At Middleburg Financial – a division of Atlantic Union Bank – advisors and portfolio managers work together to take care of your money. David Hartley (Managing Director, Trust and Estate Services & Wealth Consulting Group) and Jess Ellington (Chief Investment Officer & Managing Director, Asset Management) share some insights into Middleburg Financial’s client strategy and the current environment, explain some common investment terms, and tell you why they believe they get the job done better than larger firms.
What is the Middleburg Financial Investment Philosophy?
Jess: Basically, it’s two things: To build portfolios that hold up through market cycles and to customize them to meet individual needs. Those two things fit like a glove. We have the resources and experience to provide these services. Additionally, we don’t pigeonhole ourselves into one core competency – like value or growth. We look at things objectively and use all the tools available. We’re constantly testing the soundness of our clients’ portfolios, while introducing new ideas.
How is that philosophy delivered?
David: We sit down and listen to clients. One of the best things we can do as advisors, is to ask the right questions and actively listen to what’s important to them. What’s their objective? What are their expectations? One of the things I find very helpful, that I can then communicate to Jess’ group (portfolio managers) is asking a client about their previous investment experiences. You’d be surprised what great insight you can get from finding out what strategies they pursued in the past. Often, their former investment plan wasn’t tailored to get them where they wanted to go. Usually when our two groups get together (advisors and portfolio managers), we’ll have an “aha” moment when we discover that a client’s former plan wasn’t designed in key ways to meet their goals. It could have been that they needed more income or they were taking out too much income, for example. Or, they needed to take on more risk and amp up the growth prospects of their account. If the account isn’t generating enough revenue, it could be a stress-point for a client. We try to get them on the right track by suggesting some adjustments to get them to a desired outcome.
How is Middleburg Financial handling the current investment environment?
David: Some advisors today are in the moving business. They aren’t in the storage business. They are constantly moving their clients in and out of assets to earn fees. We’re portfolio and asset managers trying to achieve the greatest result based on the what the market gives you over time – not one given week or quarter. Our investment philosophy endures through any market condition. It doesn’t change just because the market changes. The worst thing you could have done when the pandemic started was to get defensive. If you did, when things started to get better, you wouldn’t have benefitted from the market rally after the initial decline.
Jess: The general conversation is hold pat, because we’ve been through these cycles before. Next is to ask a client what their specific needs are. Is it an immediate cash need? A long-term care need? We’ll make some adjustments, if needed. We’ll also try to find ways to make them money by taking advantage of the current situation.
David: Before, during, and after the pandemic, our portfolio and asset managers weren’t just looking at the V-shaped recovery and saying “we got that right.” They’re also looking out for the next six months, and then the next two years.
How is the Middleburg philosophy different when it comes to index funds (a type of mutual fund or exchange-traded fund that tracks a specific market index) and using an active vs passive strategy?
Jess: We’re believers in using a passive strategy (buying and holding investments for a long period of time) and ETFs (exchange traded funds) where we see a good fit with our clients’ needs. There are times when using passive is the right approach. We use it as it a tool within our overall asset allocation, but we’ll layer on other active investment vehicles as well. We’ll also look at private investments.
How important is asset allocation? (Asset allocation is a strategy which attempts to balance risk vs reward by adjusting percentages in an investment portfolio).
Jess: Asset allocation drives around 90% of the portfolio’s performance. Optimizing the asset mix is what helps a client reach their specific goals. Some of those goals are to generate return. Some are to generate income. Some are to provide defense to the portfolio. Asset allocation is the true secret sauce that pulls it all together in a portfolio that’s customized to the specific client need, but will also hold up over market cycles.
What role do financial planning and investment planning play? How do they work together?
David: People hire us, more often than not, to manage their assets. That’s our business. That’s investment planning. All the other things we do are the verticals to investment planning – the financial and cash-flow planning, the estate planning, etc.
Jess: The financial plan is like GPS. It tells you the direction and helps you get there. You need to have the right car and right driver too. While financial planning is an important tool, having the right financial advisor that will help you execute on the plan is the most critical decision. If someone has a million dollars and wants to preserve it for a 30-year retirement; that’s a mission that can only be accomplished with the right team. If someone wants to create family wealth; that’s a totally different mission. That’s why we create customized plans. Everyone has a different goal.
David: We’re going to go down the road with clients if we need to. If we find out that they can’t get to where they want with their investment plan, that’s when the financial planning becomes useful to try to get them back on track.
What’s the important aspect of a financial plan?
Jess: Savings and spending. If you want to spend more, then you’re going to have to save more early on or take on more investment risk. Monitoring and updating the plan are also very important.
David: One of the most misunderstood aspects of financial planning is that it promotes a thought that we’re going to plug in all these variables and make it work. The reality is, when you put assets into a financial plan and apply some expectations as what the return might be, it will tell you right away if you’re going to hit or miss your goal. Spending and saving or adding to investments with other sources of capital investment or income in retirement, become as important, if not more, than the investment return. Managing expectations is also an important part of our business – for us, for the client, for the asset managers as well.
Jess: Communication is at the front of what we do.
David: It’s ongoing. It’s like going to the doctor for a check-up. You don’t just go once. You keep going to check your health – learning what is working and what isn’t.
What is the lifecycle of successful investing?
Jess: We take a long-term view and I sincerely believe that’s the most important aspect of successful investing. As mentioned before, the lifecycle matches the clients age, risk tolerance and what their goals and aspirations are post retirement.
What’s the first thing you’d do with a new client?
David: It all starts with an interactive three-way conversation between advisor, portfolio manager, and client – with the client being most important. We’d connect them with our philosophy. We need to understand their needs, objectives, and expectations, and then we would communicate those needs between teams to design the correct dosage, if you will, of asset allocation to keep them on the right track or get them on a better track. We’d create a customized strategy to meet their needs.
What’s the difference between Middleburg Financial and other firms?
Jess: At our core, everyone on our team has a voice. We have experts in all areas. The size of our investment team is not too large, but we are deep in expertise. When it comes time to make a final decision on philosophy or strategy, we’re very efficient. I’d also like to make it clear that we are curious and creative, and that leads to new investment ideas. We’re not the large institution that has all these business models and an 800 number that isn’t answered by a real person. We are accessible. We are part psychologist. Part investment manager. Part thought leader. Part fiduciary. Every client has a different story. We have all the tools to help them and most importantly we listen and we care. That’s what sets us apart.