The recent financial crisis made Rob Hoxton, the president and chief executive officer of Hoxton Financial, question much of what he had been taught throughout his career as a financial advisor.

With all asset classes moving in near perfect correlation downward, was modern portfolio theory enough to safeguard his clients finances and their life plans? As the markets spiraled downward, five of about 200 clients wanted out altogether, and Hoxton honored their demands to pull all of their assets out of stocks.

“That feels like capitulation to me, and in fact, it was the bottom,” Hoxton said, remembering the exhaustions of March 9, 2009. “At that point, we had to comply. They were adamant.”

Those clients temporarily gave up on equities, but they never gave up on Hoxton Financial, based in Shepherdstown, W.V.

We think it had a lot to do with Hoxton Financial’s investment management process. It did not scrap modern portfolio theory altogether, but it did add a tactical component to its strategy. Clients became more loyal to Hoxton Financial when they realized that the firm was willing to drop investments that were performing poorly and had poor prospects. When the market collapsed two years ago, Hoxton Financial had $119 million in assets under management. Currently, the firm has $300 million in assets under management. Sure, some of it can be attributed to market performance, but client recruitment buoyed its results, too. Hoxton points out that the firm added $50 million in client assets in the most recent quarter.

Along with cool-headed holistic advice, of course, investment management is probably the most important component of a financial planning and advisory practice. Hoxton realized that he had to have a system in place to manage clients’ investments and explain it all to them in a way that put them at ease. Hoxton learned that lesson, or had it reinforced, from Peak Advisor Alliance, an Omaha, Neb.-based firm that provides practice management coaching and training to financial advisors.

Hoxton Financial has become very methodical about how it contacts its clients.

The first couple of discussions with new clients focus on what has brought them to the firm. “We don’t take on relationships we don’t feel that we can add value to,” Hoxton said.

Beyond that, Hoxton Financial hosts twice yearly client educational events, one a market recap and outlook event in January, and a “half time” update in July. The firm also sends a weekly commentary, which Peak produces as a bylined article, for its members to use. Clients even get boxes of brownies on their birthdays. Of course, brownies has nothing to do with investment management. But letting the client know that you are around and you care? It goes a very long way.

Hoxton asks clients if they know what the Dow Jones Industrial Average is, and why it is important. “If they cannot give a technical answer, then I ask: ‘Why measure your success against that? The Dow Jones, which is 30 stocks, has nothing to do with your ability to get there.”

Peak Advisor Alliance acknowledges that there is still a skirmish brewing between modern portfolio theory devotees, and those who have scrapped it for complete active management. Steve Sanduski, the managing partner of Peak Advisor Alliance, said in a recent telephone interview.

As for those five clients who gave up on the stock market, Hoxton allocated them to relatively safer assets. That included Treasury Inflation Protection Securities and corporate bonds. The duration of the bond portfolio was pretty short. Eventually, Hoxton Financial was able to get those clients re-invested. More importantly, they felt comfortable about what they held and how the firm dealt with them, Hoxton said.

“Whether you are an active or passive manager, the key is to make sure you have a clear way to communicate and manage the process,” Sanduski said.

It doesn’t even matter if the investments are handled in-house or if the task is outsourced. “If your client asked you: “What is your investment process?” Can you, in 30 seconds, come up with something that describes what that is?”

Peak Advisor Alliance tells advisors: You need to have an investment process that is clear, and that you can describe in a succinct manner.

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