Phylyp Wagner & Matt Quattlebaum • H. Beck - How often should you review your investment returns? The results may surprise you by Jerry Wagner - The most scrutinized Fed rate hike ever? - Recent Q1 highs lacked “oomph” by Tony Dwyer - Expanding the family business tradition (Jeff Pesta, LPL Financial)

1. April 2, 2015 | Volume 6 | Issue 1
Active investment management’s weekly magazine
Most scrutinized
Fed rate hike ever?
How often
should you review
investment
returns?
Expanding the
family business tradition
No “oomph” to Q1 highs
Matt Quattlebaum
Alpha,
beta and
R-squared
Phylyp Wagner
The technical terms
clients should know

3. Advisor perspectives on active investment management
- A custodian that makes your life as an RIA simpler.
Let managers manage
Our senior advisors collaborate at least every quarter
on our third-party advisory choices, performance,
changes, and adjustments to the roster and specific
strategies. We let our managers actively manage the
daily, weekly, and monthly changes, but we in turn
take a close quarterly look at their performance. This
approach has served us and our clients well. Our
clients who were actively in the system had a very
good 2008. They were very happy. They referred
many, many clients to us as a result of that.We saw a
lot of portfolios from more traditional investment firms
that got very banged up.Those clients came to us.
LOUD & CLEAR
Paul Mauro • Westborough, MA
Legacy Financial Advisors Inc. • SII Investments Inc.
3April 2, 2015 | proactiveadvisormagazine.com
LOUD & CLEAR

4. How often should
you review your
investment returns?
The results may surprise you.
By Jerry Wagner
4 proactiveadvisormagazine.com | April 2, 2015

5. n my position as president at
Flexible Plan Investments Ltd.,
at least once a quarter for the
last twenty years I have received
the same request: “Can you
please make daily performance numbers avail-
able on your strategies?” This week yet another
request was made.
This is despite the fact that we make daily
account balances available on our secure
website and on each of our custodial partners’
websites. Our model account results are avail-
able on our website to financial advisors with
daily return numbers provided with a five-day
delay (to allow all trades and dividend pay-
ments to settle) and our “Hotline” newsletter
provides the weekly returns for all of our most
popular strategies.
Historically, I have not gone farther, first,
because daily data has a higher incidence of
mistakes even from the largest financial com-
panies and these take time to be discovered and
corrected. Why get worked up about something
until it is verified?
Second, even professional investors have
determined that for the most part daily data is
too noisy to trade on the most popular technical
analysis basis—momentum or trend-following.
More than 20 years ago we studied whether to
use daily or weekly data in our trend approach—
Evolution. Every way we studied it, it always
came back the same. Daily data did worse than
weekly. There was too much noise—random
price movements, event or headline spikes—to
effectively discern the trend from daily data.
When we did our FUSION strategy research,
the results were the same.
Third, most investors have little interest in
the daily data. While our daily account balance
page is popular, fewer than 1% of our account
holders go there daily.
Finally, and most importantly, I’ve always be-
lieved that watching account returns daily is bad
for the average investor’s financial health. Why do
I believe this? Because there is a substantial body
of academic research that supports this belief.
There has been a wide array of academic
studies on how often the average investor
should look at their financial statements. While
one should check account balances at least once
a month to make sure nothing untoward has
occurred (identity theft or custodian error, for
example), calculating or reviewing returns is
an entirely different matter. Most studies have
shown that the best review period is about every
12 months (some have concluded as short as
eight months and others as long as 14 months).
Why not more often? Isn’t more, better? The
reason researchers (including two Nobel Prize
winners) have reached the opposite conclusion is
mention 2000-02, have caused many investors,
professional and non-professional, to largely
miss out on the current impressive bull market.
What does investor loss aversion have to
do with how often an investor should review
returns on a financial statement? It stems from
another behavioral bias: Narrow framing.
By “narrow framing” we mean that people
tend to make decisions by looking for simple
decisions that can be made one at a time in
a series. In contrast, broad framing looks at
a series of options and makes a single com-
prehensive decision after reviewing all of
them. Studies show that broad framing will
continue on pg. 13
because of two behavioral biases uncovered among
humans that especially apply to investors.
First, investors are loss-averse. This means
that for investors, the fear of loss is greater than
the pleasure they derive from gains (about twice
as much). As a result, they pay a premium in the
unrealized gains lost from the fear induced by
past losses.
We have been seeing this play out for the last
six years right before our eyes in the stock market.
The losses endured by investors in 2007-08, not to
be superior or at least equal to the “one simple
decision at a time” approach “in every case in
which several decisions are to be contemplated
together.”
Applying this to investors, studies have
found that they tend to look at investing trade-
by-trade or review their returns over very short
time periods. When you consider this along
with their tendency to be overly concerned
with losses, you can see why reviewing strategy
returns too often can be costly.
I
Closely following daily fluctuations is a losing proposition,
because the pain of frequent small losses exceeds the
pleasure of equally frequent small gains.
April 2, 2015 | proactiveadvisormagazine.com 5

