Financial advisors always face a number of challenges, but client communication about investing and market dynamics is a perennial one.

To address timely client communication topics, Skip Schweiss, CEO of Ocean Park Asset Management, took part in a Q&A with his firm. Skip is a CFP® certificant and understands advisor concerns, having served advisors for over 30 years in the custody business and for six years on the Financial Planning Association board of directors.


1. Investors have gotten used to bull markets, and advisors may hear some version of this question from clients: Why can’t my portfolio just be the S&P 500 Index and be done with it? If advisors don’t get the question, some clients may be thinking it. How should an advisor respond?

There’s no debating that the S&P 500 Index has had an upward bias over time, but there are good reasons that investors shouldn’t and simply can’t have their portfolio only consist of the S&P 500 Index. Here are two: 

First, you can’t invest directly in the S&P 500 Index. You can invest in an investment vehicle like an exchange-traded fund that tracks the index. Its cloning success will depend on the tracking methodology and the expertise of the asset manager. 

Second, to get the long-term return of an S&P 500 Index vehicle, you must stay invested – not just through bull markets but through bear markets too. That requires an emotional and mental fortitude that not everyone has as well as the investment horizon and patience to recover from losses. 

How many investors quickly assume that “this time is different” when the S&P 500 enters a correction – not to mention an extended bear market or a meltdown like the one during “Liberation Day” – and then sell? Investing only in equities, much less just an S&P 500 Index fund, can court high downside risk, which is why we believe diversification is critical.


2. Are bonds still an effective diversifier? There is an ongoing debate whether the time of the 60/40 portfolio has passed, with the price correlation between bonds and equities much higher than it was, say 10 years ago. How should advisors think and talk about bonds as a diversifier?

Although the performance correlation between the Bloomberg U.S. Aggregate Bond Index and the S&P 500 Index is higher than it was before 2020, I strongly believe that bonds as an asset class remain an important equity diversifier. 

Given market dynamics, investing in a bond strategy that also uses a specific risk management approach may help your bond allocation be the ballast that advisors and their clients want it to be.

For example, at Ocean Park, we prioritize mitigating downside risk through a ruled-based approach, which makes tactical shifts based on price trends. Our disciplined risk management is index agnostic and can go 100% into cash in the absence of uptrends. And we can diversify widely across various subsectors of the bond market. We think this can help our bond strategies provide stability.


3. When geopolitical risks, like today’s Iran conflict, or economic risks create turbulent markets, isn’t investor emotion actually the biggest risk to a portfolio? How do you address that?

Managing a client’s emotional reaction to portfolio volatility can be one of the biggest challenges – and opportunities – for an advisor. 

Going back to last year’s Liberation Day, advisors may have gotten frantic calls from clients insisting that they sell their portfolio holdings to stem losses. Yet we know that exiting a portfolio during a steep market decline can potentially derail a client’s financial plan. 

As stressful as these times can be for all parties, the important thing is not to wait for clients to call you. It’s an advisor’s time to shine. 

Demonstrating to clients that selling during a market decline can be damaging to their future and reminding them that their portfolio was likely designed to deliver over market cycles are among the most critical things an advisor can do. It’s a great opportunity to show their clients how an advisor can help in difficult times.


4. What are some structural shifts in the industry that may impact client communications?

The ongoing shift to portfolio models is one of the most significant changes in the industry. When advisors communicate with clients about why a model makes sense, they should demonstrate the model’s thoughtful and solid construction. For example, show how a model may consistently manage risk in a way that the client can understand.

For advisors, models not only take portfolio construction off their plate, but also investment management and back-end operations if they access the model(s) through their broker-dealer or through a TAMP. 

Ultimately, TAMPs play into another industry trend – the shift by practices to holistic financial planning, one that incorporates all aspects of a client’s finances beyond investing. TAMPs not only free up precious time that the advisor needs to talk with clients about their financial needs, but also to branch out into estate planning, insurance strategies and other planning services. 

Lastly, artificial intelligence is rapidly becoming part of the advisor toolkit, but its practical application remains limited in many cases. Most advisors currently use AI tools for basic tasks such as summarizing notes or drafting communications.
While AI will become more powerful over time, advisors should approach it carefully, particularly given ongoing questions around accuracy, regulation and compliance.


