April 30, 2015 | Volume 6 | Issue 5

Active investment management’s weekly magazine

Global decline in oil prices leads to “Fracklog”

Millennial obsession A generational shift

in target marketing

Tom McClellan: VIX ETFs not right for investors

Don Meredith

Diversity in thought and execution

The greatest wealth transfer of all time is near

Advisor perspectives on active investment management

- A custodian that makes your life as an RIA simpler.

It’s not just for HNW investors anymoreAs we spread the active management story, we really like bringing to Middle Americans what high-net-worth clients have been doing in all phases of financial planning and investing, giving them the opportunity to do the same thing. This has had a tremendous impact on our business, and in providing clients with access to some of the most sophisticated investment strategies out there.

LOUD & CLEARGary Strawn • Plano, TX Transamerica Financial Advisors Inc.

3April 30, 2015 | proactiveadvisormagazine.com

LOUD & CLEAR

ou cannot pick up a business publica-tion, tune into a financial news program, or glance at any news website without

confronting yet another story on Millennials.What are their career prospects? Do they

have the work ethic of prior generations? How crushing is their student debt? Are they still living at home? And, of great interest to financial institutions of all kinds, what are their attitudes toward saving, financial planning, the housing market, and investing?

The interest in those born roughly between the years of 1980 and 2000 is not surpris-ing—they represent the immediate future and workforce of the country and were born into a very different age of technology, global con-nectedness, and a changed economic landscape from that of their parents and grandparents.

For the financial services industry, there is, of course, a very strong motivation to understand Millennials—about $30 or $40 trillion reasons. This represents the estimated range from sev-eral sources of the largest generational wealth transfer in history over the next several decades, almost tripling the $12 trillion Boomers will end up receiving from their parents.

Despite the significant impact of the Great Recession, Boomers’ 401(k)s, pensions, real

estate equity, savings, social security, and their own inheritances will fuel what some have dubbed “The Even Greater Wealth Transfer” (versus that of the Boomers themselves).

And certainly, there will be great discrepancies in where the money flows, as high-net-worth parents and their children will dominate the wealth transfer in disproportionate fashion.

TheMillennial obsession

Y

With the greatest wealth transfer of all time on the way, theprofound interest in Millennials’ financial attitudes is well-justified

By David Wismer

Over the next several decades, the largest generational wealth transfer in history—a massive $30 to $40 trillion—will be a defining issue for the wealth management industry.

In a recent study, consulting firm Accenture says, “At the peak between 2031 and 2045, 10% of total wealth in the United States will be changing hands every five years. The accel-erating pace of this transfer, combined with the generational differences in the demands and expectations of wealth management service providers, makes this massive transfer of wealth between generations a defining issue for the wealth management industry.”

There is some debate over those $30 or $40 trillion numbers, as a recent article from TheStreet.com pointed out. Many Boomers, whether forced by circumstance of retirement spending needs or by lifestyle choice, are “doing as much as possible to dip into that $30 trillion before completing the generational giveaway.”

No matter what the number, and where it exactly goes, it will certainly be significant. A good portion of the research on the topic unsurprisingly concerns the financial attitudes of Millennials, with what seem to be several common themes:

• Millennials are less inclined than their parents to be interested in investing and, having seen two stock market crashes in a decade, are very wary of the stock market. Some studies indi-cate they are the most risk-averse gen-eration since their great grandparents, who witnessed the Great Depression.

• Millennials are less trusting overall of financial institutions (and financial

proactiveadvisormagazine.com | April 30, 20154

continue on pg. 13

Millennials hold dramatically higher cash allocations,reflecting a wariness of the market and long-term investing

Millennials Non-Millennials

Source: UBS Investor Watch, 2014

52%28%

13%

7%

Cash

Fixed income

Stocks

Other

23%

15%46%

16%

advisors) than prior generations and, given the tough job market, wage compression, and student debt they have faced, want a great deal of value for their money in all areas of life.

• Millennials obviously have a greater affinity than their elders for technol-ogy and online solutions, and a desire for instant access to their financial

information, including investment, banking, and 401(k) data.