7. 5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2015 2016 2017 Longer run
Appropriate pace of policy firming: Midpoint of target range or target level for the federal funds rate
= Individual Fed participant’s target level for the federal funds rate Source: federalreserve.gov
The most scrutinized Fed rate hike ever?
hether or not this is the
most-analyzed Fed rate decision
ever will have to be left up to
the history books, but it surely
seems that way. The Fed last hiked short-term
rates in June 2006—some nine years ago.
The drumbeat on the inevitable rate hike
has essentially been with us since 2009, but
really started in earnest with the announcement
of “tapering” QE3 in December 2013 (QE3
finally ended October 2014). Many serious
questions were raised then regarding future Fed
policy and its implications:
• When will the Fed hike interest rates? Will it
be a slow and graduated approach?
• What is the U.S. central bank going to do
with the enormous level of assets it bought?
• How will the financial markets perform with-
out stimulus? Is ending QE really a sign of a
strong U.S. recovery?
• What will the impact be on inflation,
employment, wages, housing, currencies
and commodities? (To mention just a few
concerns.)
Markets have hung on the every word of
former Fed chair Ben Bernanke, and now Janet
Yellen. Short phrases from Fed statements took
on a life of their own, most notably: “consider-
able time” (for near-zero interest rate policy),
“data-dependent,” and “patient.”
The speculation and debate over the Fed’s
next move remains front and center, with critics
of an imminent rate hike such as Bridgewater’s
Ray Dalio saying it may lead to a 1937-type
W
“self-reinforcing economic downturn.” On the
other side, many analysts believe a rate hike is
long overdue for a variety of good reasons, with
“reloading the Fed’s arsenal” one of the more
interesting arguments.
This past Friday (3/27) saw Ms. Yellen giving
a lengthy speech where she emphasized again,
according to Barron’s, that “the trajectory of
rate hikes will be moderate and will depend on
incoming economic data.” This played no small
role in the market rebound early this week. Mr.
Bernanke was also back in the news Monday
(3/30), beginning a new blog for the Brookings
Institution, where he is a senior fellow. He
kicked off his inaugural post both humorously
and accurately, stating that “monetary policy is
98 percent talk and only two percent action.”
The chart above, from the Federal Reserve,
details individual FOMC committee members’
assessments of the future path of rates. The
latest infamous “dot plot” shows that top offi-
cials expect the median federal funds rate, now
near zero, to rise to 0.625% by the end of 2015,
instead of 1.125% as predicted in December.
For 2016, the median rate is expected to end at
1.875% instead of 2.5%.
7April 2, 2015 | proactiveadvisormagazine.com
TOPPING THE CHARTS

