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Quarterly Investment Outlook: Growth Slowing/Inflation Accelerating

 4/9/19  

*6 minute read 

 Update on Current Bull Market: 

The Economic Expansion Cycle is now 118 months old. The record is 120 months. The average since 1950 is 40. 

 Quarterly Performance Figures as of March 31, 2019: 

The S&P 500 finished the quarter up 13.07%, the Nasdaq up 16.49%, and the Dow up 11.15%. 

 Here’s a video from Hedgeye summarizing the points made in the below commentary if you prefer to digest your content this way: https://youtu.be/O9LYDpkJSYM 

 With the first quarter of 2019 in the books, the performance figures paint a rosy picture! In fact this was the best start to a year for the S&P 500 since 1998. That’s welcome news for investors after a poor year-end showing in which stocks and bonds underperformed cash in 2018. 

Needless to say, this market performance is quite strange in light of the soft data, weak income and spending, contracting manufacturing numbers, lower than expected GDP growth, and corporate earnings expected to slow in the latter half of the year. 

Over the past few weeks I have poured through commentary after commentary from economists and investment strategists trying to make sense of the double digit returns we have seen in such a short period. If markets are truly driven by corporate earnings, but earnings are slowing, why are markets then shrugging off this information and prices reflecting a rosier environment? Why are stocks rallying but bond yields are reflecting much lower growth? Why is the data suggesting the economy is slowing down, when logically, with cheap oil, low interest rates, tight spreads and a stable US Dollar, the global economy should be booming? So many questions to address, so let’s dive into why. 

As I suggested in my previous commentary in March, the main driver supporting this market rally is The Federal Reserve’s decision to back away from raising interest rates and its commitment to remaining patient with future increases. But we have to wonder, is this dovish Fed policy actually enough to keep the market on steady footing and will it support the current rally through year-end? Or will a recession sneak up on us in short order? 

What we do know is the bond market just gave us our first signal of a coming recession with an inverted yield curve, the first time this has happened since 2007. And this has many concerned. If it’s inevitable that a recession will occur at some point, like a broken clock is right twice a day, it’s no longer a matter of if, rather, when we get the next recession. History suggests 12-18 months after the inversion of the yield curve, so this gives us some time to prepare. 

This also brings about the question, how reliable is an inverted yield curve in predicting a coming recession? The results are compelling: 85% of the time recessions follow an inverted yield curve. Recall that last time we had an inverted curve in 2007, what followed a year later was the global financial crisis of 2008-09. Major equity (stock) markets dropped over 50%, peak to trough (top to bottom). Panic ensued, and emotions ran wild. Sensible investment strategies and carefully constructed portfolios gave way to panic selling and a rush to safe haven investments such as treasuries and cash. 

This is a time when your financial advisor should have talked you out of making emotional decisions. They should have set you up with the proper asset allocation from day 1, a mix of stock/bonds/alternatives/cash matching your risk tolerance and long-term investment goals, and kept you committed to this plan even when every part of you was ready to hit the sell button. 

Given we’re 10 years into the current bull market expansion, you must be wondering what steps you can take to protect yourself from future steep declines? 

I’ll simplify this into two common strategies that are employed. The first strategy is taken by a majority of investors and can have devastating consequences to long term returns. It involves selling all your stocks, sticking the proceeds in cash, and waiting until “things look better,” more commonly referred to as market timing. With market timing, you have to get two things right, when to buy AND when to sell. Market timing is not a repeatable process, so even if you somehow managed to sell at the top of the market in 2007, and re-entered in March of 2009 at the market lows, consider yourself lucky and don’t fool yourself into believing this is at all attributed to skill. But this is not to suggest we have to sit on our hands either. 

The second and more preferred strategy, the one I use in managing client portfolios is what we financial professionals like to refer to as “rebalancing.” Rebalancing is an opportunity to 1) bring the asset allocation back to its original mix and 2) adjust portfolios to reflect the current growth and inflationary environment. 

Let’s first address 1) bringing the asset allocation back to its original mix by providing an example of a $100,000 portfolio invested on Jan 1, 2019: 

Original Portfolio Value and Stock/Bond mix as of Jan 1, 2019 

$70,000 (70%) of S&P 500 ETF, Ticker: SPY 

$30,000 (30%) of Barclays Aggregate Bond ETF, Ticker: AGG 

Year to Date through April 5, the S&P 500 ETF is up 15.97%, while the Barclays Aggregate Bond ETF is up 2.54%. The portfolio now has a current value of $111,941. 

Current Portfolio Value and Stock/Bond mix as of April 5, 2019 

81,179 (73%) of S&P 500 ETF, Ticker: SPY 

30,762 (27%) of Barclays Aggregate Bond ETF, Ticker: AGG 

When the stock market rises sharply like it has year to date, the portion of stocks in your portfolio grows to a larger amount (percentage) of the overall portfolio, which may expose you to more risk than you’re comfortable taking should the markets drop substantially. In this example, what started as a 70% Stock/30% Bond portfolio is now a 73% Stock/27% Bond portfolio only 4 months later. You can imagine that over a 3 or 5-year period of solid stock market returns, and average bond market returns, the portfolio doesn’t come close to resembling its original mix! 

After the asset allocation has been addressed, I look to implement item 2) adjusting portfolios to reflect the current growth and inflationary environment as another risk management strategy. 

This is where I turn to the research team at Hedgeye for their quality, independent, data driven research to help me implement decisions through a repeatable rules-based process, not guesswork. 

Recently the research team over at Hedgeye suggested we are in a slowing growth and accelerating inflationary environment, which they call #Quad3. 

They suggest “overweight(s),” to asset classes you should consider increasing exposure to, and “underweight(s)” to asset classes you should consider decreasing exposure to. 

Here is a list of the overweight’s and underweights they recommend for Quad 3: 

Asset Class Overweight(s): 

  • Fixed Income

Equity Sector Overweight(s): 

  • Utilities, Tech, Energy, and REITs

Equity Style Factor Overweight(s): 

  • Low Beta/Minimum Vol., Growth, and Quality 

Fixed Income Overweight(s): 

  • Long Duration Treasuries, Taxable Munis, and TIPS

Asset Class Underweight(s): 

  • Equities and Credit

Equity Sector Underweight(s): 

  • Financials, Materials, Communication Services, and Consumer Staples

Equity Style Factor Underweight(s): 

  • High Dividend Yield, Value, and Small Caps

Fixed Income Underweight(s): 

  • Convertibles, Leveraged Loans, and High Yield Credit

As long as the data continues to reflect this combination of slowing growth/inflation accelerating, we will boost our investments in asset classes above labeled “overweight.” These are some of the modifications that we can implement to help improve the overall risk adjusted returns of your portfolios. 