We can leave the financial services marketing and business plan implications of these findings to the dozens of articles and studies out there already addressing such issues. But there is one Millennial implication that is especially pertinent to the world of active investment management.

If you believe these attitudinal findings, we have a generation that is: a) currently in need of making every dollar count and cannot afford a big financial “mistake”; b) risk-averse and skep-tical of traditional stock investing; c) distrustful of the “old ways” of financial institutions; and d) very attuned to finding technology-driven approaches and solutions in just about every area of their lives.

This surely sounds like a generation that might be an excellent candidate for the disciplined, risk-managed, quantitative, and model-based approach of active investment management. The challenge for financial ad-visors (and the third-party money managers they employ) will be to engage this gener-ation in such a way that they will have an opportunity to truly communicate the active management story.

Goldman Sachs just released a major study on Millennials that covered both financial attitudes and more far-ranging behaviors and demographics. Some of their key findings:

• As a cohort of 92 million individuals, this generation overshadows the 60 to 65 million members of Generation X (early 1960s to early 1980s birth

April 30, 2015 | proactiveadvisormagazine.com 5

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

Global decline in oil prices leads to “Fracklog”he global slump in oil prices, and result-ing strategies adopted by some energy companies, has led to the coining of a

new term: “Fracklog.”Fracklog refers to the practice of “stockpiling”

and keeping inactive shale oil production wells with the intent to bring them back on stream when oil prices reach higher levels. Many produc-tion companies are not so fortunate in having this option, as the more than 50% decline in crude has, according to analyst Andrew Hoffman, “forced hundreds of high-cost, junk bond-financed shale producers to face certain bankruptcy.”

He continues, “Based on my two decades observing the oil industry, it is my strong belief that crude oil has never had a worse supply/demand imbalance; which ominously, appears likely to get a lot worse before it gets better, as the deadly combination of massive overcapac-ity, record inventories, significant Middle East supply additions, and Fracklog run headlong into weakening demand.”

Baker Hughes has issued rig counts as a service to the petroleum industry since 1944, when Hughes Tool Company began weekly counts of U.S. and Canadian drilling activity. According to their fig-ures, the U.S. oil rig count plunged by a remarkable 46% through March from October 2014, putting it on a par with the 60% rig count collapse in late 2008 to early 2009, when West Texas Intermediate (WTI) crude went down to $34/barrel.

Last week, the number of active rig counts in the U.S. continued to tumble and has now fallen for a 20th straight week, says Business Insider. The number of combined oil and gas rigs fell by 22 to 932, the lowest level since July 2009.

T

Source: Baker Hughes/Business Insider

But some analysts, including Morgan Stanley, have said recently that the count should bottom in about three months, based on studies of previous periods when rig counts declined. WTI rallied to its high for the year last Thursday (4/23), before declining 1% Friday. WTI has held above $50 per barrel throughout April, after seeing prices in the low $40s in March.

Bloomberg Intelligence says oil needs to recover above $65 to make fracking production more economically viable and for U.S. drillers to tap the pent-up supply locked in shale wells. They estimate that oil moving above that price may unleash an extra 500,000 barrels a day of oil into

the market by the end of next year—more than the total output of Libya. Producers in oil and gas fields from Texas to Pennsylvania have 4,731 idled wells at their disposal which could be fairly quickly put into production, says Bloomberg.

The Energy Information Administration estimates the world is oversupplied by more than 1 million barrels of oil a day this year. That glut will mostly disappear next year as demand climbs and lower prices stymie production, the agency said in an April 7th release. That opinion is not universally shared by the analyst community, with many seeing continued weak oil demand if global economies continue to struggle.

U.S. OIL RIG COUNT

7April 30, 2015 | proactiveadvisormagazine.com

TOPPING THE CHARTS

Proactive Advisor Magazine: Don, tell me about your practice and how you started it.

