So far in this series about Pinnacle’s Decision to pursue a more risk-managed investment program, we addressed the following:
(1) that following the tech crash, we realized that an investment program like Strategic Asset Allocation that guarantees a loss in bear markets is not ideal for either our clients or our business;
(2) that according to Michael Kitces, Modern Portfolio specifically calls for a more proactive approach to investment management in as much as it requires the manager to input the expected returns, expected volatilities and expected correlations of asset classes, not historical mean data; and
(3) that leading academic research tells us that active management works contrary to popular opinion.
In this article – Chapter 4 of the series – we wanted to share with you our own, very positive experience with a more risk-managed, tactical investment program. In short: its development required considerable investment and hard work but the results for our clients and our business qualify the effort as a resounding success!
A Success for Our Clients
Pinnacle Advisory Group embarked on this endeavor as planners looking for a better investment solution. And as only planners will fully appreciate, we needed that investment solution to steadily compound returns over time towards a planning objective and to minimize the volatility that often leads to poor decision-making. We did not want to chase returns with the next “hot” investment strategy. We simply wanted to participate in rising markets and reduce downside capture in falling markets.
After considerable due diligence and preparation, Pinnacle Advisory Group started its own risk-managed investment program in late 2002. And fortunately for our clients, we have delivered on our promise. Pinnacle has delivered an 11-year GIPS compliant and third party audited track record of beating the benchmark with less risk net of all fees and expenses. Clients in wealth accumulation mode earned better than benchmarks returns and clients in withdrawal mode benefited from strong returns without the debilitating impact of volatility on their nest egg.
A Success for Our Business
A happy client is always good for business. Pinnacle Advisory Group has enjoyed a 98+% client retention rate at least in part due to the success of our investment program.
Of equal importance is the differentiated message our wealth managers can offer prospective clients. During this post-millennium period of unemployment, weak income growth, questionable home values and risky investment markets, prospective clients are no longer interested in tales of riches or “staying the course and hoping for the best”. Indeed, for more than a decade, advisors offering strategic asset allocation have recommended clients stay the course to achieve better returns. And after more than a decade, clients have realized very little for their patience other than a roller-coaster ride. Staying the course may be okay for an institutional firm like a pension or endowment with unlimited time horizon, but not for a client with only 10-20 years to work with. What prospective clients want to hear today is about an investment program specifically designed for risk management and wealth preservation (see Clients Want It, Advisors Need It, Advisor Adopt It).
But Not without Considerable Investment & Hard Work
Our efforts paid-off in spades but not without considerable investment and hard work. We have been building our process, our team and our track record for more than a decade at a cost of more than $1 million a year. We employ seven full-time investment staff; we have expended considerable dollars on the right technology infrastructure including serving as the first commercial customer of iRebal (the leading trading and rebalancing tool in wealth management) and we spend additional budget on research from Wall Street’s leading firms.
It is a daunting amount of investment and hard work. If we had known how much ahead of time we might not have moved forward. But we did and our clients and wealth managers now enjoy a fantastic solution. If this is a program you find attractive but are not prepared to take the time and energy and budget to develop it yourself, we invite you to talk to us. We now offer this program to independent advisors through our Pinnacle Advisor Solutions division.
