Dynamic Wealth Management

It’s time for a new approach, integrating
financial planning and investment management.

Our Dynamic Wealth Management solution is an innovative, holistic,
dynamic portfolio management service based on the individual
goals, objectives, time horizon, and risk tolerance of each client.

Current practice requires clients and advisors to commit to a static approach
that is not intuitive.

If people like to talk and think about themselves, then creating and reviewing a financial plan should be a thrilling experience. In our experience, few clients would describe it so. The disconnect is not due to the plan or the planner; the problem is the lack of clear connectivity between the plan and the investment approach needed to achieve the plan.

The secret to success is risk management, not “alpha.”

History shows that long-term equity returns should be sufficient for most clients to meet reasonable financial goals; the constraint is risk.

We believe that equities offer sufficient long-term return potential (10% annual return over 30 to 40 years) to meet the financial goals of the vast majority of clients. But it would be inappropriate for most clients to have a 100% equity portfolio because the risk – measured as volatility or drawdown – is too high. Risk, not return, is therefore the binding constraint.

The good news is that most of the time capitalization-weighted indices are overly volatile – in other words, the risk-adjusted return is lower than well-designed portfolios of similar securities. We can therefore build risk-efficient portfolios that allow for a greater asset allocation to equity at a given level of risk.

Further, market volatility varies substantially over time. Allowing the asset allocation to adapt to the market environment allows for a greater equity allocation for a given (average) level of risk.

Risk-managed portfolio construction can increase return.

Where risk is a constraint, volatility-based portfolio construction can lead to better outcomes.

Market indices have a history of strong returns, but low Sharpe ratios (risk-adjusted returns). While past performance is no guarantee of future results, keeping risk constant can lead to improved outcomes by simply increasing the equity allocation and using a risk-managed equity portfolio.

In sum: risk management facilitates goals-based outcomes.

Market dynamics suggest that risk management is THE key to goal achievement.

We expect equity to outperform fixed income over a typical investor’s horizon. Theory, long-term data, and current valuations are consistent with an expectation of equity outperformance.

The primary constraint on the percentage equity allocation is risk. Investors use bonds to mitigate short-term volatility and drawdown at the cost of long-term return.

Relax the allocation constraint by improving the risk-return trade-off of equities. Risk-aware, factor-based portfolio construction maximizes the use of the risk budget.

The context is critical to investor satisfaction and success. Engineering a portfolio that seeks to generate a targeted rate of return over the long term creates a stable connection between the financial plan and the portfolio.

There is no guarantee that any investment strategy will achieve its objectives over a given time period. All investment can lose value.