Dec. 15, 2014 12:56 AM

ABiz reached out to a handful of local financial advisers in an effort to better inform readers about how to manage their money. Below is what this trio of experts has to say.

At a loss for where to put your money in the New Year? You shouldn’t be, because Lafayette has a wealth of knowledge in the investment field.

ABiz reached out to a handful of local financial advisers in an effort to better inform readers about how to manage their money. Below is what this trio of experts has to say.

Joseph “Bo” Billeaud

Age: 60

Founder and president of Billeaud Capital Management, an independent Registered Investment Advisory firm established in 1986. BCM manages roughly $285 million in investment portfolios for individuals, company retirement plans, corporations, endowments and trusts.

Education: UL Lafayette, BS in chemical engineering

Years of experience: 29

Photo by Robin May

1. Exactly what services do you perform? We manage money. BCM basically offers three (conservative, moderate and growth) riskmanaged investment portfolios, all based upon a foundation utilizing a proprietary market risk model that guides us (regarding varying equity exposures within our model portfolios) as the risk climate of the financial markets changes throughout the recurring economic and business cycle.

2. What investment firms do you use in your practice? Our client accounts are primarily held at Charles Schwab & Company.

3. What is the smallest, average and largest portfolio you manage? The largest single account I work with is roughly $65 million, but our average account is on the order of $400,000. There are, of course, smaller accounts, as we will often work with a number of accounts held within a family, including possibly smaller custodial accounts for children or grandchildren. We generally ask that a new relationship have at least $250,000 in investable assets.

4. What in your opinion are the greatest impediment(s) to most retail investors being successful? No question about it, the greatest impediment working against investors is our own bad selves — that is, psychology and human nature. Fear and greed. It bites again and again.

Dalbar Associates publishes annual results comparing the return realized by individual investors versus returns that the markets offer. The results are devastating. It turns out that for the 20-year period that ended Dec. 31, 2012, the average investment return offered by the markets was 8.21 percent while the average investor return realized by the average brokerage firm investor was 4.25 percent. This is mostly due to bad investment behavior such as chasing fads, buying high (remember dot.com’s anyone?) and selling poorly. By the way, the actual financial cost of that bad investor behavior is stunning. The simple arithmetic of the investment return available would have grown $100,000 to $484,560. But the average investor return grew that same starting amount to only $229,891.

That’s a really high price to pay for “comfort” — which ultimately is what bad investment behavior is rooted in, but that is exactly what the average investor has experienced. The cure for this problem of course is to have a really well-designed investment plan and a fanatical commitment to the discipline of implementing it. While that seems to be a rare commodity among individual investors and many advisers, nothing is more important to realizing long-term success.

5. Active versus passive investing – Given the poor record of active management outperforming an indexed-, passive-oriented approach (S&P just reported that only 9 percent of the actively managed mutual funds have outperformed their respective benchmarks in 2014), what are your thoughts on this subject? And if you use active management for your recommendations, how do you defend the additional costs, in light of this poor relative performance when measured against an indexed approach? Boom! You nailed it. The evidence is conclusive and indicting.

Standard and Poors SPIVA reports (which track this information) have consistently documented that over extended periods of time (five to 10 years), it is virtually impossible for active management to outperform an indexed or passive approach after fees, expenses and taxes are considered. And while this does not mean that there is never any room for actively managed additions to a portfolio, the defense of such additions really needs to go well beyond “our firm recommends… .” It really all boils down to whose interest you are really looking after.

6. What is your outlook for the financial markets next year? This question reminds me of a wonderful story. Economist Kenneth Arrow was a statistician during World War II who analyzed weather forecasts made months into the future. The forecasts, he found, were pretty useless. When he warned his commanders against taking them too seriously, he received a legendary response:

“The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.”

After nearly 30 years working in this business, I am convinced that economic and financial forecasts are also not helpful, other than for entertainment value.

In fact, in many cases, because of the predisposition they tend to engender, they can actually be harmful as they can emotionally lock you into an expected outcome. And that can interfere with your ability to remain objective and maintain discipline. So, I simply don’t go there. It is far more useful and important to have a plan and then have the discipline to implement it. Do that, and you have greatly tilted the odds in your favor.

Tyson A. Cromwell

Age: 36

Wealth management adviser with Northwestern Mutual, which offers comprehensive financial planning including risk management and wealth accumulation.

Education: DePauw University, BA in economics; The American College, MS in financial services

Years of experience: 14

1. Exactly what services do you perform? We are a full service brokerage firm. I use mutual funds, exchange traded funds and individual securities.

