The equity markets are on the rampage with returns unlike those seen in many years. While this is a wonderful experience for those advisors that are fully invested, it is quite precarious to those sitting on the sidelines with more cash than they may normally hold. Yes this market left a lot of folks in the dust wondering what to do next. It is most assuredly difficult to have a lot of conviction with the economy sputtering a long at lack luster growth rates and employment very slow to improve, let alone the rather disastrous overseas economic issues. What makes it even more challenging is the almost universal belief that bonds are one step away from getting hammered. I believe the first whiff of rising interest rates and it will get ugly very quickly for those that live in a mark to market world. So what does one do when they are damned if they do or damned if they don’t?
This may be the perfect time to outsource either all or a portion of investment management to other professionals that have the depth, resources, and experience to tactically manage a portfolio. What I have found out in my conversations with “emerging “ RIA’s is that while they began as passive, buy and hold managers, they have morphed into modified active management. This has happened for a number of legitimate reasons. First, the the market has been a roller coaster ride for the buy and hold crowd since the turn of the millenium. Volatility has played havoc with even the most committed passive manager and we are certain that there were more than a few deserters among clients whose patience was sorely tested. Second, clients have been hearing about active management in the financial media on a regular basis and lastly clients are often frustrated by what appears to be a lack of proactive decision making in their portfolios.
There are many challenges in implementing a more active management strategy. It is virtually impossible for an emerging RIA (less than $100 million AUM) to have the organizational depth, time or financial resources to pull it off. Many of the advisors we talk to are so buried in operations, day to day management issues and maintaining client relationships that effectively managing assets, other than passively is not even a consideration.
Even if you have successfully participated in this rising equity market, what will happen when we see a substantial pullback? Will you ride the rollercoaster once more? Isn’t it time to consider your options and focus on your highest and best use of your time? For most advisors we know, caring for current clients and increasing those you care for should be at the top of the list.
