Patrick Letizia • McHenry, IL
Letizia Financial Group • Madison Avenue Securities, Inc.

After 27 years in the advisory business, it is fair to say Patrick Letizia has seen all types of stock market and global economic conditions.

And it’s also reasonable to say he has encountered just about every mistake that someone can make with their finances.

Letizia Financial Group, the firm he runs with his son Paul, uses an innovative system of “finding and recycling assets” and turning these newfound funds into productive assets for his clients. He says, “Our mission is to help increase our clients’ income, cash-flow assets, and net worth, without them contributing any of their lifestyle income in order to establish a more efficient and fulfilling life.”

For Letizia Financial Group, this program has many elements, all of which start with a rigorous four-step discovery process with clients. This includes tearing apart clients’ current cash-flow statements and conducting a microscopic examination of revenues and outflows.

From this analysis, Letizia mines efficiencies in expense management—everything from assessing the possibility of lower property taxes to finding insurance premium savings—before moving into the phase of finding the appropriate income and long-term asset building program.

Letizia says, “What we first really zero in on is assets that clients are needlessly and unknowingly transferring away. It’s amazing that so many families are losing significant dollars in both easily correctable transactions and sometimes far more complex tax-related matters. That is really step one in our process. For nearly 80% of our clients, we have helped them effect savings on rather basic elements of their financial life.”

From there, Letizia helps clients build those asset-growth and income-generating plans, where he undertakes an educational process on some sophisticated concepts of active investment management.

He says, “What we do in the final stage is begin to reposition assets, if necessary. Most people are in a passively managed investment portfolio. Normally, it’s made up of mutual funds. And they’re relying on, of course, the fund managers—who generally do a very good job of managing those funds.

“However, we point out that fund managers are really restricted to what they can and can’t do by their prospectus. And that approximately 95% of all the assets in the mutual fund usually have to be invested per the prospectus. So, even if it doesn’t make sense to be in the market during a particular market or economic period, fund managers have to maintain that posture.”

Letizia offers clients a different perspective on active investment management, outlining some complex risk-management concepts in easily digestible language.

He explains, “We are all about risk management for clients’ funds exposed to potentially volatile asset classes. While we believe this is necessary to the overall financial plan for growth over time and outpacing inflation, most of our clients have a relatively risk-averse stance, especially since 2008. I really do not try and dissuade them from what they are comfortable with.

“What I try and communicate is our ability to build out an investment portfolio constructed around risk-management principles, and I explain the ideas of alpha and beta in simple terms. Our objective is to put together a portfolio with lower volatility and favorable risk-adjusted returns.

“Compounded returns over time work in their favor, especially if they can avoid those really disastrous market years.”

“I explain to clients the concepts of alpha and beta, the former being a measure of risk-adjusted return and the latter a measure of a portfolio’s sensitivity to market movements or relative volatility. We are looking for high alpha and low beta. We will typically look for an overall portfolio beta of under 0.20, meaning roughly 80% less variability than a standard benchmark index such as the S&P 500. We look for alpha in a portfolio above 9 or 10, which is excellent.

“But the bottom line is explaining to clients that they can participate in the gains in asset classes such as equities while still trying to manage volatility—and have the ability to exit the market if conditions are unfavorable. That is one of the major advantages of active management, along with taking emotion out of the equation.”

Patrick Letizia is affiliated with the broker-dealer Madison Avenue Securities, based in San Diego, California. This relationship affords Letizia the opportunity to utilize multiple strategies as part of his clients’ overall actively managed portfolios.

He says, “We use a multi-strategy approach and rely on third-party managers for their expertise in statistical analysis and algorithmic-based trading strategies. We will generally use about five different strategies for the typical client, ranging from trend-following equity strategies to high-yield bonds to a leading sector approach to short-term bond trading.

“But the commonality to all of these is that they are actively managed and have the ability to respond in a timely fashion to changes in the market environment or their specific sector. We believe that by avoiding large drawdowns due to unfavorable conditions, over time our portfolios can see a pattern of growth that is consistent and strives to avoid volatility.

“Investment risk can’t be eliminated entirely, but it can be managed. That is a reassuring message to our clients and consistent with our approach. We can show our clients the math of how compounded returns over time work in their favor, especially if they can avoid those really disastrous market years. The numbers in this type of analysis of managed portfolio growth can be compelling.”

Letizia concludes, “We provide our clients with a wide range of services, including insurance products, tax planning, and investment management. Our differentiation falls on two levels. The first is our attention to detail in making sure the assets clients have are not being unnecessarily transferred away. The second is our focus on financial strategies that are flexible, tactical, and active, allowing them to adapt as economic or market conditions change. Our clients appreciate both approaches.”