Don Meredith: I feel in many ways we have the best of two worlds in our practice. I receive strong support from both Integrated Financial Partners (IFP) and Lincoln Financial Advisors (LFA). Each offers a wealth of resources and solutions designed to help clients meet their financial goals. Our associates work as a team to provide comprehensive planning strategies for individu-als and companies.

Everything that has been valuable to me in life has come through forging relationships. I

IN THOUGHT& EXECUTIONIncluding active strategies for risk management in a diversified portfolio calls for third-party managers who specialize in specific market segments.

DIVERSITY

8 proactiveadvisormagazine.com | April 30, 2015

Don Meredith, CRPC®

Chesapeake, VA

Estimated AUM: $80

Licenses: 7, 66

Experience: Over 10 years

management strategies. Active management is one of those particular strategies. We can manage the risk and minimize downside exposure using active management.

How do you explain that to clients?

I manage clients’ expectations and the risk on the portfolios. Other than that, I have no control over anything. You’ve got to be humble enough to say that first, and then explain the benefits of the approach we have put together. We have what we call “the three Es” with clients: we manage expectations; we educate; and then we execute on the plan that has been created.

It is very beneficial to have frank discussions with clients about risk, and every week I see ex-tremes with different clients that run the gamut of experiences. I just met with a couple who had accumulated their wealth through hard work, good incomes, and classic investing. They are about to enter retirement and have really exposed themselves to far too much market risk.

On the other side, I have clients who were so burned during 2008 that they are petrified of the equity markets and think all of their money

continue on pg. 10

Don Meredith is a registered representative of Lincoln Financial Advisors Corp. (LFA) and a senior-level financial planner with Integrated Financial Partners Inc. (IFP), based in Chesapeake, VA. IFP is a leading regional financial services firm with representatives in offices along the East Coast. Mr. Meredith is a graduate of the University of North Carolina at Chapel Hill, having earned a B.S. in applied sciences with an emphasis on biomedical materials. He was a three-year letterman for the North Carolina Tar Heels football team.

Prior to entering the financial services field, Mr. Meredith had a distinguished and varied career in the pharma-ceutical industry, including working for entrepreneurial startups in the venture capital stage. He changed career paths to pursue his love of the finance industry and fi-nancial planning, where his science and math grounding provides a disciplined framework for working with clients. Prior to joining IFP and LFA, Mr. Meredith was an associ-ate vice president and financial advisor with Ameriprise Financial Services Inc.

Mr. Meredith and his wife have three children, 14-year-old twins and a 10-year-old. He says all three were “micro-preemies—a life-changing experience that really got our priorities focused very quickly.” He says all three are very healthy and enjoy a wide range of sports and school activities. Mr. Meredith himself competes as a serious cyclist, saying, “It is quite a sight, I am told, seeing this 6’5” ex-football player lumbering through the pack.”

built many at Ameriprise and one of those in-dividuals became a good friend and we decided to set up shop together. We met the CEO of IFP and were very impressed with their process and capabilities as well as their relationship with Lincoln. We opened our branch of IFP here in Chesapeake in 2011.

Given my background in working in the sciences, I was attracted to the strong disci-plines IFP has developed for financial planning and investment management. We are financial planners at our core and we do financial plan-ning with virtually all of our clients.

One model IFP has developed and trade-marked is called the Lifetime Income Model™. This is a powerful tool for analyzing and im-plementing a strategic retirement distribution plan. Its goal is to help increase income and minimize risk, while providing tax efficiency and preservation of assets. This is just one of several proprietary sophisticated approaches that IFP can bring to clients.

Where does active investment management fit in your approach?

Let’s talk about the last fifteen years in the financial markets. It’s funny—and not ha-ha funny—how supposedly once-in-a-lifetime black swan events keep cropping up with some regularity. It is not supposed to be that way, but traditional financial planning and investment models were built under the assumption that these things would not happen so frequently. The standard model for managing assets has been turned on its head.

When you’ve dealt with these types of situations, you say to yourself, “There’s got to be a better way.” That’s where active management began to be a part of my toolkit. It is all about how you manage risk in a different fashion.