Aaron L. Hattenbach, AIF®

[email protected]

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March 2019-The Federal Reserve

3/1/19

Update on Current Bull Market: 

The Economic Expansion Cycle is now 117 months old. The record is 120 months. The average since 1950 is 40, There have been 13 Fed hiking (raising interest rates) cycles since 1950. Ten of them resulted in a US recession. 

 What’s Happened in 2019? Why is the Federal Reserve so Important?

 The markets soared during the first 2 months of 2019 with the S&P 500 up 11.48%, and the Vanguard Total International Stock Index up 12.4%. You may be asking yourself, what’s changed dramatically since the nearly 20% drop before Christmas Eve? Not much…actually. The following remain outstanding and unresolved issues: Trade wars, slowing corporate earnings, weak retail sales, an inverted yield curve, Brexit uncertainties, near-recession conditions in Europe and the threat of more government shutdowns. Add to this a Federal Reserve that was increasing interest rates in December and you have an environment where investors frantically sell stocks and hide out in cash, waiting for a clearer picture. But not my clients. We stayed true to our investment strategy, and ignored the headline noise. And you’ve been rewarded with a sharp rally to start out 2019. So what actually caused the market to rally over 10% in the ensuing months? The answer, a major policy shift announced at the FOMC January meeting by the Federal Reserve. Clearly this announcement proved significant enough to overshadow many of the issues highlighted above, and allowed the market to recover, and rally to near all-time highs. 

In the interest of keeping you engaged, I’ll avoid the financial jargon often associated with coverage of the Federal Reserve and its activities. Instead, allow me to provide a simple explanation of what the Federal Reserve System does, the significance of what happened at the FOMC meeting in January, and why this change in policy has resulted in improved market performance. Ultimately, you’ll begin to understand why lower interest rates are often good for you, the investor. 

 The Federal Reserve System is the Central Bank of the United States, making it the single most important actor in the US Economy, and naturally the world given the US’ importance in the Global Economy. It was founded in 1913 with President Woodrow Wilson’s signing of the Federal Reserve Act into law. The Federal Reserve sets the target for the Federal Funds Rate, the rate at which banks pay to borrow from each other to meet the reserve requirement at the end of every day. A high Fed Funds Rate means that banks will lend out less money, and alternatively a low Fed Funds Rate means that they will lend out more money, because they are able to charge a lower rate to borrowers making it more attractive to borrow. When banks costs to borrow go up, so do yours! 

High interest rates also lower consumer income, as consumers with debt are paying more in interest on their loans. This is turn has a negative impact on their spending habits, and with consumption accounting for ⅔ of US GDP, this means less disposable income to spend on products and services, impacting the very companies that rely on consumer spending to boost sales and thus earnings to shareholders. Higher interest rates also make it more expensive for companies to borrow, discouraging them from continuing to invest in equipment, hiring, and other efforts taken to expand. 

Interest rates impact every single loan product available to both consumers and corporations. From car loans and home mortgages, to credit cards and bank loans, lower interest rates, known as expansionary monetary policy often lead to accelerated economic growth and activity. 

On December 19, the Federal Reserve raised interest rates for the 4th time in 2018 to 2.25-2.5%, the 9th such adjustment since 2015. Markets reacted, dropping nearly 20% from their highs. Panic ensued, with intraday market price swings of +/-3%. The dreaded R word (Recession) suddenly appeared in every major financial news publication with predictions of the next one happening sometime in 2020 or 2021. Industry pundits voiced that this indeed was the end of the great 9-year expansion as we know it. 

But the Fed acted swiftly and surprised market participants in its January 2019 meeting where it reversed its current rate hiking course, revealing it is likely to hold interest rates steady for an extended period of time, and that the committee will exercise considerable flexibility in its monetary policy. Remember, more accommodative monetary policy (lower interest rates) means easier financial conditions, and historically stocks tend to perform better in such a backdrop, which benefits you the investor. With this quick U-turn in policy, we can reasonably expect that the Fed won’t allow any further steep corrections beyond what we saw in December, if it can. But this reversal in policy also signals that global economic activity appears to be slowing down as we enter the mature phase of the expansion. 

Now, to end on a positive note. There is an old adage on Wall Street: “As goes January so goes the year.” The S&P 500 rallied 8% on a total return basis in the month of January – erasing most of the losses in December. With January posting strong returns, it is an early seasonal signal that the markets should have a positive return on the year – with history showing a positive year 92% of the time. This does not always work as last year was a good example; nonetheless it is a positive box we can check. 

 Warm Regards,

Aaron Hattenbach, AIF®

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Late Cycle Investing Playbook

10/11/18

Late Cycle Investing Playbook

 

“You can’t predict, however you can prepare”

Howard Marks on The Tim Ferris Show

 

It’s now been 2,416 days (or 6.5 years) since the last 20% market correction.  In secular bull market cycles, the average is 1,105 days before a 20% correction occurs.  While we may not know what lies ahead, investors can enhance their likelihood of success if they base their actions on a sense for where the market stands in its cycle.

So where are we in the current market cycle?  The economic recovery in the US post 2008-09 has now entered its 10th year.  It’s worth noting that the longest U.S. recovery on record lasted just ten years.  While there certainly is no hard-and-fast rule that limits economic recoveries to 10 years, it seems reasonable to assume based on history that the odds are against a ten-year-old recovery continuing for much longer.

With it being the 10th year of the economic recovery, you may be wondering what one should do at the later stages of the economic cycle?  Move to cash and wait for the next market correction and opportunity to buy low?  ABSOLUTELY NOT!  If you fool yourself into believing you can time the market successfully, know that even the smartest of professional investors with the best technology and teams of research professionals can’t do this consistently.  However, if you’d like to apply a sensible investment strategy that has performed well on a relative basis in the 7th, 8th, and 9th (later) innings of the economic cycle, continue reading.

But first, an update on the US economy, and it’s mostly good news… 

  • We’re about to hit 9 consecutive quarters of accelerating US GDP growth (from 3Q 2016 to 3Q 2018), an unprecedented streak in US economic history.
  • Corporate profits have grown at a staggering 25% year over year, which is important because the US has never experienced a recession when corporate profits have been increasing.
  • There’s never been a recession in the US when the leading indicators have been rising as they are now.

While the S&P 500 was up nearly 9% this year (through September 30), the bulk of returns was driven by a few large tech stocks, not broad market participation.  On a recent conference call, Larry Fink, the CEO of Blackrock (one of the world’s largest asset managers) was quoted as saying, “If you strip out a handful of outperforming tech stocks, the lack of breadth in the equity markets is troubling.”  And the numbers are very much alarming.  Apple and Amazon were responsible for nearly 30% of the S&P 500’s nearly 9% gain so far this year, according to S&P Dow Jones Indices.

There are certainly risks to weigh…

I’m concerned that investors have largely ignored the glaring risks associated with major tech companies, such as potential punitive measures that could affect Apple’s manufacturing in China or cost increases that could hurt Amazon’s e-commerce sales, both risks to constituents that contributed 30% of the current returns to the S&P 500.  We’ll obviously need broader participation overall, and in particular from the financial sector to keep this bull market chugging along.

High levels of investor optimism, without a healthy level of skepticism also indicate we’re nearing a peak in the cycle, and that the easy money has been made.

A few more anecdotal pieces of evidence to support this extreme optimism:

  • At the beginning of 2018, 2,296 private equity funds were in fund-raising mode, seeking $744 Billion of equity capital. These are all-time highs. (Financial Times)
  • According to Crunchbase, there have been 268 venture capital mega-rounds ($100 million rounds), invested during the first seven months of this year, almost equal to a record of 273 mega-rounds for the entire year of 2017. And during the month of July alone, there were 50 financing deals totaling $15 billion, which is a new monthly high.” (The Robin Report)
  • Personal loans are surging. The amount outstanding reached $180 billion in the first quarter, up 18%.  “Fintech companies originated 36% of total personal loans in 2017 compared with less than 1% in 2010, Chicago based TransUnion said.” (Bloomberg)

Remember that every single economic cycle ends with wage growth accelerating; and every single US recession starts with wage growth accelerating (Hedgeye).  So while Amazon raising its hourly minimum wage to $15 seems positive for the economy, its likely a signal of where we stand in the market cycle.

While the US economy is doing quite well, it’s important to not overlook the market and economic structural concerns that remain.  Increasing federal debt will eventually cause interest rates to rise sharply and stifle housing and capital spending.  Higher tariffs imposed by the US are punishing already ailing Europe and the rest of the world where growth has been contracting.

In Europe, where the economy was growing at close to 2% last year, business activity has tapered off.  The UK is growing at only 1%, or one half of its growth rate prior to Brexit.  And in this globally interconnected economy, our markets, and specifically the S&P 500 generates more than 40% of their earnings from abroad.  So when the rest of the world catches an economic cold, we aren’t necessarily immune.

Now that you’ve had time to digest the good and the bad, let’s get to the main objective of this commentary—sharing with you, the strategies that are more effective at the later stages of the market cycle.  Stocks that have historically exhibited lower risk and higher quality characteristics, which will likely lag in a stronger market environment like the one we’re currently in, but over a full market cycle, could expect to earn a better risk-adjusted set of returns than the overall market.  Which is why, going into year-end, I’m beginning to trim my client’s exposure to cyclical growth sectors (Tech, Consumer) and re-allocating to sectors and stocks that demonstrate lower volatility and higher quality factors.

Specifically, here are some investment strategies for further consideration:

  1. USMV. iShares Edge MSCI Minimum Volatility USA ETF

USMV is a strategy designed to track an index composed of U.S. equities that as a whole have lower volatility characteristics in relation to the broader U.S. equity market.  This strategy carries a beta of 0.67 in relation to the S&P 500.  Beta is a measure of the tendency of securities to move with the market as a whole.  A beta of 1 indicates that the security’s prices will move with the market.  A beta less than 1 indicates the security tends to be less volatile than the market, while a beta greater than 1 indicates the security is more volatile than the market.

Important to note, and taken directly from the fact sheet of this fund: Historically, USMV has declined less than the market during market downturns.

  1. VIG. Vanguard Dividend Appreciation ETF.

VIG is a strategy designed to track the performance of the NASDAQ US Dividend Achievers Select Index, an index of companies that have a record of growing their dividends year over year for a period of at least 10 consecutive years.  The strategy targets highly profitable U.S. dividend paying stocks, reducing the fund’s exposure to stocks with weak fundamentals.  The fund’s tilt toward more stable stocks has helped it shine during market downturns.

By no means should you entirely abandon the technology and consumer discretionary sectors, rather, if adding new cash to the markets at these levels, look to the above strategies providing exposure to companies with more stable cash flows and “boring businesses” that are less sensitive to the ebbs and flows of the economy.

 

Warm Regards,

 

 

Aaron L. Hattenbach, AIF®

Managing Member

Rapport Financial

[email protected]

 

The opinions expressed herein are those of Rapport Financial, LLC (RF) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. Consider the investment objectives, risks and expenses before investing.  You should not consider the information in this letter as a recommendation to buy or sell any particular security and should not be considered as investment advice of any kind. You should not assume that any of the securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of the securities listed in this newsletter. These securities may not be in an account’s portfolio by the time this report is received, or may have been repurchased for an account’s portfolio. These securities do not represent an entire account’s portfolio and may represent only a small percentage of the account’s portfolio. partners, employees or their family members may have a position in securities mentioned herein.  Rapport Financial was established in 2017 and is registered under the Investment Advisors Act of 1940. Additional information about RF can be found in our Form ADV.

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Third Quarter Commentary: US Tech and Consumer Lead the Way with Trade Wars Remaining a Serious Threat

Topics Covered:

    • US Growth Strengthens and Impending Trade Wars
    • Recap of Second Quarter: Strong Dollar, Global Growth Slow Down, Emerging Market Weakness
    • Portfolio Positioning for Latter Half of 2018
    • Firm Updates

US Growth Strengthens and Trade Wars:

By virtually all estimates the U.S. economy just completed an outstanding second quarter with robust growth. Bank of America Merrill Lynch officially revised its Q2 GDP forecast to 4.0%, and expects the US economy to grow by 3.0% in 2018. Looking ahead they expect some of the momentum and better productivity growth in the economy to carry over into 2019 in the form of better spending and investment, with expectations of next year’s annual growth number to 2.6%. 

American factory activity accelerated for the second straight month in June, signaling momentum in the U.S. manufacturing sector. We’re seeing the small business confidence index continue to hold at the highs (107.8 in May). And why does this matter? Conditions for small businesses can be taken as a quasi-proxy for emerging/prevailing “main street” conditions. Recall, small businesses represent over 99% of total U.S. Employer firms and >60% of net private sector hiring on a monthly basis. So, collective sentiment matters in handicapping the prospects for labor and wage trends.

Yet despite surging corporate profits, robust growth, record low unemployment and strong consumer spending, stocks have largely moved sideways this year on talks of trade tariffs and the growing risk of an outright trade war breaking out between the US and its trading counterparts. Ironically, US GDP growth is more vulnerable to trade tariffs than that of its trading partners.

Consider the following narrative below:

What matters to GDP growth is not the dollar amount of targeted products, but their share of GDP. When the US goes to “war” with many of its trading partners, they can collectively impose a much bigger percentage point shock on US GDP than the US can impose on ROW (rest of world) GDP. Recall that in 2016 ROW GDP was almost $57tn, or three times as much as US GDP (almost $19tn). Hence if the US puts tariffs on all of its imports it only impacts about 4% of ROW GDP. By contrast, if ROW puts tariffs on all US exports it impacts 8% of US GDP. Therefore a 25% tariff on all US exports and imports is equivalent to a 2% of GDP tax on Americans, but only a 1% of GDP tax on the rest of the world.

A full-blown trade war, on which the US puts 10-25% tariffs on most imports and trade partners put tariffs on most US exports, may very well lead to a significant reduction in growth, decline in confidence and supply chain disruptions which could amplify the trade shock, triggering a global recession. For now, the probability of a full-blown trade war is relatively muted, but the risks are certainly rising which has put the US equity market rally on hold, for now.

Highlights from Second Quarter:

Strong $US Dollar

The U.S. Dollar Index, +7% off its YTD lows, has already inflicted some major pain in consensus macro views that were positive on investments like commodities and emerging market financial assets heading into Q2.

40% of S&P 500 earnings are international and impacted by a strong dollar. As Keith McCullough the CEO of Hedgeye put it, “The S&P 500 has international baggage, emerging market baggage, china slowing baggage, and European and Polish Baggage.” For more pure US investment exposure, consider investing in indexes like the Russell 2000 which are less impacted by a strong dollar.

Global Growth Slowing Down

Growth and economic data in Europe has been weaker than expected over the last several months. Analysts have cut Euro area growth to 2.1% in 2018, and 1.7% in 2019 from 2.4% and 1.9% previously. The global wave, one of Bank of America Merrill Lynch’s most widely recognized proprietary indicators which combines seven key macro indicators, has peaked for only the 10th time in 25 years! Following previous peaks, the MSCI All Country World Index averaged -3.4% in the next 12 months, and the US tends to be a more defensive region on average.

In looking at world equity performance from the 2018 market peak on 1/29/18, we’re now down -10% from $87 trillion in total market capitalization to $78.6 trillion.

Emerging Market Weakness

Emerging markets are struggling with a sharp and abrupt reversal in the dollar, rising rates, and concerns about global growth and idiosyncratic issues surrounding particular markets such as Turkey and Brazil. Below are the 10 worst performing emerging market countries since the 1/29/18 market peak:

1. Venezuelan: -77%

2. Luxemburg: -54%

3. Argentina: -44%

4. Turkey: -32%

5. Brazil: -28%

6. Kazakhstan: -25%

7. Poland: -25%

8. Hungary: -24%

9. South Africa: -23%

10. China: -21%

Portfolio Positioning for Latter Half of 2018:

Positive on US Large Cap Energy

We remain bullish on energy because inflation has been heading higher.

Positive on Real Estate Investment Trusts (REITs)

Increases in interest rates often are driven by economic growth that may support the growth of REIT earnings and dividends in the future. Research shows that REITs have often outperformed during periods of rising rates.

Neutral on US Consumer Discretionary and Technology

We remain cautiously optimistic on the Consumer Discretionary and Tech sectors because these are the sectors most tethered to the U.S. consumer and an acceleration in the U.S. economy. We recognize that after eight consecutive quarters of growth acceleration, the prudent move is to book some gains in cyclically sensitive sectors.

Negative on Emerging Market Stocks

Strategists on Wall Street continue to advocate for buying emerging markets claiming they are “cheap.” Based on price-to-book ratios, the MSCI Emerging Index is indeed trading at a 30% discount to MSCI World Index of developed markets. But with the headwind of a stronger dollar, emerging markets can continue to get cheaper in the latter half of 2018, which makes us near/intermediate term bearish. We’d like to wait for a more attractive entry point in adding more exposure to emerging markets in client portfolios that may be the only area of the market where we’ll see positive real returns after adjusting for inflation.

Firm Updates:

As I reflect on 2018 thus far, there are a number of updates I’d like to share with you, my valued clients. You may recall back in January of 2017, that I took a leap of faith in leaving Merrill Lynch to start my independent wealth management practice, Rapport Financial. Since then, each and every morning I wake up with one primary goal in mind – to provide you with the best possible client experience. For this, I feel a great responsibility to continuously improve upon my practice by seeking out the best suite of solutions in the marketplace. A few of these recent additions are listed below:

      • Hedgeye. Independent Research Firm (responsible for the images you see in this commentary!)

There are other solutions being evaluated that I’m confident will improve upon the financial planning and risk management portion of my service offering and I cannot wait to implement these for you.

My job, as a client recently put it best, is to work with you to identify and implement the most appropriate strategies and solutions to meet your financial goals. To adjust your portfolios for the underlying conditions of growth and inflation that are directly impacting the value of your hard-earned assets. To provide advice that affords you a level of financial stability that promotes a healthy, wholesome personal and professional life free from financial stress.

This past month I was honored to be named an Investopedia Top 100 Financial Advisor. This list consists of advisors around the country who have contributed significantly to conversations about financial literacy, investing strategies, life-stage planning and wealth management.

Know that as your fiduciary advisor, I will (and am legally required to) always make suggestions that are in your best interest. But my commitment goes beyond that. Over the years I’ve continued my education in the field, from attaining securities licenses, to the life and health insurance license, and becoming an Accredited Investment Fiduciary where I took the fiduciary oath. I’m currently studying at the College for Financial Planning where I have taken classes on insurance, annuities, investments, taxes, and estate planning. The final step will be to sit for the rigorous CFP examination in November.

While the recommendations made in this commentary are backed by macro research and quantitative data, it’s important to remember that all investments are made within the framework of our long-held belief that diversification continues to be the foundation of each portfolio.

Warm Regards,

Aaron L. Hattenbach, AIF®
[email protected]

The opinions expressed herein are those of Rapport Financial, LLC (RF) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. Consider the investment objectives, risks and expenses before investing. You should not consider the information in this letter as a recommendation to buy or sell any particular security and should not be considered as investment advice of any kind. You should not assume that any of the securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of the securities listed in this newsletter. These securities may not be in an account’s portfolio by the time this report is received, or may have been repurchased for an account’s portfolio. These securities do not represent an entire account’s portfolio and may represent only a small percentage of the account’s portfolio. partners, employees or their family members may have a position in securities mentioned herein. Rapport Financial was established in 2017 and is registered under the Investment Advisors Act of 1940. Additional information about RF can be found in our Form ADV.

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The Pros and Cons of Robo Advisors

Topics Covered:

  • Rapport Financial is now offering Fixed Fee Financial Planning Packages. Don’t have 250k to invest? Not to worry, we can still work together.  Contact me to learn more.
  • Are you using Betterment, Wealthfront, or another Robo Advisory service?  Do you fully understand how these strategies work?  The pros and cons?  I’ll fill you in on something they don’t want you to know.

One of my mentors once told me something that has stuck throughout my career:

“Price is only a major factor in the absence of value.” 

I begin with this quote for a reason.  Over the past few years, Robo Advisors have grown in popularity.  I often come across them when advising my peers and providing holistic financial planning services.

In order to better understand the appeal of Robo Advisors, I began asking my peers why they went with a Robo Advisor instead of a DIY solution, or a human advisor.  Overwhelmingly the response was “low fees.”  But as I prodded further it became evident that the majority couldn’t explain why beyond this low fee benefit.

So allow me to share the pros and cons of a Robo Advisor as objectively as I possibly can, because as a consumer you should have an understanding of the services that manage your hard-earned money.

Pros:

  • Low Fees and Minimums.
  • User-Friendly Experience.
  • Automated Asset Management and Rebalancing.  This is the most valuable ongoing feature a Robo Advisory service provides.  The algorithm is designed to bring your portfolio back to its original allocation (plan) so you’re not taking on more risk than you can handle.  And you get an efficient portfolio built for you without having to concern yourself with choosing the investments.
  • Tax Loss Harvesting.  This is actually both a pro and a con.  The pro is that they can proactively take losses to offset gains in your taxable account.  However, this is where things get interesting.  This automated tax loss harvesting feature possess risks and may not be as valuable as they claim.  The drawback here is that the automated tax loss harvesting exposes you to  wash sales that wipe away the benefits of tax loss harvesting.

Cons

Finally, if you happen to use Wealthfront or Betterment, remember that they fill one gap: asset management via an automated service. Which has worked during a bull market like the one we’ve been in for nearly 10 years. But Robo Advisors emerged after the financial crisis and had yet to experience significant corrections and market volatility until this year.

What happened to the Robo Advisors when volatility finally returned?  Crashing websites.  Customers unable to log in to their accounts.

For more information on my services, and to book a 15 minute free consultation visit my calendar.

Warm Regards,

Aaron L. Hattenbach, AIF®
[email protected]

 

The opinions expressed herein are those of Rapport Financial, LLC (RF) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. Consider the investment objectives, risks and expenses before investing.  You should not consider the information in this letter as a recommendation to buy or sell any particular security and should not be considered as investment advice of any kind. You should not assume that any of the securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of the securities listed in this newsletter. These securities may not be in an account’s portfolio by the time this report is received, or may have been repurchased for an account’s portfolio. These securities do not represent an entire account’s portfolio and may represent only a small percentage of the account’s portfolio. partners, employees or their family members may have a position in securities mentioned herein.  Rapport Financial was established in 2017 and is registered under the Investment Advisors Act of 1940. Additional information about RF can be found in our Form ADV.

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February Market Insights

Topics Covered:

Market Update

There are a number of positives contributing to this robust bull market entering its 9th year. Consumer sentiment is at a 17 year high, while unemployment is at a 17 year low. Wage growth picked up to 2.9% in January, its strongest pace since the recession.  We also had the best January since 1997, with the S&P 500 finishing the month up 5.7%. The story–global synchronized growth.  US corporate and personal tax reform, the first we’ve had since 1986.

February Sell-Off

But February is off to a rocky start with a sizable sell off having wiped out all 2018 gains in the markets.  We’ve finally broken the streak of 81 straight weeks without a correction of more than 5%.  Commentators are reminiscing about Black Monday, August 24, 2015 when the Dow fell over 1,000 points only to recover some of its losses and finish the day down 588 points.  At the time, America hadn’t had a point drop of that magnitude since October 2008, when the financial crisis was in full effect and people were gravely concerned that more banks like Lehman Brothers would also collapse.  The following day, August 25, 2015 markets continued their downward plunge with the Dow dropping another 215 points.

It’s important to take note of what happened in the days ensuing.  August 26th and 27th of 2015 saw massive rallies of 609 points and 370 points respectively for the Dow, recovering all losses from the days prior!

We’re actually seeing the same pattern take place in February 2018. In just two days of trading in February (2nd and 5th) the Dow retreated -541 points (-2.07%) and -1,175 points (-4.6%), respectively, catching many investors off guard and left to wonder, is this the beginning of the next major financial crisis?  Only to rebound the very next day, February 6th when the Dow gained 567 points (+2.33%) erasing some of the losses from Monday’s rout.  This should remind investors that trying to time the market is a losing proposition.  If you cannot tolerate or afford these day-to-day whipsaws and market volatility, you probably shouldn’t be invested in the markets in the first place!

Drops of this severity are becoming commonplace as quantitative investment and growth of passive investing strategies continue to grow in popularity at the expense of fundamental stock selection.

According to a Wall Street Journal feature back in May 2017 called, “The Quants,” Quantitative investment strategies are now responsible for 27% of all U.S. stock trades by investors, up from 14% in 2013.  Furthermore, passive and quantitative investing account for about 60% of trading, more than double the share a decade ago.  Just 10% of daily trading volume can be attributed to stock pickers–individuals and professional fund managers.

But in the high frequency, computer driven trading world we live in, and with passive investment strategies continuing to garner the lions share of investor assets, such wild market swings have been, and will become more and more commonplace.

At this point, you may be asking yourself, what can I do to protect my portfolio should we go through a 10-20% correction? Well, for starters, don’t rely on a Robo Advisor strategy to protect your portfolio as they consistent entirely of passive investment strategies designed to track the markets.

Robo Advisors: Limited Downside Protection

In a blog post back in July of 2017 I warned readers that a bubble is forming in passive investing and may have serious consequences for investors.  I feel that this is an opportune time to remind you that a portfolio of passive exchange traded funds (ETFs) offered by the likes of Betterment and Wealthfront offer little to no downside protection from a major market downturn.  Such Robo Advisor strategies are not nimble, as they are designed precisely to attain market-like returns by using low-cost index funds.  Sure, they offer different mixes of passive investment strategies based on the answers provided from a cookie cutter questionnaire, but many were created after the great recession of 2008-09 and have yet to experience a major market downturn.

From personal experience, I can tell you how important it is to be selective with what you buy this late in the bull market and especially with valuations where they are.  Owning the markets since 2009 has worked out quite well for investors.  Get this–the S&P 500 hasn’t had a negative year since 2008, when Taylor Swift was only 19 years old.  Wow!

Past 5 Major Crises

For my clients, I’m going back to the drawing board, and using a proprietary portfolio analytics software (see image below) to stress test portfolios so we can better understand how they performed during the last 5 major crises:

      1. Asian Crisis of 1997
      2. Russia/Long Term Capital Management fiasco of 1998
      3. Tech Bubble of 2000-01
      4. World Trade Center Attack of 2001
      5. Subprime Crisis of 2008-09.

If you’d like to have your portfolio analyzed so you can better understand the risk you’re currently taking, schedule time on my calendar.

Bear Market Checklist/Recession Indicators

While we’re on the topic of risk, allow me to share a checklist I periodically review to make sure I’m not caught off guard by the next recession.

The two most accurate predictors of a recession being:

      1. Inverted Yield Curve. This occurs when the 10 year treasury and 2 year treasury note invert.  It’s more of a yellow flag, as historically it takes 18 months after an inverted yield curve to see a recession occur.  Historically after the yield curve inverts, there’s another 18 months with average returns of 40%.  So moving to cash would be a mistake.
      2. 10 Conference Board Leading Indicators begin to show signs of slowing down.

Other important indicators include:

      • Elevated Valuations
      • Extreme reading in consumer bullish sentiment/investor optimism
      • M&A/IPO Market Boom
      • Steep declines in: ISM Manufacturing, Service PMI dips below 50
      • Credit Spreads widening. Yield spread between high yield bonds and treasuries
      • Defensive Stocks/Sectors outperforming
      • Strong inflows into equity funds
      • Inverted Yield Curve. When short-term rates rise above long-term levels
      • Uptick in initial unemployment claims

So far, we can only check the boxes for Elevated Valuations and Strong Inflows into equity funds.  In my opinion, not enough to trigger a recession.

10 Stocks that Delivered Positive Returns in 2008

Finally, as promised, I’ve compiled a portfolio of 10 stocks that provided positive performance (and lower volatility) in 2008, while the markets proceeded to drop 37%.  And if you actually look over a 20 year period, this portfolio of 1o defensive stocks has provided annual returns of 14.89% while the S&P 500 has returned 6.96% annualized.

This is not meant to serve as a recommendation to buy the 10 companies listed, nor to suggest that these 10 particular stocks are entirely recession (fail) proof when we do indeed experience the next recession.  But these companies share a few commonalities that historically made them relatively stable holdings when seemingly everything collapsed.  They provide products (consumables) many would consider as necessities, preventing them from being dependent on a healthy economy.  Think of things you can eat, drink or smoke.

Remember, if you’re invested in the markets, it’s about the long game.  Ignore the short-term noise.  Don’t let this recent correction get in the way of sticking to a sensible investment plan.  And certainly don’t allow yourself to get whipsawed by these drastic day-to-day fluctuations!

Aaron L. Hattenbach, AIF®
Managing Member
Rapport Financial
2/6/18

The opinions expressed herein are those of Rapport Financial, LLC (RF) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. Consider the investment objectives, risks and expenses before investing.

You should not consider the information in this letter as a recommendation to buy or sell any particular security and should not be considered as investment advice of any kind. You should not assume that any of the securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of the securities listed in this newsletter. These securities may not be in an account’s portfolio by the time this report is received, or may have been repurchased for an account’s portfolio. These securities do not represent an entire account’s portfolio and may represent only a small percentage of the account’s portfolio. partners, employees or their family members may have a position in securities mentioned herein.

Rapport Financial was established in 2017 and is registered under the Investment Advisors Act of 1940. Additional information about RF can be found in our Form ADV Part 2a.

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Market Insights Second Quarter 2017

Strong Economic Data—However Brace for a Pullback in the Second Half of 2017

I’m beginning this economic commentary with the chart below from JP Morgan Private Bank’s Q2 insights presentation. The upper half of the chart identifies pullbacks during the current market cycle from 2010-present.

A FEW IMPORTANT TAKEAWAYS FROM THIS CHART:

  • The last time we had a peak (top) to trough (bottom) correction in the S&P 500 greater than 10% was nearly 18 months ago driven by fears of a slowdown in China and weaker oil prices.
  • In every calendar year since the great recession of 2008-09 (2010-2016) there’s been a healthy pullback in the markets greater than 5%. 2017 is the lone exception.
  • 4 of 7 corrections were greater than 10%.

The markets have been remarkably resilient and immune to bad news. Each 1-2% correction has been met with opportunistic investors eager to “buy the dip” and put money to work at lower prices.


THE ECONOMY

If you look a little deeper we see the following:

  • The U.S. has added jobs every month since October 2010, a record 81 month stretch that has resulted in roughly 16 million jobs and slowly repaired much of the damage inflicted from the 2008-09 recession.
  • Employers added 222k jobs in June and the unemployment rate ticked up to 4.4% with more people joining the labor force.
  • US Purchasing Managers Index (PMI) reading for June came in at 57.8, its highest level since August 2014. A number above 50 indicates an expansion in manufacturing activity.

STRONG ECONOMIC DATA, NOT WITHOUT RISK

While friends, family and clients would generally describe me as an optimist— the optimist in me is growing concerned with complacency forming in the markets. The current bull market that began in 2009 is now the second longest in history and 24 months away from being the longest ever! Valuations are high, balance sheets are levered, and the Federal Reserve is raising rates. I’d say given this mix of factors, you’d be wise to temper your expectations and not expect the double-digit annualized returns we’ve experienced since the financial crisis.

Central bank easy monetary policies have had arguably the greatest impact on this bull market in stocks globally. As you can see from the chart below courtesy of Bank of America Merrill Lynch, the S&P 500 has risen roughly in tandem with increases in central bank balance sheets during the past 9 years. With the Fed signaling it will begin to reduce its balance sheet, and the European Central Bank likely to end its quantitative easing program by the end of 2018, growth in central bank assets is likely to decelerate next year and turn negative in 2019. This could also weigh on future returns in developed market stocks.


There are several risks with the greatest potential to derail the 8 year bull market run:

1. Subprime Auto Loans-38% of new car loans have negative equity rolled into the loans. And lenders like Banco Santander aren’t verifying income or job histories. Sound eerily familiar? Auto financing is a $1.2 trillion market. I’d track down a list of the largest auto lenders and identify the lenders issuing the highest volume of subprime loans, that is, to borrowers with lower than average credit scores.

2. S&P 500 valuation getting extended. The Shiller P/E ratio is currently at 30.12, which puts the figure at its 2nd highest level in history! Stock market capitalizations as a percent of the US Gross Domestic Product (GDP) stands at 130%, close to peak levels.

3. Low volatility encouraging excessive risk taking through the use of leverage. Historically, during periods of extended low volatility, investors increase leverage by effectively borrowing to increase the size of their bets.

4. Exponential growth in popularity of passive market cap weighted index fund investment strategies. The proliferation of passive index investing has rewarded investors over this 8 year bull market expansion with double-digit annualized market returns and low fees. However, investors need to understand that these are bull market strategies that offer no downside protection.

THE #1 RISK TO INVESTORS: Formation of a Bubble in Passive Investing

Whether you invest through a registered investment advisor, robo advisor, company 401k plan, or happen to be a “do it yourself investor,” it is likely that you have a portion of your assets in what are called “passive investment strategies” designed to track an index like the S&P 500. These passive investment strategies, taking the form of a mutual fund or exchange traded fund (ETF) are now the most popular form of investing for both small and large investors.

“Through the first five months of this year, investors put $338 billion into passive mutual funds and ETFs—that’s on top of last year’s record inflows of $506 billion, according to Morningstar. If this pace keeps up, passive funds could take in more than $800 billion in 2017, a 60% jump from 2016’s record and nearly double the assets from 2015!”

Record inflows into passive investment strategies are also happening as investors abandon actively managed strategies that have failed to outperform their indexes and come with higher fees. In fact, new data confirms passive investment strategies are actually beating 82% of all active funds after fees.

As a result, once industry powerhouses known for their actively managed mutual funds, T. Rowe Price and Franklin Templeton have been replaced by the new 800lb gorillas in asset management and early adopters of passive ETF investing: Blackrock and Vanguard, the two largest asset managers in the world according to the Top 400 Asset Managers of 2017.  See the chart below which shows this trend taking place over the past decade.


I am admittedly a strong proponent of the low-cost and market exposure offered by passively managed index tracking strategies. The ability to hold an investment that gives you exposure to 500 of the largest companies in the United States for a fee as low as 0.04%–that’s right, 40 cents on every $1,000 invested is absolutely brilliant and arguably the greatest invention in modern finance. But in an aging bull market, it is important you recognize that these funds are designed precisely to match the return of the index and therefore offer no downside protection. Furthermore, when you buy a market cap weighted index fund like the Vanguard S&P 500 Index Mutual Fund, you’re effectively buying all the stocks in the index—whether they’re cheap or expensive. So, as more money pours into a passive fund like the one above designed to track the S&P 500 index, it must buy stocks in the same proportion as the index it tracks—with no regard for stock price or fundamentals. The effect is that the largest companies become larger, riskier, and more important in determining the overall direction and performance of the index.

Which brings me to the issue at hand: elevated valuations on the largest companies. If you rely exclusively on passive market cap weighted index investment strategies you could be paying prices for stocks that are at or near peak levels. And paying prices that are too high is the single greatest risk to an investor according to one of the greatest investors of all time, Howard Marks of Oaktree Capital.

The best illustration of this elevated price risk can be seen by looking at the 5 largest companies by market capitalization (still publicly traded) in the Nasdaq 100 index during the tech boom and subsequent bust of the late 1990s-early 2000s. 4 of the 5 companies listed below are still recovering losses in market capitalization from their peak in 2000. And if you had the great misfortune of purchasing the Nasdaq 100 index fund at the peak of the market in 2000, you had to wait until September 30, 2016 to get back to even! That’s an astounding 16+ years of no returns!

Source: Yahoo Finance


Again, I’m increasingly becoming concerned about the enormous amount of money flowing into passive market cap index funds which is making large companies even larger and no longer reasonable on a fundamental basis. Technology stocks now make up over 58.32% of the Nasdaq 100, not far from their high of 64.9% in 2000. By many measures technology stocks have gotten expensive. Apple, Microsoft, Amazon, Facebook and Alphabet (Google) make up over 42.28% of the Nasdaq 100 index. These same 5 companies now constitute 12.36% of the S&P 500 index, and were responsible for 58% of the index’s 2017 advance through late May! When volatility and fear re-emerge from a long slumber, investors will, like they have time and again during previous downturns, sell what they own in their investment accounts, which for many investors includes these passive market cap index ETFs and mutual funds. Top heavy indexes like the S&P 500 and Nasdaq 100 will get absolutely clobbered and companies with the largest weights will suffer sharp declines.

While I’m likely calling this bubble in passive market cap index investing a bit too early, I’d rather forgo a few percentage points of upside to be protected when markets inevitably do correct. The alternative isn’t necessarily using an expensive active manager, that often (but not always) statistically provides lackluster performance. Instead, there are strategies designed with factors not limiting them to the restrictions imposed by strict index funds. If you’d like to learn about some of these alternative investment strategies or are interested in scheduling a complimentary portfolio review, feel free to book time on my calendar: http://rapportfinancial.com/contact.

I’ll conclude this commentary with a reminder to review your asset allocation—being the mix of stocks, bonds and cash held in your investment portfolio. Start by comparing your initial asset allocation from when you first put together your portfolio to how the allocation looks today. For my current clients, this is an exercise we conduct quarterly to ensure the portfolio is aligned with their risk tolerance, time horizon, and investment goals. It’s likely after this long bull market run that the percentage mix of assets in your portfolio is now different, and you may be taking on more risk than you can stomach when the next major correction hits.

I’ll sign off with my favorite quote and let you determine where you think we are in this market cycle:

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on Euphoria.”    –Sir John Templeton


My gut tells me we’re in the “mature on optimism” phase.

 

Aaron L. Hattenbach, AIF®
Managing Member
Rapport Financial
[email protected]
www.rapportfinancial.com

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client’s specific financial needs and objectives, goals, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Rapport Financial. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third-party sources, which we believe to be reliable, but not guaranteed.

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First Quarter 2017 Takeaway: Focus on Price and Be a Contrarian Investor

The first quarter of 2017 has officially come to an end—and it was a good one, especially if you owned a globally diversified portfolio of stocks. Recently economists put out a warning to investors–the US markets have gotten ahead of reality! So where should investors look for relative value? The answer is—outside the US.

Below is a 10-year chart courtesy of stockcharts.com (March 30, 2007 through March 31, 2017) comparing the performance of the S&P 500 (Ticker: SPY) up 104.34% to the iShares MSCI EAFE Value ETF (Ticker: EFV) down -1.11% over the same period.

As you can see from the chart above, international developed stocks haven’t participated nearly as much in the massive recovery that’s ensued following the 2008-09 global financial crisis.

The S&P 500 currently trades at 25x trailing 12 month earnings, while the iShares MSCI EAFE Value ETF trades at a considerable discount of 15x earnings.

The EFA Value ETF provides diversified exposure to a broad range of developed companies in Europe, Australia, Asia and the Far East with a tilt towards value stocks that are thought to be undervalued by the market.

I’ll leave you with a timely piece of advice from legendary investor Howard Marks of Oaktree Capital Management:

“The greatest risk doesn’t come from low quality or high volatility. It comes from paying prices that are too high. This isn’t a theoretical risk; it’s very real.”

Year to date performance of indexes through 3/31/17: http://news.morningstar.com/index/indexReturn.html

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5 Questions to Ask Your Financial Advisor

I was recently in a meeting with a new client where we went over the scope of my services, and what I charge for advising my wealth management clients. It’s always been my practice to provide a transparent and detailed description of my fee structure so clients know exactly what they are paying me to advise them and manage their assets. With that said, here are the first 5 questions you should be asking a financial advisor before signing any legal documents:

1. What are ALL the ways that you and your firm are compensated for your services, and are they fully disclosed?

How much you’re paying for the management of your assets shouldn’t be a mystery, but usually this is anything but an easy answer for most providers. I can’t tell you how many times I’ve asked prospective clients, “what do you pay your current advisor” and draw a blank stare. Would you ever purchase a product without first knowing its price?

If you’re speaking with an Independent Advisor ask for their Form ADV Part 2. You can access this directly on the SEC website: https://www.adviserinfo.sec.gov/.

Remember, if you don’t know exactly how much you’re paying, you’re almost certainly paying too much!

2. Does your compensation depend on the investment strategies that you recommend?

The fees paid for different investment products can vary significantly, ranging from very little (indexed ETFs), to modest (active mutual funds), to exorbitant and very often unnecessary (derivatives, structured notes, annuities, hedge funds). This can bias recommendations towards more expensive investment products.

Your advisor should have no economic interests in the investment strategies they recommend!

3. What conflicts of interest do you face in advising me?

The answer should be none. Most financial advisors are not fiduciaries. Instead, they are outside sales agents for banking institutions with sales quotas in an antiquated business model.

Consider hiring a Fee-Only Registered Investment Advisor. An advisor working in this model is required by law to act in a fiduciary capacity and put their clients’ financial best interests first. The Fee-Only advisory model aims to remove many of the conflicts of interest found within traditional brokerage firms, i.e. UBS, Merrill Lynch, Morgan Stanley, etc.

4. How will you evaluate the success or failure of my portfolio over time?

This shouldn’t be just a performance number relative to the stock market, but rather whether the portfolio has met your stated goals, income and liquidity needs, tax considerations, liabilities, risk tolerance and other factors or preferences specifically addressed in your Investment Policy Statement.

This is only possible if these matters have been formalized in an Investment Policy Statement that defines the purpose of the portfolio and how it will be organized, formalized, implemented and monitored. As a part of the Investment Policy Statement, specific indices and benchmarks (S&P 500, Barclays Aggregate Bond, etc.) should be defined for the evaluation of performance so that no ambiguity will exist. Risk management is both the most crucial part of portfolio construction and the only real aspect that can be controlled — get the downside risks covered appropriately and the upside will take care of itself.

As one of my mentors used to say, “Don’t confuse a good advisor with a bull market!”

5. What services does your firm provide besides investment advisory?

Wealth Management/Investment Advisory is a full-time job. Be highly skeptical of firms that offer a number of unrelated or tangentially related services such as insurance, estate planning, tax preparation, banking, credit, etc. It is difficult for any firm to have more than a single core competency, and efforts to do otherwise typically lead to sub-standard offerings. The consolidation of the financial services industry has profited service providers more than their customers as its goal is to create cross-selling opportunities rather than a quality and customized service offering.

Financial advisory services should be more than just the core competency of the firm you work with, it should be the ONLY competency.