In this episode, we speak with Michael Gennawey of SoCal wealth management. We talk about the unique challenges advisors face when part of a credit union, how he thinks about portfolio construction, and also some of the parallels between investing and video games.
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Scott McKenna:
Hey guys, and welcome back to another episode of Speaking Logicly. My name is Scott McKenna, and today I’m joined by Michael Gennawey, who’s the Financial Advisor and Program Manager at SoCal Wealth Management. Michael, how are you today?
Michael Gennawey:
Great, Scott. Thanks for having me on.
Scott McKenna:
Yeah. Great to have you on. So, Michael, I know you’ve been talking to some of my colleagues about our logicly platform and we chatted a little bit before. But super interesting background, we would love for you to tell a little bit to our listeners about you and your business over at SoCal Wealth Management.
Michael Gennawey:
We are a full service wealth management, financial planning firm. We’re on the LPL platform and we’re affiliated with the Credit Union of Southern California. The majority of our business is working with members of the credit union, we call them. Mostly everyday people, business owners, employees, families, and we do a lot of that. We have about four financial advisors, one junior and two assistants.
Scott McKenna:
Tell me a little bit more about how that works, being part of LPL and a credit union. Most of the other advisors don’t. I don’t think we’ve actually talked to anyone who is accredited with the credit union. Would you mind explaining a little bit more, how that works with your business?
Michael Gennawey:
Because it is a little different. Instead of it being like an RIA where we are outside and have to earn business from the community, we have members that are working with this credit union. In my particular case, Credit Union of Southern California, there is 120,000 members. So, when it goes to marketing, we already have a captive audience to work with. A lot of times they come to us when they need a retirement planning, or college funding planning, or basically in general try a game plan for what they need for their financial future.
Scott McKenna:
What are some of the unique challenges that you face being associated with a credit union?
Michael Gennawey:
The best part is… In terms of building up the business, we have that captive audience, we know who our demographic is. The tough part is… Since we are working with everyone at the credit union, you have to be well-versed in about everything. Because, someone who’s starting out in investing, in their profile what they need, is going to be a lot different than someone who’s been at a company for 35 years and about to retire and has a lot more different amount needs. That’s the biggest challenge. You have to be well-versed in everything.
Scott McKenna:
When it comes down to your day-to-day, what does that look like? Are you mainly working on portfolios? Is it a lot of financial planning? Curious. What’s the breakdown of your activities that you’re going through every single day?
Michael Gennawey:
My role has changed over the years. I’ve been with SoCal Wealth Management for 11 years now. It started off being primarily financial advisor, but at this point, maybe about half my time to 60% of my time is financial advisor. The other 40% of the time is a mix between the management of the program and the other advisors, and portfolio construction. One of the things I didn’t mention earlier is that I am the portfolio construction… I do all the construction of the portfolios for the team. I do run all the models.
Scott McKenna:
That’s awesome, we love to hear that. That’s why you were looking at the Logicly platform, right?
Michael Gennawey:
Exactly.
Scott McKenna:
I would love to hear what’s your process when you’re constructing portfolios? We can start off with that and then I have a couple of more questions to follow-up off of that.
Michael Gennawey:
Once again, that’s evolved over time, but the way it stands right now is, I have a tech stack that I use to vet and revet the positions I have in the different models. I run about 10 different models, with five different risk profiles. I do attack sensitive version of each of those five, and what I’ll do is… I don’t have a set schedule in terms of calendar of what I do, but basically two to four times a year, I’ll sit down and we’ll make sure I have the best pieces because… As we know, with ETFs and fund companies, they’re always innovating, new things are coming out, and if you’re using the same ETF or fund you’ve been using for the last decade, it might not be the most appropriate going forward. What I do is, I make sure that the models are appropriate, not just with rear-view mirror analytics, but also forward-looking as well.
Scott McKenna:
You mentioned the fact that you’re swapping out different ETFs. How do you choose which ETFs go into your portfolios? Because, I know it can sometimes be a daunting task, there’s over 2,300 in the US. If you’re looking at it globally, it’s like 9,800. What’s your process that you go through to screen for them?
Michael Gennawey:
It depends on what part of the portfolio. If it’s fixed income, I’m looking at things like risk metrics, I’m looking at yield, I’m looking at liquidity. When I’m looking on the growth side of the portfolio, obviously a lot of that’s going to be equity. I screen it for different things there. I also make formal allocations to satellites and hedged investments as well. I know a lot of buffer products are coming out in the ETF space, those have been great for my more conservative clients. That’s helped to refine those portfolios to… Especially with the COVID crash we had in March of 2020, earlier this year, the risk metrics on those did fantastic. By screening those different categories, made it a lot easier to find the right products.
