So one thing we did was increase our level of communication, our random phone calls that really weren't random on our end but appeared so to clients, so they believed they were top of mind with us. We also did things like periodic podcasts, and a couple of special radio programs designed especially for clients. And recently we began implementing a quarterly video cast that gives some insights on what we feel about the markets.
Perceptions become reality. They best thing an advisor can do for their client is to have that client perceive them as being a trusted, knowledgeable advisor because they will then follow that advisor's advice, and in the long run have much better success.
FA: Randal, talk about the research you've done at Lindner Capital Advisors on investment management and portfolio creation and how client risk tolerance has changed, how you're looking at building portfolios.
Langdon: One thing we observed through this whole credit crunch and financial downturn is that clients and advisors needed to learn more about risk. Trying to minimize the draw downs and fluctuations in portfolios was directly related to a client's ability to sleep at night, and directly related to the number of phone calls the advisor might receive or the amount of hand holding he would have to do. So we helped communicate and educate around risk, and also looked at our portfolios to see whether we were delivering risk-managed solutions.
What we saw was that there were some clients who completely changed their investment policy statement not just from this amount of risk to a little bit less risk. It was like what Will Rogers said: "I'm not so interested in the return on my money, as I am in the return of my money."
So as a client-focused organization, one thing we did was to implement a portfolio that preserved capital or had the objective to preserve capital. We responded in a client focused way to dial down the risk if an advisor and a client came to that particular decision. At the same time, we married research done at Harvard with traditional investment research done at the University of Chicago to see how to integrate alternatives into a balanced portfolio.
We focused on the integration of managed futures into that equation. We incorporated work done by Dr. John Lintner at Harvard 25 years ago and extended the research. We tracked down Lintner's original graduate student who worked on the projects and the investigations. We re-simulated his research with the new data we had gleaned and came up with a portfolio that, in design, was able to deliver equity type of returns at a lower volatility. This lower volatility was what clients were really looking for in terms of what happened in the credit crunch. Now we are taking the work further to complete the cycle in terms of income and other types of solutions.
I think the big take-away is that during the credit crisis, clients and advisors became more aware of the importance to manage risk. It became more important for the actual individual investors to be engaged with their advisor in managing their portfolios so that they knew what to expect before reality played out. They knew what type of volatilities they were exposing themselves to, and our job as an outsourced money manager was to provide the tools so that when a financial advisor prescribed a particular type of portfolio, the client knew the risk associated with what they were doing. Ultimately the most important thing is not to surprise the client either positively or negatively, but to deliver upon their expectations.
FA: John, you have 450 advisors in your region, BAR Financial, which is part of Cetera broker/dealer system under the Financial Network Investment Corp umbrella. You coach and mentor those advisors. How are you working with your advisors on communicating with the clients and engaging them in the planning process in a more effective way this time around?
Brackett: We have built an organization that started as registered reps and as we grew, they grew. So currently about 60% of total production within our organization is a fee-based percentage of assets under management. The other part is focused on moving that to advisory. Our advisors range from the $3 million book of business down to the $200,000 book of business.