We try to provide strong thought leader-ship when it comes to retirement income plan-ning, how that relates to investment planning, and how that relates to diversification in asset management over different time frames. It all comes together in a time-release model that can combine elements of passive investment strategy with active management.

How does that model workin a broad sense?

We set up a portfolio that has discrete time horizons for each portion and, therefore, we can manage portions of a portfolio to those dis-crete time horizons by layering in different risk

“We have managers that look at very specific segments of the market because there are well-defined clues as to the direction of that market.”

9April 30, 2015 | proactiveadvisormagazine.com

Don Meredith is a registered representative of Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Integrated Financial Partners Inc. is not an affiliate of Lincoln Financial Advisors Corp. CRN-1175785-041615

should be in fixed income. For both of these cases, which are actually pretty common and not that extreme, we can demonstrate ways to manage risk reasonably while producing the returns and income their future lifestyle may require. I educate them on the different types of risks that they’re taking, what risk they may not understand they’re taking, or the type of risk they should be taking and managing. Then we can come to a mutual set of expectations that we can speak to, and execute on their plan.

How do you workwith third-party managers?

I have certain expectations of the portfolios that I put together and, more importantly, of the managers that are managing those specific port-folios. Layering in active management with the more traditional type of diversified portfolio helps to create those expectations. Then I educate myself thoroughly on understanding their methodology and how specific strategies can be expected to

perform in different environments. As advisors, we have to be certain that the managers are consis-tently executing well against their strategies.

I believe in not only diversity of thought, but diversity of execution. We have managers that look at very specific segments of the market because there are well-defined clues as to the di-rection of that market. Sometimes, it’s in the high-yield bond space. Sometimes, it’s in some other asset class such as equities or other fixed income. They’ve developed very sophisticated ways of looking for the trends in those specific markets.

We have different types of managers with dif-ferent investment philosophies that we can create what I consider the most highly risk-managed portfolio for the client. You’ve got to be able to understand that and be able to devise portfolios that work well for the specific needs of a diverse client base. You also have to be sure that clients understand what we are doing, why we are doing it, and are comfortable with it. Our firm has thrived by using that process and I believe it serves our clients well.

continued from pg. 9Don Meredith

10 proactiveadvisormagazine.com | April 30, 2015

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Why ultra-low rates challenge traditional risk analysis methodsRanking the intersection of risk and reward is a foundation of investment management—do low rates affect tools like the Sharpe Ratio?

Reasonable expectations, Warren Buffett and active managementThe frequency of beating a benchmark is less important than how a total portfolio performs and how it all works together over time.

How a $17 trillion bull market falls short relative to pastGains of 21 percent a year since 2009 still leave an index of total S&P 500 return 8 percent below a historical trend line calculated by Ned Davis Research.

L NKS WEEK

April 30, 2015 | proactiveadvisormagazine.com 11

VIX ETFs not right for investors

Tom McClellan is the editor of The McClellan Market Report newsletter and its companion, Daily Edition. He started that publication in 1995 with his father Sherman McClellan, the co-creator of the McClellan Oscillator, and Tom still has the privilege of working with his father. Tom is a 1982 graduate of West Point, and served 11 years as an Army helicopter pilot before moving to his current career. Tom was named by Timer Digest as the #1 Long-Term Stock Market Timer for both 2011 and 2012. www.mcoscillator.com

y now, all sophisticated investors have heard of the CBOE Volatility Index, or VIX, the so-called “fear index.” It

is derived from measuring the implied vola-tility that is priced into options on the S&P 500 Index. That pricing changes from mo-ment-to-moment as traders reflect upon the relative likelihood of a sudden change in the magnitude of the stock market’s fluctuations. And because traders worry more about that factor when the stock market is in a decline, the VIX has a pretty reliable inverse correla-tion to price movements. You can think of it as being like the price of homeowners insurance going up on the day after a hurricane.

The advent of ETFs means that there is an ETF out there for almost anything you can think of, including the VIX. The most commonly known VIX futures fund is VXX, the Barclays iPath SP500 VIX Short-Term Futures ETN. And while it might be a useful trading vehicle for someone looking to trade extremely short-term moves, it is a horrible idea for investors.

