Morningstar Advisor - June/July 2011 - (Page 12)

Advisor Profile Taking the Lead By Kate Stalter Elyse Foster has learned that clients need a confident hand guiding them in times of trouble. Elyse Foster believes that one of an advisor’s most important roles is that of leader. That’s a key lesson she learned from the 2008 market downturn, and one that she conveys to her staff at Harbor Financial Group in Boulder, Colo. It’s a starting point for Foster as she seeks to guide clients toward financial security. “A very big goal I have is giving my clients freedom from worry,” she says. Foster founded Harbor in 1988, after working for a couple of years as an accountant. During that time, she learned of the Denverbased College for Financial Planning and enrolled there. Afterward, she joined a financial-planning and asset-management firm, where she stayed for about five years, becoming director of operations. After a short stint in investment banking, she started her own firm. Harbor has three Certified Financial Planners, including Foster. They are joined by an analyst, a para-analyst, and administrative staff. The firm has $108 million under management. Three Tiers, Six Models asset categories. They are constructed to fit the needs of clients at different stages of life and with different levels of net worth. The models can also accommodate unique situations that an individual may have, such as capital gains treatment. Foster uses the example of a client for whom a growth-and-income portfolio would be appropriate. In that case, she would use the firm’s growth-and-income model to determine investment percentages in cash, growth stocks, value stocks, and other instruments. Based upon these allocations, client portfolios are further delineated into three tiers. The first tier of Foster’s approach is the core holdings. Here, portfolios consist of cash, fixed income, domestic stocks, and international stocks. Assets are separated into categories, including large-cap growth, large-cap value, mid-cap, small cap, and emerging markets. Next is tactical. “We try to determine which sections of the market will do the best, from a value retention perspective,” she says. Commodities and other hard assets, such as real estate, could be considered here. Recently, Harbor put energy assets into the tactical section. Health care and a hedge category have also been included. This section is somewhat fluid, with a tendency to change every year or two, depending on the leadership or leadership potential of asset classes. “Tactical changed after the crash of ’08,” Foster says. “It has a firm anchor now with the hedge funds and commodities.” Some assets here are chosen to provide downside protection. Before 2008, Harbor’s sector allocation included investments in financials and other areas that no longer offered the same upside potential. Many of the tactical assets are publicly traded. That’s not always the case in Harbor’s third tier, which Foster calls the strategic area. Its application varies between clients, depending on portfolio size. Unlike tactical, in which holdings can change more frequently, Harbor selects strategic-area holdings for the long term. “We have real estate holdings and energy holdings—primarily natural gas drilling, where we’ve been for a number of years,” she says. Clients with large portfolios might go directly into hard assets, such as the natural-gas wells. The time horizon is longer on these investments, perhaps spanning 30 years. Other assets, like real estate, could warrant a five- or seven-year holding period. Higher-end portfolios may also contain individual stocks and bonds. For clients with less to invest, Foster may give them exposure to natural resources and other asset classes, such as gold and real estate, via mutual funds. “The Permanent Portfolio PRFPX is a favorite,” she says, “because it puts that all together in one package.” When it comes to asset management, Harbor employs a three-tiered approach to investments based on six detailed models that the firm has created. The models essentially serve as benchmarks, so Harbor can allocate ownership percentages to various 12 Morningstar Advisor June/July 2011

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2011

Morningstar Advisor - June/July 2011
Contents
Contributors
Letter From the Editor
Questions for the Secret Society
Are 529 Plans a Useful Tool for Clients’ College-Savings Goals?
Taking the Lead
How to Sell Covered Calls
The College-Savings Challenge
Time to Play Defense?
Four Picks for the Present
Investment Briefs
Careful What You Wish For
Caution in Utilities After Japan Crisis
Blossoms and Thorns in the 529 Garden
Lower Fees, Competitive Returns Help More 529s Make the Grade
Morningstar Grades 529 Plans
529 Risks Include the Political
Researching 529 Plans Made Easy
How Closed-End Funds Are Born
Boutique Within a Bank
The Inefficient Pricing of Moats
More Steak Than Sizzle
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Dangers of Demonizing

Morningstar Advisor - June/July 2011