Active investment management’s weekly magazine for fee-based advisors

A winning playbook

by Jun 12, 2014Advisor Interviews

A winning playbook

by Jun 12, 2014Advisor Interviews

Russell Luce • Oak Lawn, IL
Planning Legacies Financial Group • Foresters Equity Services, Inc.

Russell Luce, principal of Planning Legacies Financial Group, balances the demands of his successful advisory practice with his advocacy for special needs children. In both, Luce maintains a proactive and optimistic outlook.

Proactive Advisor Magazine: Russell, how has your personal journey affected your philosophy around financial planning and investment management?

Our family has two special needs children and has faced some serious medical issues. I am a firm believer in the saying that 10% of life is what happens, and 90% is how you deal with it. This belief carries through to the way I approach financial matters for my clients and is one of the reasons I am an advocate for active investment management. I am not one for sitting around and letting things happen to my personal portfolio or those of my clients.

What do you mean?

In today’s investment environment, clients can no longer afford to stay with a buy-and-hold approach and stick their heads in the sand, hoping everything will work out for the best. It should be about taking charge and not letting the market dictate returns. With active management, we should be able to avoid a good part of the losses in worst-case market years, perhaps even making money in a severe market downturn with the proper strategies.

How did you come to that belief about active management?

The paradigm really shifted for me two to three years ago when I began investigating different third-party managers and their platforms and strategies. Inherently, I knew after the 2008 period that there had to be a better way.

I was looking for a way to bring a more repeatable process into play and had some eye-opening discussions with managers about active management. I might as well be from Missouri, as it took me quite a bit of asking “show me” questions, but I am well-satisfied that they were answered.

How do you define active management?

To my mind, it is pretty simple. There are two ways to manage money: buy-and-hold investing and active management. In buy-and-hold investing, there is a very infrequent adjustment of the portfolio. You basically take what the market and your allocations give you.

Active management is totally different. Portfolio strategies are looked at daily, weekly, monthly. Adjustments are made as needed. Third-party active managers may also employ analysts, portfolio managers, and traders to make sure their strategies stay on track. Portfolio allocations are not done by some emotional factor, but by specific quantitative triggers or models.

How do you explain this to clients?

I used to be a pretty decent baseball player, and I like to use sports analogies. I will ask a client their favorite sport and more often than not they will say football. In that case, I ask, “What is the top of the mountain in football?” Then, I explain to the client that they are like the owner of a pro football team and their goal is to win the Super Bowl.

I say, “You’ve hired me to be the general manager, and that means I have to put the best team in place in every regard. First of all, I need to pick a world-class coach, who needs to pick the best assistant coaches, the best players, and have a winning playbook. Our coach is the third-party active manager, and they select the best analysts and strategists to formulate the playbook that strives to meet the goals we have laid out. So our job as an entire team effort is to get you, Mr. or Ms. Client, to that Super Bowl, or, in your case, having a winning retirement plan.” Clients start nodding their heads and really understand that.

Going back to the sports analogy, what is in your playbook? What types of active strategies do you tend to use for clients?

It depends, of course, on the client’s overall objectives, risk profile, and total financial plan. I tell everyone that there are three enemies facing their money: time, inflation, and taxes. We need consistent income and asset growth over time to overcome those, while retaining capital.

I tend to use an active, multi-strategy approach across multiple asset classes and sectors that has strong risk management. I utilize a blended approach that has the ability to be actively managed in each strategy component, to go to cash if need be, and can be leveraged if the environment calls for it. Allocations may change on a monthly basis and most of the strategies are quantitatively driven.

I tell clients we are trying to consistently hit singles and doubles, not going for the home run. And progress is measured very specifically against each client’s personalized objectives, not broad market indices. Our third-party managers provide excellent, very visual tools to look at how the overall portfolio is doing versus expected outcomes.

What materials do you use to further explain active management to clients?

I like to use a presentation that shows how markets have performed over the years, how they tend to act. About 60% of the time markets are in a positive mode, about 20% of the time going sideways, and about 20% of the time in a negative or bear market.

Even though most people know that the history of the market is to tend to move higher, they are unaware that about 40% of the time it is not doing so. I explain that this is one of the reasons to use active management, to be well-positioned for those times the market might not be going up.

Russell, thank you. Any final thoughts?

Clients tend to spend more time planning vacations and holidays than how they are going to be spending the rest of their lives. As a parent of special needs children, I especially know how important it is to secure your financial future. Investing the time and effort to work with a qualified financial professional is one of the most important things you can do for yourself and your family.

Manage investment risk better than ever.
Get started – It’s free

About Us

Disclosure: Russell Luce is an investment advisor representative of and offers securities and advisory services through Foresters Equity Services, Inc., a registered investment advisor, member FINRA, SIPC. Planning Legacies Financial Group is located at 9233 Sproat Avenue, Oak Lawn, IL, 60453.

Photography by Brett Kramer

Manage investment risk better than ever.
Get started – It’s free

About Us