From the movie Young Guns II.
The recent global pandemic and the resulting reaction has undoubtedly tested everyone’s patience and fortitude. Sudden disruptions expose weaknesses in strategies and are a time to reflect on what lessons we can learn. Warren Buffet reminded once again, “You only find out who is swimming naked when the tide goes out.“
Your total value proposition is enhanced by watching your A, B C’s. Advisors are familiar with, and most clients intuitively grasp the concept of Alpha and Beta, where Beta measures exposure to systematic risk (and the associated expected return). While Alpha measures the excess returns created beyond those simply due to market beta exposure. Alpha is a zero-sum gain in the market collectively and can come and go. One of the few ways to capture risk-free Alpha is to utilize tax strategies in portfolio management, including determining which assets belong in qualified and non-qualified accounts.
The third letter in the Greek alphabet is Gamma, which is defined as additional monetary benefits achieved from making more intelligent financial planning decisions. Thus, Gamma measures the value you bring to the table as a result of financial planning decisions rather than investment decisions.
These are trying times. Extremely low interest rates provide minuscule returns. Future rising rates will depress bond prices, and equity market volatility presents further challenges. In a low return environment, it becomes imperative to responsibly squeeze out every last ounce of benefits available. Retirement planning in all its forms (dynamic withdrawal strategies, asset, and annuity allocation, etc.), life and career coaching sessions, optimal education funding, estate planning, and more all add to the strength and well-being of clients. Downward pressure on fees for investment management services continues. Thus, strengthening ties by providing additional services becomes more critical than ever. We all remember the 1990’s ad campaign Got Milk? The question for advisors today is Got Gamma?