It is an interesting investment environment today, especially for clients with a focus on income, future wealth distribution, and the potential tax consequences. I am looking for the growth of assets for clients, of course, but with a strong emphasis on asset protection and capital preservation.

One of the things I say in my client meetings is that everybody wants three things out of an investment: they want it to be completely liquid, they want their assets to grow, and they want a high degree of safety or stability. There is no such thing as an investment strategy that will provide an absolute guarantee on all three of those factors. But I explain to clients that I believe an actively managed portfolio can deliver a nice balance between all three. I like to fully educate clients as to the theory behind active money management, without getting overly technical. It has been a successful process since just about all of the long-term growth assets of my clients are in managed money strategies. I explain that this is a quantitative approach, not dependent upon a manager’s personal beliefs about the markets or economy.

One of the growing trends in our industry is the availability of self-directed investment options within retirement plans. Most people believe their only viable investment choices are within the usually pretty limited menu of funds offered by their plan. My “two-step” message is that they can take more control over their retirement planning and investments, and combine a self-directed option with professional active money management. A self-directed option opens up hundreds of investment options within a retirement account. We couple that with active investment strategies that are monitored by a team of professionals watching over portfolio strategies constantly, which creates an entirely new dynamic.

It doesn’t matter if the market is trending up or down; clients have the potential for more peace of mind and better returns over their lifetime. In comparison, a passive investment is rarely monitored or adjusted, which can lead to both unsatisfactory performance and the sense of helplessness in the face of volatile markets. … If we can build in active money management and those institutional-level investing strategies today, when a client has some number of years left until retirement, why wouldn’t they want to take advantage of that?

Remember that we set the bar for a client’s success as we design their financial plan. Our goal is not to beat the market, but to achieve what they need for their risk tolerance and time horizon for each of their financial objectives. Using active money managers is an important tool that provides additional diversification and risk management. Over time, I believe this provides the opportunity for improved portfolio management and can help to smooth out volatility.

Active strategies can help provide the opportunity for improved portfolio management and to smooth out volatility. Everyone can do well when the market as a whole goes up, but what happens when the market gets rocky? What happens to your portfolio at those critical times is extremely important, and that is when active management can really shine. This is not only important for the actual performance of a client’s portfolio, but also for a client’s emotional outlook. Knowing that we use managers who have quantitative models that are prepared to deal with market declines is reassuring for clients—it helps to keep them committed to their financial and investment plan.

Our philosophy on managing money and wealth is really pretty simple: to protect against the downside and let upside gains run. We try to build portfolios that can reduce risk and volatility while focusing on the available long-term growth opportunities. Risk and volatility management is essential in helping clients to have success over the long term. Without a proper allocation, most people will have a lower return than is acceptable for the amount of risk they are taking.

Active management, through the use of sophisticated strategies from money managers and some of our own proprietary work, has been taking hold at our firm over the past few years and should accelerate going forward. Far too often, I think, financial advisors have been limited in their investment strategy choices for clients. They are not necessarily doing anything wrong or not suitable, but we have ended up with an industry that essentially offers plain vanilla investment choices. Classic allocation strategies are like the cliché of driving while looking through the rear-view mirror. With quantitative, rules-based strategies, we think we can offer a new, more modern investment approach to clients.

I think I can bring value to clients around their investments in two major ways. The first is in the structure of their investment plan, making sure they are taking an appropriate amount of risk based on their profile for each of the various elements. The second is in selecting and employing professional money managers for their more growth-oriented assets that have longer time frames. The combination of both of these ties together two aspects of risk management and diversification that can provide a higher probability of success over the long haul.

That said, no investment approach is perfect, and there are always trade-offs involved. Actively managed portfolios with a strong risk component shine when markets go into pronounced downturns—that is where they really prove their value. During bull market periods, risk-managed strategies generally tend to underperform—that is their nature and a function of how they are designed. My role as an advisor is to make sure clients are educated on and understand those general performance characteristics. Within the broader context of an overall investment plan, active management can add significant value for my clients and value to my practice.