When people get sick, they see a doctor, when they need legal council, they see a lawyer, and when “Today’s Expert” on your favorite news show says you need to invest in bonds, well, that’s one of the times when you need a financial advisor, according to the group gathered on Thursday. While the participants didn’t lay out a specific investment strategy or financial plan that would make anyone who followed it richer tomorrow than they are today, they did have a few words of advice.

Scott Ulbrich, president of Moreton Financial said, “There’s never a substitute for disciplined planning and execution.” Some important parts of a financial and investment plan discussed at the roundtable included working with your wealth manager to complete a risk tolerance assessment, developing long and short-term goals and establishing, making a strong investment policy statement to stick with in good times and bad, and having an exit strategy for every investment. These things will help execute a successful plan specific to your individual needs.

Allen McNeal, financial advisor for UBS Financial Services warns against “salesmen” in the industry who may skip over the planning process. “There are people who will just sell you—find [an advisor] who is focused on the big picture,” McNeal said. Billy Peterson, president of Peterson Wealth Services said a quality advisor starts the conversation by learning about you--their client, and not by saying how great of a return they always get for their clients.

Having a trusted advisor and a strategic plan is the best way to find confidence in your investments, the industry experts said. And once you have that confidence, David Young, president of Paragon Wealth Management said to be open for growth, don’t be afraid to invest and look ahead instead of back.

Utah Business Magazine Version:

Participants:  Chuck Newton, Utah Financial Planners Association; Allen McNeal, UBS Financial Services; Gary Teran, First Western Advisors; Doug Wells, Albion Financial Group; Tim Randak, Burrus Institutional Wealth Services; Brett Karras, Raymond James Financial Services; Gordon Nelson, LPL Financial Services; Dave Young, Paragon Wealth Management; John HOlmgren, Ameriprise; Carol Warnick, Holland & Hart; John Bird, Albion Financial Group; Hal Heaton, Brigham Young University; Scott Ulbrich, Moreton Financial Services; Billy Peterson, Raymond James Financial Services; Nick M. Bapis, High Tower Advisors; Scott Poelman, JP Morgan Chase; David Swapp, Net Worth Advisory Group

With a great deal of uncertainty remaining on Wall Street and in the financial sector, wealth managers discuss the importance of risk assessment and long-term planning -- and the importance of hanging on through tough times. Participants also take on information overload from the media and how they work to keep their clients level headed and on track to meet their financial goals.

The center of the hurricane may have passed, but we're still definitely in the middle of a storm with a whole lot of uncertainty to be resolved. How is it affecting your business? How is it affecting your clients?

MCNEAL:  The times of uncertainty are the times that allow for excess returns. It's that uncertainty hat disturbs forecast models. It's that uncertainty that, as a finance individual, you build in a bigger return to compensate you for that risk. Let's just recognize the face that this has been a fantastic opportunity to make money. In 2009, the S&P 500 returned 26 and a half percent. High yield bonds returned 58 percent in the same year. For the clients themselves, it's just a matter of lack of education. They don't understand what is going on in this environment, and it makes them apprehensive. If you provide the education and the understanding for what's going on, they're OK with it. If you can show hat you're a trusted individual and that you understand what you're doing and you work well together, this has been a fantastic opportunity. There are fortunes to be won and lost in recessions.

ULBRICH:  Along with that, these periods of uncertainty allow our clients to sit back and really undertake a review of their goals and objectives. What are your goals around retirement, around educating your children and around your lifestyle going forward? Understanding those goals will help guide you through some of these decisions about whether or not you should liquidate assets now or die this year versus next year.

YOUNG:  I agree it's been a fantastic opportunity for the last 18 months. We've seen phenomenal returns. And as advisors, we should be capitalizing on that for our clients, because times of uncertainty create the biggest opportunities. But the real question is what were people being advised in 2008? Because if they got obliterated before that, then they didn't have the capital to come back. So you've got to advise them with a long-term approach.

I've seen people come in with their accounts down significantly -- they're still down 50 percent from where they were just a couple years ago just because they made a lot of bad investment decisions. There's two sides to it. We've got to have a good long term strategy in place.

We all know what clients should have done in the past. The question is what do they do now?

WELLS:  For most clients, it's really about "what are the goals for my accounts and how do I achieve those goals?" It's really about creating a portfolio that can meet that goal and succeed regardless of what happens. We find ourselves and our portfolio really focusing on the stock side on three main areas. One is companies that are going to be fairly resistant to economic cycles, companies like Procter & Gamble. Also, dividend paying stocks. It's a move we started making about two years ago. It's become very popular recently. And hen the third one is growth -- fortunes can be made and lost in times like this. But you've got to be careful that fortunes aren't lost; and by having a portfolio that has pieces in different areas that can win regardless of what happens going forward, clients are very well positioned to succeed.