2. What investment firms do you use in your practice? Northwestern Mutual does not have any proprietary funds; however, we do offer both fixed and variable annuities backed by Northwestern Mutual’s insurance company.

3. What is the smallest, average, and largest portfolio you manage? The smallest would be a new IRA, therefore about $5,500 in value; average account is between $750,000 and $1 million, largest account exceeds $10 million.

4. What in your opinion are the greatest impediment(s) to most retail investors being successful? The greatest impediment in my opinion are the behavioral mistakes made by most investors, especially over long periods of time.

Behavioral finance is the study of the psychology behind behavior as it pertains to decision making, actions, etc., of investors with their assets. Examples would be overconfidence, hindsight bias, shortterm focus, regret, mental accounting and hot-hand fallacy. Relatively recent examples would be investing heavily if not exclusively in technology and/or small cap growth stocks in the late 1990s, abandoning equities toward the end of the bear market that ended in late 2002/early 2003, overweighting equities toward the end of the bull market ending in mid to late 2007, and of course abandoning equities in the crisis of late 2008/early 2009.

The greatest value an investment adviser can bring to his/her clients I believe is in the form of behavior modification, that is helping them avoid the mistakes that we are all prone to making.

5. Active vs Passive Investing. I don’t want this to seem like a cop out, but I am not going to take a firm stance on either side of this argument. Personally I am in the middle of taking a hard look at where it might be appropriate to use passive versus active. I suspect that passive management might be more appropriate in some asset classes versus others, but again, I am in the process of taking a hard look at this and have yet to finalize an opinion. The difficulty in analyzing active versus passive is that we have tons of data in certain asset classes (U.S. equity, International Developed Equity, Fixed Income) and less data in others. Ultimately I believe that over time the difference between active management and passive management will be much less impactful for investors than avoiding the behavioral mistakes.

5. What is your outlook for the financial markets next year? Good question. Once again, not to cop out, but I am reluctant to make any predictions. As I heard someone once say, “The trends are easy to see but devilishly impossible to time.” What are the current trends? Improving economy in the U.S. by just about any metric, economic uncertainty in the Eurozone and Asia, persistently low interest rates in the U.S. and to some extent globally, strengthening U.S. dollar, etc. Will these trends continue? Is Europe mired in a low growth/ disinflationary period or is its recovery simply lagging behind that of the U.S. due to the complexity of a single central bank trying to accommodate the needs of multiple nations? Only time will tell, and one could make an educated guess and then invest accordingly, but I would argue this to be an ineffective strategy. A much more effective strategy is to build a portfolio with a level of risk that fits an investor’s goals and objectives and employ a disciplined system of rebalancing.

G. Andrew Ahrens

Age: 47

CEO of Ahrens Investment Partners Independent financial advisors with LPL Financial, Ahrens Investment Partners has offices in Lafayette and Baton Rouge. We work with high net worth clients and focus on strategies that seek preservation of wealth, investment growth, and maintaining income during retirement years.

Education: LSU, concentrations in economics and finance

Years of experience: 25

1. Exactly what services do you perform? Investment advisory and financial planning.

2. What investment firms do you use in your practice? LPL is our broker dealer. We are independent and can choose managers and investments we deem suitable for our clients.

3. What is the smallest, average and largest portfolio you manage?

• Smallest: 100,000

• Average: 1.5 million

• Largest: 65 million

4. What in your opinion are the greatest impediment(s) to most retail investors being successful? They are impatient. Buy quality investments and give them time. Do not trade to day trade or time the markets.

5. Active versus passive investing – Given the poor record of active management outperforming an indexed-, passive-oriented approach (S&P just reported that only 9 percent of the actively managed mutual funds have outperformed their respective benchmarks in 2014), what are your thoughts on this subject? And if you use active management for your recommendations, how do you defend the additional costs, in light of this poor relative performance when measured against an indexed approach? I like both. If 9 percent of active managers beat the indexes then find them and put money with those managers. Diversify your portfolio with index investing and with active investing. Fees are important when investing money but do not choose a manager or investment on fees alone. There are a lot of good managers who seem expensive, but the net to the investor after expenses is worth it. Sometimes you get what you pay for, and good managers are worth paying up for.

6. What is your outlook for the financial markets next year? I look for a flat to slightly up market with the possibility of a much-needed healthy correction. All eyes will be on the Fed and the recovery in Europe. The effects of lower oil are still being determined, and there will be opportunity from lower oil prices, but there will also be causalities from it. Look for asset classes that underperformed in 2014 and seem poised for a recovery as money moves out of assets that ran up too quickly and appear fully priced. If the dollar continues to strengthen, look for assets that do well with a strong dollar. Always stay diversified and keep some cash available when assets go on sale.

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