Scott McKenna:
Talking about the buffered ETFs, that’s interesting that you brought that up. We’ve also been keeping an eye on them. Also, I’m curious to hear your thoughts on the products that are semi-transparent as well.
Michael Gennawey:
Starting on the first one, it’s always going to come down to the allocator to know their clientele. My clients a lot of times skew more conservative, and they’re willing to give up that upside and maybe have a slightly higher expense ratio, knowing that they’re going to have some protection in downmarket. It’s not just the buffer ETFs, but also the smart beta suites. Minimum volatility ETFs have been fantastic this year as well, in terms of the risk mitigation that they’ve provided. On that side, I am open to all those different types of products because, they exist for a reason, they fill certain niche, and if it’s appropriate for your client, they do a great job.
Michael Gennawey:
Then on the semi-transparent note, I’m somewhat reluctant to it at this point, but that’s me being more of a control freak than anything else. I like to know what’s in the portfolios. When we talked about what I screened for, if I’m ever on the Morningstar website, the first tab I always go to is the portfolio tab. I want to know what their holdings are, I want to know what weight they’re being held in and how often that’s being turned over. That’s the first way I gauge what an ETF or a fund is doing versus, what they’re trying to tell me they’re doing.
Scott McKenna:
You mentioned you were using Morningstar, what stood out to you when you were looking at our platform, Logicly?
Michael Gennawey:
In terms of the amount of data I could get to quickly, Logicly is fantastic. We could walk through this one. One of the ETFs I was using this year was that thematic ETF from a company called ARK Investment, and they have an ETF… Or actually what I did is, they have an ETF called it A-R-K-K, and they had a very heavyweight in Tesla this year, and they still do. It’s one of the reasons why their performance has been so good year to date. I wanted to see what other ETFs are also holding a similar weight. Is anyone else doing it?
Michael Gennawey:
If you use the stock to ETF tool, stock to ETF lookup, put in Tesla, it’s going to bring up basically… You can sort it by the weight column. It’s going to show you who are the top companies doing this, and you can see ARK is one of the leaders there. Once again, when it comes to portfolio construction and vetting what companies I have in the portfolio, I could at least this way see, are there other companies I should be considering? Very easily. That was something that I had a lot of trouble with before using the Logicly platform.
Scott McKenna:
It’s funny that you mentioned ARK and it’s actually not the one, for years and years, they received a lot of hate about that Tesla position, because there’s such a big weighting. They’ve done an amazing job, their performance has been excellent. But it’s funny you don’t see these other ETFs, EARK that’s Canadian, but these other two ones, IYK and XNTK, they have a much larger position. I’m sure probably not as long going back as ARK, but still, it’s interesting to see that because I would have thought for sure, ARK would have had the highest position.
Michael Gennawey:
It probably would have been the highest position if they weren’t paring it back, but they are. They are trying to keep it at a certain level. I get what they’re doing there, and once again, that’s something I could take into consideration. Maybe it’s time to change into iShares or somewhere else, based on what my clients need are.
Scott McKenna:
You mentioned before, that a lot of what you do has to do with taxes. Did you have a chance to look at some of the tax stuff that we offer on the platform as well?
Michael Gennawey:
I haven’t done so much of that, but if you want to walk through it, we could. Let’s take a look.
Scott McKenna:
Yeah, for sure. The main tool here is in the portfolio analysis. Like you said, this is the first thing you go ahead and look at. Also, did you have a chance to do any of the integrations or did you upload the CSV?
Michael Gennawey:
No. I was doing that as CSV file because another piece of software I use, uses CSV file, so I had it set.
Scott McKenna:
For those of you guys who are watching and interested, you can also use the integration. We’re working on getting into LPL, but right now you are able to use PLAN, which I’m sure you guys have used it if you’ve ever used something like NID or a lot of other things. It basically aggregates the account data weave into Robinhood, that’s what it comes with. If you’re an individual trader on this platform, you could use it as well, if you’re listening to the podcast. I have my Chase account, which it’s not logged in, but I’ll log in. I did one SPY being D-plus gold.
Michael Gennawey:
Okay.
Scott McKenna:
It’s equal weighted and I’m going to hit apply here. In this tax section, I know there’s a lot of sections. Sometimes when we talk to people, they only get to look at a couple of different ones. What we do is called a tax loss analysis. This is all up year to date, so, not a good example. I’m going to switch this out for something that I know is down and absolutely crushed, which is XLE Energy.
