In the post-Bernie Madoff investment world, investors have become more and more apprehensive regarding the custody and management of their accounts, and much less reluctant to express their concerns and ask pointed questions. In Dec. 2013, the Wall Street Journal featured an article addressing how Madoff’s multi-billion dollar Ponzi scheme continues to impact the relationship between adviser and client. It clearly outlined how Madoff’s downfall has made advisers more receptive to client questions.

It’s an approach that Dryden and Laila Pence of Pence Wealth Management (PWM) in Newport Beach, California, say they’ve taken all along.
“Helping Protect our clients’ wealth has always been our first priority,” Laila Pence said.

At a time when many other financial advisers are opting for third-party management, PWM, one of the leading wealth management firms in Orange County, California, continues to keep account management in-house. It’s a holding point Dryden and Laila Pence firmly stick with, since they believe that their clients – the bulk of whom are high-net worth – are better served by doing so.
“We are the managers,” explained Dryden Pence, the firm’s chief investment officer. “We have found our clientele are tired of hearing from advisers that they cannot answer a question and need to get a hold of some manager elsewhere. Our clients prefer to be talking to the people directly managing their money on a day-to-day basis. They know who to talk to directly when they have a question: Us. Our team.”

The Pences use LPL Financial – one of the leading financial services companies and the largest independent broker/dealer in the nation* – to handle the custody and clearing of the transactions of investments that the firm's investment team recommends and executes on behalf of PWM's clients. Both Dryden and Laila Pence are registered principals with LPL Financial and are highly comfortable utilizing LPL's services, especially since it does not offer its own financial products – thus removing any possibility of bias.

This dynamic couple must be doing something right. Since joining forces in marriage in 1999 and in the financial industry with the formation of PWM in 2001, they’ve built a team of 24 employees – 8 of whom are advisers. The firm currently manages more than $1 Billion in client advisory and brokerage assets. Laila Pence was named Orange County’s number 1 wealth manager by the Orange County Business Journal1 in both 2012 and 2013. In June 2012, Barron’s Magazine2 listed her as 10th on its list of Top 100 Women Advisers nationwide and she was ranked number 76 in the Top 100 Independent Financial Advisers nationwide in August that same year.

She concedes these accolades are nice, but only noteworthy in that they point to great performance of the firm on behalf of its clients. For Pence Wealth Management, it’s all about cash flow – how much clients need and how the PWM investment team seek to select investments to provide that cash flow over the long term.

“Many of our clients are retirees looking to maintain their income. Our clients are more interested in consistent return versus necessarily beating the stock market,” she explained. That has been her focus since starting in the financial services industry 33 years ago and it is the focus that Laila and Dryden Pence employ within PWM. “This is what we do and this is why we have grown so dramatically – because our focus is on cash flow.”

Dryden Pence said that too many people focus on how their individual investments are doing by comparing performance to the results of the S&P 500. Half chuckling, he responds with, “I don’t care what the S&P does. The S&P is not my client. YOU are my client. I am concerned with what your portfolio does.”

The bulk of PWM clients have a minimum of $500,000 in liquid assets and for those assigned to Laila Pence, the lower limit is $2 million. To customize the right fit, the advisors at PWM begin by establishing a “personal index” for each client based on income and expenses. This index also includes each client’s goals as the leading factor in determining the kind of cash flow stream that clients will need to maintain wealth.

Wealth means different things to different people. And yet, wealth itself has the same definition for Dryden Pence, “It is being able to do what matters to you most, when you want, for as long as you want.”

To maintain wealth for PWM clients, Dryden Pence is continually scrutinizing new opportunities, and he isn’t opposed to using Exchanged Traded Funds (ETFs) in a portfolio, provided they are concentrated to a specific industry or idea. Basically, he wants to make sure that the ETF is comprised of quality holdings throughout, although he knows that isn’t always possible. Pence told Barron’s in November 2012, he takes a long look at the top 10 to 15 holdings in an ETF and only if they comprise about 50% of the ETF.

Laila Pence agrees. “To the extent that they are concentrated and not contaminated by too many holdings that are not effective, we like ETFs. But they have to be very specific for us to use them.”

One example Dryden Pence provided to Barron’s of the type of ETFs he looks for, involves the transportation industry. “That theme alone might even be too broad,” he noted. “It could involve various forms of freight transport – rail, plane or truck. The first does well when oil prices are higher than $78 a barrel. The other two transportation modes may struggle to make ends meet at higher prices for fuel. If an ETF labeled transportation has assets in all three modes, chances are likely that any gains in one will be negated by losses in the others.” As he told Barron’s, “It’s when you have these big themes that you really have to look at the composition of an ETF versus its contamination point. If you want to be rails, just be rails.”

Staying focused on client goals is what PWM intends to do to reach its 2014 goal of growing the firm by 20 to 25 percent.
“We welcome the growth but we want to be sure to maintain the current level of client service,” Laila Pence said.

Learn more about Pence Wealth Management online at www.pencewealthmanagement.com

Laila Pence & E. Dryden Pence III are Registered Principals with and securities offered through LPL Financial, Member FINRA/SIPC.  Advisory services offered through LPL Financial, a Registered Investment Advisor. 

No strategy assures success or protects against loss.

An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors. ETFs concentrating in specific industries are subject to higher risks and volatility than those that invest more broadly.

*  As reported in Financial Planning Magazine, 1996-2013, based on total revenue. "

1  Orange County Business Journal rankings are based on Barron’s rankings.

2  Barron’s rankings are based on assets under management and the quality of the advisor's practice.