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Why I Shun Mutual Funds in Favor of Stocks and Bonds

By Crucial Clips     October 3, 2018
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Jun. 28, 2018 

RITA RAAGAS DE RAMOS, SPECIAL PROJECTS MANAGER, FINANCIAL ADVISOR IQ: Hi. I'm Rita Raagas De Ramos from Financial Advisor IQ. And with me is Robert Case, CEO of Ingalls & Snyder. Most of your clients' assets are allocated in individual stocks and bonds. Why is this your preferred strategy, instead of investing more heavily in mutual funds?

ROBERT CASE, CEO, INGALLS & SNYDER: Well, our goal is to serve the needs of high net worth individual investors and their families. If we were also trying to serve many, many smaller accounts, we would have a much larger base of clients that we would be allocating to mutual funds, for example.

But it's very easy to scale your business if all you do is invest in mutual funds with your clients, but we think that serves the industry, but it doesn't really serve clients who have the wherewithal to have dedicated portfolios constructed directly of stocks and bonds that are customized to their needs. So we offer what we think is a more value-added service to our clients by building custom portfolios of stocks and bonds for them that are tailored to their specific financial situations.

RITA RAAGAS DE RAMOS: How actively do you manage or reallocate your clients' portfolios?

ROBERT CASE: I would say we actively manage-- first of all, we do actively manage. Every stock or bond that's in a client's portfolio was researched and selected as fitting into the overall construct of the client's needs. So that's active management. However, we are also, I would say, for the most part, long-term value investors. So if you look at our clients' portfolios, you're not going to see lots and lots of turnover.

We're not high-speed traders. We're not trying to capture small differentials in price and then sell them out for short-term capital gains. We're very sensitive to achieving, for example, long-term capital gains treatments for our clients, and generally holding securities that we believe are going to compound over time, often many years, to achieve the client's goals.

So I would say we have pretty moderate turnover in our clients' portfolios. Rebalancing is another question. We do rebalance quite consistently, as we see certain sectors or stocks get frothy. We don't want to overexpose clients to something that we think is a temporary phenomenon. So we do set target prices, both on the buy and the sell points of our securities, and do try to manage in and around those.

RITA RAAGAS DE RAMOS: Because most of your clients' assets are in direct investments, does this make them particularly nervous trying times of volatility?

ROBERT CASE: I think whether a client is nervous in a volatile market is more a characteristic of the client than a characteristic of the individual stocks or bonds they own. We tend to have clients who understand that we're investing for them for the long term. And they, for the most part, have been pretty good about understanding that sometimes you just have to sit tight and not get overly emotional in turbulent times.

RITA RAAGAS DE RAMOS: What is your basis for constructing your clients' portfolios? And what are the elements that go into this process?

ROBERT CASE: Well, the key element that goes into the process of constructing clients' portfolios is understanding the client. And that means doing a discovery process that really starts with understanding where they are in their careers, in their financial lives, their income, all of their assets, their retirement plans, their outlook, what their income needs are, their college education plans for their children, their legacy plans for their heirs, their gifting plans.

All of these things come together. And it's really important, we think, to have an understanding of those things and the risk tolerances around it as we build a portfolio for them. Obviously, some clients are going to be very protective, not wanting to take a lot of risk with respect to at least a certain pool of their assets. Other clients are going to say, OK, protect those assets, but these assets I'm willing to take some more risk because I really want to get growth here. And that's really our key objective when we build portfolios for clients.

RITA RAAGAS DE RAMOS: Thank you, Robert.

ROBERT CASE: Thank you, Rita.