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Portfolio > Economy & Markets

Model Service

By Danielle Andrus

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Jacob Gold and his advisory team advise about 600 households. That might not be as impressive if the team were bigger, but there are only three advisors at Jacob Gold and Associates in Scottsdale, Ariz. To take on this extraordinary workload, they use a simple system of models that employ different objectives, time horizons and risk levels, to match client accounts to appropriate strategies.
Gold describes the model system: “All of our clients fit into one or more of our 35 models and what we do is, of course, reach out to our clients on a regular basis, with weekly e-mails to regular one-on-one meetings, as well as quarterly investment conferences, but on a daily basis we’re managing those 35 models. So what we can wholeheartedly tell our clients is that we’re looking at their holdings on a daily basis because we’re managing it on a macro level. And that allows us to free up a lot more time to have one-on-one conversations and meetings with our clients.”

Clients are profiled based on their risk tolerance and age, and whether the account is using pretax money or after-tax.

Instead of confusing or complicating the process, Gold says the models simplify the way they help their clients. By using models, Gold says, he’s able to narrow his clients’ goals for a specific account. “Then we can back up and look at everything at a macro level.”

“The models have different objectives, so if someone has an IRA they might be in one of our more aggressive models, compared to their brokerage account which they may have a time horizon of five years or 10 years if they’re interested in using that money for a second home, or to buy a business, or their kid’s education.”

By streamlining the planning process, Gold is also able to focus more directly on the clients and how he serves them. The firm has a loosely defined minimum to invest of $500,000, but “there are always exceptions,” he says.

“If we have a client we really enjoy working with, and they go out of their way to refer someone to us, and their colleague is just starting out, we don’t want to say no to that relationship just because of their account value,” Gold asserts. Furthermore, an account may be small today, but in a few years' time, when that client is getting ready to retire and is looking for someone to help him do so, he’s likely to stay with someone he has a relationship with. “We’re very aware that we may be managing let’s say $100,000 for an individual, and that’s fine, but they may have $600,000 in their 401(k) and in five years' time they’re going to be retiring and if we have a great relationship with them, they feel comfortable with us, surely we’ll have an opportunity to possibly manage that 401(k) money, as well.”

That doesn’t mean he doesn’t have to turn away business, though. The firm takes a balanced approach to management, employing conservative strategies with stocks and bonds, and looking for market-like returns and less risk overall. If prospects approach him eager to take on a lot of risk, Gold will refer them to outfits such as Morgan Stanley, Raymond James, or New York Life, all of whom have offices in the same building as Jacob Gold and Associates.

Gold acknowledges that day trading and options are viable investment solutions, but admits they aren't his firm’s specialty.

“We tell our clients, we are not the sleek, exotic, or sexy investment firm,” Gold admits. “So if they’re going to come to us and they want to be swinging for the fences and take a lot of risk we feel like it wouldn’t be in their best interest to have us manage their money.”

Evolution of Change
The firm’s naturally conservative approach was an asset in the financial meltdown in 2008. It had “already been a long year” according to Gold, “but September catapulted the year into chaos.”

Since the crash, the firm’s approach has become even more conservative. They dialed down the risk in portfolios and put sizable amounts in cash. In 2009, they began to slowly dollar-cost average back through the markets. Gold and his staff called every client immediately after the crash, and held monthly conference calls throughout the year to keep clients up-to-date.

“Because of everything that happened in 2008, I do think we’re a stronger company; we’re more in touch with the pulse of our clients, what makes them tick, what makes them nervous, what excites them.”

“People’s overall risk tolerance is less today than it was four years ago,” Gold says. “You first have to cater to the needs of client and you don’t want to be investing in something that causes great anxiety for the clients until at some point they just call it quits on the portfolio and want to go to all cash.

“Everybody realizes that there has been a natural evolution of change over the last four years,” Gold says adding that they’ve already seen a drastic improvement in clients’ emotions on the economy. “Not that we’re out of the woods, not that they feel we’re out of the woods, but we’re on the same page as feeling that those dark days of the fall of 2008 perhaps are behind us at least temporarily.”

The “sweat equity” that Gold and his team put into the practice in 2008 may not bear fruit for many years, but Gold expects his efforts to protect his clients will pay dividends in the future.

“Seeing the client getting to see progress in their portfolio, and seeing some stability there, we think it’ll only open doors for us from a referral standpoint.” The practice is a referral-based firm, Gold says, and he’s worked hard to establish a presence in the media. He has appeared on Fox Business News and CNBC several times. His book, “Financial Intelligence; Getting Back to Basics after an Economic Meltdown,” was published in August 2009. He has written for Newsweek, and has been interviewed by such wide-ranging publications as The Associated Press, Time Magazine and The Wall Street Journal.

“It’s been great for our clients to see not only are we in front of them on a regular basis, but the media looks at us as a valuable source in many cases pertaining to economic situations,” Gold says. “That just gives the clients more comfort in what we’re doing for them and they have become great advocates” for us.

Referrals are coming back at a steady pace, he says, compared to 2008 and 2009 when people were concerned about their own situation and “weren’t exactly thinking, ‘Hey, I want to introduce you to my financial advisor.’”

Our Economic Future
Financial institutions typically look at unemployment as a lagging indicator, but Gold disagrees. “Because two-thirds of this economy is pushed by consumer spending,” he says, “I personally feel that unemployment as actually a leading indicator in many cases when it comes to the consumer.” When unemployment falls below 9% and stays there for an extended period of time, consumers will see that as a “catalyst for confidence” and will tap into their pent up demand. That doesn’t mean they’ll return to the unsustainable spending levels of 2006, but spending will be “similar to what we saw in 2003, when we saw the American population coming out of the tech bubble and they were cautious, but they were still open to opportunities and open to good deals.”

In addition to unemployment, the trade deficit is another issue we’re going to have to face. “We’ve spent a lot of money in the last few years,” he says, “and in my opinion, most of it was needed. If we didn’t have the TARP we probably would’ve had a recession that would have been more like a depression.”
And a healthy economy can’t ignore or condemn banks. Gold calls banks the “heart of the economic world.” If the heart dies, there’s nothing pumping cash through the economy.

“We need to have banks as well as other large national companies also feel comfortable in spending their own money,” Gold opines, adding that there are a lot of financial institutions and publicly-traded companies that have more cash on their balance sheet then they’ve had in the last 20 years. “Once they start feeling a little more confident that we aren’t going to see a double dip recession, that’s going to absolutely create a positive snowball effect and that will come down to the consumer,” he says.

Monetary policy is another important issue for the future. “At some point the federal government has to let the markets work themselves out of this issue. The more intervention that they want to have, the more issues we’re going to have long term. So we need to naturally let that pendulum find the medium.”    

Danielle Andrus can be reached at [email protected].

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