Chad Mangum • Cornelius, NC
Transamerica Financial Advisors
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Proactive Advisor Magazine: Chad, talk about your current practice and your vision for future growth?

I am very grateful to our firm’s founder for the opportunity to learn the business and to help the firm grow in new directions. We provide a wide range of financial products to individual clients, client families, and small-business owners. While the majority of our clients are over 50 years old and interested in retirement planning, we have growing segments among younger clients and the small-business audience.

I think of myself as more of a life planner than a traditional financial planner. I am willing to help clients in any area of their lives that touches financial issues. I am dedicated to learning about clients’ personal goals and their unique life circumstances. While our firm has a lot of in-house knowledge available to find solutions to a wide variety of financial questions, we do not hesitate to use third-party professionals if the situation calls for that.

“I am looking for third-party managers who can help clients with quantitative strategies, based on sophisticated models.”

My goal is to bring additional staff resources into the firm over the coming years, building out our capabilities with professionals who have a focus in several different areas, including small-group life and retirement benefits. This is in addition to having a strong team of financial advisors who will handle financial and retirement planning, including insurance, investments, and legacy planning. We would like to become a resource in the Charlotte area for all of these potential client needs.

Let’s talk about one of these areas. How do you approach the retirement-planning process?

Retirement planning has presented new challenges for individuals over the past 15 years. We have faced two major market downturns, historically low interest rates for several years, and ongoing changes and uncertainty regarding Social Security. Traditional pension plans are rapidly becoming extinct in many industry and occupational categories. Companies of all sizes have faced their own difficult financial times and a growing burden of health-care costs.

While these are all significant issues, they are not insurmountable for individuals and families. I believe professional guidance can play a huge role in helping individuals of all ages plan for retirement income. This, I believe, is as important for younger people—who have come of age in troubled economic times—as it is for people close to retirement. The first thing we do with any new client is roll up our sleeves and try to gain a full understanding of a family’s financial situation and their aspirations for the future.

How do they want to live their lives? What defines a comfortable and enjoyable retirement for them? When they ultimately pass away, what kind of legacy do they want to leave? Through that process of fact-finding and in-depth conversations, we help shape realistic retirement-planning objectives. As we move forward in the process, we can then identify the products and services that are going to match up appropriately with their goals and aspirations. The good news is that we offer a wide range of investment strategies and insurance and annuity products that can help our advisors better address some of the challenges of today’s retirement-planning environment.

 

Talk about the investment-planning side of the process.

The biggest advance on the investment side is the increased availability of managed money and actively managed strategies for clients with portfolios of all sizes. Hard-working people who have built up a nest egg over a lifetime can now access portfolio strategies that 10 or 15 years ago were reserved for high-net-worth clients.

The two market crashes of this century had a huge impact on many investors. Some remain fearful about equity investments. The utilization of investment strategies that place an emphasis on risk management has created a valuable opportunity for client portfolios, providing the ability to help reduce downside exposure for clients. Generally, for clients who require a relatively conservative approach to retirement-income planning, I might use a combination of actively managed investment strategies, annuities, and, if appropriate, universal life insurance. I believe all three of these can help provide some peace of mind for clients while working toward meeting income goals. The combined approach will also seek asset growth over time. Another benefit to a combined strategy is the potential to manage risk a little differently for each of the tools, depending on a client’s objectives and where we are in the market cycle.

We use third-party managers who provide strategies based on a quantitative approach. They understand that markets are cyclical and that a blend of strategies, asset classes, sectors, and tactical tools are needed to perform in bull, bear, and sideways markets. They believe risk management should be a priority for client portfolios. In contrast to long-only investment managers or the typical mutual fund, their strategies can make strategic adjustments based on market conditions, change asset class or sector allocations, or move to a significantly greater cash allocation. I do not believe that staying fully invested in all market conditions is a prudent course of action for some clients, especially those who are in or close to retirement.

What are the important attributes you look for in a third-party money manager?

One of the most important is having a wide selection of investment strategies. I look for a range of options that allows me to take an individualized approach for each client. As part of that analysis, I look for third-party money managers that offer tactical strategies that can take defensive positions in bear market periods.

The 2008–2009 credit crisis was a watershed moment for me in the business and accelerated my learning curve when it comes to risk management. Traditional investment theory would tell you that different asset classes should respond somewhat differently in times of market turmoil. Nine out of 10 times that has been basically true over the course of market history. Diversification has traditionally been thought of as a major element for managing portfolio risk. Arguably, that was not the case during the worst periods of the credit crisis, as asset classes essentially went down in unison and were highly correlated.

I am looking for third-party managers who use quantitative strategies that were created to help move client money to cash before the worst of bear markets. Most clients can withstand some portfolio drawdowns, but our goal is to avoid those 20%, 30%, and 40% drawdowns. These strategies were designed to have client money sitting on the sidelines until markets show signs of recovery and allocations can begin to move back into the market. I often ask clients, “Does it make sense to be out sailing on the ocean in times of a hurricane, or should we be waiting for clear weather and the wind behind our sails?”

The other key attributes I am looking for are in the areas of service, ease of doing business, and help with client education. We want managers to have staff available to answer any strategy-related questions and for the day-to-day servicing of client accounts. We have also seen managers taking a far more proactive role in developing client educational materials, including easy-to-understand videos. One area that I think needs improvement is the standardization of paperwork guidelines and administrative processing. There are too many different processes for different firms, and clients and advisors could be better served in this area.

After clients have worked with you for some time, what would you like them to say about the way you conduct your practice?

I have always been extremely service-oriented. I enjoy working with people and helping them build better lives. I have many different types of clients. Some are extremely analytical and detail-oriented, and others would rather just have me do the analysis and review recommendations. In either case, the key is to build a meaningful relationship based on trust.

I would like clients to say that we go the extra mile beyond just providing financial planning and financial services. We want to become aware of each client’s specific life and family circumstances and help them with their myriad life-planning needs. Our ultimate goal is to be able to help our clients in every stage of their lives—and to do it using skilled resources, professionalism, and integrity.