We hope you’re enjoying Thanksgiving week. The Barron’s Advisor team is thankful to be able to pick the brains of the smartest people in the business every week in our Big Q feature.
Each Big Q column is built around a compelling question, and we hope that seeing top advisors’ answers on practice management, investing, and just about everything to do with the experience of being a wealth manager is beneficial to our readers. For this week’s column, we’ve cherry-picked some of the best answers to recent questions.
Eric Kittner, CEO, Moneta: There is a significant population out there that isn’t necessarily happy in their current role but are not actively looking, but if presented with the right opportunity would engage. We’ve been trying to get that passive talent to make a move, by using a lot more social media and digital messaging. It’s really important to have a distinct culture and clear vision of where the firm is going. I want to be able to show them very tangible evidence of our commitment to their development.
We are also more flexible in terms of how and where people work; we certainly see more and more of our workforce working remotely. Our new chief investment officer actually sits in Chicago, and pre-Covid I’m not sure that having our CIO outside of Saint Louis would have gone over as well with the partnership. But it works, so we’re expanding our search geographically.
Describe Your Most Successful Prospecting Event.
Erin Scannell, CEO, Heritage Wealth Advisors (Ameriprise): One that we’ve done for years on a regular basis is a charitable giving workshop. We do it in partnership with a charity; a recent one was Seattle Children’s Hospital. We’ll invite our clients, and the charity will invite their largest donors, and then we co-present over the course of an hour. I’ll share techniques for how to redirect what you’d pay in tax to charity. We’ll have something like 30 people come to these events, and we’ll usually get a couple of very large clients out of them. Sometimes they’re prospects from our lists, and sometimes they’re donors of the charity. We don’t really sell in them, we’re just putting a lot of time and effort into really good content, techniques that donors often aren’t aware of.
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They work really well because they get our clients to donate more money than they would have donated, and we’re all about making an impact. And we also get in front of the other donors of the charities. We tell the charities to invite their biggest donors, because we can often drive major gifts. This year, one of our clients made an $8 million gift that she hadn’t thought she could afford. We were able to show her it was not coming from her heirs’ pockets, it was coming from what she would have paid to the IRS.What Holiday Gifts Are You Giving Clients?
Valerie Newell, principal, Mariner Wealth Advisors: We’ve always tried to make the holiday gift we send our clients something that’s not over the top and something that is reminiscent of who we are. We’ve been sending the same gift for quite a few years now, and it’s kind of become our signature gift. There’s a chocolatier here in Cincinnati named Aglamesis Bro’s; their history goes back to the late 1800s. We have them make dark chocolate-covered caramels with a little salt on the top.
We always include a note with it saying how wonderful and loyal the clients are and how much their support means to us. These chocolates are special because they’re locally made and everybody knows the company; even most of our clients who don’t live here have ties to Cincinnati. Clients always say how much they appreciate it; they’re something they put out during their holiday celebrations, and it’s something their families have come to look forward to. And it kind of reflects our values—it’s thoughtful but not extravagant. It’s not a huge, 25-pound box.
How Are You Updating the 60/40 Portfolio?
Matt Gulbransen, president, Pine Grove Financial Group: The first thing we’re doing is resetting expectations. For that client who is used to making 7% or 8% returns each year this past decade, and thinks that will continue in retirement, we’re rethinking that. We’re not completely abandoning bonds in that 60/40 model, but we’re definitely taking 20% of that allocation, give or take, and trying to find alternative, non-correlated asset classes that can generate bond-like returns without the interest-rate and credit risk.
We’ve done some real estate-type investments like data centers and cellphone towers. Things like that might be a little bit different, but they still provide stable fixed income. A lot of open-ended ETFs or mutual funds will invest in companies that own those types of real estate. There are real estate trusts that are designed specifically to buy data centers that have long-term corporate leases and then kick out just like an industrial property or an office property.
We’re also going more into hedging-type strategies. We’re trying to put a fence around the volatility of your portfolio: If the market’s up 20% or 30% you’re going to hit the top of that fence and you’re not going to make more than that. But if the market goes down 30% or 40%, you’re not going to have that downside volatility. We are outsourcing that to managers. For us it’s well worth the 30 to 50 basis points that you pay for a good ETF or mutual fund that can do a covered call or some sort of options strategy to hedge out of the volatility of the stock market.
How Are You Persuading Tax-Sensitive Clients to Rebalance?
Spuds Powell, Kayne, Anderson Rudnik, Los Angeles: I tend to kick off that conversation by trying to reframe things. I say, “This is actually really good news; it’s a wonderful problem to have.” The clients look at me like I have four heads, and I point out that the alternative would have been to have generated no returns on their investments.
Our rebalancing approach is not to have an automated or very rigid philosophy; we don’t rebalance just for the sake of rebalancing. Right now, for example, we feel the outlook for stocks is quite a bit better than the outlook for fixed income. In cases where we do rebalance and clients are loathe to pay taxes, we mention the importance of tax-loss harvesting. We quantify how much that can help reduce their taxes, and it’s a good opportunity to remind clients that we proactively do that for them. In some cases I will tell clients, rather than taking all your medicine at once, let’s do some of the rebalancing now, let’s do some in January, maybe let’s do some of the following January. So we spread it out over a couple or even three years to minimize the pain.
How Are You Using Alternatives in Client Portfolios?
Randall Linde, CEO, AGP Wealth Advisors: We generally allocate about 10% of a client’s portfolio to alternatives, obviously dependent on a client’s overall risk tolerance and timeline for investing. It’s our belief that alternatives can dampen the overall volatility of a portfolio. In this low-yield environment, certain alternatives can also provide the client additional income.
Our alternative allocation can include real estate securities—either mutual funds and ETFs or liquid private real estate securities. Some of these [real estate] programs offer monthly liquidity, others are quarterly. We are seeing yields north of 5%. They offer very low correlation to the public markets with competitive yields, as well as some historical inflation protection. And their fees and costs have come way down since the old non-traded REIT days. We also will have allocations to traded or quarterly liquid business development companies, which can help generate significant yield and potential inflation protection. We have an allocation to gold ETFs or funds, as well as an allocation to a broader commodity basket.
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