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Frontier Asset Management CEO Rob Miller

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Lean Into Tough Client Conversations When Market's Down: Frontier Asset Management CEO

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Investors get nervous in down markets and often create a destructive internal dialogue, so it’s important for financial advisors to offer support and long-term perspective, according to Robert Miller, Frontier Asset Management CEO.

“The more communicating an advisor can do to those clients, to reassure them that, yes, we’ve been there before, it’s bad now but this isn’t out of historical norms. If you look back at history, there are many time periods like this, that they’re always seen as opportunities after the fact,” he said.

Frontier, which employs 50 people and serves financial advisors and their clients, had $6.8 billion in assets under advisement as of March 31.

ThinkAdvisor recently interviewed Miller, who was speaking from his home base in Sheridan, Wyoming. Here are the highlights of our conversation:

THINKADVISOR: Do you see a recession and/or market crash ahead?

ROBERT MILLER: We may already be in a recession, but with such low unemployment numbers, it is hard to believe. Inflation is still a significant threat, and the economy’s reaction to continued Fed rate hikes will determine whether we see a recession. 

It is hard to say what the downside return of the U.S. markets can be from here. The expectation is around continued volatility both up and down. The stock market’s usually a leading indicator; many times, before the National Bureau of Economic Research declares the recession, the stock market has already turned around.

The market is still priced high historically, but a good active manager may be able to find pockets of value in this type of market.

How can advisors help clients with expectations, and with the urge to check their 401(k) and other balances?

With expectations, it’s setting that ahead of time. When the market was returning 10%, 15% a year, making sure your clients know those aren’t realistic expectations going forward. 

If equity returns have a single-digit real return over time, that means we have to have a pullback in the market at some point. And we know that when they’re down, they will come up to get us to those returns that we’ve seen over long periods of time.

The urge to look at your investment account weekly, monthly, even quarterly, hopefully not daily or hourly, technology keeps helping us to really see this stuff all the time. The hard part with that is that’s not the actual value of your portfolio. Your value is at the point where you go to sell it.

If you’re not going to use that information constructively, if that’s only going to cause heartburn or sleepless nights, don’t look at it. Look at it on more of a kind of review basis with your advisor in terms of where you’re going.

What are the best ways for advisors to help clients handle a down market?

The first thing that I like to stress is empathy. When you’ve already experienced large drawdowns, advisors need to approach clients with the idea that this could be their life savings.

Really look at the idea that we’re investing for the long term. If we can get the downside risk right, if we can look to time horizons that are longer, most advisors come up with some kind of goal. Really be focused on that goal. You know there’ll be ups and downs as we go through the markets. 

The biggest impact an advisor can have is to keep their clients on target for their goals and not let the client get off course and impair their investment portfolios by going to cash or pulling things out of the market or making rash decisions without fully thinking through where they’re ultimately trying to go with the investment.

What should advisors be discussing and doing with clients?

Risk is defined in different ways that can confuse clients. A lot of times we talk in these statistical terms that clients don’t understand. Clients can understand what it means to lose 10%. So moving the conversation to what makes sense for the client but then actually being able to manage around that.

Look at the correlations of different markets, not just diversifying by throwing more stuff into a portfolio, but putting it into a portfolio by design to help get to the right risk levels. And when we do see volatility in the market, have those real conversations with clients to make sure they’re at the right risk level.

It’s hard when the market goes up year after year and a client fills out a six-question questionnaire, and then that’s going to set their risk for the next 10 years. How about redoing that assessment when the market’s down, when they’ve felt the pain?

They’re going to answer those questions differently. And monitor your investment strategy to make sure that you have the downside right, or at least a good theory of where that should be.

I would double down on those conversations. Sometimes you have advisors who don’t really lean into the hard conversations because they know their clients are upset and so they may avoid client conversations. It’s a time to really dig in and to figure out what your clients are feeling. 

They said they could take a 15% downdraw, now it’s down 15% and they’re completely panicked, or they may say, “Oh yeah, we know it goes up and down, maybe we can take on more risk, try to get more of the upside when the market turns around.”

Definitely don’t avoid your clients; lean in to those tough, crucial conversations at these times because it’s at these inflection points where we can get the most data points for how clients are going to react to their individual investment strategy. You can’t make grand assumptions across your entire book. Everybody sees risk, investing, differently.

How can advisors help retired and other clients struggling with inflation?

It’s been a while since we’ve seen inflation this high. The best hedge against inflation is equities but you’ve seen a large selloff in equities and, as investors try to match their downside to their new risk tolerance as they move into retirement, naturally they think more of fixed income. You have to pair that fixed income with equities and other diversified asset classes to create a portfolio that’s going to match inflation.

Bonds have fixed rates; inflation hurts those. Equities, they can reset, companies can redo their pricing structure, they can look for additional ways to save money, they can change their inputs to create a different company to continue to capture value going forward. That’s why they’re more closely tied to inflation. You will see equities catch up with inflation at some point, which is why retirees do need some, not a lot, to help with inflation.

You also see other asset classes, be it commodities, be it gold, be it managed futures and things that will keep up with inflation. We’ve got to get away from the idea of just stocks and bonds and really look for these other diversifying pieces.

Does the old idea of buying and holding a 60% stock/40% bond portfolio not hold anymore?

The 60/40 portfolio is more of that moderate risk level. It’s a portfolio usually designed for a five- to 10-year time horizon. That may not be long enough for that strategy, whereas if you added some additional asset classes you could get to that five-year time horizon. So it’s not that it won’t work, you have to go out a longer time horizon. But once you go out a longer time horizon you may want a little more risk to gain a little more return than that portfolio would give you.

I think we’re at a point in the industry where there’s so much more available to us, there’s so much research and ways that we can look at what’s even the 40% on the bond portfolio? There are lots of different ways to look at what that 40% can be. So I think we’ve moved past that. It’s not that that doesn’t work anymore, it’s that there’s so much more available to us. So let’s use what’s out there to create better portfolios.

Why does your firm operate far from New York and how does it influence your work?

As I look out my window I don’t see other large investment management firms. It’s a place where we want to live, in which we can in this world of technology.  

It really helps us because we value independence. It gives us a unique space in which to look and do what we think is right for clients and not have the noise of what the Street’s doing.

We’re one of the last managers in the strategist area that has no proprietary products. That’s a decision that we think is best for our clients and not necessarily what the industry tells us we should be doing.

Any other advice for financial advisors?

Advisors have a tough job. I would advise them to find good partners because they can’t do it all. You can’t continue to have great communication with your client while managing a portfolio while prospecting, all these different things that we expect financial advisors to do. 

There are new diversifiers out there that you need to make sure you’re considering in your strategies for the purpose of risk and downside management. 

There are great investment companies out there, there are great stock pickers out there and we’ve gone the route of commoditizing investment research by throwing it all into free indexes, but when the market’s down 20%, I don’t know if the low-cost producer is the best strategy for clients. So find those good partners outside what may be easy to do when markets are going up.


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