This document provides summaries of several articles from an investment magazine. It discusses how Millennials view money and investing differently than previous generations, focusing more on social media companies and expecting transparency. It also summarizes an article on how corporate stock buybacks provide continued support for stock prices. Finally, it interviews an advisory couple on how they get to know clients personally and use active money managers to construct customized portfolios tailored to each client's needs and risk tolerance.

1. May 7, 2015 | Volume 6 | Issue 6
Active investment management’s weekly magazine
The continuous bid
under the market
A Millennial’s
perspectiveWorking a structured
referral process
Force of Supply
in U.S. equity markets
What we really think about
money and investing
Marlow & Chris Felton
Making it personal
A client’s relationship with money is critical

3. Advisor perspectives on active investment management
- A custodian that makes your life as an RIA simpler.
Frugal clients crave
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My clients tend to be frugal and are concerned with
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will outperform the most conservative investments over
time. When there are changes in market conditions,
third-party managers can use strategies to manage
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that my clients’ money is being watched over by
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3May 7, 2015 | proactiveadvisormagazine.com
LOUD & CLEAR

4. A
Millennial’s
perspective
How we really feel about money and investing
By Nick Halle
proactiveadvisormagazine.com | May 7, 20154

5. continue on pg. 13
he world of money is changing. The
Great Recession of 2008, student
loans, and the upcoming great wealth
transfer all play key components into what my
generation will do with their wealth. The key to
this article is to focus on how investing attitudes
are changing, the importance of financial liter-
acy, the impact of student loan debt, and how
the upcoming wealth transfer from our parents
will play a part in our investing. All of these
issues will redefine how individuals attempt to
guarantee a safe future for themselves.
Previous generations have focused on pas-
sive “traditional value investing,” building “safe”
portfolios that included large, well-known
corporate companies and other investments.
We have different attitudes towards investing,
as we are able to share information through
a variety of forums such as social media, and
we are not tied down to a financial advisor for
information. Sharing is part of our DNA. We
expect transparency and control.
We focus on companies that appeal to us,
but may be more volatile. Our portfolios would
likely include social media or technology com-
panies—just as previous generations favored
stocks of companies making products they were
familiar with. The stock market for us has been
a place of volatility and not great returns. The
Great Recession took place when many of us
were in high school and we witnessed firsthand
the hardships our parents faced. Will this make
us too conservative for our own good? A key
to investing is to start young, as I’ve been told
over and over again. The gains made early only
grow on each other, and a sound understanding
of financial fundamentals is key. But what if we
are unable to start early?
T
Mr. Nick Halle, a history/economics major and junior at
the College of Wooster, provided research assistance for
me over his winter break. Nick was too young to remem-
ber the market correction of the early 2000s, but wit-
nessed the effects of the 2008 crash and the meltdown
of housing prices. I was curious about how Millennials
are likely to approach finances and investments, and
what they might seek from financial advisors once they
graduate and enter the workforce. Nick researched this
topic, and also has shared his own personal perspective.
Here is what he wrote. – Greg Gann, president of Gann
Partnership LLC, Baltimore, MD
Sharing is part of
our DNA. We expect
transparency and
control.
70%
68%
66%
64%64%
60%
62%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Less money to spend
Lower employment levels and smaller incomes have left younger Millennials with less money than previous generations
Mean income of 15- to 24-year-olds as % of total population mean income
Source: Goldman Sachs, Bureau of Labor Statistics
“Financial Literacy,”
as defined by a U.S.
Treasury Department
initiative, is “the ability
to use knowledge and
skills to manage finan-
cial resources effectively
for a lifetime of financial
well-being.” The ability
to manage personal
finance falls into two categories for college stu-
dents: the short run and the longer-term future.
For many of us, we only focus on the amount of
money on our debit cards, and how we can afford
the necessities and occasional impulse purchase.
Many of us are unaware of the true conse-
quences of not understanding how our own per-
sonal finances work. While we rely on our parents
to control our finances to a point, you can’t build a
plan by just saying, “I’m sure my parents will take
care of me.” Unfortunately, for many recent grad-
uates this is a necessity due to the debt they have
incurred. In addition,
the “Great Upcoming
Wealth Transfer” has
begun, and will have its
impacts in the coming
decades. Understanding
how these will affect all
young people, whether
college graduates or
not, is imperative for
our collective growth in financial literacy.
The figures on student loan debt are
staggering, now exceeding credit card debt.
This is large enough to make student debt
seem like a national crisis touching every
household. It has a major impact on the
macro economy, delaying first-time home
purchases, as well as limiting the mobility
and disposable income of many recent grads.
We might have difficulties getting loans, be
unable to start small businesses, and be hard-
pressed to save for the future.
May 7, 2015 | proactiveadvisormagazine.com 5

