The financial markets used to operate on what seemed like a complex, but reliable, set of assumptions. Diversify a portfolio, settle in for the long-term, and the markets should be kind, offering only minor ups and downs with the occasional correction.

That’s not how it works anymore. The post-2000 world presents wealth managers with much more vulnerable markets than the one of previous decades. For example, in the years between 1986 and 1995, the market moved up or down more than 2 percent on 94 days. The period from 2006 to 2014, in comparison, saw greater than twice that number, with 229 days involving market shifts of 2 percent or more.

Older members of the millennial generation – born in the early 1980s – have already, in their 30s, lived through three major market crashes: 1987, 2001, and 2008. Baby boomers, meanwhile, watched these market churns erase formerly robust annual growth rates overnight.

“Markets are much more volatile today, and what I believe people have come to realize is that it’s very difficult to get stable income from unstable assets,” said Michael “Todd” Avery, IAR, a managing partner for Accelerated Wealth, a national wealth management firm. Avery is a managing partner of Accelerated Wealth’s Lexington, Kentucky branch.

Accelerated Wealth takes a novel approach to investment management called the “Five Baskets of Wealth.” The baskets are maintaining reliable income, generating investment income, holding sufficient reserves, long-term care planning, and legacy formation. Together, the Five Baskets create a holistic strategy for developing and maintaining wealth by generating income and savings, creating new wealth through investment, protecting investors’ wealth through insurance and long-term care preparation and tax planning, and channels the outputs of these tools to build a sustainable legacy.

“If you don’t plan for all five of those, then any one of those can get you off track,” Avery said.

Getting investors on track in the first place can be difficult, however. A sizable number of investors distrust the financial industry, and although the Internet provides more information than ever before, it can be difficult to sift the good from the bad.

“Most of what people know today about finances actually comes from advertisements, not real education,” Avery said. “We take all of our clients through an education process on how finances work today.”

Avery takes an “education vs. sales” approach to client relations, he said. Clients often come to Accelerated Wealth with feelings of distrust and confusion, which Avery chalks up to “how the industry has behaved” historically. Avery works to form connections with his clients, offering them technological tools to remain in contact with them.

“What we’ve learned is that if we can connect the clients to us through technology … That solves a lot of the disconnect issues from traditional advisors meeting once a year,” he said.
Technology presents its own challenges, however, with older generations risking confusion or information overload with the new, unfamiliar tools.

“For my market, typically baby boomer generation clients, it’s not really a technology driven generation so I certainly feel like [technology] could cloud judgement more than it can actually help,” Avery said. “We use technology platforms to allow our clients to experience a better connection with us, but from an individual planning standpoint, I still feel … Individual personal planning is the best.”

Avery said investment advisors need to reeducate themselves to better handle today’s investor. The status quo no longer works, and growth often is no longer the goal. Markets put more downward pressure on stocks and bond investments now—and with electronic trading comprising 60 percent of all trades, investors can’t even keep up with the market—and alternatives are needed. Avery said that most investors, and a considerable percentage of managers, mistakenly believe their portfolios are non-correlated—meaning their individual investments aren’t tied together in such a way that the same market forces can pull them up or down at the same time. Advisors need to “learn to build truly non-correlated portfolios,” Avery said, something people did before the mutual fund shot to prominence.

“One of the industry dirty little secrets is that mutual funds were never really designed for people to retire on,” Avery said. “They were designed to accumulate wealth, not provide income.”
Mutual funds convinced investors that their portfolios were non-correlated. The funds also convinced Wall Street types that business as usual and 1980s-style portfolio management still worked.
Accelerated Wealth acts as a fiduciary for clients, meaning the client’s best interest always comes first.

“We have to put our interests aside as business owners,” Avery said. “Doesn’t mean we can’t make a profit and can’t earn money, but conflicts of interest have to be disclosed if you are a fiduciary.”

Fiduciary management is what lead Avery to alternative assets. He cites Yale University’s endowment, which outperforms the market most years due to its alternative investments abroad, in real estate, and other products. Wealth managers are too entrenched in the stock and bond market to realize similar returns, and partially that is because they are not fiduciaries and instead steer clients to high-fee, high-commission investments. Adapting to the post-2000 world also requires a client-centered, fiduciary mindset, Avery said.

“People are not operating as fiduciaries, and they’re not learning how to invest in the post-2000 world,” Avery said. “We have to build truly non-correlated portfolios, you need market investments, alternatives, hard assets, insurance.”

For more information see: www.acceleratedwealth.com