Funds using alternative investment strategies gain steam

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Alternative investments that are less correlated to major market indexes are gathering momentum in the advisor community. Two trends are fueling the movement. First, the sharp market declines since September 2008 have boosted the attraction of strategies that don’t dive along with stock market. “This year, people are looking to dial down risk in their portfolios,” says Bill Harding, director of research at Morningstar Investment Services in Chicago. Second, these strategies are increasingly available to those who don’t qualify as accredited investors (with investable assets of $1 million or more).

Continue reading “Against the Grain,” my article in the March 2009 issue of Financial Planning magazine (free registration may be required for access).

Also, here’s some information that didn’t make it into the article. It’s the list of funds used by the advisors whom I interviewed.

Absolute Opportunities
Absolute Strategies
Arbitrage
Diamond Hill Long-Short
Direxion Commodity Trends
Gateway
Highbridge Statistical Market Neutral
Hussman Strategic Growth
Merger
Nakoma Absolute Return
PIMCO CommodityRealReturn Strategy
Robeco Boston Partners Long/Short Equity
Rydex Managed Futures Strategy

Creating Pitch Books Without Losing Your Mind… a Sequel

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“Creating Pitch Books Without Losing Your Mind… a Sequel: Your Pitch Book – a Foundation for Customizing” is a guest post by designer Margaret Patterson. Her 2007 series about “Creating Pitch Books Without Losing Your Mind” has attracted lots of attention. Thanks for your latest contribution, Margaret!

If you have questions for Margaret, please leave them as a comment. I’ll make sure she gets them.


My first article about pitch books provided several “must do” tips to help your firm develop presentations that others will plagiarize, the best compliment attainable.  Readers’ questions have prompted additional pointers about the next phase: customizing.

When is it worthwhile for institutional and high net worth asset managers to customize?
Your first pitch book is a base. But it doesn’t always address your prospective client’s unique concerns. Your key contact at the prospect can tell you what points are most crucial. Add information that addresses their concerns. But be succinct or you’ll overwhelm your prospects with too much information.

As you customize, you should communicate value statements – to your audience, about your audience – to the extent reasonably possible.

What do you mean by value statements?
Focus on how your strategy is a good fit for the prospect’s objectives, your ability to provide the level of service the prospect needs, and providing adequate diversification, considering prospect’s current investment profiles.

Will customizing dilute our firm’s branding?
You run the risk of diluting your branding when many employees and consultants contribute to your pitch books. That’s why these projects should be managed and maintained by your marketing department.

Remember that content is both text and graphics. After all, our actions are prompted every day by both words and images. Your book should look and sound impressive. Your writer  can develop Writing Guidelines for your firm, language that consistently supports your branding. You also need Design System Guidelines, if they do not already exist. Share these guidelines with the contributors to your pitch books.

I keep a sign on my office wall, “Big Company Seeking Big Clients.” Keep this mission in mind as you ponder complicated content.

If you customize, how do you keep the versions from getting out of control?
A customized pitch book is a script for your meeting. Limit yourself to information you can comfortably handle in the scheduled meeting time. Allow for Q&A.

Additional valuable information can be provided in companion pieces – market commentaries, performance summaries, firm overview, etc.

Updating charts and tables is a constant problem.
Delegate database updating to employees endowed with considerable diplomacy and perseverance. Make this their primary responsibility. They will acquire information from very busy investment management teams.

Investment managers need deadlines in advance. Allow elbow room.

Feedback?
Input is welcome. Your thoughts may show up in future articles. Let me know if I may quote you.

Margaret Patterson Company creates sales support materials, develops identity systems, and provides production supervision for financial services firms.

Margaret Patterson Company
Corporate Identity & Communications Graphics for Financial Services Firms
mpco AT verizon.net         t   617.971.0328        f   617.971.0327


Prof. Andre Perold on "Stable Risk Portfolios: A Timely Alternative to Static Asset Allocations?"

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Risk matters. October’s wild stock market swings have reminded investors that volatility can be painful. They simply can’t stomach as much risk as they thought they could.

In this environment, it’s no surprise that Professor André F. Perold’s October 21 talk on “Risk Stabilization and Asset Allocation” attracted a bigger than usual crowd to the monthly meeting of the Boston chapter of the Quantitative Work Alliance for Applied Finance, Education, and Wisdom, affectionately known as QWAFAFEW.

Perold’s premise: A stable-risk portfolio that keeps risk constant is a viable alternative to investors’ classic static policy portfolio, such as 60% stocks and 40% bonds, and it may offer superior risk-adjusted returns.

Continue reading about stable risk portfolios in my Advisor Perspectives article.

"Is Outsourcing Portfolio Construction the Wave of the Future?"

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Glenda Kemple knows precisely why she outsources portfolio construction. “You add value because you understand your client’s total financial picture,” says Kemple, CPA, CFP®, of Kemple Capital in Dallas, Texas. That picture includes cash management, tax planning, retirement planning, estate planning, education planning, and risk management, in addition to investment management. “We want clients focused on all of those dynamics, not just the portfolio.”

Those who outsource portfolio construction as Kemple does passionately agree. They believe it saves them time and empowers them to better serve their clients’ overall financial planning needs, while tapping high-quality investment resources at a reasonable cost. They also believe that outsourcing makes them more competitive, helping them snare bigger, more sophisticated clients—and to win a bigger percentage of their assets.

Non-outsourcers are equally passionate about keeping portfolio construction in-house, arguing that they save their clients fees and provide better performance, and have a better handle on their clients’ portfolios, as well as getting great personal satisfaction out of the portfolio construction process.

