actual 30% gain, with the
market finishing at 1848.
Importantly, these universally understated
forecasts were accompanied by the expected
caveats, overviews of market risk factors, and
generally less-than-upbeat outlooks—all of
which received amplified treatment by the
media. It was little wonder that investors en-
tered 2013 under a strong cloud of pessimism
and doubt—likely reflected in the portfolio
actions of self-directed investors and, for those
with financial advisors, in their advisor review
sessions.
Optimism
Excitement
Thrill
Euphoria
Anxiety
Denial
Fear
Depression
Panic
Capitulation
Desperation
Hope
Relief
Optimism
The Cycle of Investor Emotions
A confusing and often
contradictory flow of news and
opinion is constantly washing
across the investment landscape.
September 4, 2014 | proactiveadvisormagazine.com 5

7. Will September be the cruelest month?
he old adage of “Sell in May …”
certainly did not play up to form
this year, as the S&P 500 logged
over a 6% gain from the end of April to the
end of August. The NASDAQ Composite
registered an even more impressive gain of
11% over the same period. The month of
August, while living up to its weak historical
pattern early in the month, rebounded with
gains of 3.8% on the S&P and 3.2% on the
Dow, and the NASDAQ continued to lead
with nearly a 5% gain.
T
Source: Bespoke Investment Group
Bespoke Research notes that September
has “historically been a brutal month,
followed by what has traditionally been the
best 3-month stretch of the year, October
through December.”
According to Bespoke, over the last 100
years, the Dow has averaged a decline of
0.8% in September, with gains just 43% of
the time. Over the last 50 years, September
has also been the worst month of the year,
with the Dow averaging a decline of 0.7%
and posting gains just 39% of the time.
Over the last 20 years, the average decline
has been a little bit better, but not by much
at -0.5%.
A host of factors will be thrown into
the mix this September, with the Fed
winding down asset purchases, mid-term
U.S. elections on the horizon, the ECB
contemplating increased stimulus against
a backdrop of weak European economic
performance, and the increasingly ever-
present geopolitical risk from several global
hotspots.
Read text only
AVERAGE MONTHLY % CHANGE FOR THE DJIA
7September 4, 2014 | proactiveadvisormagazine.com
TOPPING THE CHARTS

8. Read text only
BY DAVID WISMER
PHOTOGRAPHY BY TODD DOUGLAS
On the heels of the 2003 dot-com crash, Rich Ralston learned about
active investment management. As his advisory practice began utilizing
third-party managers for dynamic, risk-managed strategies, he made sure
his clients received the education they needed to appreciate an active
management approach.
RICH RALSTON’S
WATERSHED
MOMENT
8 proactiveadvisormagazine.com | September 4, 2014

9. Proactive Advisor Magazine: Rich, can
you tell me about your client base?
Rich Ralston: We are based in Pensacola,
Florida, and have over 400 clients, made up of
all age groups from all walks of life. But this
area has more than its fair share of people ap-
proaching retirement or already retired, so we
see many people like that.
Describe your “ideal” client.
I personally like to work with clients who are
fundamentally responsible with their finances. I
want to see if someone, single or married, has
low levels of debt, emergency reserve funds in
place, and has been contributing throughout
their work life to a savings or retirement plan,
whether employer-sponsored or not.
I also like to work with people who are
open to financial education, willing to consider
new alternatives, and open-minded. We pride
ourselves on not doing things in any predeter-
mined fashion and everything is dependent on
a needs analysis and risk profile for each client.
We employ sophisticated, modern strategies for
investment and risk management that a lot of
people may not be familiar with. So they need
to be open to looking at things in a new light.
What are your clients or prospects most
concerned about today?
It really depends on their life circumstances
and financial health, but I continue to hear
about their fears on the equity markets. What
happened in 2008 has had a lasting impact on
people and made them more risk-averse than
ever, even now, five years later.
Preservation of capital is the number-one
concern, closely followed by how are they going
to make those assets grow and last throughout
retirement.
How do you address those issues?
That is really right in our wheelhouse.
Starting around 2003, not long after the dot-
com crash, I was introduced to active invest-
ment management and it was really a watershed
moment for our practice.
Fortunately, we had been able to weather
that crash fairly well as I had been pruning the
equity side of client portfolios and moving a fair
amount of money into fixed income.
But that was really more of a “seat-of-the-
pants” decision-making process and I thought
there had to be a better way. So I started ex-
ploring third-party asset managers who were
all about tactical money management. This is
exactly what I was looking for and what my
clients were calling for, though they had very
little idea then what it was all about.
Active management is a totally different ball
game than traditional buy-and-hold strategies.
As I explain now to clients, their money is being
managed by experts who are constantly watch-
ing the markets and making portfolio adjust-
ments as needed. There is very little guesswork
or opinion involved, as most of these managers
have very strict rules-based methodologies and
use a quantitative decision-making approach.
The bottom line is that the vast majority of
my clients who are very concerned with capital
preservation can now employ a systematic
and disciplined approach for long-term asset
growth. They know someone is watching over
their money every minute of every day, which
is very reassuring to them. They know they are
using strategies that usually have long track
records and are based heavily on research.
What are the challenges to this approach?
Let’s go back to my point on having clients
who are open to education.
Active management is a totally new concept
for many people who have been brought up on
the buy-and-hold approach their entire lives.
When they hear the phrase “active manage-
ment” for the first time, some are concerned
about it being riskier than buy-and-hold, when
in fact it is built to be just the opposite. So I
use this as an educational process with a lot of
charts and illustrations to communicate what it
is all about and how it is designed to work.
There is also the matter of fees, which can
be somewhat of a concern initially. But the per-
centage, frankly, is very low and I demonstrate
how that can be offset in a meaningful way
when we come upon the next inevitable market
displacement. The numbers do then make sense
for most people.
Finally, there is the matter of how active
management might perform in strong bull
markets. But, it is built around risk manage-
ment, and that can sometimes lead to under-
performing the market. There will always be
clients who, if the S&P 500 is up 30%, want
to see a return of 32%. The challenge is edu-
cating clients that this is an approach for the
long term, across market cycles, and the key is
risk-adjusted returns.
This makes sense to most people, but to
some it is a hard concept to grasp. Then I have
clients, like a very smart former engineer, who
say, “It’s about time investment methods moved
into the 21st century. It’s about time strategies
were monitored in real-time.” I think most of
my clients eventually come to that point of
view. And it does not have to be a total and
abrupt change. For some, I introduce active
strategies very slowly.
continue on pg. 10
September 4, 2014 | proactiveadvisormagazine.com 9