7. 180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
400
380
360
340
320
300
280
260
240
$millions
#companies
‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14
S&P 500 quarterly buybacks (left) S&P 500 Index price
Companies repurchasing shares (right) U.S. Recessions
The continuous bid under the market
irst quarter 2015 earnings season is begin-
ning to wind down and, in general, the
results have surpassed some of the dire
predictions. According to FactSet Research, of
the 360 S&P 500 companies reporting earnings
through Friday, May 1st, 71% beat the mean
estimate for EPS, while 46% recorded revenues
above projections. However, if the trend con-
tinues, there will likely be a blended earnings
decline of around 0.4%, the first year-over-year
quarterly decline since Q3 2012 (-1.0%).
This softness in corporate earnings was re-
flected in last week’s GDP figures, where the first
look at Q1 real GDP came in at 0.2%, versus
a consensus estimate of 1.0%. Says Barron’s,
quoting strategist Peter Kenny of Clearpool
Group, “People can blame the strong dollar
or the weak energy sector, but the first-quarter
GDP was far worse than expected.”
The FOMC largely shrugged off the econom-
ic softness, blaming it on “transitory factors” such
as the weather. This took a little bit of steam out of
the belief that a weaker GDP would further delay
a Fed rate hike this year. And domestic growth
concerns were not the only worry point last week,
according to Barron’s, which said, “geopolitical
and other economic events loom large—most
notably Greece and Britain’s election.”
However, as U.S. equities rebounded once
again at the end of last week from a minor dip,
it is clear that the market’s action is not wholly
pegged to improvements in the economic out-
look or the earnings outlook for the rest of 2015.
The daily analysis of each hit or miss by a specif-
ic company tends to obscure one fundamental fact.
F
Source: FactSetFundamentals
With even the lackluster Q1 earnings and reve-
nue season, EPS for large U.S. companies should
be up close to 5% for the quarter (Zacks), leading
to a further swelling of the already record-setting
U.S. corporate cash balances. This in turn leads to
continued corporate stock buybacks, which feeds
EPS growth in a circular loop.
Liz Ann Sonders, Chief Investment Strategist
at Charles Schwab, recently said in a Bloomberg
interview, “It is not so much that institutions
continue to buy the market, and it is not so
much that retail investors are buying the market.
The most consistent buyers of the market are
corporations themselves.”
CNNMoney agreed with this point recently,
“Companies with cash on hand are rewarding
investors with bigger dividends, stock buyback
programs and a flurry of mergers and acquisi-
tions.” While the trend has leveled off somewhat
in early 2015 from early 2014, about 70% of
S&P 500 companies are still running buyback
programs. Apple (AAPL) continues to grab the
headlines in this area, revealing in its recent
earnings report, “an increase in share repurchase
authorizations to $140 billion from the $90
billion level announced last year.”
S&P 500 QUARTERLY SHARE REPURCHASES
7May 7, 2015 | proactiveadvisormagazine.com
TOPPING THE CHARTS

8. Making it personal
Proactive Advisor Magazine: Chris, what
motivated you to become an advisory?
Chris Felton: I worked for several years for
Arthur Andersen as a CPA, was doing well,
and had a specialty in audit work for mining
companies here in the western region. But I
always had a dream of being an entrepreneur
and owning a business in the financial area.
When I was introduced to TFG’s prede-
cessor company I was immediately taken with
their mission statement. To paraphrase, “We
want to create financially independent families
Understanding a client’s
relationship with money
is a critical first step in
building a portfolio.
By DavidWismer
Photography by Diane Huntress
8 proactiveadvisormagazine.com | May 7, 2015

