Wealth management.

• Position: Industry Outlook - Interview

Even though the market is fluctuating wildly, now is not the time to panic, say our panel of wealth management experts. Now's the time to make an appointment with your advisor--or find one--and reevaluate your goals with an eye to maximizing the available opportunities.

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HOLLAND & HART

THE LAW OUT WEST

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We'd like to give a special thank you to Hal Heaton, BYU professor, for moderating the discussion, and to Holland & Hart for hosting the event.

PARTICIPANTS:

Back Row:

JJ Johnson, Charles Schwab;

John Holmgren, Ameriprise Financial;

Wes Quinton, Holland & Hart;

Matt Krull, J.P. Morgan;

Allen McNeal, UBS;

Steve Eyre, Key Private Bank;

Scott Ulbrich, Robert W. Baird & Co.

Front Row:

David Young, Paragon Wealth Management;

Chuck Newton, Advanced Financial Strategies; Hal Heaton, Brigham Young University;

Lon Jefferies, Net Worth Advisory Group;

Jeff Bland, Burrus Financial Services;

Nick M.

Bapis, Hightower Advisors

With all the volatility in the market, some commodities exhibiting bubble-like behavior and negative real rates on bonds, what are you advising clients? What do you recommend now?

JOHNSON: Panic and greed are not a good strategy, and we see it too often out there. It's more important than ever to have a long-term approach--just some of the basics of asset allocation, rebalancing the portfolio so that you get the benefit of automatically selling some asset classes when they are higher in relation to others and purchasing other asset classes when they are low.

All too often, the biggest mistake we see investors make is chasing performance of certain assets classes and then the flows that go into that. So whether it's an asset class that has ballooned in value recently--we've seen it with gold--you see a lot of folks just really pile into that. It's a dangerous thing to over-rotate into something like that, and it represents too much risk in a portfolio.

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Have you recommended any shifts in portfolio allocation? Are you shifting more portfolios into one asset class as opposed to another one?

JOHNSON: Even with what has gone on in the markets the last month or so, or even during the debt crisis, we're not advocating a shift from the clients' target allocation. Really, its take advantage of it through getting back to what their targets are.

Now, the asset classes may shift, even dramatically in certain asset classes, but that's the time to take advantage of shifting things back to where their targets ought to be.

It's a personalized allocation that you are talking about, but do they shift according to the economic circumstances or is it according to the risk aversion of the client?

JOHNSON: On our end, it's more according to the risk aversion of the client.

MCNEAL: It's true, you want to keep people within their risk tolerance because when you have weeks like you did the last three or four weeks, if it's too big of a move for them, they are going to leave the space. You just will not be able to keep them in.

But it's also just as clear today as it was a year ago. For example, you do not want to get into treasuries. The federal reserve is forcing you to not be in treasuries. We're heavily weighted into stocks, as much as people will allow us based upon their risk tolerance. And on the bond side, you definitely have to go into the credit sectors. You have to go into the high yield, into the floating rates.

EYRE: Our philosophy is a windshield is better than a rearview mirror in terms of where we go with our clients. The key in these volatile times is communication and talking people off ledges daily as the markets have their volatility. For those clients who are in panic mode, introducing some hedging strategies to help them on some downside protection. We manage futures and other types of things that have tended to level out some of the ups and downs.

We view volatility as an opportunity. We're being opportunistic with some of our clients who tend to be a little more contrarian in taking advantage of those down days to get into some equities that maybe were a little bit overpriced in the past.

But the key for us is to stay the course, talk to the client on a regular basis--daily, if needed--and take advantage of opportunities that present themselves, because for every loser there is a winner, and we want to be on the winning end more often than not.

BLAND: Expectations up front are a big part of what the relationship is about for us. So the clients, if they have a sound portfolio of investments--we're trying to stay up to speed with all the changes out there--they should not be surprised or excited if there is a sharp increase in price or a sharp decline.

YOUNG: Probably the most critical piece for our clients is to make sure their tolerance is set properly, regardless of where we see the opportunities and where we see the places to go; it's having their individual risk tolerance set up front. Its not setting it when you are in a panic, and it's not setting it when you are having up and down days of 600 and 500 points; it's prior to the panic, making sure they've got that risk tolerance set.

As far as the areas that we like--we like convertible stocks, preferred stocks. Once we see some stabilization here, things look really good to us on the emerging market side as far as the best opportunities going forward. We've been negative on bonds ever since we started to come out of the recession a year ago. But with the federal reserve basically saying they are going to keep rates low until 2013, that gives you a little bit more room on the bonds to go a little bit longer, not terribly, but seven to 10 years versus where we were completely under three years prior to that.

My concern with the risk tolerance is that it's a moving target. How do you handle changing risk tolerances?

YOUNG: You have to walk [clients] through that process and be up front. If you've got a million dollars, are you OK with your account going down $100,000? If you are OK with that, are you OK with it going down $200,000 or $300,000? $400,000?

In absolute terms, we are investing their money. You should be outlining what the risks and reward potentials are at different levels. Usually what I'll do is go through that whole process, try to understand what their risk level is. For a lot of people, they will be close but for some people who are more aggressive, they will think their risk tolerance is higher than it really is, and with those people, usually you are pushing them back a little bit.

For example, we had a large client the other day who wanted to be more aggressive, wanted to get a lot more...