Removing Probability from the Risk Equation

Financial risk should be redefined to be viewed as the potential to lose money, rather than the average return, said Tim Knepp, CIO of Genworth Financial Asset Management, at a Genworth-hosted media event in New York City yesterday.

“The industry has managed risk with the idea of average return being a guidepost,” said Knepp. However, that’s only part of the story, he said. “We [Genworth] look at risk as basically the potential to lose money.”

Genworth Financial Wealth Management is touting an actively managed strategy offered through Stadion Money Management utilizing those principles. Stadion’s portfolio that invests in exchange-traded funds (ETFs) was recently added to Genworth’s fee-based investment management platform for financial advisers. Stadion is formerly known as PMFM, Inc., and also offers its strategy through a retirement account management service called Stadion Retirement (formerly known as 401k Toolbox) (see “PMFM Changes Brand, Fund Names”).

Stadion’s CEO Tim Chapman said the goal is “winning by not losing;” he demonstrated that their strategy seeks to reduce volatility while getting “decent” returns when the market is up without trying to beat the market. “We’re doing everything we can not to juice returns but to lower volatility,” he said.

Shifting Goals of Investors, Advisers

Such strategies are necessary as the last year made “people realize stocks can go down,” Chapman said. Investors are thinking that they don’t want to go through the events of the last year again, and will likely ask advisers for more strategies that protect against risk, he said.

The idea that every client has a certain level of risk was tested this year, noted Gurinder Ahluwalia, president and CEO of Genworth Financial Wealth Management. “It’s the same anxiety; it’s just becoming more of a dialogue,” he said.

For advisers, that presents new challenges. Ahluwalia noted a trend in the advisory business to move toward independence, an area that favors objectivity and transparency. “Financial advisers, regardless of the channel they are working for, have really been moving toward the independent space,” he said.

As an independent adviser, Gail Simons, founding principal of The Highbridge Financial Group, Inc., said the events of the last year made her realize more of her hand-holding value to clients—rather than as an investment solution provider. She called it being a “financial social worker,” who helps clients focus on financial planning goals and then selects appropriate strategies from investment platforms.