Michael Gennawey:
Sure.
Scott McKenna:
I think the last time I checked, it was down at 40.
Michael Gennawey:
In terms of having too much data on the screen, it’s hard to do that. The fact that there’s so many tabs, means I’m not clicking to other tabs on my web browser, so, that’s not really a problem.
Scott McKenna:
Here we go, down 50% year to date XLE. What we’re actually doing is we’re scanning the portfolio, and we’re identifying highly correlated, rebalanced trades that you could make and harvest the tax losses. So, for you managing the portfolios for the other advisors, you can run this once a week or whatever using those CSV files. Or if we get it set up with FID, you can get notification saying, “XLE is down 50%.” Here you go, maybe you want to move out of it, and in this case, maybe VDE would be a better position.
Scott McKenna:
Here’s something else, you can save a couple of BBS by switching from XLE. XLE is at 0.130 and this is 0.1 off VDE. You can go ahead and make that swap, so, get 99% correlation. The other key thing to write when you’re thinking about tax loss analysis, avoiding that wash sale. How are you currently thinking about avoiding the wash sale when you’re making these trades and when you’re screening for ETFs? Obviously, you can look for correlation. But what are the other metrics that you’re currently using when you’re thinking about?
Michael Gennawey:
A lot of the ETF providers I use right now, are the big names, iShares, Invesco, State Street. I know where I can go to for a similar fund, because they have such a huge offering. I don’t usually run into wash sale problems because, I know where to go from there. But the way that this is listing it out, and like you’ve said, instead of trading two to four times a year, having a weekly feed would be a huge advantage to take, especially with all the volatility that we have. If I could be a little bit more nimble with that, that would be a huge advantage. In terms of screening for expense ratio, if it’s the same benchmark that the ETF is using, as long as it’s liquid, I don’t need to go much further than that to make sure that it’s going to be a good fit.
Scott McKenna:
That’s true. We also went a little bit further so that… Because originally when we set this up, I think some people were weary, they said, “99% correlation. How is that going to avoid the wash sale rule?” While we said, “All right, let’s take it a step further.” We’re looking at the underlying indexes as well. What we’re doing here is, XLE is in the SMP Energy select sector index. So, they have their own sectors, right?
Michael Gennawey:
Right.
Scott McKenna:
These other ones, they’re actually in different indexes. In that case, they’re constructed differently and therefore, nine times out of 10, we figured they’ll probably be avoiding the wash sale rule. Again, IYE is following the Dow Jones, Global United States, oil and gas industry fund index, and then VDE is following MSEI index. So, another way to make sure that you can avoid wash sale. From what I’ve heard from other advisors is, they’ll usually say, “I’ll look for a high correlation, but then I’m going to switch indexes to make sure that I avoid that wash sale.”
Michael Gennawey:
It’s the same way to approach it because a lot of times… Once again, you’re looking for the same exposures. You need to make sure that you’re not going to trigger any tax issues.
Scott McKenna:
When it comes down to portfolio analysis, when you’re constructing portfolios for the other advisors, updating them. I’d love to learn, what are some of the other things that you look at individually? And then my followup question, which we can cover after that is, what are the things that you show clients?
Michael Gennawey:
Most of my clients, usually don’t want to get into the nitty-gritty details. When I was using technology that was producing outputs like that, it was not a great conversation. There was not a great way to approach it. For clients, it always comes back to their financial plan. That’s the roadmap that tells them how to make decisions. MoneyGuidePro is the software we use for that, that builds out the plan. And then usually, I’ll use Riskalyze to make a risk number, because not only is it very easy and very client friendly in terms of graphical interface, they get it, they get the idea of zero to a hundred and I’m a 64. And if I don’t feel comfortable with being 64, “Michael, what do you do? That’s below a 64.” Then we can look at something else.
Michael Gennawey:
That’s on the client facing side. On my side when I’m doing more deep analytics, I like using Koyfin, of course I’m using Logicly now to kind of use a way to look at my historical track record and how the portfolio has changed over time. Because I don’t know how closely a lot of advisors look at their historical long-term performance and…
Scott McKenna:
When we’re talking about metrics, is it usually performance, risk, cost, exposures? What’s those stuff that you’re looking at the most?
Michael Gennawey:
When I’m looking at things very closely, I always start with portfolio. I’m looking at the construction of what’s underlying this fund. Because, in the industry, a lot of times they give names to things that don’t always correlate to what you want it to do. Something that’s an opportunity’s fund is usually code word for concentrated, or focused fund, concentrated again. I always look at the underlying assets first and then work backwards. How much style drift does it have? Is it an all cap version or are they focusing on mid cap? Then I start looking at metrics like costs, what is their cost to run this? What is their historical discount or premium?
