Advocacy Wealth Enters Into Partnership With Liquid Strategies


Advocacy Wealth has entered into an agreement with Liquid Strategies to commission a strategy within the existing construction of the LS Theta Fund. Liquid Strategies will not share with Advocacy revenue generated by Advocacy-advised accounts. Liquid Strategies will share revenue from investors who do not have Advocacy-advised accounts. This revenue sharing recognizes Advocacy’s role in creating the strategy and allocating assets to the Fund through Advocacy’s discretionary investment powers. The Agreement entitles Advocacy to fees earned by Liquid Strategies on non-Advocacy clients, creating a possible conflict of interest. Advocacy addresses all conflicts by adhering to our fiduciary standard in accordance with the investment objectives of each client.


Advocacy has spent considerable time and due diligence searching for a solution that allows its clients of all account sizes greater than $1000 to own a broadly diversified investment grade bond fund of defined duration with a hold to maturity strategy for each individual issue.  Justin Boller, Advocacy’s Chief Investment Officer, will assume a role as co-portfolio manager on the Liquid Strategies’ team to ensure the consistent application of the fund’s laddered bond approach, while maintaining his role as Advocacy’s Chief Investment Officer.


  • Protecting what you have
  • Generating income for needs or reinvestment
  • Providing opportunities for growth
  • Ensuring liquidity to allow access to your funds


Advocacy has identified more than $300 million of client money for allocation to the LS Theta Fund. That amount should accelerate Liquid Strategies’ ability to attract other money beyond what Advocacy will advise. That amount is the minimum tied to the revenue sharing agreement between the two firms, which enables Advocacy to receive payment for money Liquid Strategy manages away from that which Advocacy advises.  Advocacy believes the investment management services provided by Liquid Strategies, in the jointly designed LS Theta Fund, are in the best interests of our clients. Liquid Strategies believes the redesign of the Theta Fund, the delivery of sufficient moneys to the Theta Fund to provide for the critical mass of resources to attract more funding, and the sharing of Justin Boller’s expertise, all deserve compensation.


Bond Ladders within a Mutual Fund

Congress created Mutual Funds, and Investment Advisers like Advocacy, with the Investment Act of 1940. Investors “fund” a “mutual” account that buys property. That property can be stocks or bonds, for example. Because the mutual fund has many investors and enough size, it can buy many stocks and bonds. Owning many stocks or bonds provides “diversification”, which, simply put, removes the risk of one single stock or bond causing a total loss to the entire investment. The investor owns “shares” in the mutual fund which represent the proportionate ownership.


Bonds are loans made by investors to corporations (like Amazon) or governments (like the State of Georgia). The contract of the loan (the “indenture”) states that the bond will pay interest to the investor on certain dates, how long that interest will be paid and when the original loan amount will be returned to the investor. Bonds come in two main varieties. “Bullet” bonds return the total amount of the original loan on the maturity date. “Amortizing” bonds act like mortgages and return some of the original loan along with interest on each payment date.


A “bond ladder” simply invests in a diversified group of bonds with staggered maturity dates. Some bonds will pay back, or mature, in the next few years; others may not mature until 10, 15 or even more years have passed. In your case, the mutual fund will buy a large group of different bonds from different corporations or governments, heavily weighted towards shorter maturities. Since the mutual fund plans to hold all the bonds until maturity, buying shorter maturities will allow your investment to capture higher interest rates more quickly than waiting for the money you loaned to be returned many years in the future. (If interest rates go down from current levels, the reverse is true -- you would want longer maturities, but we do not expect that scenario to play out.)


Risk of default and forced sales make up the two greatest risks to a bond’s value in a hold to maturity strategy, in our view. Diversification helps protect against default risk since no single bond can cause the whole group of investors to endure a major loss. Diversification within the size and scale of a mutual fund makes liquidity more readily available, and cuts into the risk of being forced to sell. Also, diversification with size and scale can produce sufficient cash flow so as to smooth out the lumps an individual investor might receive otherwise.


Availability of the Approach

To manage a bond ladder effectively for an individual investor, you must have an ample amount of money to work with, or both adequate diversity and liquidity become problems. Due to the similar investment objectives of our clients, pooling assets within a mutual fund allows participation for accounts of all sizes – especially smaller accounts ‐‐ with much improved diversification, liquidity and cash flow. Our new partnership with Liquid Strategies provides us the opportunity to offer the benefits of this fund structure while at the same time combining it with their specialty investment expertise into one complementary approach.


A Complementary Approach

Liquid Strategies applies a similar investment philosophy focused on capital protection, generating income, offering growth potential, and providing liquidity through the management of options contracts instead of the bond contracts traditionally used by Advocacy. Our research demonstrates that combining a hold to maturity bond strategy with the risk‐managed options approach used by Liquid Strategies magnifies the opportunity to meet and exceed the investment objectives outlined above. By using the bonds as collateral for executing the options strategy, your money pulls triple duty while reducing theoretical portfolio risk through a lack of correlation.