POLEMAN:  From a tax perspective, clients should seriously consider doing certain things with the serious prospect of gift tax rates increasing, capital gains rates increasing. Clients should consider a number of strategies. One is making taxable gifts this year, and another is selling capital assets this year. And the last is making dividend payments from these privately, closely held companies this year.

TERAN:  Our roles as advisors is helping hem understand complex things. We talk about uncertainty as if someday that will be built of things that are all certain. We know that's not true. It'll just be different things that are uncertain. We should be helping them understand that we build from what we know, we know that things will change and try to be prepared to adjust to that change as it comes.

So are you saying "hold tight" or are you advising shifts in the portfolio?

BIRD:  The best folks we worked with who came through the last two and a half years were the ones who agreed with the notion of moderation, where changes are made perhaps at the margin, but the core structure didn't change. When we view our roles as wealth advisors, a big part of it is indicating the investment policy right up front. They're not going to get too euphoric at market highs and push you hard -- because at the end of the day, it's their money -- to increase allocations to risk assets, nor are they going to panic at market lows and force the advisors to increase safe assets at market lows. The folks who are most successful are the ones who have maintained a consistent posture through the market cycle.

PETERSON:  What we’re seeing now is a true reflection of emotions that take part when you’re investing. We’ve got fear and greed; we all know that. The greed took over when we had the technology boom. Recently we had the real estate boom. We’ve all had a lot of clients, I’m sure, who migrated to real estate all the way up to capital markets. Now we have the opposite. We have the fear factor stepping in. People tend to follow the herd when they get in scary situations, and I think that’s what they’re doing.

NEWTON:  There are two things I always guarantee to my clients. The market will go up and the market will go down. And other than that, anything else is rolling the dice. Two years ago, October 16, 2008, before we hit the down in the market on March 9, 2009, Warren Buffet wrote, “Buy America. I am.” And he said, “Be fearful when others are greedy; be greedy when others are fearful.” Since that letter through Friday, October, 8, 2010, the S&P gained a 29.1 percent total return through that two-year period. Now, if you go back and look at the market from 1925, before the ’29 crash through 2000, the large cap stocks average annual yield was a 10.2 percent return. So that includes the Depression, a number of recessions, the crash of ’87, and all the way on up. That tells us what we can expect is averaging a 10 percent return. So now if we turn around and look at what’s happened, we’ve actually just in the S&P averaged a 15 percent return. Are we set now for a downturn in the market? Is it really wise to be in bonds? Maybe it is. Nobody’s got that crystal ball.

PETERSON:  In a 10-year period, though you’ve got a zero return.

NEWTON:  But that zero percent return was actually through 2009. So now we’re back ahead. But how much longer will the S&P keep going before we see the national downturn? Because every three to four years we see a natural downturn in the market. You layer that on top of the coming presidential election year, we see a downturn.

MCNEAL:  It really comes down to the conversation between strategic asset allocation and integrated or tactical asset allocation. From what I gather, most people here at this table are focused on that strategic asset allocation side, where you invest for the long term, you’re looking over long periods of time, and you’re trying to achieve those average returns. I’m here to tell you that there is a case for active allocation and integrated allocation, in this particular example, with bonds. There are various different types of bonds, right? I believe what we’re referring to is Treasury bonds are now a bubble, and I could not agree more. I have more than 180 households that I deal with, and we don’t have one Treasury bond in anyone’s portfolio.

NELSON:  The foundation for our whole investment process is having an exit strategy. So that’s the foundation we taught all of our clients. Because the answer to the question of how it’s affecting clients right now, we all agree here that it’s uncertainty. And that’s never going to be removed. But what can give people confidence – we tell them whether they’re buying a stock, a bond, or a mutual fund, a piece of real estate or business, that if you’re going to buy something, you better have a plan of how it will get removed, how it will be sold. It doesn’t matter whether bonds are in a bubble if you have an exit strategy in place for them, you’ll know when the time is to complete or remove them. As long as they’re going to remain in an uptrend, let them remain in an uptrend, but you better have a plan of how they’re going to come out and what they’ll be replacing.

HOLMGREN:  When you do an analysis, whether it’s an investment policy or a financial plan, you can show clients that, “This is what the effect was, but you’re still on track – or with these changes, you will be back on track,” that gives them a great sense of relief.

TERAN:  It’s incumbent upon up to help our clients understand their own behavior and our behavior. We’re all subject to what I call information cascade – CNBC, Wall Street Journal, everybody’s talking about how great bonds are doing, and so our role as counselors is to have them understand from their own experience, “Yeah, maybe we fell for that in the ‘90s. Maybe we thought real estate was never going down because they don’t make any more of it, right?” So then with bonds, we also have to say, “What role is or own behavior playing in the fact that this bubble is now developed in Treasury bonds?” And now we see gold on every television commercial. So are we repeating those things By counseling with our clients that, perhaps, we’re going through that same process – information cascading, getting on the bandwagon, following the herd – do we have the discipline to act on that before there’s a problem, before everyone says, “Oh, guess what? Real estate is down?” Now they don’t want to buy it when it might be a good opportunity. So our role is to advise them about the importance of their own behavior in all of this.

