Our conversations with emerging advisors, consultants and other advisor services firms suggests to us that a growing number of advisors are choosing a more risk-managed, tactical approach to investment management. Even the most strident supporters of traditional strategic asset allocation strategies find themselves raising cash in turbulent markets while the less religious are searching for a more active approach to risk management. They recognize that markets are moving faster, volatility is higher and equity returns have been disappointing for more than a decade. They also recognize that pursuing the same investment strategies that resulted in major losses twice in the last decade are likely to produce meaningful client attrition if they do not take any new steps to improve risk management and the markets turn down again.
This transition is raising all sorts of questions about what a risk-managed tactical asset allocation means and what are the most effective ways to communicate this shift to clients so that they understand it as a natural evolution of the long-term strategic asset allocation strategies the industry has educated them about.
While a relatively new subject for the financial advisor community as a whole, our own Ken Solow, Chief Investment Officer at Pinnacle Advisory Group, has been grappling with these issues for more than a decade. Indeed, he recognized the need for this evolution at the turn of the millennium which prompted a change in course in the way Pinnacle Advisory Group managed risk for its clients. He led an effort to develop a team dedicated to risk-managing client assets centrally within the organization. That effort has paid huge dividends for the firm and its clients. Clients have enjoyed better than benchmark returns for nearly a decade with less risk and the firm has enjoyed the benefits of a differentiated investment management story when marketing to clients. Pinnacle Advisory Group now services more than 650 families with nearly $1 billion assets under management.
In 2009, Ken Solow decided to share what he learned with other advisors by writing a book titled Buy and Hold is Dead (Again). Within those pages he walks through the academic theory supporting Strategic Asset Allocation as well as the academic theory and practical experience that points to Tactical Asset Allocation as a better means of managing risk, especially in the more volatile investment climate we now find ourselves in.
While we encourage everyone to read his book, we are also fortunate to be able to provide you with access to a series of short videos that highlight some of the key issues he covers in the book. You may find them useful whether or not you decide to pursue a similar course. We have provided the links to those videos for your review below.
The Importance of Expertise
The Desparate Desire for Certainty
The Psychological Pitfalls of Making Mistakes
Peter McGratty CFA, VP Business Development, Pinnacle Advisor Solutions