Wealth – Lessons Learned

Look for transparency and practice restraint to minimize risk

Ellen Paris. 0 Comments


Former star of M*A*S*H Wayne Rogers has re-emerged as a nationally respected investment manager, finance expert, and Fox News contributor. As CEO of Wayne M. Rogers & Co., he shares his personal investment philosophy.

Rogers emphasizes that many — perhaps most — high-net-worth investors weight their assets in the bond market. “Remember, their concern is preserving capital, not making money,” he says. “In that regard, the danger for bonds is that the Fed holds interest rates artificially low and that, at some point, rates will increase. When that happens, the value of their bond portfolios will diminish. These portfolios must be hedged, or they will suffer accordingly.”

How to do that changes daily because of the fragile global economy. Though Bernie Madoff was headline news as far back as December 2008, his legacy endures.

“Clients have more of a desire for a crystal ball that doesn’t exist,” says Jim Casey, president and CEO of Integrated Wealth Management in Palm Springs. He finds investors researching more to assuage risk and, as they do with doctors on medical diagnoses, seeking second opinions from wealth advisers on financial decisions.

Investors manage risk better by assuming more personal responsibility for their portfolios. “They are looking at the names on the street,” Casey says. “It was very disconcerting for everyone to witness such a dramatic drop in those gold-plated names on Wall Street. The lesson is that investors must remember how painful last year was so they pay more attention.”

Knowing where your assets sit these days and who is watching them is key. It’s all about transparency. It can mean the difference between substantial gains or losses. Who holds your assets? Where does the ultimate fiduciary responsibility rest? Who is controlling the money? Who is the clearinghouse? Who is the custodian? Do you know how they differ? Most importantly, know who is making money off your money. Understand all the fees.

Rogers feels strongly about transparency and investors taking responsibility. “Investors should protect themselves by getting appropriate information that has been appropriately audited,” he says. “They should only invest in those things they understand, in those companies that have a proven track record and no history of financial questionability.”

Rogers offers examples of indications that something is wrong: a rapid change of auditors, a constant change of CFOs (HealthSouth), the existence of off-balance-sheet entities (Enron), and the private life of the CEO (Dennis Koslovsky, Tyco). “Investors need to do their own due diligence or not invest where they cannot see,” Rogers says.

Investors manage risk through greater self-protection. Brad Cohen of Venable LLP, a national law firm based in Baltimore and Washington, D.C., hears it daily. “Clients now vet their decisions with me. They bounce other people’s advice off me,” he says. “I get lots of Madoff-type questions to make sure [bilking] doesn’t happen to them.”

Philip DeMuth of Conservative Wealth Management LLC in Los Angeles offers his own take on what investors need to do for their portfolio and peace of mind. A clinical psychologist and co-author with Ben Stein of best-selling personal finance books (including The Little Book of Bulletproof Investing due out this spring from John Wiley & Sons), says, “The most sensible thing people do to protect themselves is keep a lot of cash. Relatively few high-net-worth types employ hedge funds profitably. Bonds and cash are the investor’s best friend whenever a once-in-a-century Category 5 hurricane hits the financial markets, which seems to happen about every 20 years or so.”

Cashing out when you need to stay put and ride out the storm is entirely different. DeMuth cites clients that ran scared and cashed out when the hurricane hit to “feel better.” They thought they were minimizing risk. Many are now second-guessing their decisions, assessing their hard losses as the market rebounds.

Rex Ramsey, senior wealth adviser and vice president of Union Bank Private Banking, has clients who “have that gnawing feeling that they must get back into the market now from their cash positions.” That could breed trouble if investors don’t show restraint. “Right now there aren’t too many alternatives for ‘safe’ rewards,” Ramsey says.

Lessons and legends abound on Wall Street these days. The best strategy for investors: educate, educate, educate.

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