BAPIS:  Some of us assume that we can time things and get out before they start going down. But in the 42 years that I’ve done it, I’ve found that’s pretty difficult. The most important things we can do are number one, we need to educate and communicate with our clients. And number two, we need to have an asset allocation that meets their objectives and their needs. That doesn’t mean that we have to change that asset allocation when the market is going down or when it’s going up. We can tweak it and we can adjust it and lighten up on the classes that aren’t performing. But I don’t think that we can time things and get in and out.

YOUNG:  I really believe that as advisors we have a responsibility to guide our clients through the bond situation. Since the beginning of 2009, there’s been $100 billion come out of stocks. Interest rates on bonds have got pushed to the floor. Over the last 30 years, we’ve been unsteady here for markets or bonds, and so people are fleeing to bonds for safety. And they’re going for no other reasons. So if they are going to bonds for safety, to get their 2.5, 3 percent yield, there’s no capital gain opportunity unless rates continue to decrease. On the downside, if rates go up 1 percent on a 10-year bond, you’ve lost 10 percent. So you’ve got a situation where you’re risk reward is completely upside down. It’s easy to sit here and say, “I’ve got 30 percent of my portfolio in bonds for safety,” but if it’s not providing safety, then we’ve got to talk about that.

HOLMGREN:  I tell my clients, “Stuff doesn’t pile up on the floor. Someone is buying and someone is selling.” So when there’s a huge sell-off on Wall Street, then you say, “Well, who was buying them?” As people start exiting and going back into stocks, then you are going to see air coming out very quickly, just like the tech bubble. We have bubbles, but you can guide them through that. What we’re finding now is dividends on stocks are paying high, are more attractive than the bond of that same company. People are starting to realize that, “Gee, why don’t I take some of that and at least do some dividend-paying type of equities, because I want to get a better yield and then I participate potentially on an upside as the markets recover.”

WELLS:  A really important key point is the difference between how a fund does and how the average investor in that fund does, because it speaks to this fear and greed. There’s a group called the Dow Bar, which is an independent think-tank that does a study. And over the last 15 years, the average mutual fund has done about 8 percent, where the average investor’s only done about a third of that. The reason for that is just the difference between time-weighted and the dollar-weighted return. So having a strategy is important, because if you’re an equity manager, you might be able to add 200 basis points, right?

But that pales in comparison to if you can sit down with your clients and have a strong investment policy statement that the client can stick with in good times and bad, then you’re giving them the chance to get three times the return. Having a strategy doesn’t mean you’ve got to be buying and holding. Definitely be tactical in it.

Even if you’ve got a long-term strategy, how often do you rebalance?

PETERSON:  We’ve all had the panic calls, the capitulation calls. “We just heard it on the news – get me out!” There’s nothing you can do. You have to do what the clients wants you to do. You can talk to them until you’re blue in the face about the reasons why you want to stay put and maybe make some smaller changes, tactical changes, but when they want to get out, they’re out. And then you look back, and they’re still out. You finally just have to tell that client, “If you don’t buy into the advice that we’re giving you, you’re going to have to take your money somewhere else and go where you think you’re going to be better served.” And they end up at the bank somewhere where they’re just going to earn that 1 to 2 percent, and they’ve missed the 70 percent rise in the S&P for that period.

BIRD:  We try to say, “How do we keep the comfort level such that you can stay in the game?” Because staying in the game is what matters. If people just step out on the sidelines, as you mentioned, it’s over.

KARRAS:  Part of our responsibility as advisors is to be the devil’s advocate, not only when the market is going down and trying to convince people to stay the course, but also when the market may be a little frothy and their neighbor tells them out in the backyard that they just bought XYZ biotech and made 200 percent, and they call you and want you to get into that. Our responsibility is to keep them grounded and not to chase things.

As far as people trying to get out of the market, and trying to put them into something that at least allows them to participate – one of the things we did was use what we were calling the client’s “proxies,” and we use high yield bonds and convertible bonds and things that at least would give them the growth opportunities. At the bottom, when you know they need to stay in, you’ve got to be creative and at least get them to a comfort level.

YOUNG:  The single most important thing I’ve seen that enables clients to not be on the downside of the Dow Bar numbers is to have a risk tolerance assessment done properly. More important than what their goals and objectives are, more important than anything, is to nail down a risk tolerance and really be clear with that. “Are you willing to live with a 5 percent loss or 20 percent loss? What’s your breaking point?” Go through some graphic scenarios of what might happen and then talk with them and work with them to come to an appropriate risk tolerance. Because if a client has their risk tolerance set properly, they really shouldn’t care what is going on.

 See the December 2010 issue of Utah Business Magazine to read the full article.