Investment tools for today & tomorrow

Cheri Johnson • Gig Harbor, WA
Strategic Wealth Advisors LLC • USA Financial Securities
Read full biography below

Proactive Advisor Magazine: Cheri, talk about the early part of your career.

My family was deeply involved with the hospitality business, and my first real job was to help them run their food service operations. I was recruited from there to manage a Washington regional tourism board as executive director, which was a great experience in terms of learning many different marketing and sales skills and working with different types of business owners.

I also realized that my family was not unique: Many small-business owners put 100% of their energy and assets into keeping their doors open and creating jobs for themselves and others. But there is not much thought about diversifying their lives, their businesses, or their finances. That is a lesson that has always stayed with me and has relevance for many of the clients I work with today: Are you doing the things you should to protect for the rainy day that will come at some point?

How did you get into financial services?

A branch manager of a major Wall Street firm had heard about my tourism work and recruited me to offer financial services to that same small-business audience. After thinking long and hard about it, I decided to take on this new challenge. I was also quite flattered, as this firm was known for very stringent recruiting standards and an excellent training program.

This was a pretty heady and exciting time for me. This firm delivered on its training reputation. I was also able to earn bonus trips to the home office in New York, where I was exposed to some of the very big names on Wall Street and learned a lot about their approach to investments and their perspective on the markets. This was my first real exposure to serious technical analysis, and I think those lessons were very important in my investment outlook, as I do favor very analytical and quantitative approaches.

Why did you make the transition to opening your own firm?

I moved up pretty rapidly at that firm, becoming a vice president and was later recruited to another large Wall Street firm. I think my experience at both places was rich and rewarding, but it was clear to me that I would be most satisfied with a career where I was truly an independent advisor for clients. The independent and fee-based model fits well with how I saw my career progressing, and it allows me to have substantial autonomy in making client recommendations.

“Client assets may have differing roles to play and may operate under different risk assumptions.”

What is your firm’s basic philosophy in serving clients?

Personally, I have come full circle to an advisory practice that plans first and invests second, and that’s the core of what we do here. We strive to help clients not only achieve their financial goals, but to do that with a strong emphasis on risk management and making sure levels of risk are appropriate for their specific situation.

I use what I consider the best risk-assessment tool out there, and our broker-dealer has a very sophisticated proprietary financial-planning system. To simplify greatly, we call it a cycle-of-assets approach. It breaks down a client’s financial plan into discrete segments of years, where their assets may have differing roles to play and may operate under different risk assumptions, driving differing asset-allocation, investment, and product decisions.

 

Where does active investment management fit in the process?

It actually can filter into just about all of the asset-cycle planning segments. I believe that active management provides a better opportunity to avoid the big downdrafts of the market and, at the same time, manage risk in a way that is appropriate and comfortable for someone once they’ve defined their risk parameters.

Active management is a tool that is especially critical for these market times. Even though we have been in a bull market for several years now, we still see pockets of elevated volatility. They may not last very long, but it is pretty much a given that at some point we will see some significant market declines again. We want clients to be prepared for that, in line with our primary goals of preserving assets and providing an adequate income stream in retirement.

I explain to clients that we need investment tools that are built for today’s and tomorrow’s market. I show them a simple chart of the S&P 500 over the last 20 years, and it instantly becomes apparent to them how the market has gone through some dramatic cycles up and down. Why would one not want to try to take advantage of following major trends when there have been at least five major established trends since the late 1990s? Of course it is easy to see them with perfect 20/20 hindsight—not so easy when you are in the middle of them and a trend is in the process of shifting.

This is why we employ the service of professional third-party active managers for client portfolios. They have very sophisticated models, employing a quantitative and analytical approach that attempts to stay in sync with the trends. Active management allows us to focus on developing portfolios consistent with clients’ risk profiles and their longer-term objectives. If we can avoid and sidestep a major pitfall in the market with true active management, we’re already leaps and bounds ahead of the old style of passive investing.

When you manage for risk, a client may miss a portion of the big run-ups in the market. But over a longer time frame, we want our advisory practice to help clients achieve what is truly most important: Preserving assets and growing them carefully throughout their lifetime.