Michael Gennawey:
Those are factors that we want to look at to make sure that it’s going to have the ability to be traded very easily for us, and then overall, how it consolidates together. You could have a best of breed ETF in your portfolio, but if there’s overlap or if it’s not complimenting the other things in the portfolio, it isn’t going to work. I’ve seen this where, an advisor uses a balanced fund as a core and put things around it. I do the opposite, I use individual pieces and make sure that there’s no gaps.
Scott McKenna:
It’s interesting you’ve said that because, that’s always a big thing that we hear from advisors who are trying to screen the universe of ETFs and then come to us for the screening tools. They say, “There’s a hundred funds that say… They’re dividend ETFs.” But, what does that [need 00:20:54]? If it’s an ETF that has a tilt or a smart Beta. How do you determine if it meets what it says that, in the blurb, that objective of the fund.
Michael Gennawey:
The dividend growth fund, is it a high yield dividend fund? Is it a sector dividend fund? It’s not always clear at first glance.
Scott McKenna:
It’s interesting that you said that, so we covered how you look at the ETF, how you look at portfolios yourself, and then how you share that stuff with clients. Taking it a step back, I guess, and overall about your business and especially throughout this whole pandemic situation. I’m curious to learn a little bit more about how you and your firm have adapted. Number one, before were you doing client review meetings all in person? You were more casual, you’d go get coffee with your clients, things like that? Were you more traditional? Having them come in, handing them paper reports. Or were you already doing some of the digital stuff that we’re doing like zoom right now with your clients?
Michael Gennawey:
No. It’s been night and day. In fact, even early on in the pandemic, that first three months or so, clients fought doing things digital. They like coming in, they like sitting down. Even though I’d have my screens with all their data, I wouldn’t rarely print things out. They liked being face-to-face. At this point, I am doing a lot more zoom. It’s a client to have learned the technology. One thing that I’ve actually noticed is that, when I tell the clients, they don’t have to have their video on that when they join the room, it’s going to start off, some actually prefer that. They could see me, I don’t need to see them all the time. That’s got some people over the hump to make sure that I don’t need to see them in their pajamas.
Michael Gennawey:
That’s been a big change. The way that we’re targeting our marketing has definitely changed. I had our data and analytics department at the credit union, run a screen of everyone who had a direct deposit in January, and then everyone in July who was at least 60% below that direct deposit. That created a list for us to call out and not even talk about investments, but ask, is there anything that we can do to help? Is there anything that we can do… Are you being forced into retirement? Are you between jobs? Is there anything that we can do to help in between my services and what we can offer through the credit union? We’ve been able to make a positive impact for a lot of lives.
Scott McKenna:
That leads to my question I had about, how it works. Prospecting new clients that are credit union. It seems with the credit union, you probably have some leads teed up to you in the case that, they’re already banking with the union. But how do you think about prospecting new clients, both through the credit union, and if you are outside.
Michael Gennawey:
My business’s fairly mature at this point, been with the credit union for 11 years, and I was advising with Merrill Lynch before then. I would say, a lot of my new clients come through referrals, a lot of word of mouth. That’s the predominantly, but like you said, as a credit union for my other advisors, getting referrals from the frontline staff and the phone center, is huge. We get probably about 50 to a hundred referrals a week of people who need to talk to us, whether they’re looking for a better rate on their CD, or they left the job and they’re ready to sit down and do a financial plan. Like you said, you have to be able to deal with everything at a credit union, and that’s the good and bad of it. We get a lot of clients, but you have to know everything. You can’t focus on just being an allocator.
Scott McKenna:
Right. Okay.
Michael Gennawey:
Before we started, we were talking about some of those other side projects I’ve been working on. The main one, is the Credit Union Advisor League. I know we talked about the credit union. I’m building out a network and a community for specifically credit union advisors, program managers. There isn’t a great resource for collaborating and networking in a space to share best practices, so cuadvisory.org is something that I’m working on along with another advisor, Casey Madsen, to bring that all together. That’s one thing that is making a big impact, the credit union rolled out service in making an impact. Putting this together has been great.