9. Marlow Felton
Chris Felton, CPA
Denver, CO
Transamerica Financial Advisors Inc.
both practical and emotional, of a divorced or
widowed woman can be very different than
those of a woman currently married. Where are
they in their career? What are their hopes and
aspirations for their children? Do they or will
they have eldercare responsibilities?
Getting at these types of issues and their atti-
tudes around them is critical.You can show a client
the most financially logical plan, but there are
sometimes emotional barriers that get in the way.
How does active money management
fit into the process?
Chris: It goes back to the mission statement
I was talking about: Bringing to everyone the
tools and methods available to high-net-worth
individuals. We learned a difficult lesson as advi-
sors and investors in the early 2000s. Even with
my extensive financial training, it was tough to
realize how challenging it is, mathematically,
for a portfolio to recover from the impact of
deep losses in passive portfolios—until you
have lived through it.
I was determined that was not going to
happen again and was extremely pleased to see
our company offering a much wider spectrum
of third-party money management alternatives
continue on pg. 10
Chris and Marlow Felton are Investment Advisor
Representatives with Transamerica Financial Advisors
Inc., (TFA) located in Greenwood Village, Colorado.
A husband-and-wife team, the Feltons are recognized
as leaders in the financial services industry and have
presented to thousands of financial professionals all
over the country. They have also personally mentored
and trained over 100 financial advisors.
Ms. Felton began her business career in the
marketing field, working in advertising sales for prominent
media properties in the western U.S. She transitioned to
financial services in 2004 and,working with her husband,
has seen remarkable growth for their advisory practice.
Ms. Felton is a graduate of Loyola University, where she
earned a B.A. in Communications and Media Studies.
Mr. Felton has been principal of his own financial
services business since 1999, and is a branch office
manager for TFA. He has been recognized as a top
producer and is a national speaker and trainer for his
company.Mr.Feltonspeaksonthetopicsofmentalprepa-
ration and how to be successful setting goals and planning
for business and personal success.
Mr. Felton is a Certified Public Accountant (Colorado)
and received a B.S. in Accounting from Colorado State
University, where he graduated Cum Laude in 1993.
Prior to starting his advisory business, Mr. Felton was
with an international accounting and consulting com-
pany for over seven years.
The Felton’s have co-authored a book, “Couples
Money,” and frequently speak on the topic of help-
ing other couples understand the complexities of the
“financial marriage.” They reside outside of Denver,
Colorado, with their two children.
following the dot-com bust. The key point is
that we can now provide a way to approach
portfolio construction, and strategies within
portfolios, that offers a high degree of risk man-
agement. It varies by client and their specific
risk profile, but we have been able to mitigate
a lot of the fear that used to exist in clients’
investment equation.
Marlow: We currently have access to nearly
20 third-party active managers, and tend to
use about seven or eight for core and satellite
portfolio approaches. Managers, we have found,
have different strengths or specialties, and often
we will mix and match an appropriate blend for
and bring products, service, advice, and money
management usually reserved for wealthy
people to everybody.” That totally blew me
away and I just loved the purpose behind it,
as I think the average American family has not
had the resources to figure out how money can
work to their advantage. The rest is history as I
started my practice and never looked back.
How about you, Marlow?
Marlow Felton: I went to school for com-
munications at Loyola University in New
Orleans and began my career in the media and
advertising business. I was climbing the corpo-
rate ladder but, like Chris, felt there had to be
some terrific entrepreneurial opportunities out
there. I originally was not a financial expert, but
I have the ability to absorb information quickly
and communicate complex ideas to clients in
a way that they can clearly understand. Our
business model is built around mentoring. I feel
I was a beneficiary of that and now have used
the opportunity to pass on my knowledge to
the advisors we manage and train.
What process do you use in working with
clients?
Chris: I think the upfront part of our pro-
cess is very similar to the discovery phase any
good advisor will do with new clients. We want
to thoroughly understand an individual’s or
couple’s financial history, their current situation
and assets, their budgeting and cash flow, and
what their objectives are for the future.
But in the next phase we get at some critical
issues that may not be so typical. We have really
honed in on a process to understand a client’s
or couple’s relationship with money. What was
their family history like regarding finances?
How are money issues dealt with in their mar-
riage? What are the psychological roadblocks
they have encountered with money in their
lives and how can we help them transform their
attitudes into seeing opportunities?
Marlow: Getting to know your clients on a
pretty intimate level is so important. Men typ-
ically have different attitudes than women on
finances and investments. The financial needs,
“The active management story is a powerful
message. It can help transform financial lives.”
Marlow Felton
May 7, 2015 | proactiveadvisormagazine.com 9