8. ALPHA, BETA and R-SQUARED
For clients who like to know technical terms, these three sum up an investment
strategy that aims for risk management and competitive returns.
Proactive Advisor Magazine: Phylyp, you
have had an extensive background in
many areas of financial services. How
has your planning philosophy evolved?
Phylyp Wagner: I have been around the
block more than once and it has been an inter-
esting journey. I started on the retail banking
side, moved into selling insurance products,
and then became one of the relatively early
financial advisors to earn the CFP® designation.
I cut my teeth on not just cold calling clients,
but literally “cold knocking” on the doors of
prospects in the Washington area.
The financial world has gone through many
iterations since I started in the business. The
universal school of thought back when I began
managing client investments was plain vanilla.
It was all about basic asset allocation theory, di-
versifying among a few mutual funds, and per-
haps some dividend reinvestment approaches.
Now, we see our planning firm as having
three basic disciplines, of which there are mul-
tiple subsets of each discipline. One discipline
is investment advisory work, where we manage
roughly a quarter of a billion dollars. The
second discipline is risk management. And then
the third discipline is alternative investments.
Everything that is in those three disciplines
existed in some place during the evolution of fi-
nancial planning, but it was a slow process to be
able to pull everything together as an indepen-
dent advisor. However, it is fundamental to our
firm to be able to integrate all of those processes
to create comprehensive and forward-looking
financial planning.
You can’t just be an investment advisor, you
have to protect people’s livelihoods with life
insurance. You have to give them permanent
income opportunities through very sophisti-
cated variable annuities, and ensure that health
care needs will be covered with long-term care
8 proactiveadvisormagazine.com | April 2, 2015

9. Phylyp Wagner
CFP®
Founder, Wagner Resource Group Inc.
McLean, VA
Broker-dealer: H. Beck
Estimated AUM: $225M
Member: Financial Planning Association (FPA)
Phylyp Wagner graduated from the University of
Maryland with a degree in accounting in 1977,com-
pleted the CPA exam in 1980 and CFP®
designation
in 1984. He is a published writer, contributing reg-
ular financial columns to various trade association
periodicals. Mr. Wagner is also a frequent speaker
at industry events and presents often on effective
time management for financial advisors.
Mr. Wagner founded Wagner Resource Group in
1979, and has as a driving objective to “help grow,
protect, and conserve our clients’ wealth by deliver-
ing what we feel is an unprecedented level of person-
alized service and expertise.” He and his wife JoAnne
have five daughters and enjoy “spending quality time
with the family, boating, golfing, and dancing.”
Matt Quattlebaum
CFP®
Senior Financial Planner,
Wagner Resource Group Inc.
McLean, VA
Broker-dealer: H. Beck
Estimated AUM: $225M
Matt Quattlebaum graduated from the University of
Virginia with a degree in economics and obtained the
CFP®
designation in 2008. Prior to joining Wagner
Resource Group, he conducted international and do-
mestic mutual fund research. Mr. Quattlebaum strives
to “earn his clients’ trust and help position them for
long-term financial success.” Mr. Quattlebaum and his
wife Mary have three young boys, so when they aren’t
chasing them around they enjoy spending time with
family and friends, outdoor activities and sports, good
food and travelling.
Mr. Wagner and Mr. Quattlebaum are licensed in secu-
rities and insurance, and are investment advisory rep-
resentatives and registered representatives of H. Beck
Inc.They offer a full range of financial planning services,
with special focus on comprehensive financial planning
and developing tax-advantaged investment strategies
for their clients.
continue on pg. 10
and disability protection. Financial planning
and wealth management is not just about man-
aging investments—important as that is—but
offering clients an integrated approach across all
of their financial and risk management needs.
Matt, what investment strategies
do you use?
Matt Quattlebaum: We take a multi-strategy
approach, and this definitely has evolved over
the years. We manage client money primarily
through third-party managers. Regardless of
the investment approach for our clients, we
want to make sure that everything we recom-
mend is best-in-class, so we seek managers
that stand apart from their peers in whatever
strategy type they are utilizing.
We often recommend to clients what we
call “tactical constrained strategies,” where
the broad objective is to participate in market
movements with an emphasis on risk man-
agement. We look for favorable risk-adjusted
returns over longer timeframe market cycles
with this approach. These strategies reflect
whatever risk mandate we agree to with a
specific client or couple.
Our firm has also evolved toward offering
what we call more “unconstrained strategies,”
which can work within the context of a well-di-
versified portfolio. These strategies have the abili-
ty to make money in both up and down markets,
and are more tactical and proactive in approach.
We still firmly believe in diversification,
and think there is a place in most clients’
portfolios for several elements that can work
well in any market environment—versus
traditional strategies that can only profit when
the market is going up. Different parts of the
portfolio will react differently based on market
conditions, with the unconstrained having the
ability to get more aggressive in strong bull
markets, and defensive, or even inverse the
market, during bear markets.
Phylyp: Managing money is a very intense
discipline that needs to be exclusive and focused.
When I’m visiting with clients, talking to them
about how to best use all of these financial plan-
ning and investment approaches that fit their
needs, I obviously cannot be sitting in front of
a computer tracking the market. That is what
sophisticated models and algorithms are for.
“My time cannot be
spent sitting in front of
a computer tracking the
market. That is what
sophisticated models
and algorithms are for.”
9April 2, 2015 | proactiveadvisormagazine.com

