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 personalA client’s relationship with money is critical

Advisor perspectives on active investment management

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

Frugal clients crave risk managementMy clients tend to be frugal and are concerned with saving what they have earned. My goal for clients is not to chase the highest returns, but to provide returns that will outperform the most conservative investments over time. When there are changes in market conditions, third-party managers can use strategies to manage risk. Active management gives me the confidence that my clients’ money is being watched over by professionals in ways that I never could.

LOUD & CLEARJong Oh • Blue Bell, PA FSC Securities Corporation • Professional Insurance & Financial Services

3May 7, 2015 | proactiveadvisormagazine.com

LOUD & CLEAR

AMillennial’sperspectiveHow we really feel about money and investing

By Nick Halle

proactiveadvisormagazine.com | May 7, 20154

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?

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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 spendLower 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

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‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 S&P 500 quarterly buybacks (left) S&P 500 Index priceCompanies repurchasing shares (right) U.S. Recessions

The continuous bid under the marketirst 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

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 � nancial 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 � nancially independent families

Understanding a client’s relationship with money is a critical first step in building a portfolio.

By David WismerPhotography by Diane Huntress

8 proactiveadvisormagazine.com | May 7, 2015

Marlow Felton Chris Felton, CPADenver, 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. Felton speaks on the topics of mental prepa-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

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. 9Chris & Marlow Felton

Chris Felton

10 proactiveadvisormagazine.com | May 7, 2015

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May 7, 2015 | proactiveadvisormagazine.com 11

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

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

Explore how a tactical approach may help maintain diversification.

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

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

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

Chicago | New York City | Santa Monica

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

EditorDavid Wismer

Associate EditorElizabeth Whitley

Contributing WritersNick Halle

Tracy L. KnudsenDavid Wismer

Graphic DesignerTravis Bramble

Contributing PhotographerDiane Huntress

May 7, 2015Volume 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.

When you’re talking about high-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.

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14

TIPS & TOOLS

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

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

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

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

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

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

Fee-based revenues remain strong among advisors

101

DynamicStrategic

Diversification

Tools Models

Strategies

5 reasons to consider active management

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

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

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

needed to overcome a 33% portfolio loss.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“The State of Retail Wealth Management, 5th Annual Report,” PriceMetrixwww.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.)