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over lengthy time periods. Helping clients to
succeed with their goals over the long-term is
what it is all about for me.
Talk a little more about returns and how
that fits into the overall active management
discussion with clients.
I approach it from two different perspec-
tives. First, I will review the returns of actively
managed strategies—let’s say on a 10-year
basis—versus traditional buy-and-hold strate-
gies. They can see with their own eyes how the
strategies have performed and what the risk
levels, or drawdowns, have been. This is usu-
ally a very eye-opening comparison. Of course,
there is no guarantee of future similar returns.
I am also quick to show that over the last
four years or so, most active strategies have
underperformed the S&P, and show those
numbers as well. The message here is really that
the benchmark for most people should not be
the S&P 500. Who really wants to see 50%+
drawdowns in their portfolios? And who wants
to try and count on 30% annual gains?
This should not be the objective over the
long haul. For me, the perfect analogy is the
race between the tortoise and the hare, and I
am most interested in who is going to win that
race in the final analysis. I love to communicate
the storyline about how the “slow and steady”
approach—and avoiding excessive volatility—
can make a big difference when looking out
continued from pg. 9
Richard L. Ralston is a Registered Representative and Investment Advisor Representative of and offers secu-
rities and advisory services through WRP Investments, Inc., Member FINRA & SIPC. Securities and advisory
activities supervised from 4407 Belmont Ave., Youngstown, OH 44505 (330) 759-2023. Parkway Financial
Group is not affiliated with WRP Investments, Inc.
10 proactiveadvisormagazine.com | September 4, 2014

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In another example, Bloomberg notes that
in the beginning of this year, all 72 economists
in their ongoing survey predicted higher in-
terest rates and falling bond prices for 2014.
At the time of their follow-up reporting in
mid-July, Treasuries had rallied about 10% in
2014 as yields fell. Little wonder this particular
article was titled, “Pro Forecasters Stink, but
Individuals Are Worse.”
All of these factors play into those
destructive behavioral traits that seem to doom
many investors to chronic underperformance:
chasing returns, entering at market tops, sell-
ing at market bottoms, acting on emotion, or
overreacting to the latest headline. Behavioral
psychology has many interrelated terms for
these and other such actions, including:
Confirmation Bias (reaching conclusions
first and finding supportive evidence for
that point of view)
Loss Aversion (while greed and fear of
loss usually compete, studies indicate loss
aversion can be over two times stronger
and can lead to those panic decisions or,
conversely, a fear of making any decision)
Herding (following the crowd, or what
appears in the media to be the crowd’s
public opinion)
Recency Bias (extrapolating recent events
or market performance into the future)
Disposition Effect (the tendency to sell
winners too early and hold on to losers
too long)
Noise Trading Effect (overreaction to
both good and bad news in the market)
Financial advisors have a difficult task in
many ways, but perhaps nothing is more diffi-
cult than dealing with the psychological hurdles
their clients often face. What if advisors had at
continued from pg. 5
Perhaps nothing is more
difficult than dealing with the
psychological hurdles that
clients often face.
their disposal a holistic and systematic invest-
ment approach that removed emotion from the
decision-making process, paid little attention to
market noise, and employed strong measures of
risk management?
Active investment management is making
huge strides among the advisor community,
not only for its less volatile and risk-managed
performance over full market cycles, but for its
very real benefits of helping to manage client
satisfaction and expectations. This disciplined
investment approach can provide competitive
returns, while avoiding biased reaction to short-
term market fluctuations.
Active management’s objective of removing
the roller coaster of both portfolio swings and
investor emotional highs and lows presents a
compelling story to clients—a far more com-
pelling and beneficial story than the ones they
are seeing, reading, and hearing every day from
the media.
11September 4, 2014 | proactiveadvisormagazine.com

12. 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.
Editor
David Wismer
Associate Editor
Elizabeth Whitley
Contributing Writer
David Wismer
Graphic Designer
Travis Bramble
Contributing Photographer
Todd Douglas Photography
September 4, 2014
Volume 3 | Issue 10
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.
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