Scott Bussy is Managing Director, Chief Investment Officer and founder of Bearing Financial Advisors. With a Wall Street background, working with major financial institutions in various positions, over the years he observed a vast difference in the quality and expertise on the retail or individual client side of the business, as compared to his experiences on the institutional side.
That imbalance inspired and lead him to inevitably form Bearing Financial Advisors in 2002 to give the individual client the flexibility, quality and expertise he felt they deserved.
It doesn’t take long when you talk with Scott to realize this is someone who is passionate about keeping his clients successful in their investments, especially in retirement. I was fortunate to catch him for an interview and discuss how and why risk management is so crucial to retirement accounts and financial asset management.
Carolyn: Can you describe one big problem that you at Bearing Financial specialize in solving?
Scott: Sure. As a financial advisor, we’re obligated to provide objective financial advice—formally, through financial planning But there are many people out there who hire us solely as professional money managers. Some because they recognize they don’t have the knowledge and/or temperament to do it on their own; there are also a lot of mature investors out there who are still feeling the anxiety of investing through two horrendous bear-markets this century, and want to delegate it now to a professional.
A common issue we’ve been dealing with over the past 10 years is when the Baby-boomer has sworn off risk. Because the pain experienced in the market selloffs in 2001 & 02, and then 2008 & 09, is something they don’t want to repeat. This poses a problem when their investments must achieve higher returns (like those offered by stocks and stock funds) to reach their goals for financial independence, but their “margin for error” (i.e. “risk tolerance”) has diminished.
We developed a system designed to address that risk when it arises, and guide us through choppy markets and times of uncertainty.
Carolyn: So you bring your expertise and meet the client where they are in terms of how much knowledge they have or probably how much knowledge they are willing to acquire about the management of their assets.
Scott: It sounded to us like clients were very uncomfortable investing their money in a market they didn’t understand. What it boiled down to, was that nobody at that time—the advisors, the fund managers, the banks—had a plan they could articulate to clients in a manner they could understand. So we came up with a plan clients could understand, to manage investment risk.
Carolyn: What do you mean investment risk? And have mercy on me and explain it in layman’s terms, please.
Scott: In this context, Investment Risk is the risk of investing with the intention of reaching a positive outcome, but eventually experiencing a negative one. Sometimes the reasons for this are clear, but frequently they aren’t.
So our risk management system is predicated on identifying what to own and what not. We accept the truth that we won’t control risk. What we can do is modify over time the degree to which our clients’ accounts are exposed to it. Risk management is knowing when to get into or out of products to either take advantage of being able to earn more or protect the investment from losing more money than it has to. Anyone can make money in a bull market. Being able to do it systematically in either bull or bear markets and do so repeatedly is how we strive to take care of our clients.
Carolyn: That doesn’t sound like “buy and hold”.
Scott: No it is not. Our system is called “The D.R.E.A.M. System”. It is a rules-based, evidence-dependent tool that measures changing levels of risk showing up in the market. We then systematically adjust according to the pre-set rules for owning or selling volatile assets. The key is that it be systematically applied, so there are less “human-factors” clouding up the process. It’s not intended to be a predictive tool. It’s systematically applied. It’s not always right but when it’s wrong, it self-corrects.
For instance, the Dream System in 2009 knew what to do after a week or so – where to look and got our clients back into the market.
There’s been a lot of study in the field of behavioral finance initially by a team of Psychologists at the University of Tel Aviv. We’ve learned a lot from them. The negative sentiment or feelings generated by the loss of money on a trade or bet is twice as intense as having a winning bet or trade. So it is the human condition that makes investing antithetical – we are by nature inclined to do the wrong things than we are to do the right things when it comes to money or investing.
When you have a system – it takes the guessing out of it. And that’s a great place to start.
In other words, an experienced, professional trader never relies on their gut feelings. If you’re reacting to the market, you’re more likely to make a mistake.
Carolyn: So with your system, you are eliminating risk for your clients?
Scott: No. We are managing the risk, not eliminating the risk. Sure, I observe the market and the reaction to the market – but I don’t participate in the reaction.
Carolyn: What do you think is one of the most difficult question an individual investor or retirement focused investor is trying to solve on their own?
Scott: The most difficult question? I guess it is to know what are you going to do if the market goes off the cliff next week?
If you have a system like we have, it’s closely watching the changing levels of risk in the marketplace and sets the degree that it impacts investors. It is far better to have a plan. It’s not predictive – it’s not emotional – it’s systematic.
I can sum this up with a real-life example. I have a client who is 87 years old. She came to me retired widow at 80 who had $105,000K – it was her entire investment portfolio. She wanted to continue going to yoga classes, spend $10,000 per year and cover unforeseen expenses. At the time she was invested in equal proportion of stock and bond mutual funds. Combined, they were barely breaking even (near-zero returns) that year, after advisory fees.
Stocks and stock funds were signaling to us many reasons to invest in them. So we constructed a portfolio of more than 70% stock funds and 30% bond funds. Able to spend money to stay fit and comfortable, she returned home from another vacation in the South Pacific and felt comfortable knowing there’s $130,000 or more in her accounts to support her.
With a system, we can be on offense or defense depending on the financial environment. That’s what an active risk management plan does.
Carolyn: Scott, thank you so much for your time. How can people learn more about you and get in touch with you?
Scott: Thank you, Carolyn. Anyone can visit my website Bearingfinancial.com or call my office directly at 512-241-1035.
DISCLAIMERS: The “D.R.E.A.M. System” is a trend-following, rules-based decisioning system used to adjust allocation when market risk-levels change. It should not be considered a guarantee or predictor of future portfolio performance.
Securities and Advisory Services offered through Calton & Associates, Inc., a Broker/Dealer Member FINRA/SIPC. Bearing Financial Advisors, LLC and Calton & Associates, Inc. are independent, non-affiliated entities.