10. Securities and investment advisory services offered through H. Beck Inc., member FINRA/SIPC and an SEC-registered investment advisor. H. Beck Inc. and Wagner Resource Group Inc. are not
affiliated. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
To use a simple analogy, the person who sells
a high-end, sophisticated automobile and intro-
duces a client to its features is probably not the
guy who builds the car. But if he’s doing the job
correctly, he knows all of the components that
go into the car and recognizes how to get the
best performance out of it. We exclusively use
the independent investment advisory platforms
to achieve what we think is the best investment
solution for our clients—and that can some-
times be a blend of different strategies.
What criteria do you use in selecting
third-party managers?
Matt: We really want to look hard at the pro-
cess they employ. The track record of performance
is certainly important, but getting comfortable
with the investment process of the company is
more important. Do they have a sustainable pro-
cess that has been implemented for some time?
Back-tested results can be important, as
strategies do change and evolve, but we need
to ascertain their actual track record as well. No
manager is going to consistently beat the market,
or even their best-fit benchmark every year, but
that is not the single criteria we are looking for.
We are very interested in their pedigree, the
quality of their people, the soundness of their
approach, and the consistency with which they
implement what they are trying to do.
Phylyp, how do you explain sophisticated
investment concepts to clients?
Phylyp: One of the key components to
building a successful financial planning practice
is to be the quarterback of the process, showing
leadership and clear direction. My strength is
in being able to explain complicated financial
planning processes in simple language and to
motivate people to take action.
continued from pg. 9
Wagner & Quattlebaum
We want our clients to have a clear and
realistic set of expectations and part of that is
demystifying Wall Street gibberish. I tell clients
that there are only three technical terms they
need to know and then explain as simply as pos-
sible the concepts of alpha, beta and R-squared.
When I am done, they usually have a good idea
of what we are trying to achieve: Managing risk
within their portfolios while trying to achieve
competitive returns.
There is one thing I have learned for certain
over my years running a successful firm. Clients
pretty quickly understand that you have the
technical expertise to deliver for them. But they
care far less about what you know, than with
knowing that you care. We do—and, thankful-
ly, we have turned that into a very robust client
roster and a high level of client satisfaction with
our services.
10 proactiveadvisormagazine.com | April 2, 2015

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What’s on your mind?
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April 2, 2015 | proactiveadvisormagazine.com 11

