Ryan Finnell • Lexington, KY
Retirement Tax Advisory Group
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Applying third-party analytics and models to help clients reach their goals.

Proactive Advisor Magazine: Ryan, what is your overall view of managing client portfolios?

My philosophy is pretty straightforward. In today’s environment, information is almost instantaneous, and there is more of it than ever. Knowing that, why wouldn’t you use this to your advantage?

The old methods, like standardized asset-class diversification and a buy-and-hold mentality, just don’t work that well. Today there is too much correlation in the markets to get true diversification that will offer the kind of risk management required for a portfolio. And, frankly, clients often do not have the patience and lengthy time frame to wait for a buy-and-hold strategy to work.

Yes, markets do tend to mean-revert over very long periods, but that does not mean they will match up on a sequencing basis with the needs of any particular client. Because of these important issues, I believe an active management strategy has to be the way to go for clients.

Institutional investors have access to active management and risk-mitigation strategies, so why shouldn’t my clients? Over the last several years, I have converted 99% of my book of business to active strategies, and my clients have embraced it wholeheartedly. There is no way I would go back to the way things used to be done in terms of portfolio construction and management.

How do you see your role?

The spirit of our mission statement is helping everyday people have access to the most sophisticated planning tools and investment strategies out there. I worked for several years within hierarchical financial company structures and learned a lot there, but the independent path better fits my personality and what I feel is important for clients.

My job is to help clients identify and select the appropriate financial-planning and investment paths that match well with their overall life objectives and their resources. Nobody’s goal is to make more money, even if that is what they say it is or think it is. Their actual goal is to retire comfortably, or to send their kids to college, or to help their family achieve a better lifestyle.

Navigating them through all of the different investment choices out there and finding the correct vehicles to help them accomplish their goals is critical. By working at an independent firm, I am not under pressure to put forward certain products or investment managers. I can perform the appropriate analysis with a client and then select from a wide array of alternatives. And we emphasize with clients that the process is not carved in stone: If their life circumstances change, if their comfort level with an approach changes, or if market conditions change dramatically, we can make changes.

What is your process with a new client?

Most of it is formulated through building a level of trust and mutual understanding. I still believe in spending a good amount of time in a basic sit-down across the table with pen and paper in hand. I will sit with a client for however long it takes until I have a good understanding of what he or she wants to accomplish and what is truly important to them.

Only then will I put in place the more formal process of things like a risk profile or suitability analysis. That will lead to the consideration of different portfolio approaches and the money managers that might be appropriate for that specific client. We will then have another session to discuss the overall investment approach, to build shared expectations, and to see if we can reach a level of comfort with a portfolio direction.

“Client portfolios are being managed according to the strategies appropriate to their needs with an eye to current market conditions.”

Do you have a specific target market?

My specific focus right now is on working with employees of the University of Kentucky on their 403(b) plans. They have a very generous plan and a large employee group. Going back to what I said was our overall mission statement, we try to provide sophisticated investment tools to people who might have relatively modest accounts, but that money is extremely important to their future. It is a very receptive audience once we get to explain our approach.

Where do active money managers fit into your approach to the 403(b) segment?

First of all, you have to understand the dynamics of this group we are working with. Let’s use health-care workers at UK as an example. They are a very hard-working group, with not a lot of time for anything much beyond their jobs and their families.

When I meet with some clients for the first time, it is not an exaggeration that they might hand me a stack of unopened statements from their 403(b) account—I am talking years of unopened statements in some cases. It just motivates me when I see individuals who are either so time-stressed, so unaware of their options, or so intimidated by financial matters that they are not taking charge of their personal financial situation.

The 403(b) account is essentially the nonprofit version of a 401(k) plan. In most cases, plan providers allow us to arrange for discretionary management of client accounts, obviously with the client’s full understanding and authorization. Then we usually choose a third-party active manager who has an array of portfolio or strategy options, based on suitability profiles.

When clients are told that they will be getting world-class investment professionals managing their money with an emphasis on risk management, there is almost universal excitement. I explain that their accounts are no longer just taking whatever the market throws at them; they are being managed according to the strategies appropriate to their needs with an eye to current market conditions.

The bottom line is that we have the analytics and models of these managers helping us to try and be in the right place at the right time, and more importantly, staying out of the wrong place during bad times. We may not always see the highest returns every year, but clients come to see the significant value of this active approach, especially when the markets are headed south.

We are pleased that our 403(b) clients are spreading the word about our services to their friends and associates. I think that reflects our commitment to service, our understanding of client needs, and the model of money management that we are using.