Optima Group’s Perspective: Find your creative side

As a creative director, I have always been, well… creative. I regularly paint, design, draw and write in my spare time. Art is an activity that can be done while socially distancing. Since most of us are home and may be looking for things to do I have assembled a few very relaxing, easy to do, and fun creative options, and what you need to start. The important thing to remember is that the final product is not what’s important, what’s important is your creative journey. A journey that may help get your mind on something other than the headlines.

Adult coloring books
Traditional kids’ coloring books have been uplifted and upscaled, creating an entire market of adult coloring books. Amazon or Barnes and Nobel have a large selection to choose from. Pick one that has images suited to your personality. Some can be fairly complicated; others have simpler shapes. Mandalas (complex abstract designs) are thought to be good therapy because of the repeated patterns. Get a colored pencil set that has at least 24 colors. These range in quality, Prismacolor Premier is a good brand and there is nothing wrong with good old Crayola Colored pencils. 

Download this mandala to start coloring right now!

Paint by Number Kits
You may remember paint by numbers as a kid, but some people don’t even know these exist. You get a canvas with numbers on it, all the paint you need with corresponding numbers and brushes. Then you paint. It’s that simple and it’s very relaxing. However, some of them can be very complicated, if you tend to be low on patience choose a simpler one, or one marked “easy” as your first canvas. You can buy kits on Amazon, as well as and, where you can also get a custom canvas made from one of your photos. 

Avoid an oil paint kit, as it requires extra steps and supplies for cleaning. Be sure your kit is water based (usually acrylic paint). The brushes that come with the sets are typically not great, so you may want to get a small set of brushes with various sizes, you will want soft bristles for watercolor/acrylic paint. This is a nice beginner set that is reasonably priced.

Try Creative Writing
If writing is more your thing, download A Year of Writing Prompts from Writer’s Digest. Every day is a new idea and a new opportunity to get your creative juices flowing! All you need is the computer you’ve been working on all day, but you may find you can be more creative with an old fashion notebook and pen.

Use these creative ideas to relax and get through the current crisis. Or maybe you have a creative outlet of your own already. Whatever it is, don’t forget to take some time for yourself and relax!

Stay safe and healthy,

Tracy Hubbard
Creative Director

A Tale of Two Market Caps

It is a challenging time for advisors. Many are having tough conversations with clients, some of whom either don’t remember the pain of 2008/2009 or are young enough to have never witnessed a dramatic market downturn. While it’s easy to get caught up in the general panic, this is an opportune time to reinforce the value of asset allocation and diversification. 

Asset allocation portfolios have helped some clients weather the current volatility but communicating the thinking behind the moves you make is important to show the value you add. Consider the impact of diversification even within an overall asset class, such as domestic equity, where we examine the recent performance of U.S. large cap versus small cap stocks. While correlation during the initial dramatic drop was very high, as market volatility has lessened, correlation between the two asset sub-classes has diverged somewhat.

For example, after a second straight week of gains, its third in the last 4 weeks, the S&P 500 has rebounded more than 25% from its March lows, with returns over the past year down only 3.5%. The same cannot be said for the Russell 2000 Value Index, which has seen a sharper decline than the S&P 500 and only a modest rebound. 

Historically, the small cap value asset class has outperformed its equity counterpart’s over long periods, but the prolonged bull market saw small cap value returns substantially lagging other asset classes, specifically the S&P 500.

The good news is that small cap value performance coming out of bear markets has been strong and the asset class has, on average, since 1926, outperformed large cap for one-, three- and five-year periods following bear market troughs. Key takeaways:
• Advisors considering tactical asset allocation shifts may be looking at increasing small cap value holdings
• Small cap value managers should take advantage of this potential opportunity to market their strategy

A caveat is that the current markets are reacting to a true “Black Swan” event, the global pandemic, which does introduce a level of unpredictability. Using history as a predictive tool is imperfect, and with the uniqueness of this Black Swan event, it may not follow the historical pattern of small cap value outperformance. 

No matter the moves your firm is making, communicating to prospects and clients what you are seeing, thinking and doing in response to market events is critical for both wealth and institutional managers.

The Vocabulary of a Crisis

Through words, we define our environment and circumstances. They provide us with a mechanism for setting boundaries around things, giving us a feeling of order and control. Words are powerful and can evoke strong emotions or take us back to a specific scene or setting – who can hear “We’ll always have Paris” without picturing Humphrey Bogart and Ingrid Bergman in Casablanca?

