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Brinker Capital My Personal Benchmark Brinker Capital My Personal Benchmark Broker Dealer Home Office Overview Brinker Capital, a Registered Investment Advisor. For broker dealer home office use only. For financial professional use only. Introduction ● There are two major investment risks investors frequently fail to focus on: ● variance drain ● behavioral bias ● If an advisor can help manage portfolio volatility they can help control investor behavior. ● Brinker Capital Personal Benchmark seeks to manage portfolio volatility. When volatility is managed, irrational behavior is less likely. ● The ultimate outcome over time is an increase in investor purchasing power. For broker dealer home office use only. 1 Variance Drain: Less Diversified Portfolios Have a Larger Variance which Results in Lower Compounded Returns ● Variance drain operates under Cumulative Return Chart 07/2002 to 06/2012 the theory that between two 240 240 portfolios with the same beginning value and the same 220 220 average return, the portfolio less 200 200 diversified will have a larger variance and a lower compound 180 180 return than the well-diversified 160 160 portfolio with a smaller variance and a higher compound return. 140 140 120 120 ● The well diversified portfolio usually generates more ending 100 100 wealth than the less diversified 80 80 portfolio. '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Inflation (CPI-U All Items SA) Equal Weighted Multi-Asset Class Portfolio ● Given extreme volatility, variance S&P 500 Total Return drain can dramatically affect Source: Brinker Capital, Inc. and FactSet ending dollar values. For broker dealer home office use only. 2 Risk Management is the Cornerstone of Good Investing ● Variance drain shows advisors how emphasizing management of portfolio risk instead of attempting to pick investment winners can lead to enhanced portfolio return. ● Reducing portfolio variance of returns and keeping the size of fluctuations in portfolios values low are more effective ways of enhancing wealth. ● We believe the best way for an advisor to increase investor returns is to concentrate more on managing risk and less on trying to increase return via stock picking or market timing. For broker dealer home office use only. 3 Behavior Bias: Feeling Pain of Loss 2x Greater Than Pleasure of Gain ● Loss Aversion suggests people are more motivated to avoid losing something than Pleasure they are to acquire something new. ● Behavioral tendencies can cause investors to do the wrong thing at the wrong time. Small Pleasure ● Loss Aversion is the reason we keep the Loss Gain gym membership even though we don’t use it, it’s the reason people hoard material Big Pain possessions and stay in bad investments. The idea is that losing something costs you more happiness than gaining something gives you. Pain Source: Tversky, Amos; Kahneman, Daniel (1981). "The Framing of decisions and the psychology of choice". For broker dealer home office use only. 4 Agenda: The Pathway to Increasing Investor Purchasing Power 1 Multi-Asset Class Approach 2 Mental Accounting (aka, Bucket Approach) 3 Personal Benchmark Approach: Discover, Design & Deliver For broker dealer home office use only. 5 Portfolio Framework: Based on our Six Asset Class Methodology 1 An Investment Philosophy Focused on Purchasing Power ● Brinker has developed and consistently executed an investment philosophy which utilizes six liquid asset classes which we feel creates more purchasing power for investors with $100,000 to more than $100 million We allocate capital across six asset classes and use highly focused stock selection For broker dealer home office use only. 6 Personal Benchmark Thesis: 2 Mental Accounting is the Model for Structuring the Portfolios Using the principle of “mental accounting” to structure investor portfolios on the basis of these four investment categories: Investment Purpose Category Accumulation Appreciation, accepting greater volatility Tactical Manage volatility and focus on opportunity for appreciation Income Generate cash flow while limiting volatility Safety Preserve principal and reduce overall portfolio volatility. Taken together, these four investment categories comprise the investor’s portfolio strategy. Typically, the weighting to these categories will determine the investor’s dominant objective, or experience the investor wants. For broker dealer home office use only. 7 Rooted in Tenets of Behavioral Finance 2 Behavioral finance tells us how people relate to and interact with their investments. Personal Benchmark solves for these common irrational investor decisions: ● Well-known theorized psychological heuristics – “Rules of Thumb” (i.e., anchoring, familiarity, availability) ● Emotional decision making about money and investments – which ultimately erodes purchasing power and undermines long- term goals ● Framing effect – people react differently to a particular choice depending on whether it is presented as a loss or as a gain Personal Benchmark uses the principles of behavioral finance within all aspects of the portfolio: Portfolio Construction • Proposal System • Quarterly Report • Mobile Application • Outcome Oriented • Website Portfolio Construction • Wide Breadth of Front-end Offerings Available Back-end Sales Process Reporting Brinker has designed a system which uses the principles of behavioral finance to structure investor portfolio strategies with the goal to create purchasing power while managing volatility. And…is scalable for Financial Advisors! For broker dealer home office use only. 8 We Seek to Provide Investors the Comfort and Confidence to Invest 2 Performance of the markets vs. an average mutual fund investor Investors who avoid relying on Investor their emotions Behavior are much more Gap likely to succeed in the long run. Source: DALBAR Quantitative Analysis of Investor Behavior 2012 (QAIB). www.dalbarinc.com Average equity fund investor and average bond fund investor performances were used from the DALBAR study, QAIB 2012. Average stock investor, average bond investor and average asset allocation investor performance results are based on a DALBAR study, “Quantitative Analysis of Investor Behavior (QAIB), 2012.” DALBAR is an independent, Boston-based financial research firm. Using monthly fund data supplied by the Investment Company Institute, QAIB calculates investor returns as the change in assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions, and exchanges for the period. Equity Performance is represented by the Standard & Poor's 500 Composite Index, an unmanaged index of 500 common stocks generally representative of the U.S. stock market. Fixed income performance is represented by the Barclays Capital Aggregate Index. The Barclays Capital Aggregate Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar denominated. This index covers the U.S. investment grade fixed rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. Past performance is no guarantee of future results. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index. *Hypothetical balanced Investment based on the performance of an investment weighted 50% to the S&P 500 index and 50% to the Barclays Capital Aggregate Bond Index. It is not possible to invest directly in an index. For broker dealer home office use only. 9 Thought-Leadership Partner 2 Brinker Capital, Inc. in partnership with Dr. Daniel Crosby, a psychologist and behavioral finance expert, will work to help educate advisors and their clients on how to eliminate common pitfalls that many investors make when emotions get involved in the investment decision-making process. Investors who avoid relying on their emotions are much more likely to succeed in the long run. Marketing Support: Whitepaper series Blogs Bylined articles Video series Webinars Research symposium Speaking events Client seminars Biography Dr. Daniel Crosby is a behavioral finance specialist contracted with Brinker Capital, Inc. Dr. Crosby's thought leadership has appeared in Registered Rep, Risk Management Magazine and the Huffington Post. His first book, "You're Not That Great", applies behavioral finance principles such as loss aversion and availability heuristic to the pursuit of a meaningful life. Dr. Crosby is working closely with Brinker Capital on their Personal Benchmark portfolios which are constructed utilizing a multi-asset class structure and can help manage volatility, control investor behavior and increase purchasing power over time. When Dr. Crosby is not working at the intersection of minds and markets, he enjoys following St. Louis Cardinals baseball, attempting to play the guitar and watching independent movies. For broker dealer home office use only. 10 Personal Benchmark: Developed with YOU in mind 3 - uncover and develop a plan centered around what matters most to you - investment approach designed around your goals - execute portfolios that
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