Business Tech

Algorithms, Not Hunches Guide Market Decisions

If you fail to plan, you plan to fail.

It is an adage American history attributes to one of the founding fathers: - Benjamin Franklin.

And, it is one Laurence Lof, CFP®, CEO of Laurence Lof Financial Advisors, LLC, based in Tucson, Arizona, embraces as well.

“We seek to work with clients who are interested in going through a systematic financial planning process,” Lof explained. “Our primary strength is our financial planning process.”

Becoming a Lof Financial Advisors client requires a three-meeting process to ensure that the expectations of a prospective client align with the standard operating procedures of the firm. The trio of meetings also provides Lof and his staff with an opportunity to get to know prospective clients on an in-depth personal level.

The first meeting is much more than a “meet and greet.”

“We ask them questions such as, ‘Do you like your son-in-law?’ and ‘Have your parents done any estate planning?’ and ‘What kinds of insurance do you currently have? and “Tell us about your bucket list’,’” Lof said.

The client’s answers are used to generate a “suggestions” letter – a glorified laundry list or a to-do list – of financial-oriented tasks that the firm provides to the prospective client for his or her review.

“We let them know things that may need to be buttoned up,” Lof said.

The agenda for the second meeting includes reviewing the findings from the first meeting and introducing the firm’s retirement software analysis program.

Rather than having an outside vendor provide analysis of a client’s current retirement picture, Lof has the client participate in the determination process.

“We build their retirement plan with the client sitting there with us,” Lof said. “The clients fully participate in putting together the plan and see the retirement analysis for themselves.”
It isn’t until the third meeting that Lof and his clients actually begin talking about the “how to” of the investing process.

It is when clients are introduced to Lof’s version of Investing 101 – a crash course covering the basics of investing, as well as its associated vocabulary.

lof500Lof borrows heavily from the CFP® courses he has taught. Topics include outlining how stocks work, how stocks are affected by earnings, how the interest rate affects bond prices, what managed futures are, and what it means to use “trend following” as a guide for investing.

“Only after that, if the prospective clients want to become current clients do we start the process of transferring money and investing money,” Lof said.
Lof Financial Advisors offers clients a choice two portfolios to employ in their respective investment strategy.

One is a very conservative approach characterized by various fixed income vehicles often used by investors who have met their accumulation goals and are less interested in growth as they are in maintaining their current financial position. The other – a more growth oriented portfolio guided by a software program identifying current trends – also uses investments in emerging international markets, bio technology, small and mid-cap domestic and international funds, individual stocks, and various EFTs for diversification to lower the overall volatility of the portfolio.

Lof recognizes that other financial advisors focus on “customizing” each client’s portfolio. He believes offering one of two portfolios focused on either a growth or a maintenance strategy, and trusting the algorithm provided by the software, frees his time to concentrate on client relationships and teaching them how to achieve their financial dreams and goals.

Trend following – an investment strategy that aims to seek market gains by analyzing the trend a particular asset is experiencing – is a concept Lof believes in. It relies on technical analysis of market prices, rather than focusing on the fundamental strength of a company with stock available on the market. Various technical calculations monitoring the time frames that each asset moves up or down in price are used to determine when an investor should move in and out of a particular asset.

The software Lof uses provides guidance as to when to adjust the two different portfolios his firm employs.

The days of the “hot tip” from the stock broker are long over for Lof as he, instead, puts his trust in the complex mathematical computations performed by the software.

“Today, roughly 30 percent of all the money on Wall Street is invested via computer algorithms,” he said. “I am a firm believer that computer-generated mathematics is going to win over the opinions of humans.

Lof doesn’t like to take losses – even in the short term. He said the trend following software used by his firm tells when the trend has turned down. When that happens, Lof will exit that market.
Despite his own reliance on technology, Lof isn’t a big fan of the online robo advisors.

In his view, the robo advisor provides its user with a false sense of security.

“If the market starts to decline, the robo advisor does not automatically take an investor out of that declining sector,” he said. “People think they are protected when really they are not.”

The need for a human financial advisor is one he advocates with those members of the tech-savvy millennial generation more likely to use a robo advisor.

They are often the children of his baby boomer clients now headed to retirement while watching their children’s adult lives take shape.

Lof knows the younger generation has a great divide – nearly 30 percent of millennials live with their parents; a fair portion of them did not acquire employable skills in high school.
Yet, the other half – give or take a few percentage points – are the types of clients featured in a financial advisor’s best dreams.

“They are very smart and many of them make very, very good salaries,” Lof said. “I am somewhat amazed at how much money some of them make. And, interestingly enough, they are what I call ‘informed delegators.’ They want to know what is going on with their money but they do not get involved in the nuts and bolts of the actual investing. They are interested in a steady accumulation and they are excellent investors and savers.”

Those characteristics ought to serve the millennial generation well in a few decades when they reach retirement age and face the financial uncertainty that long-term care brings.
As American longevity continues to increase, Lof uses age “99” life expectancy as the target for retirement analysis.

He encourages clients to figure out long-term care long before it becomes a necessity.

On average, an American couple in their golden years will spend an additional $250,000 on medical care between co-payments, deductibles and other items not covered by standard health insurance and Medicare.

His goal is for aging clients to have an extra $10,000 to $12,000 above their regular expenses available per year to cover health costs.

It is a balancing act for sure, but one thing Lof and his clients have in their favor is Lof Financial Advisors’ business manager, Tom Forsythe, who is a long-term care specialist. His expertise in evaluating insurance policies and annuities with long-term care riders, assists clients in selecting the approach that’s best for them.

“Dealing with the long-term care issue is a big part of our practice because of the threat it represents to the financial security of our clients,” Lof said. “The greatest success we experience is the security our clients experience when we have done a good, complete financial planning job for them.”

Learn more about Laurence Lof Financial Advisors, LLC online at

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Laurence Lof Financial Advisors, LLC & Cambridge are not affiliated.


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