10. Chris Felton and Marlow Felton are Investment Advisor Representatives offering Securities and Investment Advisory Services through Transamerica Financial Advisors Inc. (TFA), Transamerica Financial Group Division, member FINRA, SIPC,
and a Registered Investment Advisor. Non-securities products and services are not offered through TFA. 5600 S. Quebec Street Suite 325-C Greenwood Village, CO 80111, 303-221-3639. Past performance does not guarantee future
results. No investment strategy can assure a profit or protect against loss in declining markets.TFG0006367-04/15
a specific client. We work in a very collaborative
fashion within our group and with other advisors
at TFA, collectively examining the strengths and
capabilities of a variety of money managers.
We might have a manager who is really pro-
ficient at fixed income, another with a specific
equity approach that is long-only, another who
might be equity-oriented but far more tactical
to both sides of the market, or a manager who
more actively employs sector rotation. There is
no one right answer and no one magic formula.
It all depends on a client’s needs, objectives, and
outlook on risk.
Are clients responsive to active investment
management?
Chris: Absolutely. Once we explain the pur-
pose of incorporating heavier risk management
into their portfolio, they are very engaged,
especially since everyone still has 2008 pretty
fresh in their minds. There is not a client out
there who is afraid of making money—they are
afraid of losing money. That is why the active
management story is so compelling: Providing
solutions and defensive strategies that can work
in just about any market environment.
Marlow: It really comes down to knowing
your client and how much information they can
absorb. We keep it pretty basic and conceptual.
We start with what most people experienced
in 2001-02 and then in 2008. Generally, their
portfolios went down in excess of 30% both
times using a buy-and-hold approach. We then
explain the active investment approach that
we use, something that used to be reserved for
the very wealthy but is now available to most
clients.
We use the active management story in
combination with our approach to truly un-
derstand a client’s relationship with money. It
is a powerful message and we have seen how it
can help transform financial lives when put into
practice and executed well.
continued from pg. 9
Chris & Marlow Felton
Chris Felton
10 proactiveadvisormagazine.com | May 7, 2015

