Mark Swartz • San Ramon, CA
Mark Swartz Investment Services • Securities America, Inc.
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Proactive Advisor Magazine: Mark, please describe the nature of your first meeting with a new client.

I tell all new clients that our mission is to get to know and understand their needs, wants, and long-term goals. We want to help them develop, implement, and monitor a strategy that’s designed to address their individual situation. I also tell them that I want their experience to exceed their expectations in all ways: the value we bring to their financial and investment planning, the level of service we deliver, and the comfort they have in working with our firm.

After we discuss our customer service philosophy in this way, I do something I think is a little unique in our industry. I explain that I have learned in my 20 years in the business that successful relationships are built on getting to know each other, developing some mutual ground of understanding and respect, and, ultimately, trust.

Since I am asking them to open up to me about their most personal financial matters, I take the time to introduce myself and my background. I have developed a slide presentation that I use to take clients through my story: where I grew up, what my family life was like, my time in the Navy, my education, my work experience, our firm’s educational outreach, and what my personal life is all about today. I believe this sets a great tone for an in-depth conversation and puts clients at ease in going through the initial discovery process.

Talk about how you work through the planning process after the discovery phase.

I work with a variety of clients. The major segments are individuals and families across different age groups, retirees, small-business owners, and employees at educational and health-care institutions. Typically they have a wide range of concerns: How much money will I need to retire? What’s the best way to pass money from one generation to another? What benefit solutions should I offer my employees? What level of contributions should I be making to a 401(k) or 403(b), or how should rollovers be constructed? How can I manage my overall finances in a tax-advantaged way? What do I need to consider in succession planning for my business? What are the best strategies for Social Security claiming, Medicare, and long-term care?

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No matter what our clients’ financial goals and concerns are, our firm can deliver a wide range of financial services to address them. When we do not consider ourselves the most appropriate resource, we will refer clients to third-parties we have relationships with or find trusted professionals who can help our clients with a specific area of need. The bottom line is that, in this increasingly complex financial world, clients want the reassurance that they are addressing their overall financial needs in a smart and comprehensive fashion.

I am very process-oriented when evaluating client’s planning, investment, and protection needs. I like to position our process as a wheel with six major steps:

1.     Discovery and data-gathering

2.     Prioritizing objectives

3.     Analyzing and identifying options

4.     Developing appropriate solutions and strategies

5.     Implementation

6.     Scheduling periodic reviews and updates

If a client’s life circumstances change, we can re-enter that process at any point in the wheel and revisit the appropriate planning steps. Throughout the process, I am a firm believer in client education. Many of these areas we are dealing with can be quite complex and intimidating to people, so I try to break them down into short, easy-to-understand educational presentations.

“We try to put the most qualified team of investment managers on the field … based on our analysis of both their capabilities and performance.”

What is your philosophy on retirement-income planning?

Most of our clients are over the age of 60, and retirement planning is one of our major practice concentrations. I use an approach I call “time-segmented distribution.” It is very sensitive to both the sequence-of-returns issue and the role of risk management in different aspects of investment planning.

Here is conceptually how it works. Hypothetically, let’s say a client comes to us with $1 million in retirement assets above and beyond their fixed-income streams, such as Social Security. If their income-distribution needs, based on our planning analysis, are roughly 4% of their assets per year, let’s imagine a market year where indexes are down and they see a portfolio loss of 6%. Combining that with the 4% distribution, they have finished the year seeing a 10% loss to their nest egg. The markets will eventually come back, but can their portfolio withstand a series of losing years early on, or one or two really bad drawdown years? In my experience, the answer is clearly no.

Instead, we will use the time-segmented distribution approach and identify various time horizons with different strategies. For the first five years of retirement, funds will be earmarked for distribution purposes at the appropriate rate, with none of that money exposed to market risk and in very conservative and liquid instruments. For years five through 10, we typically might allocate a significant level of assets to money managers who apply a highly risk-managed and conservative approach to investment strategies. For years past 10, we may still work with third-party managers who take an active approach, but the strategies might be able to assume a little more risk and have the opportunity for higher returns.

This is a strictly conceptual explanation. Everything, of course, depends on the client’s risk tolerance, their objectives, their potential sources of retirement income, and their overall financial plan. But the idea of this approach is to help clients plan for retirement income in a systematic way and to apply different strategies and levels of risk management to money in different time segments. I believe it is a very sensible and responsible planning methodology. A critical part of the approach is the ongoing assessment of how clients are proceeding in their progress toward pre-established objectives. If a particular strategy is not performing as anticipated, or personal circumstances change, we will revisit either specific strategies or plan assumptions to make the appropriate mid-course corrections.

How do you evaluate and select third-party managers?

There are several levels to that analysis. Our broker-dealer has a robust selection of qualified and vetted money managers on the platform we use, so that is the first criteria. I have access to data that can tell me the performance of third-party managers by different strategies and by different time frames, so I conduct my own analysis using that information. I am particularly interested in how strategies, and their managers, have performed during poor market years and what sorts of drawdowns they have experienced. I share information among a group of advisors I work closely with and will schedule manager presentations. Our broker-dealer also has events where managers present. And, of course, I meet with the representatives of money-management firms to conduct my own due diligence and obtain a close understanding of their capabilities and resources.

I tell my clients that they should imagine me playing the role of a manager of a major league baseball team. I personally don’t hit the ball or take the mound, or, in the investment case, analyze the market all day long. We try to put the most qualified team of investment managers on the field, and we make those decisions based on our analysis of both their capabilities and performance. If performance is not what we expected, we might have to consider changing our lineup, either temporarily or permanently. Fortunately, that is usually more the exception than the rule.

The benefit for our clients is that they have access to the services of highly experienced and vetted investment managers with sophisticated strategies and models. Their quantitative approach helps to take emotion out of the investment process, and their algorithms and indicators work 24/7 to stay on top of market trends. Our approach, and theirs, places a premium on risk management and the ability to make tactical adjustments as market conditions change.

The strategies we use are generally not designed to try to outperform the market, but they are designed to keep our clients in the game for the long run. As I explain the benefits of an actively managed investment approach to clients, they come to see the benefits of both risk management and strategies that can help mitigate market volatility. I believe this investment approach has contributed significantly to the success of our firm and to our high levels of client satisfaction and client longevity.