Jerry Ganz, CFP • Green Bay, WI
Jerry Ganz Financial Planning • Packerland Brokerage Services Inc.

Generating investment returns that will meet a client’s own plan-based needs is the goal. Risk management is the first step.

Proactive Advisor Magazine: Jerry, how do you differentiate your firm?

On the basis of two core concepts. The first, and I have actually written a book about it, is the idea of plan-based investing. The second is our firm’s use of third-party active investment managers. I really know of no other financial advisor in the Green Bay area who combines those two operating principles the way that we do.

Let’s drill down into both of those concepts. What do you mean by plan-based investing?

When I sit down for the first time with a prospective client, after introducing our capabilities and hearing about their needs from a 10,000-foot level, I ask them to share their financial plan with me. Most people do not have one, or they may put forward an investment policy statement and think that represents a plan. The truth of the matter is they might have developed relationships with several financial professionals—their insurance agent, their banker, their broker—but no one has ever really developed a comprehensive financial plan outlining their actionable goals and objectives. When I talk them through the basics, our planning process is usually a real eye-opener. They quickly come to understand that it is virtually impossible to have a sound investment strategy without first having a sound financial plan. Goals or dreams never put in writing never became real goals—a total financial blueprint is really the key to investment success. We also believe in staying on the cutting edge of technology. All of my clients have their own website that they may log into that has daily updates of all of their investment accounts: the accounts I manage, their 401(k) plans, their bank accounts, etc. We continually update their other assets, such as real estate, and their cash flow statement, so they can have instant access to their total financial picture. It is a true wealth management system.

It is virtually impossible to have a sound investment strategy without first having a sound financial plan.

Where do third-party active managers fit into this equation?

Once we have established the plan, we need to help our clients execute it. Like many of my peers, I was brought up in the industry on modern portfolio theory and pretty standard asset allocation models. Several years ago, I was at a large conference where I was first introduced to active investment management. It sounded exactly like what I was looking for in terms of providing more risk management for client accounts and a high level of sophisticated, quantitative asset management. I freely admit that while I am a student of the markets and love investing, I make no claim to being an expert asset manager. Third-party managers are the experts with dedicated staff and resources that I could never duplicate. Each year I move more and more client money in the direction of third-party managers. I started slowly with the process, and initially we used a manager with a fairly straightforward rotational strategy that could actively move money into the better-performing asset classes or go to cash. It was a variation of trend following in an asset-class sense and rotated to whatever was performing best at the time, whether equities or fixed income, domestic or international. I liked to show clients what I joked was the “periodic chart” of all major asset classes and explained that our goal was to stay on the top half of the page with their investments. Obviously, it was a lot more complicated than that, but that was the basic idea. The somewhat revolutionary idea of active investment management has come a long way since then, and the array of different managers and various strategies is quite impressive. It is my job, working through my broker-dealer, to identify the managers and appropriate strategic approach that works with a client’s specific plan-based financial goals.

How do you determine the strategies that may work for a specific client?

I sound like a broken record, but it is really based on their planning needs, time horizon, and risk profile. I use one manager strictly for a tactical strategy that can go long the market, short, or into cash, with very low beta and is fairly conservative. I use other managers with more growth-oriented strategies that are more suited to clients with longer time frames and who are further from retirement. The idea is that a younger client will be able to give those strategies more time to come back from drawdowns and revert to the mean. One thing people may not realize is that active managers also provide strategies that are more market- or index-based and can really take advantage of bullish trends like we have seen over the past few years. The difference is that, as opposed to buy-and-hold strategies, there is a risk management component also built into these, which is very different from what was available 20 years ago. Active strategies can work well for a variety of different clients, different risk profiles, and different investment time horizons. Risk management is really the very first requirement of all of the strategies I use.

What is your process for introducing this to clients?

I talk with clients about the performance of the S&P 500, but in a very different way. Most people are familiar with the Index and certainly that is what the media and markets are focused on. The core educational component is in looking at the volatility of the S&P over the past 20 years or so. I explain to clients that if they want the very top years of the S&P performance, they also have to be willing to accept drawdowns of up to 50%, based on actual history. When we look at that in terms of their real portfolio dollars, it does not sit well with most people. Second, I explain that the S&P 500 is really irrelevant to the return performance they need to fulfill their investment goals. They require returns at a manageable risk level that will meet their own personal plan-based requirements, not “market returns,” whatever they may happen to be in any given year. One of our third-party managers has an excellent software program that can look graphically at a probable range of expected returns, showing the probabilities of highs and lows within that range. Clients can clearly see where their returns will likely fall over time. I also spend a fair amount of time discussing financial disaster preparedness. The world is a very different place today. We have potentially severe world economic problems on a fairly constant basis. We examine how a broad-based recession or other event might impact a client’s life, income, debt servicing, or retirement. And there does not have to be a true calamity to create risk—there are plenty of more common hidden risks, from government actions to inflation risks to health risks. We do not know all of the answers for sure, but we can prepare for the possibilities by using risk management in all elements of a financial and investment plan.