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12. The force of Supply at major tops in the U.S. equity market
Tracy L. Knudsen, CMT is senior vice president of market research at Lowry Research Corp. She has been a market technician for 20 years and produces analysis of both
domestic and international equity markets.A member of the Market Technicians Association (MTA) since 1994, Ms. Knudsen has also served on the board of the American
Association of Professional Technical Analysts (AAPTA). She is co-author of “Mastering Market Timing: Using the Works of L.M. Lowry and R.D. Wyckoff to Identify Key
Market Turning Points,” published July, 2011. www.lowryresearch.com
he foundation of Lowry Research analysis
is the Law of Supply and Demand, a con-
cept that governs market trends whether
analyzed from a technical or fundamental basis.
In order to measure the forces of Supply and
Demand, Lowry compiles daily market met-
rics, including Up/Down Volume and Points
Gained/Points Lost, for all issues traded on
the New York Stock Exchange. These statistics
inform Lowry’s proprietary measures of the
intermediate-term trends of investor Supply and
Demand: Buying Power and Selling Pressure.
Lowry has been able to study the actions
of buyers versus sellers during the formation of
every major market top over the past 80+ years.
The findings show that the intermediate-term
trend of Supply, as measured by Selling Pressure,
shows a persistent increase heading into a bull
market high for major indexes. This rise in
Selling Pressure reflects the increased selling that
takes place during the final months of a primary
uptrend as investors increase profit-taking, per-
ceiving stocks as overvalued. Supply eventually
overtakes the force of Demand, as measured by
Buying Power, with declining prices as the end
result. This concept accurately depicts how every
bull market throughout history has reached its
terminus. The study of Supply versus Demand is
a critical part of portfolio management, helping
investors to avoid the devastating losses resulting
from bear markets.
To illustrate the consistent behavior of the
forces of Supply and Demand at major market
tops, it is instructive to look at the action of
Selling Pressure heading into two significant
market tops: 1929 and 2007.
In 1929, the trend of Supply, as measured by
Selling Pressure, began a sustained rise in August
1928 through May 1929, even while the Dow
Jones Industrial Average experienced a gain over
the same period of roughly 36%. Selling Pressure
then contracted briefly prior to the Sept. 3, 1929,
market high, but began a sharp rise until just
before the final market top on Oct. 29, 1929.
T
There was ample warning that sellers, or the force
of investor Supply, were growing increasingly
active, even though market prices were rising.
Selling Pressure also offered a clear warning
of a major market top in 2007. After a year-long
decline, the Index bottomed simultaneously
with the July 2007 market high. But, by the
time of the October 2007 market top and
higher high, Selling Pressure was well above its
July low, suggesting a significant increase in
Supply. This October high was then followed by
the 2008 plunge in the market.
The increasing dominance of the force
of Supply during the formation of the major
market tops in 1929 and 2007 provided an ac-
curate warning that the U.S. equity market was
undergoing a fundamental shift—a transition
from a primary uptrend to a primary downtrend.
Recognizing when a transition is taking place en-
ables investors to adjust portfolios accordingly by,
ideally, using periods of rallies to lighten exposure
to equities and build a more defensive position.
Such a strategy will help ensure that the majority
of profits reaped during primary uptrends are
preserved, rather than destroyed, during periodic
and inevitable bear market cycles.
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.
proactiveadvisormagazine.com | May 7, 201512
HOW I SEE IT

13. Therecanbenoassurancethatanyinvestmentproductwillachieveitsinvestmentobjective(s).Therearerisksassociatedwithinvesting,includingtheentirelossofprincipalinvested.Investinginvolvesmarketrisk.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
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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
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The Diversification Dilemma
Tactical Management and
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By Douglas C. Mangini, J.D., Senior Managing Director
Chicago | New York City | Santa Monica
continued from pg. 5
This in turn can hurt our long-term career
development and possibly our lifetime earnings
potential. Making early career decisions simply
to be able to pay off debt is not a good career
strategy. Many of my fellow students are very
pessimistic about their future. A real fear for
many of my peers surrounds what happens if
they don’t graduate or cannot find a decent job.
If they compile large amounts of debt, this debt
will most likely linger for decades.
While the “Great Transfer” from the
“Greatest Generation” (those born in the ‘20s
and ‘30s) to the Baby Boomers is still taking
place, a second and even larger wealth transfer
from the Baby Boomers to their heirs is starting
now, and will only become more apparent over
the next 10 to 30 years. A study done by con-
sulting firm Accenture says that over $30 tril-
lion will be passed down through generations.
What does this mean for my generation? All
transfers of assets have inherent risk, however the
scale of this upcoming transfer raises the stakes.
It is imperative that we utilize the resources
available to us and become financially literate.
Millennial’s perspective
Gregory Gann has been an independent financial advisor since 1989. He is president of Gann Partnership LLC, based in the Baltimore, MD area.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.The opinions expressed in this material do not necessarily reflect the views of LPL
Financial.There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Securities offered through LPL Financial, Member FINRA/SIPC
My biggest takeaway from this is the impact of the Great
Recession in terms of shaping Millennials’ attitudes towards
building a sound financial future. Many Millennials saw the
value of the homes of their Baby Boomer parents sink after
the financial meltdown—as well as their stock portfolios.
Consequently, they don’t see real estate, or any investment,
in the same way that we Boomers did at their stage.
They have also been dramatically shaped by a sharing
culture that provides them with endless information, with
the potential to shape financial literacy in a way that was
not available to a prior generation. They are accustomed
to navigating for themselves. They don’t treat advice from
any professional as gospel.
If we only bring them “yesterday’s” asset allocation mod-
els, and tell them we are “managing” on their behalf, they
will call our bluff. If we are simply delivering what they can
negotiate for themselves online, we as financial advisors
will become obsolete. Millennials will demand that we bring
benefits beyond what a machine can deliver. In other words,
they will require all of us to become more proactive advisors
and money managers who add real value. – Greg Gann,
president of Gann Partnership LLC, Baltimore, MD
Financial advisors
that tune into the
issues facing my
generation are
more likely to win
our business.
Financial advisors that can tune into the
issues that face my generation are more likely to
win our business. They can play a central role in
helping to educate us and to help us in dealing
with the many upcoming challenges and oppor-
tunities we will face. But they have to speak our
language, understand our concerns, and take an
interest in having us as clients—even if we don’t
have a lot of assets to start with.
13May 7, 2015 | proactiveadvisormagazine.com