12. Recent Q1 highs lacked “oomph”
Tony Dwyer joined Canaccord Genuity in March 2012 as the firm’s U.S. equity market strategist and a senior managing director. In 2015, Mr. Dwyer was named
co-director of research, and currently sits on the firm’s operating committee. Prior to joining Canaccord Genuity, he served as equity strategist at Collins Stewart, and also
held the additional role of director of research while sitting on the firm’s executive committee. Mr. Dwyer started his career at Prudential-Bache Securities in 1987 as an
equity market strategist. www.canaccordgenuity.com
espite the move to new market highs
in Q1, the tactical backdrop contin-
ues to suggest a 5-10% correction
is likely, especially given the lack of
conviction shown in the most recent rallies. The
fundamental excuse for a pause in the upside is
likely the anticipation of a 2Q15 Fed rate hike,
but the good news is our fundamental core thesis
demands investors use any meaningful correc-
tion as an opportunity to add equity exposure.
Lackluster demand was driving the market
Obviously, the market isn’t oversold, so the
question becomes, was the move to Q1 highs
strong enough to suggest significant and sus-
tainable follow-through without experiencing a
deeper correction? We doubt it based on some
key indicators we track with our friends at the
Lowry’s service:
Buying Power and Short-Term Index saw no
oomph. The Lowry’s Buying Power and Short-
Term Index measures NYSE composite market
internals using price change, volume and
number of advancing issues. These indicators
suggest that there was a lack of demand for
stocks as the market made new all-time highs.
The Buying Power Index remained below the
recent peaks in November and December of
2014. Also, the Lowry’s Short-Term Index was
closer to recent lows rather than recent highs.
Generally, we look for these indicators to move
higher as the market moves higher.
The NYSE cumulative volume advance-
decline line did not confirm the market high. This
indicator measures overall NYSE volume on a
cumulative basis. When the NYSE closes higher,
volume for that day is added, when the index
closes lower, volume is subtracted (see chart).
D
Summary
Given the consistency of the fundamental
thesis, we must turn to tactical signs that would
suggest the next leg higher. These signs are that
the market needs to get oversold enough, or
break out to the upside with conviction, in
order to bring in significant and sustainable
buyers. The Q1 move to new highs lacked the
conviction that would cause a rush to buy.
The most recent near-term weakness has
not been surprising, but ultimately will make
us more aggressive buyers as we believe: (1) our
core fundamental thesis is firmly in place; (2)
we are a number of years away from recession
risk; (3) a lack of investment alternatives should
continue to drive investors to equities; and (4)
historical precedent suggests a continuation in
the current valuation expansion.
Given the solid fundamental backdrop,
there are basically two reasons to be an aggres-
sive buyer in a well-defined bull market: (1)
the market gets oversold enough using our key
indicators, or (2) there is enough of a thrust to
new highs that causes investors to rush in. There
will clearly be more volatility and corrections
along the way, but we remain focused on the
intermediate-term opportunity rather than the
near-term risk.
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: Cannacord Genuity
NYSE CUMULATIVE VOLUME
proactiveadvisormagazine.com | April 2, 201512
HOW I SEE IT

13. Rydex Funds
A Comparison of ETFs and
Mutual Funds—The True
Cost of Investing
continued from pg. 5
In fact, one of those Nobel Prize winners,
Daniel Kahneman, in his book, “Thinking Fast
and Slow,” concludes:
The combination of loss aversion and narrow
framing is a costly curse. Individual investors
can avoid that curse, achieving the emotional
benefits of broad framing while also saving time
and agony, by reducing the frequency with
which they check how well their investments
are doing. Closely following daily fluctuations
is a losing proposition, because the pain of the
frequent small losses exceeds the pleasure of the
equally frequent small gains. Once a quarter
is enough, and may be more than enough for
individual investors.
Kahneman offers additional advice to
investors beyond less-frequent return review. He
says investors should learn to think like traders.
How do traders who are glued to the com-
puter screens seeing an unending stream of gains
and losses survive the stress and avoid the effects
of loss aversion? They take a broader view and
adopt an attitude of “you win a few and you
lose a few” whenever deciding to accept a small
risk (emphasis on “small”).
I know the first time I heard this phrase ap-
plied to investing it sounded a bit cavalier, but
think about it: If you have a properly diversified
portfolio, be it made up of strategies or asset
classes, will one trade or one day’s return really
have that big an effect on your total investments?
When you chose that portfolio, did you
choose it based on the results the day before or,
instead, over a much longer period? And when
you chose each asset class or strategy, did you
think that every one of them would be prof-
itable every day? Every month? Every quarter?
Probably not.
So why look at returns every day, or every
month, or even every quarter? Why give in to
the tendency to overly fear a loss causing you to
miss opportunities?
When most of this research was done, the
predominant “strategy” for investing was “buy
and hold” investing.Yet, Kahneman and Richard
Thaler, the other Nobel Prize winner behind
much of this research, still firmly believed these
principles applied. If, instead, your investments
are being managed by an investment advisor
that is already actively managing the investment
portfolio on a day-to-day basis, aren’t these con-
siderations even more applicable?
Furthermore, if they are following a strategy
that demonstrates a statistical edge based on
years of research, aren’t you paying them to adopt
the trader’s attitude for you? Why overrule your
previous, broadly framed decision and fall prey
to “narrow framing”? It frankly makes little sense
for advisors or their investor clients.
Investment returns
Jerry C. Wagner is founder and president of Flexible Plan Investments Ltd.
Formerly a tax and securities attorney, Mr. Wagner recognized early on that
technology and hedge fund techniques could be applied to help individu-
als successfully invest while managing their downside risk. After spending
time pioneering new techniques in market analysis, designing quantitative
methodologies, and managing investment portfolios, Mr. Wagner founded
Flexible Plan Investments in February 1981. www.flexibleplan.com
The combination of loss aversion and
narrow framing is a costly curse.
13April 2, 2015 | proactiveadvisormagazine.com