The share price history of VXX has a terribly negative bias, and it has ever since it debuted back in 2009. A recent value for VXX’s share price was $22.30—down huge from its March 2, 2009 closing high of $7,449, when we adjust for three separate 1-for-4 reverse splits.

This persistent negative bias has to do with the nature of the VIX futures contracts that VXX invests in. Since there is no physical product to own, as with gold or silver bullion ETFs, the sponsors of VXX have to invest in VIX futures. Most of the time those futures contracts have a steep “contango” to their pricing, meaning that the price is higher the farther into the future you go for a contract’s expiration.

B

The table shows the closing prices for VIX futures as of April 17, 2015, extending out through the December 2015 contract (the furthest one currently open). You can see that all of the contracts are priced higher than the spot VIX Index, and the further out you go, the greater the premium.

As of this writing, VXX currently has its holdings divided between the May (K5) and June (M5) 2015 VIX futures contracts. As the May contract nears expiration, the folks at iPath will have to replace it with the July con-tract (N5), and presumably at a higher price. That price premium will then decay back down toward where the spot VIX is as the contract nears expiration. So VXX shareholders are continuously being victimized by the “roll” to later-expiration-month contracts, with the ETN buying higher and then selling lower and repeating. That explains why the VXX’s long-term “performance” has been so awful.

However, this does not mean VXX cannot be used for very short trading periods, when a rising VIX pushes up the prices of its futures contracts, and where the effect of the roll to the later contracts is not an important factor. But for investors with a longer time horizon, owning VXX can be a hedge against a portfo-lio ever making any money.

Proactive Advisor Magazine presents weekly commentary provided by well-known market analysts, financial authors, investment newsletter publishers, and economists. The opinions expressed each week represent their personal perspectives and not necessarily those of the magazine.

Date Symbol Price ($)

Current $VIX 14.16

May VX K5-CF 15.69

June VX M5-CF 16.87

July VX N5-CF 17.68

Aug. VX Q5-CF 18.05

Sept. VX U5-CF 18.55

Oct. VX V5-CF 18.92

Nov. VX X5-CF 19.13

Dec. VX Z5-CF 19.20

Source: Quote LLC, 2015

proactiveadvisormagazine.com | April 30, 201512

HOW I SEE IT

There can be no assurance that any investment product will achieve its investment objective(s). There are risks associated with investing, including the entire loss of principal invested. Investing involves market risk. The investment return and principal value of any investment product will fluctuate with changes in market conditions. Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC. Securities offered through Guggenheim Funds Distributors, LLC. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC. x0516 #17180

Explore how a tactical approach may help maintain diversification.

How diversified are investor portfolios? The answer is that, when diversification is needed most, portfolios may not be as diversified as investors assume. In this paper, we will explore the concept of portfolio diversification, the impact of evolving financial markets, and why we believe tactical management is playing an increasingly pivotal role.

Request your free copy.Call 800.258.4332 or visit guggenheiminvestments.com/dilemma

The Diversi� cation DilemmaTactical Management and Today’s Evolving MarketsBy Douglas C. Mangini, J.D., Senior Managing Director

Chicago | New York City | Santa Monica

continued from pg. 5

dates) and, a bit surprisingly, is almost 20% larger than the Boomer genera-tion (77 million).

• Goldman describes them as: the first digital “natives,” social and connected, encumbered with debt and with little disposable income currently, and having markedly different priorities than other generations, such as the willingness to participate in the “shar-ing economy” (embodied in concepts such as Uber, Airbnb, or any number of so-called automated investment platforms or “robo-advisors”).

• While Goldman details several find-ings on financial services and spending consumption behavior similar to those cited above, they make an interesting counterpoint. As Millennials grow older, their relative indifference to buying a house or a car, luxury brands, or investment services may change sig-nificantly, opening a vast demographic opportunity for businesses well-posi-tioned to embrace the unique needs of the Millennial generation.

But for now, the generational differences are seemingly overwhelming, as evidenced in part by the chart above.

