Welcome to Research Magazine’s first annual ETF Hall of Fame. The three advisors who have won our competition not only use ETFs but are long-time fans whose ETF assets under management have large and impressive roles in their practices.
Further, our honored FAs employ disciplined, proven strategies with these flexible investments — now totaling more than 500 — which shine at bringing diversification to portfolios.
The number of nominations we received was indeed impressive and the quality of advisors high, which doubtless made choosing the top three challenging to judge Ronald L. DeLegge, our monthly ETF Reporter correspondent and editor of www.etfguide.com.
Congratulations to our inaugural-year ETF honorees. Here’s a little of what they’re about:
Brian T. FenelonSenior Vice President-Wealth Management & Senior Portfolio Management Director for Citigroup Smith BarneyAdvisor Since: 1984Home Base: Jackson, Miss.ETF AUM: $100 million AUM in ETFs out of $300 million total AUMDiversions: Golf, Skiing, Hockey
Call it serendipity — or even fate — but when Brian Fenelon set out five years ago to design a better process to manage portfolio risk, he hit upon a way to both grow his practice and bolster client relationships.
To be sure, with exchange-traded funds, the advisor found the ideal tool to achieve all three happy scenarios. Now managing ETFs constitutes Fenelon’s core business.
One of Smith Barney’s Top 10 advisors in ETF management, he uses the strategy he created for his own team’s clients in partnering with other SB advisors to look after their clients’ ETF-based portfolios.
“ETFs help me make the investment process more understandable to clients. As they understand the process better, they value me as their advisor more — and our relationship becomes stronger,” says Fenelon, 48, a St. Paul, Minn., native.
Fenelon has been a member of the firm’s Directors Council — Top 5 percent of producers — since 1991. His is a broad-based clientele, though mostly high-net-worth individuals. “ETFs are well suited even for the smaller investor too,” he says. “They’re fully scalable for a $50,000 account up to a $10 million one.”
The FA’s ETF strategy pivots on tactical asset allocation: He and his team analyze asset classes, sectors and broad markets around the world. Then they drill down to study the precise composition of each ETF under consideration.
Fenelon sticks with major providers and limits the number of ETFs to between 30 and 40, to reduce risk. Right now, he has 15 ETF holdings representing about 6,500 underlying stocks — “a gigantic diversification,” he notes.
At press time, Fenelon was growth-oriented and in large-cap ETFs only. He was long on technology, consumer staples and aerospace, among other sectors. “But we’ve really trimmed back a lot,” he says. “Our mantra is to participate in the upside and protect on the downside.”
In the 2001-2002 market slide, a comment from a disappointed client with a separately managed account prompted Fenelon to find an improved way to allocate among managers to control market risk. He wound up discovering that using ETFs was an effective method to rebalance among asset classes.
“With ETFs, what you see is what you get — and that’s the beauty of it,” says the FA, who shifted a number of clients out of managed accounts and mutual funds, and into ETFs. “It was [usually] less expensive for the client [because of ETFs' lower costs] and to me, just a better way. It isn’t a conversation about a mutual fund or fund manager or individual stock. There’s nothing in between the client and me.”
ETFs allow Fenelon to construct portfolios that are adaptable to each client and market cycle chiefly because of their ease and efficiency in the asset allocation process. “ETFs let us identify those areas we want to be in according to sector or asset class or country or region,” he notes.
He started his career in a bank’s commercial loan department, then became a PaineWebber financial advisor, based for a while in New York City. In 1985, he and wife Kelley, a former advisor, settled in Jackson, Miss. — population: 300,000 — Kelley’s hometown.
Fenelon ascribes much of his success to giving clients “an understandable investment process that helps them achieve goals while, hopefully, reducing risk. ETFs fit hand-in-glove — and it’s where many referrals come from.”
His best advice to advisors: “You have to know what you’re buying. Not all ETFs are created equal. There are new ones that pop up all the time, and a lot are [hyped as] ‘the hot thing going’ [because] that’s what the issuers can sell. But many [such] ETFs carry a specific strategy like a money manager has. To me, that’s getting away from what I’m trying to accomplish with ETFs.”
He continues. “ETFs are the best tool I can use for my process. The end result is really client-focused, and that’s what’s cool about it. ETFs’ transparency is the secret. Clients ‘get’ it.”
Now that he’s been at it for five years — quite a while in the ETF new frontier — Fenelon says: “ETFs have grown organically with our practice. I feel like a grandpa doing this!”
Michael McClaryPrincipal, ValMark Securities, Director of Investment Advisor ServicesAdvisor Since: 2003Home Base: Akron, OhioETF AUM: 95% of $315 million firm-wide AUM in ETFs; 100% of $15 million in McClary clients’ AUM in ETFsCivic Affiliation: Organized $480,000 donation to Akron’s Haven of Rest Rescue Mission
At age 20, 6’5″ Michael McClary took over coaching a lackluster high school basketball team and, in tandem with his dad, turned it around to become a respected group of players that won more games.But Michael was just getting warmed up. The next year, as a rookie financial advisor, he took a big insurance broker-dealer’s struggling ETF program in hand and soon turned it around to become a national RIA leader in ETF investments.
“I believe in ETFs. I hit the phones to tell the ETF story to all our advisors one by one and get them to believe in ETFs too. With active management and stock picking, it’s a crap shoot. With ETFs, you can tell a story of a sound investment strategy that will work,” says McClary, now 25.
In 2001, ValMark was about to chuck its five-month-old ETF program, which had only six accounts and $5 million in assets. Young McClary persuaded the firm to let him take a crack at making a success of the program by telling its 300-plus advisors facts about ETFs related to modern portfolio theory and the funds’ advantages of low costs and tax efficiency.