14. Advertising
proactiveadvisormagazine.com/advertising
Reprints
proactiveadvisormagazine.com/reprints
Contact
info@proactiveadvisormagazine.com
Copyright 2015© Dynamic Performance Publishing,
Inc. All rights reserved. Reproduction of printed form,
whole or in part, without permission is prohibited.
Editor
David Wismer
Associate Editor
Elizabeth Whitley
Contributing Writers
Tony Dwyer
Jerry Wagner
David Wismer
Graphic Designer
Travis Bramble
Contributing Photographer
Mike Morgan
April 02, 2015
Volume 6 | Issue 1
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.
Expanding the
family business tradition
Jeff Pesta
San Jose, CA
LPL Financial
Jeff Pesta is a Registered Representative with and Securities and
Advisory services offered through LPL Financial,a registered investment
advisor. Member FINRA & SIPC. Investing involves risk, including poten-
tial loss of principal. No strategy ensures success or protects against
a loss. Pesta & Pesta Tax Preparation is a separate unaffiliated entity
from LPL Financial.
our tax planning services and then look to
introduce the financial planning piece as part
of the tax planning process. My associate is
a great networker and we have found that
mortgage brokers can be a good source of tax
planning leads or become clients themselves.
I also appear on a local radio station where
I talk about tax issues and informally about
investments. That has been a good resource
for branding our firm.
y parents started a tax business
in 1970, Pesta & Pesta Tax
Preparation, a name that lives
on today. I will never forget
that all six of the kids in the
family were recruited to help pass out flyers
during tax season, but we were always reward-
ed with an ice cream sundae! It was a real
family affair.
I joined the business in the 1990s and my
parents retired in 2008, though they are still
a sounding board for me. I have both the tax
practice and my full financial advisory business.
I have worked hard to systematically
ensure my clients have access to our broad
financial services offerings. I have found that
my best prospects are the people who have
already built up some trust with me. People
I have worked with in the past are very open
to having me manage their investments. They
understand that I will look out for their best
interests, and are receptive to my message
about active investment management.
I have also formed a partnership with
a CPA who works out of our office space.
He engages both individual clients and cor-
porations, and we have an effective referral
method that allows me access to his clients.
He more or less says, “Jeff and I have a
partnership and please accept his phone call.
He will be able to take a look at your financial
situation, give you a second opinion, and see
if he has a way to help you improve your re-
tirement planning and investment approach.”
I also have an in-house marketing associ-
ate and a tax-planning specialist. We will put
most of our marketing messages out regarding
M
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 assets continue to grow among advisors
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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 Ltd.
web.flexibleplan.com
“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
go.trustamerica.com
“Why Gold? Seven Enduring Reasons,” Flexible Plan Investments, Ltd.
goldbullionstrategyfund.com
“The State of Retail Wealth Management, 4th Annual Report,” PriceMetrix
www.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.)