Scott McKenna:
From being on Twitter and all that, I definitely see the value of advisors being able to lean on each other and bounce ideas off of each other, so it’s awesome too. Some advisors have specific niches. But that’s awesome that you’re developing something for credit union advisors. The other thing we talked about a little bit was gaming, and I think it stemmed off. You listen to one of our episodes with Tim Maloney of Roundhill. I’ve recently been… You inspired me from our last chat to actually start streaming a little bit. So, this weekend I was streaming [God 00:26:55], since I’ve been playing a bunch throughout COVID so-
Michael Gennawey:
Very nice, happy period. That’s my last project that I’m working on, investing meta game, and right now it’s a blog, but a soon to be Twitch channel, and discord, and a formal bridge between the investing and video gaming communities. We’ll have to have you on as a guest streamer, it sounds.
Scott McKenna:
I’d like to talk a little bit more about that too. You mentioned last time that you see a lot of parallels between gaming and investing. Could you elaborate on that a little bit more?
Michael Gennawey:
There’s so many core principles of investing and gaming that go hand in hand, like cashflow analysis and CSGO, managing your budget from round to round. You need to be able to make the purchases you need in the rounds that you’re playing. Another example would be any game where you have Mana or Elixir, you need to make sure that you’re budgeting, so you could play defense and offense, and make a push at the right time. Investing is the same way. You have to make sure your buyer points and your sell points are going to be at the right time, or if your dollar cost averaging, you need to be consistent. You can’t overweight one month over another, it’s going to beat the purpose. There’s a lot of things that definitely parallel, and it’d be nice to have a community to bring that all together.
Scott McKenna:
I know I already followed you and I’m excited to see that. I think it’s a great way to get the gaming community interested in getting a little better financial literacy. I think that would be a huge… And easy way to teach people about investing and personal finance. A little bit based off of already, examples that they already know and love.
Michael Gennawey:
One of the reasons I started it was, I was in the chat on a Twitch channel and the streamer was asking about Roth IRAs, and the chat was filled with all this wrong information, I was like, “We need to get this right. We need to put this together and have a formal community to actually go through these things.” Because even esport athletes professionals, they could come into a lot of money quickly. As someone who’s worked with people who have won the lottery, that money could go quick, if you’re not allocating it properly. We need to make sure that we’re taking care of everyone in the community as well.
Scott McKenna:
It’s interesting that you say that because I noticed also… In terms of places where people are getting a lot of wrong information, TikTok. There’s a lot of people on TikTok that they’re like, “Real estate investors right or…” What they are is-
Michael Gennawey:
[inaudible 00:30:07]
Scott McKenna:
Or almost like. Some of them are peer scams. They’re on there and they’re talking like they know what they’re talking about and it’s wrong information, and yet they go viral. It’s funny, I feel like as advisers, I know there’s some compliance loopholes, but I think there’s huge opportunity to jump on those channels like Twitch and TikTok and… I don’t know maybe Snapchat, and start creating channels and content that’s providing correct and actual financial literacy to people that are on these channels. I think advisors spend a lot of time on Twitter to push that content out and education, and obviously LinkedIn, I don’t know that. Not many of that are using Facebook. Are you using Facebook at all?
Michael Gennawey:
Only for the Credit Union Advisory League, we use that as a forum. At some point maybe we move that over to Slack, or Discord, or something that’s more functional for conversations. I totally agree with you and it’s kind of twofold. There’s obviously a compliance burden for everything we do as advisors, which is good and bad. But also, a lot of advisors don’t want to focus on these communities that don’t have huge AUM, at least to start. I could spend my whole day talking to my retired clients and getting referrals from them, and building the whole business that way, because there’s a lot of AUM to manage there. When it comes down to it, we need to be able to give advice and good advice to everybody. There definitely are some areas where we’re giving a disservice to those people who are going to be doing very well one day, they aren’t right now.
Scott McKenna:
I think I pretty much wrapped up everything that I wanted to talk about. Michael, thanks again for hopping on the podcast. A lot of great projects that you’re working on. Again, if you want to get in touch with Michael as part of SoCal Wealth Management, you can reach out to him at…
Michael Gennawey:
Via LinkedIn for the credit union, for the cuadvisorleague.com and investingmetagame.com as well. If you’re a gaming credit union or wealth management, I got you covered.
Scott McKenna:
Awesome, very diverse things that you’re working on, but all very awesome. Looking forward to following you more on that. So thanks for coming on today.
Michael Gennawey:
Thanks so much.
Scott McKenna:
For those who are listening again, if you’re listening on a podcast platform, all of these videos are now available on YouTube as well. So you can check out our page, Logicly, just search it on YouTube and all the videos will be there as well as some other videos of us showing how to use the platform, best use cases, things like that. Thanks again for listening to Speaking Logicly and hope to hear you guys on next week.