Whether you are an investment advisor, the parent of a Millennial, an investor trying to stay on top of trends, or a business person looking out to the future (or all of these), perhaps a healthy obsession with Millennials is not such

a bad idea. They have already started to color the marketing, business, economic, and invest-ment landscape and will continue as a driving force for many years to come.

Millennial obsession

David Wismer is editor of Proactive Advisor Magazine.

Marriage can waitThe percentage of married 18- to 31-year-olds living in their own householdshas dropped by more than 50% since the 1960s.

Source: Pew Research Center, Current Population Survey

2012

23%

2007

27%

1981

43%

1968

56%

13April 30, 2015 | proactiveadvisormagazine.com

Advertising proactiveadvisormagazine.com/advertising

Reprintsproactiveadvisormagazine.com/reprints

Contactinfo@proactiveadvisormagazine.com

Copyright 2015© Dynamic Performance Publishing Inc. All rights reserved. Reproduction of printed form, whole or in part, without permission is prohibited.

EditorDavid Wismer

Associate EditorElizabeth Whitley

Contributing WritersTom McClellanDavid Wismer

Graphic DesignerTravis Bramble

Contributing PhotographerChris Winton-Stahle

April 30, 2015Volume 6 | Issue 5

Proactive Advisor Magazine is dedicated to promoting and educating on active investment management. Distribution reaches a wide audience of financial professionals who advise clients on investments and portfolio management. Each issue features an experienced investment advisor who offers insights on active money management, client service, and investment approaches. Additionally, Proactive Advisor Magazine offers an up-close look at a topic with current relevance to the field of active management.

The opinions and forecasts expressed herein are those of the author and may not actually come to pass. Any opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. The analysis and information in this edition and on our website is for informational purposes only. No part of the material presented in this edition or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any portfolio constitutes a solicitation to purchase or sell securities or any investment program.

A generational shift in target marketing

Bryce WinkelTransamerica Financial Advisors Inc.

Portland, OR

Bryce Winkel is a Registered Representative and an Investment Advisor Representative with Transamerica Financial Advisors Inc. (TFA). Securities and Investment Advisory Services offered through TFA, Transamerica Financial Group Division, member FINRA, SIPC, and a Registered Investment Advisor. Non-securities products and services are not offered through TFA. TFG006279-04/15

not top of mind, and often younger people think they are invulnerable to these type things. It is a target segment very receptive to this message if positioned properly.

Through my daughter we are speaking to far more prospects in the 25-to-45 age range, and I am also in the early stages of working with attorneys who have younger clients. We have several younger profession-als joining our company’s office who look to me to partner with them on their clients as they learn the ropes. This entire process has reenergized me and is taking my practice in an exciting direction working with a new generation of clients.

have been running my advisory prac-tice since 1992 and have been blessed with having a terrific client base. A

good share of my business was built back when the estate laws had taxes come into play for any estate over $600,000, at a pretty significant tax rate.

The interest level was strong for indi-viduals and couples to learn how to best structure their estate and investments to mitigate the tax burden. A successful mar-keting technique for me was working in conjunction with estate attorneys to help pull together an integrated retirement and estate preservation approach. We often held joint seminars on the topic.

Usually, the attorneys would handle the actual invitations and main structure of the event, and I would be there to offer informal guidance and thoughts on investment advi-sory issues. This could lead to further discus-sions with prospects and creating a financial services and investment relationship.

One of my daughters has recently decided to join my practice. She is smart, hard-working, and I think will be very successful. She will start out with her life and health licenses and then move on to ob-taining her securities licenses. This process has generated consideration of a whole new marketing approach in taking the message of estate preservation—and ultimately advi-sory services—to a much younger audience.

Younger people need to understand the importance of having a will or living trust and issues such as custody of children. They also need to consider the big issues around having adequate insurance for things like catastrophic illnesses. These topics are really

I

14

TIPS & TOOLS

Active ManagementThere is a great deal of confusion surrounding the term “active

management” created by the business press. When one reads a headline in any given year that “active managers” are underperforming or overper-forming their benchmarks, this typically is referring to “active” managers of a mutual fund—who are being measured against a specific index or competing funds within that style.