Since middle/late February, as the coronavirus (COVID-19) outbreak has spread globally, our everyday language has become focused on this overwhelming situation. Along with the “novel” virus, words and phrases which were previously unused by the public at large have become commonplace, and in some cases, a new vocabulary has developed to address economic, social and personal life. A few of the more ubiquitous examples are:

Pandemic–while not a new word, by any means, initially there was some reluctance to apply this term, which signifies an epidemic that has spread over a large area, typically globally, to the current crisis
Community spread–according to “spread of a disease where the infection source is unknown”
Distance learning–from elementary school to higher education, students around the country have moved to “learning” remotely in some form, whether through assignments posted, recorded classes or live classes through Zoom or other applications
Flattening the curve–slowing the spread of a disease to a level where the healthcare system is not overwhelmed
Herd immunity–immunity or resistance to a disease when a sufficient (usually very high) number of those susceptible have had the disease or have been vaccinated
Social/physical distancing–maintaining a sufficient distance from others in order to avoid potential infection from disease carriers and stop disease spread
Super spreader–an individual that unknowingly spreads a disease to an unusually large number of other individuals
Shelter in place/stay at home–more familiarly in terms of a weather, terror or chemical emergency threat, in conjunction with social distancing, we have all come to associate these terms exclusively in relation to COVID-19
Work(ing) from home (WFH)–living its best life as both a phrase and a (frequently hashtagged) acronym, work(ing) from home has become the new reality for most, unless deemed to be in an essential job

The list goes on, of course, with many tongue-in-cheek terms also arising as we attempt to maintain a semblance of humor during this challenging time. Virtual happy hour quarantini anyone? But don’t be a covidiot and have too many!

Promises Made? Optima Group’s Perspective

A cardinal rule of wealth and asset management is not to make “promises” about future performance. How have wealth managers done in keeping clients satisfied while following this rule? It turns out that depends on what you mean by “the promise.”

The recent crash has exposed new risks for investors.
• Do their short-term needs exceed their current liquidity, forcing them to sell long-term assets at the worst possible time?
• Do they have the funds and resources to take advantage of new market opportunities?
• Are they overwhelmed by market noise, asking their advisors to transact on rumors instead of facts?

All of us know better than to promise future performance and absolute control of risk. But, do your clients understand that, to the best of your abilities, you are helping them align their portfolios with their life needs? Do they feel assured that no matter where the markets are moving you are doing the “right thing?”

This is a testing time for wealth managers. When all boats were rising it was easy for clients to feel assured. But since the COVID-19 precipitated an economic and market crash we are beginning to see “money in motion.” 

Over the last few weeks, we have gathered enough anecdotal evidence to see that firms that emphasize financial planning along with their investment prowess are doing fine. Those that focus primarily on performance are starting to lag. And, those that helped their clients invest in seemingly safe securities, where clients did not completely understand the risks, are now “in trouble” and are facing very tough client questions and defections. 

So, even in this time of crisis, it is the time for well-run firms to tell their story. Investors whose wealth management does not align with their goals are switching firms. Investors who feel they were misled about the risks in some of their investments are angry. But, even with almost all portfolios contracting, investors who feel their advisors built their portfolios to weather the storm are staying put, and frankly some are expanding their relationships. Planning-oriented firms, using consistent and high-quality client communications, are even finding this is an opportune time to grow. 

While you are busy aligning your business with new realities, if you are well-positioned, and have a great story to tell, now is the time to tell it – often and loudly. We can promise that is a decision you will not regret. 

Stay safe and healthy,

Ken Hoffman
Managing Director and President

M&A In The RIA Space

M&A activity across all industries has flourished in recent years with more than $10 trillion in domestic transactions since 2013. Specifically, M&A in the wealth management industry has skyrocketed to historic highs with both strategic and financial acquirers paying top multiples and closing a record number of deals.

The economic impact of the coronavirus will likely shift the landscape of M&A in the RIA space drastically. Deals in process are likely to be completed but many deals in the early stages have been put on hold due to buyers and sellers unable to agree on a valuation in these unprecedented circumstances.

Along with a decline in the number of deals, a shift is expected to occur in the RIA marketplace from a seller’s to a buyer’s market.  

