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A mission of due diligence: Vetting third-party managers

by Sep 2, 2014Advisor Interviews

A mission of due diligence: Vetting third-party managers

by Sep 2, 2014Advisor Interviews

Tu Bui • Pleasanton, CA
Transamerica Financial Advisors, Inc.

Post-graduate studies honed his analytical skills. His parents’ missionary work in Vietnam cultivated his compassion for the needy. Now Tu Bui’s advisory practice relies on third-party risk management strategies to protect client assets for similar goals, and a rigorous vetting process is mandatory.

Proactive Advisor Magazine: You have had a remarkable journey to success as a financial advisor. How did you get where you are today?

My family left South Vietnam in April of 1975, ahead of the fall of Saigon. We went from Vietnam to Guam and eventually California, where I grew up and attended high school. My father is an Adventist missionary and still very involved in helping support missionary work in Vietnam.

I went to college in California and earned a master’s degree in nutrition at UC Davis and a master’s degree in biological sciences at CSU Sacramento. I worked for a few years on several important projects involving nutrition education for the State of California while I was pursuing my PhD at UC Davis. But during this period, I was introduced by my sister to the world of financial services. I started part-time and quickly realized that I wanted a full-time career as a financial advisor.

What attracted you to the advisory field?

I had always been very interested in the financial markets, even as a student. I also think my scientific background and data-analysis knowledge of solving problems, along with my family heritage of helping people, made this a very good career choice for me. Several of my clients are involved in missionary work, and I get a lot of satisfaction in helping them to improve their financial situation.

How has your investment philosophy evolved?

Back in the 1990s, when I first got started, markets really only seemed to go up. Like most advisors, I was using pretty traditional mutual funds and asset allocation and everyone was very happy with their portfolio’s performance. I do not think our industry had a real answer for the tech crash of the early 2000s—it was just a matter of reassuring clients that if they held on, everything would work out. I was very uncomfortable with that and, frankly, it was terrible to see client portfolios go down so much during that time.

The market did eventually recover somewhat, and that brought us to 2007. My firm had started to introduce the concept of risk management and third-party active managers to its advisors. I was very interested in pursuing the idea of asset protection for my clients.

How did you evaluate active managers?

Well, I applied my belief in analysis to evaluating third-party managers. I met with many of them and tried to dig deep into their performance and philosophy.

I have to admit this was not a perfect scientific exercise, as this was a field that was pretty new to many of us. I am a quick study, though, and recognized that it is not about chasing performance or what is hot or what is not. The defining moment for me is, “what can the money manager do for my clients when the markets are really moving down quickly?”

I learned the value of my own due diligence and had the understanding that I am not looking for aggressive managers who can make the most money in a bull market—I am looking for true risk management. If the overall stock market is down 50%, and an active manager is down “only” 25%, that is not going to cut it for me. Down 25% is still a very big hit for many clients’ portfolios. So I look at the active manager’s ability to really minimize losses in bear markets or even to profit via short strategies in down markets. I value that bigger-picture approach for my clients and the capability to effectively manage through all kinds of market environments.

How has this influenced your advisory practice?

The effect has been dramatic. I have a fair amount of high-net-worth clients—physicians, business owners, etc.—and this has given me a meaningful story to share with prospects that is very differentiating. Who wouldn’t want to talk about concepts that will allow for the protection and growth of wealth? It has provided the opportunity to give second opinions to people about their investment portfolios with real strategies that they may not have heard about before. This helps to set me apart from advisors still pursuing passive strategies.

How do you explain active management to those new prospects?

I really like to let the facts do the talking as much as possible, so I will conduct an analysis of a client’s or prospect’s past investment portfolio history. Not always, but most of the time, I will see periods of very high drawdowns and losses over the last 15 years. Generally, I can pinpoint where they have lost years, or even a decade, of growth in their portfolio due to those big market crashes.

This is really where the conversation starts in earnest. I explain that it is similar to the purchase of an automobile. I ask clients what they drive and many will say a high-end automobile. I ask why they bought that kind of car and the reasons are always performance and safety. Then I ask, “Would you like to partner with an investment advisor who works to provide both performance and preservation of your capital through risk management?” This decision about their financial future is far more important than the decision to buy a car. It tends to hit home with people.

The concept, similar to a car, is that the safety features in portfolio management are not used all that frequently. But when they are needed, they are very, very important.

What about the performance side of the equation?

It all depends on the client’s specific appetite for risk and what is appropriate for their long-term goals. We have some more aggressive active strategies that have done extremely well on the equity side, but they are somewhat more volatile and can have larger drawdowns. But for the more “middle of the road” client, I can demonstrate pretty thoroughly that a combination of strategies can provide very competitive returns over market cycles, with a strong focus on risk management and less volatility. The smoother ride is something that is also important, especially for clients who are nearing or in retirement.

You spoke about high-net-worth clients. What about other clients?

It is important to me to bring risk management to all of my clients. My father is a prime example of someone who could have benefited from sound financial planning and the concept of asset protection. As a missionary, he didn’t have a high income, but he also was never really properly educated on financial matters.

I am trying to bring to other church members the right education about saving what they can and then growing it to help them later in life. For many, this might mean the difference in successfully funding missions in the future. This can range from people with modest means to physicians who want to fund major medical missions down the road. I would like to reach as many people as I can to help with their future goals, and I am also personally committed to helping make these missions happen in any way that I can.

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Disclosure: Tu Bui is a registered representative and an investment advisor representative with Transamerica Financial Advisors, Inc. Securities and investment advisory services offered through Transamerica Financial Advisors, Inc. (TFA), Transamerica Financial Group Division—Member FINRA, SIPC, and registered investment advisor. Non-securities products and services are not offered through TFA. TFG004742-09/14.

Photography by Jack Hutch

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