Within the field of true active portfolio management, this narrow and misleading definition really has little significance.

Active investment management is not about exceeding a specific benchmark or “beating the market.” Active management seeks favorable risk-adjusted returns in any market environment, generally employing sophisticated algorithms and models to capture gains and protect against losses in a wide variety of sectors, asset classes, and geographies.

It is about controlling risk in the markets, finding new ways to dynamically diversify, and smoothing out the long-term volatility typically found in any asset class. Active managers tend to rely on quantitative approaches for asset allocation, exposure to the market, and adjustments to portfolios based on current market conditions. When it comes to evaluating returns, they generally will not compare to the S&P 500 or global total market indexes, but are far more interested in risk-adjusted returns and in meeting their portfolio objectives.

In theory, it is fundamentally about a long-term approach to portfolio management that is diametrically opposed to “buy-and-hold.”

Fee-based revenues remain strong among advisors

101

DynamicStrategic

Diversification

Tools Models

Strategies

5 reasons to consider active management

Buy-and-hold is dead(ly)—While bull market runs are impressive, history shows it is not a matter of “if” but more a matter of

“when” for the next bear market. Investment expert Kenneth Solow sums it up: “Patiently waiting for stocks to deliver historical average returns does not rise to the level of an investment strategy.”

Bear market math is daunting—It takes longer than most in-vestors think to recover from bear markets—a gain of 50% is

needed to overcome a 33% portfolio loss.

Risk first: always—As one prominent active manager has said, “No one would ever jump into a car without brakes, so why

would investors even consider having an investment strategy that did not have a strong defense?”

Active management aligns with investor psychology—Behavioral finance studies have documented the tendencies of investors to

operate on the destructive principles of “fear and greed.” Disciplined active management takes emotion out of the equation.

Does “set it and forget it” really make sense?—For retirees or those approaching it, the “sequence of returns” dilemma can

have a devastating effect on future income needs. Active management offers a prudent path to achieving the twin goals of asset preservation and compounded capital growth.

Resources for AdvisorsWebsitesProactive Advisor Magazine: Active investment management’s weekly magazine, providing advisor perspectives, topical issues in active management and commentary on strategy and tactical tools. www.proactiveadvisormagazine.com

National Association of Active Investment Managers (NAAIM): Peer-to-peer networking in the active investment management community, providing best practices among successful advisors and advisory firms. www.naaim.org

Market Technicians Association (MTA): Leading national organization of investment analysts, stock market analysis professionals and certified market technicians. www.mta.org

Advisor Perspectives: Audience-generated and vendor-neutral forum where fund companies, wealth managers and financial advisors share their views on the market, the economy and investment strategy. www.advisorperspectives.com

Whitepapers“Bucket Investing with Dynamic Risk-Managed Portfolios,” Flexible Plan Investmentsgoto.flexibleplan.com/download/whitepaper-bucket-investing.pdf

“Comparison of ETFs and Mutual Funds—The True Cost of Investing,” Guggenheim Investments guggenheiminvestments.com/rydex

“Understanding Leveraged Exchange Traded Funds,” Direxion Investmentswww.direxioninvestments.com

“Small Accounts, Big Opportunities,” Trust Company of America www.trustamerica.com/resources

“Why Gold? Seven Enduring Reasons,” Flexible Plan Investments goldbullionstrategyfund.com

“The State of Retail Wealth Management, 5th Annual Report,” PriceMetrixwww.pricemetrix.com

2012 2013 2014

Fee-Based Assets (% of Total Assets) 28% 31% 35%

Fee-Based Revenue (% of Total Revenue) 45% 47% 53%

Average Fee Accounts per Advisor ($000s) $258 $293 $293

Average Assets of New Client HHs ($000s) $475 $477 $538

Source: PriceMetrix Insights – The State of Retail Wealth Management 2014 – 5th Annual Report (Aggregated data representing 7 million retail investors and over $3.5 trillion in investment assets.)