Recent Cerulli Associates’ research claimed that 37% of advisors are set to retire in the next 10 years and, therefore, are in need of a succession plan. With a constrained time-horizon due to aging ownership groups, many sellers do not possess the ability to wait out a recession and see their RIA’s valuation return to its peak

With a low-interest rate environment coupled with high levels of dry powder, we expect that acquirers, many of whom are backed by private equity, will take advantage of this need for buyer liquidity. The seller’s market saw rising multiples with many deals structured with large upfront cash payments, sometimes as much as 100% of the value of the deal. We expect transaction structures to change in favor of the acquirers. If the pandemic precipitated recession is prolonged, multiples will reflect the shift in expectations, upfront payments will decrease, and contingent payments based on future performance will increase.

The Power of Partnership

When a crisis arises, communities come together. The COVID-19 pandemic has challenged businesses across the globe to think outside the box and develop creative solutions. Companies are finding innovative ways to help protect employees from the risk of the virus and limit economic disruptions. Business leadership has extended beyond financial donations as many companies have already taken action to get involved, give back, and become part of the solution. 

In the past two months we have seen unprecedented community outreach and massive co-branding partnerships. From the Patriots’ principal owner Robert Kraft sending the team’s private plane to China to pick up masks, to companies like Nestlé providing emergency help, donating food, medical nutrition products, and bottled water to countries in greatest need, to companies like Ralph Lauren making a financial donation of $10 Million and also committing to produce 250,000 masks and 25,000 gowns for healthcare workers. Companies are doing what they can on a local level, donating to food banks, sending meals to healthcare providers, or supporting service industry workers who have lost their jobs. These are just a few examples of businesses taking action and finding new ways to provide solutions while preserving the supply chain, supporting manufacturers and keeping people employed.   

Innovation is doing things in new ways. Strong community support and engagement can improve your image and brand reputation and foster consumer loyalty. By finding a way to give back to the community, at whatever level your firm is able to do, you have the opportunity to demonstrate to your customers that you are all in this fight together, something that they will remember after this crisis is over.

A number of studies indicate that engaging in socially responsible activities can improve customer loyalty and result in a happier, more productive work force. No matter how big or how small, there are many ways to make a difference during these challenging times. We also encourage you to share what you are doing to help, which may encourage others to support the community.

At Optima Group, we are supporting our local food banks, where the need for supplies and donations continues to grow during this crisis.

Finding New Ways to Communicate

As many have noted, the way we do business has changed, certainly for the short term and likely also for the longer term. One fundamental and very visible adaptation is how we communicate, whether it’s with our colleagues, our clients, or, on the personal side, our friends and family. We are all seeking out new ways to connect with each other from a distance. For many client-facing businesses, we have seen a significant uptick in webex, webinars, video conferencing and other applications. While many are old hands in using technology to communicate, for others it may be less familiar. Here are seven tips to conducting a successful event. 

1) One invitation is never enough. We are all being inundated with invitations to connect virtually right now. Once you’ve sent your initial invite, be prepared to send one or two follow-up reminder emails and perhaps follow up by phone. You’re likely to add quite a few attendees along the way.

2) Be prepared. While it may sound like speakers are presenting spontaneously, that is rarely, if ever, the case. Decide ahead of time what you want to say and put together speakers’ notes. In this fast-changing environment, though, be ready to adapt them along the way.

3) Change it up. Similar to in-person meetings, one person presenting for 20 to 30 minutes may not keep your attendees’ attention. Have two or three individuals speaking, but make sure each person has a specific topic on which to speak.   

4) Practice makes perfect. Make sure you are familiar with whichever application you are using and that your presenter(s) are comfortable speaking. Have at least one “rehearsal,” but optimally two or three. This gives you a chance to work out any kinks, practice handing off being the presenter and helps everyone feel confident on the actual “show” day.

5) Honesty really is the best policy. This is a tough time, and human instinct is to try to make people feel better. However, your clients have access to all of the real and not-so-real news that you do. They want your honest view on what’s taking place and what you are doing in response.

6) Ask the tough questions. Chances are you’ve been talking to your clients regularly during this time and some common themes and questions have arisen. Have some feeder questions around those topics ready, just in case you don’t get live questions.

7) Always say thank you! It’s a stressful time, with many things competing for one’s attention. Show appreciation for the fact that your attendees took time out of their day to listen to what your firm had to say. For those that were unable to attend the event live, give them the option to watch/listen post-event (most, if not all, meeting applications have the option to record events) or contact you directly for a synopsis of what you covered.

