Phillip Palmer • Safford, AZ
Global View Capital Management, Ltd.

Phillip Palmer of Global View Capital Management, Ltd., uses active management for clients of all sizes, believing the benefits of risk management are just as important for a smaller portfolio as for a multi-million-dollar account.

Proactive Advisor Magazine: How do you view your overall client philosophy?

I would put myself in the category of a very service-driven advisor. My religious background has been a force in all areas of my life. I served two years on a mission in Brazil for my church, and I was an Eagle Scout. I just love interacting with people and helping them in any way that I can.

This carries into my professional career. I think educating clients and finding solutions for their specific needs is priority one. It doesn’t matter to me how large or small their account may be. In fact, we joke that I am king of the small accounts, and last year I acquired quite a few clients just starting out with their investment portfolios—the types of clients that big firms would never call. However, I do have a full spectrum of clients—some with large portfolios, some with small.

How does an active management approach fit in with this?

For my first seven or eight years in the business, I was not even aware of active management. I was doing things in a fairly traditional way, using standard allocation models and passive mutual funds. My idea then of active management was a mutual fund manager shifting money around between stocks or sectors.

But what we practice as active management today really takes the handcuffs off. Client portfolios are not bound by prospectus to keep a certain allocation. The active managers that we use have the freedom to take far more discretionary actions based on their models and views of situations.

I would say in the old investment management models, dollar-cost averaging was, and still is, a very big thing. But if a client has a portfolio of $500,000, loses 30%-40% in one year, and then dollar-cost averages in a few hundred dollars a month, how does that make any sense? The dollar-cost averaging may work to some degree on the new money, but how does it help with the overall portfolio losses? Do the math—it takes a 100% gain to make up for a 50% loss.

So how do you explain a different model to clients for active management?

There are a couple of distinctions I make for clients when I meet with them to explain why it is so different than the old way of doing things.

The first thing I always draw is a mutual fund pie chart, if you will, to make it very simple for the client. For example, let’s assume it is a younger person, moderately aggressive. I show portfolio allocations as 25% bonds and 75% stocks.

Then, I ask, “How does it work if the stock market crashes like in 2008? How is that mutual fund going to do?” Of course, the answer is that it is going to do poorly. And I ask, “How do you know that without knowing what stocks or bonds are in the portfolio?” And clients say, “I don’t know. I guess, because everything went down so far in 2008.”

The truth is, as I explain, it’s because that allocation basically can’t change by the prospectus of those mutual funds, no matter what the market is doing. I have a very difficult time these days justifying putting clients into traditional mutual funds or annuities.

What’s the flip side?

I explain to clients that we investigate and use very professional, active third-party managers who have the discretion and authority to move portfolios wholly or in part out of harm’s way. For example, they have the ability to go inverse the market, potentially making money in a down market. They may go to cash to play defense, or they might be more aggressive, depending on the manager.

I will always remember an expression from one of the first active managers I met with. He said that his firm does not necessarily ever predict in advance a disastrous storm, but they want to have the lifeboat ready just in case. So, it is not a matter of an investor sitting there with fingers crossed, hoping and praying at all times that the market will go up.

And it is obvious when you think about it that markets go through cycles, which can be a healthy thing for the market and the economy. But, it does not mean investors have to ride the cycle down with their investment portfolio.

How do you ascertain the proper selection of active strategies for specific clients?

I think fairly typically in terms of a risk profile and deep dive into their needs. We have great fact-finding tools and risk-assessment worksheets at the firm level that I use all the time.

These resources help us match a client’s maximum drawdown with the appropriate strategy mix, something I am very concerned with. While I would not call myself an overly technical advisor, I get very deeply into the process of analyzing worst-case drawdown scenarios for various strategies or strategy blends to make sure they are appropriate for a specific client. Basically, we are trying to match strategies that have high probabilities of expected returns, while making sure a level of defense can be applied that is appropriate for that client.

Thanks so much, Phil. Anything you would like to add?

My primary goal is excellent client service—service that is thorough and highly personalized. I will meet or speak with any client at any time on any issue, big or small.

I think that might be harder to achieve if I were totally focused on day-to-day investment management. Our firm does the tough work upfront in terms of impartially selecting highly qualified managers and monitoring their performance, which allows me to focus on adding value for clients.