Jeffery Stein • Minneapolis, MN
Stein Financial Group

Stein’s firm has developed a very successful practice in the area of managing deferred compensation programs primarily for government employees, which has now organically grown into wealth management and other advisory services for both those clients and other individuals and families.

Stein says, “I think that we have a somewhat unique model here, in that we market to those individuals that we’ve been working with for years, and those would be the people coming out of the worksite 457(b) marketplace. As they hit a life-cycle event, in most cases retirement, they may have accumulated some substantial wealth, especially when you add that to their government pensions.

“The next logical step would now be to work with them, if appropriate, on an individual basis. We work very hard at making that transition as easy and seamless as possible. We seldom make a cold call, but are making many ‘warm calls’ on a daily basis to our existing clients.”

A big part of the message delivered by Stein and team through those calls involves the principles of active investment management. He says, “Particularly for pre-retirees and those in retirement, we are helping to provide clients with a long-term perspective that aims to maximize the probability of repeatable performance. We follow disciplined risk-management processes as part of our active management approach in developing deliberate and well-diversified portfolios.

“Active management means not only the willingness to make adjustments to our view of the markets and various asset classes, but also to constantly question individual strategies. That does not mean making changes for the sake of change, but it does mean keeping an open mind and being willing to alter course as conditions warrant.”

Part of the challenge Stein faces on a frequent basis is helping clients understand the underlying principles of active management, as many have either developed a deep mistrust of the equity markets or have an ingrained, though too-often painful, belief in “buy-and-hold strategies.”

“But the real idea is to manage risk and to try to avoid most of the portfolio-destroying years in the markets.”

Stein says, “Passive strategies are often the only thing employers and their employees know. They are familiar, easy to understand, and don’t require a lot of thought or maintenance. The problem is they can lead to some frankly disastrous decision-making because emotions can be overwhelming for many people in times of market stress. We try to demonstrate how to change that mindset with our proactive, value-added approach.

“I emphasize to clients that the idea is not to compare portfolio performance to a benchmark such as the S&P 500. And that cuts both ways, in good times and bad. We try to take advantage, as much as possible within our risk parameters, of up-market years, such as 2013. But the real idea is to manage risk and to try to avoid most of the portfolio-destroying years in the markets.”

For Stein, adopting an active-management orientation can be equal parts art and science. He says, “Through our broker-dealer relationship with ING Financial Partners, we can access some of the most sophisticated quantitative strategies out there. I tend to use a blend of several different strategies in portfolio construction to manage risk, diversify, and counterbalance aspects of various market conditions and asset classes. We generally will find a place to employ some trend-following and hedging strategies to help smooth out both risk and returns, while trying to take advantage of trending market moves.

“Not all strategies will perform at all times, but that is part of the overall strategic-diversification plan. However, that said, we need to pay constant attention to make sure each strategy is performing as it is intended to do. Sometimes our models can get whipsawed, and if that happens often enough, we will consult with our third-party active managers to try to gain a mutual understanding of what is going on.

“But as with everything market-related, this is a continual learning and adjustment process, and I am not afraid to admit that—as long as I also act upon it when appropriate.”

Third-party active managers are critically important to Stein, who says they “provide a very sophisticated active-management wrapper that would be very expensive and difficult for me to replicate on my own. They help me better leverage my own practice so that I can bring true value-added services and strategies to my clients.”

For Stein, his primary criteria for selecting third-party managers include several different factors: a respected reputation, a verifiable track record of performance, an offering of several diversified strategy alternatives, a great advisor support and service platform, and the ease of doing business with the manager.

Stein thinks that developing a successful client relationship should also be a blend of using sophisticated tools in conjunction with some old-fashioned common sense and fact-finding. He says, “This is art and science as well in terms of getting at my clients’ true needs and aspirations. We have some fine technical instruments to get at planning for our clients’ needs-based results and understanding their risk profiles.

“My number one focus is that I am going to treat my client just like I would one of my children. I want to put you into a situation where you’re going to have the greatest opportunity for success possible. As we get older, the goals should be to simplify, not to make life more complicated. So what can I do to help you simplify your life?

“You’ve been trading your time for dollars, and you now have the dollars and it’s your time. How do you want to spend that time, which frankly is your most valuable asset? I continue to see very bright things in the future for our firm and, most importantly, for our clients as they look forward.”