Digging deep for reality-based solutions

Craig Ramsey, CLU, ChFC ClearStep Financial • The Strategic Financial Alliance Inc. Read full biography below

Proactive Advisor Magazine: Craig, how did you grow your practice from a 403(b) concentration?

The nonprofit payroll deduction and 403(b) area was a great initial training ground for me. It required me to meet with hundreds of individuals, usually at their workplace such as a school, and to be able to quickly assess their basic financial situation and needs. Over time, I would often be asked to look into much greater detail on a family’s financial planning needs. That motivated me to continue my professional education, to earn several designations, and to hone my planning skills. I was working in a fairly affluent community, and often the spouse of the nonprofit employee would have their own business or be a physician, lawyer, or other professional. My practice was able to grow organically in that way and referrals helped me to keep growing my circle. I also was a very enthusiastic marketer via educational seminars at the time, and I think that provided a valuable service to people.

Talk about your philosophy of working with clients today.

Anyone who knows me, whether my associates or my clients, will tell you I am pretty outspoken and like to be very open and direct with people. One of the reasons I do not feel seminars are all that effective these days is that they have come to be seen as mainly a sales pitch to prospective clients. This, however, was never how I approached them. I believe that the more you truly educate, the more it becomes a win-win for both you and your prospects and clients. My value proposition is pretty simple: I want to dig as deeply as possible into getting to know someone, both their hard-core numbers and their softer values side, and then deliver effective solutions. These days anyone who wants to can click their mouse and find financial planning software or go to an investment website and come up with a 10-minute analysis of how they should invest.

“Risk management and diversification together provide a higher probability of success.”

What’s missing is having an advisor who understands how to open and direct a conversation with clients in a way that uncovers what they want to do and what they should do. This is where I think I can add value: frankly discussing a client’s priorities and the trade-offs that may be involved as they plan their financial future.

Can you give an example of that value-add?

Let’s say a couple comes to see me and they lay out their financial situation as they see it. We review their assets, their liabilities, their potential income streams in retirement, etc. But when I really drill down, I discover their grandchild has special needs. Their son and daughter-in-law both have good jobs, but modest incomes as teachers. The special-needs grandchild will likely need lifetime assistance. That sort of thing may make a huge difference in how we structure their long-term financial approach, their insurance and annuity planning, their investments, their estate planning, and so on. I think that is the kind of investigative work and proactive planning that a good advisor brings to the party.

How do you approach the investment side?

Fundamentally, I am the coach of the entire planning process, helping choose the appropriate players in their areas of expertise. I help clients craft outcomes that are aligned with their resources and values and that work toward the objectives they have identified. For investments, I use reality-based thinking. I adjust a person’s risk tolerance for their age. I use a lot of fixed indexed annuities for conservative money, recommending highly rated companies, because guarantees are based on the claims-paying ability of the insurer. And for the growth money, I see myself as a delegator to professional money managers.  In my view, active money managers are well equipped to monitor market trends, use their models to implement their strategies, and flip the investment levers when needed.

 

It is very unrealistic for an advisor today to think they have the resources and skill on their own to match the demonstrated ability of one of these sophisticated money managers. This has become so much more important in today’s global investment environment. Old school buy-and-hold and diversification worked for many years. But, since the start of this century, it has been confirmed that risk can elevate quickly and markets can go down faster and farther than one might think possible.

What about discussing risk management with clients?

I have clients of all ages and income levels, all with their own specific needs. But many of my clients are about to enter retirement or are already there. Investment risk management is an entirely different exercise when numbers on a financial statement have to translate into a check in the mailbox versus just sitting on a piece of paper. The stakes are high. The first thing I do is make sure we structure an overall financial plan that attempts to ensure that income needs are met in as conservative a fashion as possible. This often may take the form of an annuity. For money that has a longer timeframe, we need to make sure that we factor in the sequence of returns issue. While clients intuitively know that you can lose money faster than you can make it, some simple math examples are instructive for most people. I explain the principle, for example, that it takes a 100% gain to make up a 50% loss, and so forth. For older clients, major losses early in their retirement can have an extreme effect throughout the rest of their lifetime. 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 tradeoffs 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.