Defense first: Helping clients manage risk
Defense first: Helping clients manage risk
I thought that was a great insight, and that is exactly the path I chose. I interviewed with a national firm, and despite my lack of sophistication in the financial area, they thought I had the personality and aptitude to fit in well with their firm. After getting my licenses and some training, I had a great deal of freedom to build my own business. That was difficult for someone in their early 20s, especially in the middle of the dot-com crisis, but I learned a lot about prospecting, marketing our firm’s capabilities, and working with people on their investment objectives.
After about three years, I realized that I wanted to build deeper relationships with clients and move away from a transaction-oriented way of doing business. I studied for my CFP and took college courses to get my second bachelor’s degree, this one in finance. Shortly after, I opened my own firm in Columbus and have been growing the practice ever since. I have been very pleased with how that has progressed.
- It all starts with our commitment to a “plan first” attitude. I tell clients that we cannot build solutions appropriate for their situation without a tailored, comprehensive financial plan. In most cases, we would expect to meet with a client at least three times before signing paperwork or moving into a recommendation phase.
- We are committed to providing excellent service across a wide range of products and service offerings. We pride ourselves on being proactive, rather than reactive. For individuals and families, this can include guidance in the areas of wealth management, retirement planning, college planning, estate planning, and tax planning. For small businesses or corporations, we work across many areas, including management of 401(k)s, 403(b)s, and deferred compensation plans, as well as wealth management and other financial services for employees.
- A third key area is our structure as a fee-only registered investment advisory—or RIA—firm. We do not sell products to our clients and we are held to a fiduciary standard. This means that we make decisions that are in the best interest of our clients, acting as their advocate, and it eliminates conflicts of interest. We are not limited to offering the investment products of one firm and can find the most suitable investments for clients from a wide range of providers.
- One of our most important client principles relates to our overall investment philosophy and client education. When it comes to managing money, we focus first on defending portfolios from losses, and only then seeking competitive returns. We do not believe that strong risk management and portfolio growth are incompatible, and we spend a lot of time educating clients on our philosophy. We also believe in financial education across the board. We hold frequent client events on a variety of topics for individuals, companies, and nonprofits.
We stress that we are not overly conservative, but that on a mathematical basis, avoiding loss is more important than capturing gains for client portfolios. Without a strong defense, any offense is not going to prevail in the long run.
Technical analysis and quantitative decision-making is at the foundation of our philosophy. We tell clients that our portfolio strategies are not meant to identify absolute bottoms of the market or absolute tops. That is extremely difficult to do once in a lifetime, and almost impossible to do consistently over many years.
Rather, we aim to conservatively buy on the way up the hill, when markets are advancing. Further, we want to start selling after a market peak has already occurred, pursuing a defensive stance as a market decline begins. We use a variety of strategies and principles of diversification, and our strategies are actively managed. Many are in the trend-following—or momentum—category. I tell clients to imagine the concept of “maximum up-capture, minimum down-capture.”
What we don’t do is adopt a “set it and forget it” approach to money management. We do not want to leave our client portfolios exposed to the volatility of markets without defensive actions and tactics to avoid wherever possible the worst-case scenarios. Does this work perfectly at all times? Of course not. But we tell clients that we always want to know where to sell an investment before we even buy it. I like to say, “I manage risk more than I manage investments.”
By raising the probabilities of avoiding deep losses, we believe client portfolios have a better chance of growing productively over the long term. We tell clients it is not good enough to make a profit, you have to keep the profit and build upon it also. We believe that by maintaining a non-emotional, rules-based, technical approach to money management, we can help clients outperform “buy-and-hope” portfolios over the course of a full market cycle. We have the ability to offer truly dynamic portfolio management. Markets evolve quickly. For clients to optimize their investment success, we must have the ability to adapt to those changes.
I would say it was part experiential, part philosophical, and part pragmatic. In the final analysis, it is what I believe gives clients the highest probability to achieve the investment goals that their financial plans necessitate.
The experiential part really is a function of my tenure in the financial advisory business. I started out in the middle of the dot-com market bust, 9/11, and a recessionary period. At that time, I was pretty much in the camp of modern portfolio theory, classic asset allocation, and “buy-and-hold” investing using mutual funds. This did not work out very well for most advisors and investors during that period, and I was no different. It took several years for clients to get back to breakeven. We saw some decent returns from 2003 to 2007 but then faced another steep market decline during the credit crisis. I determined then that there had to be a better way to manage clients’ money.
I then went through a period of deep discovery, immersing myself in investment theory and technical analysis, and learned about many different approaches to active investment management. I reached out to leading figures in the field and had phone conversations, email exchanges, or meetings with several prominent theorists and practitioners. This cemented the philosophical ideas around active management for me.
Pragmatically, many of our clients are pre-retirees or already in retirement. We believe in developing a thorough financial plan, closely examining clients’ attitudes around risk, and then developing a systematic withdrawal plan for their retirement income needs. In most cases, this does not require hitting home runs in the market or being overly aggressive.
A relatively controlled and less volatile path of consistent returns will normally allow clients to conservatively meet their income needs. Given the sequence-of-returns issue, what we need to avoid is having a $1 million portfolio turn into a $500,000 portfolio through a lack of risk management, and then trying to sustain those same required withdrawal levels. Through our use of dynamic, actively managed strategies, we firmly believe we can avoid those situations and help clients meet their goals over the long term. We believe this approach is essential for client satisfaction, the continued safety and growth of client portfolios, and the further development of our firm.
Adam Koos is the president and portfolio manager at Libertas Wealth Management Group, Inc., located in Columbus, Ohio. Mr. Koos says his primary roles include management of all individual retail and corporate investment portfolios; assisting clients with complex financial, retirement, and estate planning needs; and building visibility for the firm through a variety of speaking engagements and educational events.
A native of Ohio, Mr. Koos attended Ohio State University, where he earned a degree in psychology. He later earned a degree in finance and successfully completed studies for the Certified Financial Professional (CFP) designation. Following college, he was recruited to join the financial-services industry, working at a national firm for three years as an investment advisor. Mr. Koos then started his firm in Columbus, where he has developed a successful advisory practice and won local and national recognition.
Mr. Koos has been named one of central Ohio’s “People to Know in Finance” by Columbus Business First, is a recipient of the 2011 Business First Greater Columbus “Forty Under 40″ award, and is a five-time winner of Columbus CEO’s “Best of Business” awards (winning “Best Financial Advisory Firm”). He was also nationally recognized by Financial Advisor Magazine and Private Wealth Magazine for research and portfolio management. He is particularly proud of being recognized locally as the 2011 winner of the Better Business Bureau “Torch Award for Ethics & Trust” in the small-business category.
Mr. Koos is involved in a number of professional, civic, and charitable organizations and is especially passionate about assisting those currently in the military and veterans. His firm is a corporate “parent” for AdoptaPlatoon. Mr. Koos and his wife have two young children and reside in the Columbus area. He enjoys spending time with friends and family, Ohio State football, and playing volleyball.
Disclosure: The opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions expressed do not necessarily represent the views of TD Ameritrade and its affiliates. Investing involves risk, including loss of principal. Libertas Wealth Management Group, Inc., is a NAPFA-affiliated, fee-only registered investment advisory (RIA) firm.
Photography by Nick Fancher