                                                 ___________________________________________

We hope you found this Q&A with Ocean Park’s CEO useful. Ocean Park provides advisors with risk-managed investment solutions through their tactical, rules-based approach. Check back next month to read another post by Ocean Park.
 

Learn more about Ocean Park's model lineup available on Orion Portfolio Solutions.

Existing subscribers may access model fact sheets and more in the Advisor Portal. If you're new to Orion, we'd like to learn more, take you on a tour, and answer your questions.

Existing Subscribers: Login New? Get Started

These materials may not be copied, altered, or redistributed without the prior written consent of Ocean Park Asset Management, LLC. This information is for educational purposes and is not intended to provide, and should not be relied upon for accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation.

Unless otherwise noted or sourced within, the statements herein are the opinion of the author. The statements have been made based on publicly available information and proprietary research but remain the opinion of the author unless noted otherwise. We do not guarantee the accuracy or completeness of the information provided in this document. All statements and expressions herein are subject to change without notice. Any projections, market/economic outlooks or estimates herein are forward-looking statements based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the statements made herein. Except where otherwise indicated, the information and statements provided herein are based on matters as they exist as of the date of preparation and not as of any future date, and we are under no obligation to correct, update or revise the or revise the information in this document or to otherwise provide any additional materials.

Ocean Park Asset Management, LLC is a registered investment adviser (“RIA”) regulated by the U.S. Securities and Exchange Commission (“SEC”). The use of the term “registered” does not imply any particular level of skill or training and does not imply any approval by the SEC. For information pertaining to the registration status of Ocean Park Asset Management, LLC, please call 1-844-727-1813 or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

This blog is sponsored by Ocean Park Asset Management. Orion Advisor Solutions, Inc. (“Orion”) or its affiliates and subsidiaries received compensation from Ocean Park Asset Management for the placement of this advertisement content. Ocean Park Asset Management and Orion are not affiliated companies, and the advertisement is not a recommendation or endorsement by Orion for any of the services referenced or provided.

This website may contain links to third-party websites. Any links to such third-party websites are provided solely as a convenience to you and not as an endorsement by Orion of the content on such third-party websites, or any affiliation or association with its operators. Orion is not responsible for the content of linked third-party websites, including, without limitation, any link contained in a linked website, or any changes or updates to a linked website, and do not make any representations regarding the information, services, products or accuracy of any material contained on such third-party websites.

This material does not constitute any representation as to the suitability or opportunities of any security, financial product or instrument. There is no guarantee that investment in any program or strategy discussed herein will be profitable or will not incur loss. This information is prepared for general information only. Individual client accounts may vary. It does not have regard to specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report (information). Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed and should understand that statements regarding future prospects may not be realized. Investors should note that security values may fluctuate, and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Investing in any security involves certain non-diversifiable risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any specific, or diversifiable, risk associated with particular investment styles or strategies.

Wealth management services provided by Orion Portfolio Solutions, LLC (“OPS”), a registered investment advisor. Orion OCIO services provided by TownSquare Capital, LLC (“TSC”), a registered investment advisor. OPS and TSC are affiliates and wholly owned subsidiaries of Orion Advisor Solutions, Inc.

Information presented herein with respect to any third-party service provider has been provided by those third-party service providers and has been reproduced here with their permission. Such information does not necessarily reflect the views and opinions of Orion Advisor Solutions, Inc. (“Orion”) or its affiliated companies. Orion does not endorse any particular third-party product or service. Our clients should undertake their own assessments to determine whether these parties meet their business and due diligence requirements. Ocean Park Asset Management and Orion Portfolio Solutions, LLC (“OPS”) are not affiliated companies, and the blog is not a recommendation or endorsement by OPS for any of the services referenced or provided. While some OPS solutions may contain one or more of the specific strategies mentioned, OPS is not making any comment as to the suitability of these, or any investment product for use in any portfolio.

An index is an unmanaged group of assets considered to be representative of a select segment or segments of the market in general, as determined by the index manager for the purposes of managing a specific index. You cannot invest directly in an index.

The Bloomberg Barclays US Aggregate Bond Index measures the performance of the total United States investment-grade bond market.

The S&P 500 Index is an unmanaged composite of 500-large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks.