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Top Advisors Weigh In: Clients Must Address Liquidity Issues Upfront

By Nick Godt June 10, 2020

FA-IQ reached out to top Financial Times-listed brokers and advisors to ask:

Are you experiencing redemptions or withdrawals from your client accounts because of client liquidity issues?

Brian O’Neill of Cahaba Wealth Management. Atlanta-based O’Neill has been in the industry for 24 years and has $773 million in client assets.

“At Cahaba Wealth Management, we build our portfolios around our clients’ detailed financial plans. This incorporates comprehensive long-term cash flow projections specific to their family needs, the time horizon for potential withdrawals, and risk tolerance as investors. With this information, we can plan for clients’ annual needs and do our best to ensure we have sufficient cash and fixed assets within their asset allocation to provide liquidity in the event of significant market volatility.

Brian O’Neill
A focus on financial planning first, and investment allocation as one of the by-products of careful planning, is designed to allow our clients to weather market downturns and have assets (e.g. cash and bonds) that typically perform well in these downturns. Another by-product of this asset allocation approach is the ability to rebalance portfolios to take advantage of more attractive valuations, while keeping portfolios within the desired range of risk.

To answer this question specifically, as a firm we have not had significant client requests for withdrawals, except in rare circumstances where a client’s income has dramatically been impacted due to Covid-19. In those instances, and more typically when we have client withdrawal needs (annual spending needs, Required Minimum Distributions, etc.), we have again set aside appropriate liquidity within their portfolio to provide for this, regardless of the market conditions.

The empirical data shows that risk and return are inextricably linked. Investors need volatility for markets to generate returns in excess of bonds and cash. Accepting this fact can keep investors from making the mistakes that are so common during times like these, while also allowing them to take advantage of the opportunity. If a client feels the need to sell during a period that is seeing significant drawdowns in the equity markets, generally one of two things has happened:  either their asset allocation was not consistent with their liquidity needs, or their risk tolerance was overstated. In the end, only consistent planning, and continued communications with clients can create an investment mix that is lasting.”

James Gambaccini of Acorn Financial Services. Reston, Va.-based Gambaccini has been in the industry for 18 years and has more than $1 billion in client assets.

James Gambaccini
“Liquidity needs should always be addressed upfront with the clients and built into their overall plan and allocation. 

In taking this approach, money that a client may need in the near future (up to three years), is held in U.S. government bonds and often short-term Treasuries. This allows the client’s portfolio to grow, work for the client over the long term, and not have to deal with short-term market constraints. 
We never want our clients to have to sell into a bad or less-liquid market. However, sometimes life events happen, and extra money is needed in a hurry. In these rare cases, we will look to utilize some of the industry tools: asset back loans, home equity lines of credit, margin, etc. These tools can bridge the gap with little or no cost when used effectively.”

This is part of an ongoing series wherein we ask Top Financial Times 400, 300, and 401 Advisors to answer pressing questions about the industry, their practice or their clients. Brokers and advisors make it to the respective Financial Times lists based on scores in six criteria: AUM, AUM growth rate, years in existence, advanced industry credentials, online accessibility and compliance records.

Do you have a news tip you’d like to share with FA-IQ? Email us at editorial@financialadvisoriq.com.

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Tags:  Investment strategies , Retirement planning , Portfolio management , Behavioral finance

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