FA: So how does going with an SMA manager help with the credit quality problem?

Evensky: Since we do our own due diligence, we're able to select managers who are willing to customize according to our criteria. One manager is a pure ladder manager, others are more flexible, but all of them work on a laddering concept. Historically, our ladder has been zero to ten years. Now, we're cutting that back to eight years. Our durations used to be four-and-a-half years, now we've cut those back to three-and-a-half. We're also doing it for corporates-the same issues hold in corporates.

FA: When did all of this become a concern for your firm?

Evensky: Within the past year, our firm has had serious concern about the credit quality of bonds. There is an increasing quantity of new bond issues and greater concern about quality. But two things sort of came together-our ability to access the managers directly plus the growing concerns about credit quality. We think returns in general are going to be pretty low across the board for stocks and bonds, actually bonds a little higher than the historical average and stocks a little lower. The most important things going forward will be preservation of capital and tax and expense management. As a result, we're moving more toward ETFs and separate account management.

FA: What about the richness of the bond market, though?

Evensky: We've never believed in making an interest rate bet. We certainly think the bond market is rich, so that's why we've adjusted our ladder and our durations. We start with a laddered portfolio, maybe with a slight barbell or a slight adjustment, but we always begin as a default with a laddered portfolio. The richness of the bond market and our credit quality concerns caused us to shorten.

FA: So the SMA managers you're using are adjusting their durations for you as well?

Evensky: Well, we're managing that, subject to discussions with them. We've been careful to select managers who will work with us and customize to our criteria and parameters.

FA: What's the ultimate value in your view in choosing an SMA over a mutual fund?

Evensky: By doing our own due diligence and dealing with the managers directly, we can get active management cheaper and more customization.