Wait A Minute! Options? Correlation?

Options trading is often viewed as speculative and some even call the practice dangerous. That assessment overlooks the fact that options were created, and are still heavily used, to transfer and reduce risk. Options provide portfolio insurance against a negative market event (buy the option). Options also generate portfolio income to increase the total return of the portfolio (sell the option).


The Liquid Strategies approach involves a combination of collecting a premium through selling put options and income from the bond portfolio used as collateral for the put options. A put option allows the owner to collect a fixed value for an asset for a fixed period of time. When selling the put option, Liquid Strategies operates in the same manner as an insurance company when it collects a premium on a life policy. The put options sold have a short term – one or two weeks usually –before expiration at the end of the fixed term of the contract. The asset that the owner has a right to collect value on is a broad index or group (“basket”) of stocks. If the basket is worth more than the value that would be received by exercising the put, the put is worthless. If the owner of the put to whom Liquid Strategies sold the option does not exercise the rights of the contract, the put expires worthless and Liquid Strategies keeps all the premium. That premium can be used as income for you or growth in the value of your assets


Whenever Liquid Strategies sells a put with a short term to expiration, it also buys a put with a much longer term to expiration. Pairing the buy with the sell protects investors in Liquid Strategies from a major loss – protecting your assets. The true power of this risk‐aware strategy provides for limited portfolio volatility while demonstrating nearly zero correlation to an investment grade bond portfolio. Correlation measures whether prices move in the same direction (“positive correlation”), in opposite directions (“negative correlation”), or independently of each other (“zero correlation”).


As an example, a negative event in the options strategy from a swift decline in stock prices historically has had a positive impact on investment grade bond prices. We call this negative correlation a “flight to safety”. We believe using these complementary strategies provides potential for substantial increased total returns without a complementary increase in portfolio risk. Pairing options with bonds in a mutual fund offering puts the “liquid” in Liquid Strategies: your money is available in one business day under normal market conditions.


What You Should Expect

This complementary investment approach will be the core engine we use to meet your objectives that your investments support. Expect that a significant portion of your account will be allocated to the Liquid Strategies mutual fund, which you will see listed on your portfolio statement as the LS Theta Fund (ticker: LQTIX). For those of you with larger accounts, we will be wrapping the many securities that we may have previously held individually in your account inside the fund, and larger accounts should expect to see fewer securities on your account statement.


Summary of Benefits to Clients

We expect the Liquid Strategies core holding in your overall portfolio to deliver dividends of 2% per year payable quarterly. We further expect that in most years Liquid Strategies will make a one‐time capital gains payment to investors. You can think of the 2% as your paycheck, and the capital gains as your bonus. The bonus, when paid, enjoys some additional tax benefits that may be good for many clients. Other benefits include:


  • Hold to maturity laddered bond strategy for any account size.
  • Increased diversification and liquidity of bond approach.
  • Money pulls triple duty;
    • Laddered bonds produce yield for income and reinvestment;
    • Aggregating individual bonds provide stable collateral;
    • Collateral allows for deployment of low‐risk options strategy.
  • Complementary options strategy can increase total return while reducing overall theoretical risk.
  • Increased predictability of cash flows (quarterly income distributions)
  • Potential “bonus” annual cash capital gains distribution in December from the options strategy
  • Tax efficiency due to special tax treatment of options income
  • Fewer securities in portfolio may lead to reduced transaction costs for larger accounts



To recap, Advocacy Wealth Management has entered into an agreement with Liquid Strategies to commission a strategy within the existing construction of the LS Theta Fund. Liquid Strategies will not share with Advocacy any revenue generated by the allocation of Advocacy‐advised accounts to the LS Theta Fund. Advocacy will share in revenue on assets invested in the strategy by investors who do not have accounts managed by Advocacy. The revenue sharing recognizes Advocacy’s role in creating the strategy and for bringing sufficient assets to the Theta Fund through Advocacy’s discretionary investment powers to create a critical mass that should stimulate further growth in the Fund. This growth should provide more resources for you, the client.


Justin Boller, Advocacy’s Chief Investment Officer, will assume an additional role as co‐portfolio manager on the Liquid Strategies’ team to ensure the consistent application of the laddered bond approach within the fund. With his increased responsibilities and resources, Justin will be eligible to receive compensation from Liquid Strategies for his work on the fund and Advocacy will share research expenses with Liquid Strategies.


In Closing

We are very excited to offer this solution to you, our client. As fiduciaries, we are bound to act in your best interests at all times, with prudence and transparency. We believe this core holding in Liquid Strategies will significantly improve our ability to meet and perhaps exceed your financial expectations.


Click here to learn more about Liquid Strategies.


Additional disclosures available here.

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Forge Consulting is a national insurance agency. We analyze but do not provide investment, legal or tax advice. Advocacy Wealth, a Registered Investment Adviser, offers financial planning. Advocacy Trust offers fiduciary services. Forge is the parent company of both Advocacy subsidiaries.

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