The first quarter of 2016 provides advisors with a significant opportunity to ready their process for the oncoming DOL standard. With equities having their poorest yearly start in history, then bouncing back with a vengeance, bonds defying most predictions and Gold being the leading asset (+14%) class for returns, the cyclical nature of the markets played out over 90 days rather than typical 5 years.
So what did we learn about our process, our clients and our readiness to meet higher standards? Do we have investments segmented, risk scored and monitored? Were we able to meet the concerns of clients in mid-February who asked “what is going on in my portfolio, or am I positioned properly?” Do we have scalable models so that our client base is not holding dissimilar strategies even though their risk level is the same?
The next client meeting should be about creating a scalable, manageable process which allows you and your staff the ability to meet with any client during any point in the market cycle and identify, based on their risk level, what is being done to mitigate or take advantage of the changes that will naturally occur. Whatever their emotional state is the process should be accommodating.
Our process, Market Movement Strategies (MMS) is designed to deal with cycles. The segmenting into three distinct Mandates, each with their own role allows for clear conversations and client understanding. Looking at a possible combination of one Strategies from each Mandate during the first quarter, we can see how each played their role.
Mandate 1- A Strategic all equity strategy designed to capture both the ups and downs of global stock beta.
Mandate 2- A Tactical strategy designed to shift holdings between market betas.
Mandate 3- A Diversifier strategy designed to rely on alpha, not market beta, and potentially shield portfolios during turmoil.
Building portfolios with this theme, and communicating a consistent message of oversight and transparency, moves advisors into exactly what we understand to be the model the DOL is demanding. While there are many ways to meet this standard, we believe combining the portfolio construction process of MMS with the client friendly proposal, presentation material and portfolio monitoring capabilities, allows our advisors to be one step ahead of their competition.
SPY Chart is as of 4/1/2016.
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