More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The market downturn has stood conventional wisdom about portfolio construction on its head, leaving many investors worried about market risks and unclear which way to turn. In a new white paper that both challenges traditional portfolio construction and serves as a rationale for its own investment product, San Francisco-based Forward Management argues that the traditional "set-it-and-forget-it" approach to asset allocation is formulaic and passive, and says that investors now have a good reason to seek methods better suited to the times.
The paper, released on Thursday, June 17, says that traditional risk management, addressing investor concerns about underperforming the markets and volatility of returns, led to the creation of conservative portfolios that were fully invested in stocks and/or bonds with a small cash allocation, that were well diversified and that were periodically rebalanced to adapt to a changing market outlook. But recent experience has shown that market moves can quickly erase asset value. Now, many investors are more concerned with avoiding losses than with outperforming benchmarks, the paper says.
What works in the new investment climate? Active asset allocation, according to Forward: the continuous, nimble management of market exposure. "In these uncertain times, the more prudent strategy is likely to be the one that manages market exposure, rather than one that is invested 100% long at all times regardless of how managers view market trends."
The paper cites the Forward Tactical Growth Fund's approach as an example of continuous management of market exposure. The fund's managers seek to outperform most traditional equity strategies by increasing equity exposure when they consider risks low; going to cash when they believe opportunities are uncertain; and creating inverse market exposure when they anticipate high risks of a significant downturn. Forward says the fund tries to eliminate stock-specific risk by investing in highly liquid exchange-traded funds.
Michael S. Fischer (firstname.lastname@example.org) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.