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Editor
David Wismer
Associate Editor
Elizabeth Whitley
Contributing Writers
Nick Halle
Tracy L. Knudsen
David Wismer
Graphic Designer
Travis Bramble
Contributing Photographer
Diane Huntress
May 7, 2015
Volume 6 | Issue 6
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.
Working a structured
referral process
Don Meredith, CRPC®
Chesapeake, VA
Lincoln Financial Advisors Corp.
Integrated Financial Partners Inc.
Don Meredith is a registered representative of Lincoln Financial
Advisors Corp., a broker/dealer (member SIPC) and registered
investment advisor. Integrated Financial Partners Inc. is not an
affiliate of Lincoln Financial Advisors Corp. CRN-1175785-041615
The CPAs like the fact that, when we
work with their clients, one of the layers
that we put into our portfolio construction
is that tax sensitivity. The other thing that it
does for the CPA is that in partnering with
them, we can then show them how we can
increase their value to their clients.
We believe very much in going deep with a
few particular firms and helping in all aspects
of their clientele. It’s made a big difference.
The firms that we work with are very appre-
ciative of the level of engagement that we have
with their clients and the level of engagement
that we have with them. Referrals then can
flow in both directions.
e have two ways for developing
new clients. Each might be called
a structured referral process. The
first involves thinking about the appropriate
time to ask clients for referrals and how to
best handle that for a specific client.
We constantly check with clients to make
sure that we’re meeting their needs. Once
we’ve gotten to the point where we have
executed their financial plan—and they’ve
affirmed to us that we have met their needs—
then we begin to say, “When you come across
people in your lives that have similar types of
needs, we would welcome the chance to be
a part of their lives, too.” That’s a common
refrain that we use with the clients.
When a life event happens and we go
through things like a family tree, we might
also explore referrals to a sibling, or an aunt
or an uncle, or when a son or daughter comes
of age, especially in doing estate planning. Of
course, we also have a fair amount of people
simply informing us, “Hey, I told somebody
to give you a call to get acquainted.”
The other way that we get referrals is
in partnering with a limited number of
high-quality CPA firms. We introduce finan-
cial planning and wealth management into
a CPA firm for a couple of advantages for
the CPAs themselves. One is to get a better
handle on their clients and to understand
how those dollars are being invested.
Whenyou’retalkingabouthigh-net-worth
people, especially in the taxation environment
that we’re in right now, somebody who is
not attuned to the effects of taxes on certain
trading strategies can obliterate a return just
because they create so much tax liability.
W
14
TIPS & TOOLS

15. Active Management
There 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 revenues remain strong among advisors
101
Dynamic
Strategic
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 Advisors
Websites
Proactive 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 Investments
goto.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 Investments
www.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, 5th Annual Report,” PriceMetrix
www.pricemetrix.com
2012 2013 2014
Fee-Based Assets (% of Total Assets) 28% 31% 35%
Fee-Based Revenue (% of Total Revenue) 45% 47% 53%
Average Fee Accounts per Advisor ($000s) $258 $293 $293
Average Assets of New Client HHs ($000s) $475 $477 $538
Source: PriceMetrix Insights – The State of Retail Wealth Management 2014 – 5th Annual Report (Aggregated
data representing 7 million retail investors and over $3.5 trillion in investment assets.)