The hidden value of working with a wealth advisor

In today’s turbulent market it’s important for investors to keep a level head as they pursue their financial goals. Chief Investment Officer, SVB Private, Shannon Saccocia, and SVB Private Wealth Advisors Flavia Trento and Ryan Fox discuss the many benefits advisors offer clients that go well beyond investment strategy implementation. Listen now.


Shannon Saccocia: Hello and welcome to the Perspectives podcast. I'm Shannon Saccocia, Chief Investment Officer at SVB Private and I want to thank you for joining me.

On today's podcast, we're going to dig into the value of working with an advisor and as part of the conversation I have the privilege of speaking with two of the very best, my colleagues, Flavia Trento and Ryan Fox. Flavia and Ryan how about a brief intro on your roles here at SVB Private.

Flavia Trento: Sure, thank you Shannon for having us. Ryan and I are both Private Wealth Advisors, which means that we work with individuals and families to fulfill all of their financial needs in banking and lending, financial planning and investment management.

Ryan Fox: We both spent the earlier part of our careers deep in the weeds of institutional investment management. Flavia covered the consumer sector for many years, while I was more of a generalist.

We also spend our time in management research, portfolio construction at portfolio management, so, while the foundations of our careers were more market centric, we really spent the last decade or so plus really financial advisory roles which often extends well beyond investment management.

Shannon Saccocia: Great. Well, you guys sound like the perfect people to be here with us today.

As we sit here and what are proving to be some very challenging times in the market, it is difficult to look past short term returns and think about the longer term benefits of working with an advisor.

While the trend has over the last decade been a move towards more efficient technology-based solutions for investors. the reality is, is that, in our experience advisors add meaningful value beyond just the implementation of an investment strategy.

In fact, advisors not only add value by taking the time to determine what solution is best, but also maintaining discipline in the fulfillment of that strategy, pivoting is necessary, based on changing markets and personal situations and staying informed on anything public policy, macroeconomic conditions, even new areas of innovation, which could affect your ability to achieve your goals. With that said let's bring Ryan and Flavia into the conversation to provide a little bit more color on the value of working with an advisor, so you don't have to take my word for it.

Flavia, if you don't mind, I'm going to start with you. Can you talk about the entrance of so many digital platforms for investing and what have been, in your view positives and negatives of that trend.

Flavia Trento: Sure, I think there have been some very significant positives and negatives from the advent of what are usually called robo advisors.

In general, these companies have one made investing more accessible to a greater number of people, for example, they have very low account minimums. Two, they provided an avenue through which new participants in markets can educate themselves about investing. And three, they created an inexpensive way to get access to basic investment advice.

That said, the negatives are that the advice given is usually pretty cookie cutter and not appropriate for investors with more complex needs. It's also mainly limited to the investment accounts in question and doesn't really take into consideration the investors bigger picture and often it doesn't really look at his or her needs and goals.

And finally, and this may be very relevant these days, there's also not a lot of guidance and handholding provided to novice investors during market downturns that failure can result in these inexperienced investors trading in and out of markets and destroying value in the process.

Ryan Fox: I would also like to add one key differential that separates the human advisors Robo. Simply put humans know how to listen and how to understand clients’ unique goals. Algorithms are certainly getting better but there's really no nuance to them and that's important because no two people or to balance sheets are exactly like.

Shannon Saccocia: One of the things that we talked about a lot during these challenging times is continuing to watch your overall strategic allocations and your tactical allocations when markets are moving at the velocity and with the volatility that we're seeing today. And one of the arguments for some of the robo advisors that Flavia just mentioned is the systematic nature of the rebalancing that's afforded by these platforms. It takes out some of that behavioral aspect that can creep into decision making, when we're in an environment, such as this.

Ryan, would you opine on how this type of rigid rebalancing may not always be what's best for clients?

Ryan Fox: Absolutely, so I do think it's important to at least acknowledge that robo advisors have done a pretty darn good job at building out tools to systematically help rebalance client portfolios. And, in a way, the robos have effectively kicked off an arms race for better technology throughout all wealth management.

So often, I can technology stack as much deeper than it was even just a few years ago, and I think there's a really good thing. Getting back this systematic rebalancing though. Systematic rebalance may successfully return the portfolio to its target allocation, but it is possible that that allocation is no longer appropriate.

Rebalancing is better done as part of a regular portfolio review that incorporates changes in investors financial assets, economic circumstances short and medium term needs and their longer-term goals.

Further, for clients with a bit more complexity and or kind of larger balance sheets, rebalancing also can be it can really incorporate intelligent decisions around harvesting losses to offset current or even anticipated gains or liquidity events. Also, by understanding clients really well, we can often incorporate advanced planning strategies and even hedging programs alongside normal rebalances said differently, rebalancing client portfolios in a vacuum is never a good decision.

Shannon Saccocia: Let's switch gears just a bit because I want to touch on something that's Flavia I mentioned earlier, and it's about sort of simplicity versus complexity. And so I think, while we would argue that greater complexity isn't always in the best interest of the client, it's important to acknowledge that our clients have some unique perspectives and experiences How important is our team’s network and finding these differentiated investment options for our clients?

Ryan Fox: It's very important but before I even get there it's really important to understand that the market is always evolving. So, if we got an imaginary time machine that we went back 20 years or so, we'd find ourselves entirely different environment. A portfolio entirely comprised of bonds back then would actually be able to drive single digit returns with what most would be considering the relatively low level of risk.

You fast forward to today, for that same level expected return, you would basically have a portfolio devoid of any bonds with asset classes, such as private equity and venture capital, this is simply just a very different world that we now live in and it's changing all the time.