Continue reading my article in the Journal of Financial Planning (FPA membership required).

_________________
Susan B. Weiner, CFA

Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.

Copyright 2008 by Susan B. Weiner All rights reserved

Avoid these mistakes when you evaluate single-manager hedge funds

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If you focus only on investment essentials such as philosophy, process, performance, and people when evaluating single-manager hedge funds, you could miss out on some key information.

Some of the other questions you should consider, according to “Selecting Single-Manager Hedge Funds for Private Client Advisers” by Richard Boutland, include:

  • For a non-U.S. fund, who is the fund administrator and how extensive is their role? Boutland prefers strong, involved administrators.
  •  Is the fund managed in a country with a strong regulator?
  • Does the fund manager have adequate operations expertise and adequate capital? Boutland notes that “on many occasions ‘star traders’ have set up their own firms only to fail through lack of adequate information technology, compliance, trade support, personnel, investor relations, and all of the other operational support.”
  • Are there special terms for other investors that discriminate against redemptions by new investors? 

Boutland’s article appeared in the CFA Institute’s Private Wealth Management e-newsletter.

_________________
Susan B. Weiner, CFA

Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.

Copyright 2008 by Susan B. Weiner All rights reserved

Wealth managers should specialize by affinity, NOT demographics

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“In my opinion, a successful segmentation will be less demographically driven (e.g., net worth or income striations) and more affinity driven (tapping into a deep pool of investors who share a common passion — auto racing, yachting, the arts, religion, and so on).” writes Scott Welch of Fortigent, LLC in “Differentiating When Consulting to the Ultra Affluent,” an article I blogged about on August 25.


Are you tapping a common passion among clients of your wealth management practice? Share it in the “Comments” section of this blog post.

How to make your ultra-affluent clients happy

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“…the model that works in the institutional world does not necessarily translate well to the world of the ultra affluent,” writes Scott Welch of Fortigent, LLC in “Differentiating When Consulting to the Ultra Affluent,” an article published in the CFA Institute’s private wealth management e-newsletter.

So, while wealth managers like to talk about bringing institutional-quality management to individual clients, forget about your institutional client-service model.

As a professional writer, I was intrigued to read that “…satisfied clients hear from their primary adviser 28 times a year, or a little more than twice a month, and it might be a phone call, an e-mail, a fax, a newsletter, a research report, or just a quick hello.  Unsatisfied clients hear from their primary advisers fewer than 17 times a year (emphasis added).” One extra client touch per month could make an enormous difference!

Welch discusses how to satisfy ultra-affluent clients in terms of platform, process, and people.

Platform means that your product and service offerings must be comprehensive.  Without the full array of wealth management offerings, you won’t “get a seat at the table.” But the key is providing access to those services. Outsourcing is okay.

Process means that a relationship manager with excellent people skills and an outstanding support team arranges client access to products and services. 

People means that roles are becoming more specialized, taking advantage of employees’ personalities and knowledge. Also, ongoing professional education is essential because of increasing specialization.

2008 World Wealth Report out from Merrill Lynch and Cap Gemini

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The 2008 edition of the annual World Wealth Report is now available.

If you’re evaluating your firm’s business strategy, the report’s “Spotlight: Wealth Management Firms Adapt to Meet Unique Needs of Growth Markets” will interest you.

Obama vs. McCain on tax policy

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Looking for an analysis of Obama vs. McCain on tax policy?

The Tax Policy Center offers a “A Preliminary Analysis of the 2008 Presidential Candidates’ Tax Plans.”

Having written about the alternative minimum tax (AMT), I was interested to see that both candidates would make the AMT “patch” permanent. By the way, I developed a lot of respect for the Tax Policy Center as a resource when I did research on the AMT. The center pulls together information that’s not available elsewhere.

The charitable trust that’s best in a low-interest rate environment

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Now is a great time to create a charitable lead trust, assuming it would further your client’s estate planning goals.

That’s according to Nadia Yassa, Director of Estate and Gift Planning for the Boston Foundation. She spoke on “Tax Benefits of Charitable Trusts” to the Boston Security Analysts Society on May 13.

Why now? Because when interest rates are low, the IRS will value the non-charitable remainder interest at a lower value, using the IRS discount rate in effect when the trust is established. That’s regardless of what the actual value is when the transfer occurs. The bottom line: Ultimately, more of your assets will reach your beneficiaries because any growth in the trust above the discount rate passes free of gift tax to heirs. As Yassa explained, “A low Section 7520 discount rate allows donors to ‘freeze’ estate and gift values to minimize overall transfer tax liability.”

A non-grantor charitable lead trust provides income to one or more qualified charities for a preset period. At the end of that period, the assets of the trust transfer to non-charitable beneficiaries. People often use this kind of trust to contribute to charity, while ensuring that their assets end up with family members at a lower cost in taxes.

On the flip side, low interest rates mean this is the least favorable time for creating a charitable remainder trust. However, in any case, taxes should not be your only consideration when establishing a charitable trust.

Want to learn more about planned giving, including charitable trusts? Check out the Planned Giving Design Center, suggested Yassa. “It’s a free on-line resource sponsored by the Boston Foundation. Go to www.tbf.org and click on the Professional Advisors section/Planned Giving Design Center. Advisors can register and have access to technical outlines, articles, rulings, news reports, and receive periodic emails with legislative updates, as well as the Section 7520 rate as it is announced each month by the IRS.”