When Words Matter: Optima Group’s Perspective

A well-used phrase has dominated the American lexicon this week. “Stay safe” closes emails and texts. It rings out from a safe distance while grocery shopping, running, biking and hiking. But, what does “stay safe” mean? I think it means more than staying healthy and avoiding infection. To me, “stay safe” harbors a nuanced combination of caution and optimism. It is sobering, helping us to move from the trivial things we thought were important to what is real and in front of us right now.

Erik Larson’s new book, “The Splendid and the Vile, A Saga of Churchill, Family, and Defiance During the Blitz,” brings to life how the British Empire met its challenges and stayed focused while chaos literally rained down from the sky. “Stay safe” in 1941 London did not just mean staying alive during the often-nightly bombing. It meant finding new ways to keep the social, health, business and community life of the country functioning throughout the crisis.

In many ways, we are facing a similar challenge. As a country that is almost “allergic” to rules, we must all now follow rules designed to keep more of us from getting sick. As a society, we need to take care of our families and communities while leaving room to celebrate and frankly sometimes mourn. And we need to find new ways to attend to our healthcare system, economy, food and shelter that embrace real solutions for real needs.

Churchill understood the complexity of the tasks in front of him and concurrently managed each element to win the war. As we now struggle with what’s in front of us, we too will find ways to persevere and eventually thrive. In our industry, we are now even more acutely aware of the direct impact that the management of assets has on people’s daily lives. This is serious business for a serious time.

Perhaps we will, in many ways, eventually be better for the experience.

Stay safe and healthy,

Ken Hoffman
Managing Director and President

A Captive Audience

As everyone hunkers down in their homes, we are all wondering how to make the best of this time. Advisors are challenged to find ways to assist their clients remotely and help with what may be a difficult financial period.

This may be just the time to work with your clients to reinforce the tenets of financial responsibility with their children. They will appreciate the demonstration that we are all in this together and the fact that their kids are doing their part. In addition to imparting age appropriate concepts of financial knowledge and responsibility, there are a plethora of innovative digital tools out there, many of which have taken the place of the ubiquitous ceremony of opening one’s first bank account. While everyone has a favorite, and this is not a complete list, here is a brief sampling of some of the more popular free tools out there:

Chore and allowance apps:

iAllowance – iAllowance is a chore tracker, automatic allowance payment (to a bank account) and “reward” (such as an hour of video time) application that can handle multiple children and bank accounts
Bankaroo – Bankaroo is designed primarily for kids (generally 5 to 14) to help them learn about money, budgeting and goals, savings and financial responsibility. It has multiple versions ranging from free to one that allows for managing multiple accounts and transaction capability
PiggyBot – PiggyBot, an app available for Apple device users, geared towards younger kids. It’s free and is a “virtual piggy bank” that helps children set and track their goals and allowance
RoosterMoney – Allowance Manager – this app is similar to iAllowance but geared to a younger audience and includes a “star” chart, lets kids create goals and allows the whole family to keep track of spending

For older kids, there are apps that also include a debit/prepaid card functionality (caveat is that some of these do have fees or monthly charges):

gohenry – gohenry offers a range of savings, goals, budgeting and spending functions along with a debit card, all with parental controls to act as a safety check
Greenlight – Greenlight is a similar app that allows users to track chores, set spending limits and set parameters for where the debit card can be used (anywhere, restaurants and gas stations only, etc.)
FamZoo – FamZoo is an educative application and prepaid or IOU function that bills itself as suitable for kids of all ages, with the goal of helping kids, teens and parents.

Looking for something (and the rest of your family) to do?

Board games, Netflix, Amazon Prime… tired of them yet? Here are a few things we’ve found that you might find interesting (and are great for your kids too!).

• Head off to Paris and visit The Louvre. Discover some of its virtual tours.

• Some aquariums have cams that are still live, some are prerecorded. The otter cam at the Seattle Aquarium is oddly satisfying and calming.

• See the baboons, penguins, koalas and more with the San Diego Zoo live cams.

• Meditate and relax with a video of the moon jellies at the Monterey Bay Aquarium.

• While we may not need Google Maps right now, Google Arts and Culture offers a plethora of interesting things to view.

• Sit comfortably with your iPad and download The Wider Image app by Reuters. It is an immersive news experience that’s hard to put down.

Have an online favorite that you’ve discovered? Let us know and we’ll post it for others to enjoy!