Further, 20 years ago many people working with individual clients were basically stock pickers. There’s increasing evidence that there's not really a value add for the client and usually results and under performance to the indices. So, for traditional asset classes you seen this big move towards passive and tax managed strategies.

There are, however, a number of alternative strategies that can make sense for clients and they give you exposure to additional diversification and provide uncorrelated returns streams sometimes through niche market exposure.

There, differentiated investment options are very important for our clients, boosting the expected return and reducing the volatility of portfolios requires access to investments that go well beyond traditional stocks and bonds.

Finding these strategies really requires an institutional framework and approach. So we have a specialized team, whose job it is to find these unique investment strategies and opportunities for clients in areas such as private equity, venture capital, private credit and hedge funds pursuing a variety of different strategies.

Importantly, we want client accounts to be diversified not just across asset classes and geographies but also across investment strategies, investment style and term and credit risk. Having a team that's actively vetting these strategies is paramount.

Shannon Saccocia: Flavia, in my view, one of the biggest ways advisors can add value is being able to bridge the gap between what's happening minute by minute in the markets, which we're very concerned about right now. But, more importantly, how that could impact our clients personal situation in both the short and maybe more importantly, the long term. How do you deliver a balanced approach in your conversations with clients?

Flavia Trento: Sure, we actually decouple the clients risk perception from what's happening day to day in the markets. We essentially have conversations with clients around their short and medium term needs and their long-term goals. And that guides us in making what is arguably the most important investment decision that a client can make. How much of that client’s assets needs to be invested in relatively safe investments to provide a rainy day fund in case of recession or crazy markets. And how much can actually be invested in higher risk growth assets.

That rainy day fund needs to be robust enough, not only to provide for the client during times and market or economic difficulty but also to provide psychological assurance to the client that he or she will be protected, regardless of what is going on in the markets in the short term.

Once that rainy day fund is in place and the client has bought in, the Client’s willingness to tolerate the market volatility and to stay committed to his or her investment strategy.

I would add that there have been a number of studies that show that the average investor is actually not very good at investing. This is more of a behavioral issue than anything else. For as long as humans have been around we've been wired to run from a tiger hiding in the bushes right the fight or flight idea. That same mentality has many individual investors panicking at market bottoms and getting euphoric at market tops, so buying high and selling low, this has helped people permanently impair their balance sheets and destroy value.

So, one of the most important things that we do for clients is to think about that risk ahead of the actual market volatility and ensure that clients are prepared.

Shannon Saccocia: One thing we've already touched on briefly, but I think is particularly important, when we think about long term planning is taxes. Flavia, talk to me about how we think about taxes as it relates to our advisory relationships, but most importantly, how we balance taxes versus opportunity cost in the way that we think about repositioning portfolios over time.

Flavia Trento: Clearly, we can't control tax rates, but we can use some very important techniques to control how and when our clients pay their taxes. Some examples include, we ensure that clients are using tax advantaged accounts right, everyone should have an IRA or 529 there are also opportunities to convert traditional IRAs to Roth IRAs.

We also use asset location. This means managing multiple accounts as one portfolio and making sure that tax unfriendly investments are in tax deferred accounts, while tax friendly investments are in taxable accounts. And finally, another technique is using tax loss harvesting. We have access to investment strategies in which the account in that strategy tracks and index, like the S&P 500 but has a tax loss harvesting overlay. This means that anytime a stock owned in the account trades below its purchase price, it is sold and that loss is banked and can be used in the future to offset gains.

Shannon Saccocia: All right, I've got one more question it's going to be for both of you. Bringing this all together, I would love to hear how you define your value as an advisor and what you feel is the greatest challenge facing our clients over the next few years as it relates to their personal financial situation.

Ryan Fox: As an advisor we add value for clients in both practical and personal ways. On the practical side we build comprehensive financial plans developed investment strategies and manage their assets accordingly. This can include things like managing their portfolio tax efficiently, minimizing fees, matching their risk return characteristics to that plan, accessing unique investment strategies and bringing a variety of tools to handle investment concentrations.

On the personal side we're advocates, allies and counselors to our clients and we seek to help them meet all their goals down into the future. As an example, we can give the client perspective and really the ability to stay the course when things get tricky. There's a level of trust that develops, that is paramount for our collective long-term success.

Flavia Trento: Finally, every client that we work with is unique from their balance sheets to what they want to do with their wealth, so each of our clients gets value from us and different and unique ways.

You also asked about challenges in the market. It's always easier to open up our computers or phones and find some event that presents a serious challenge to our clients’ wealth. The macro environment can delay a liquidity event, the current rate regime could be problematic for evaluations, there are geopolitical uncertainties that are new and worrisome.

Our job is to put in place a plan that is as informed as it can be with respect to the current environments and its risks, but still remain flexible enough to allow us to recalibrate as needed and ensure that our client has the highest probability possible of meeting all of their goals.

Shannon Saccocia: Flavia and Ryan Thank you so much for your time today, thank you for being here.

Flavia & Ryan: You’re welcome, it was our pleasure thanks.

Shannon Saccocia: Thanks again for listening in. We’ll keep digging into topics that impact your financial future, so tweet me @ShannonSaccocia if there's something you'd like us to cover in a future podcast.

You can also read our latest perspectives on the markets, the economy, financial planning and where we go from here by visiting the link on this podcast page.

Be sure to subscribe to SVB Private Perspectives on Apple Podcast, Spotify or wherever you prefer to listen. And I look forward to coming to you again next month.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of Silicon Valley Bank, a division of First-Citizens Bank and First Citizens BancShares, Inc. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein.