FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisers.
Falling Oil Prices Are Hurting High-Yield Bonds (Charles Schwab)
Falling oil prices are having negative effects in other markets. Specifically, it has fuelled the recent high-yield bond market sell-off.
“Despite the recent drop in high-yield bond prices — and accompanying higher yields — we’re still cautious on high-yield bonds. We believe any further declines in oil prices could continue to put pressure on the high-yield market,” writes Collin Martin.
Instead, Charles Schwab analysts recommend that investors who are reaching for yield should switch up to investment-grade corporate bonds.
There are two standards that govern financial advisors: suitability and fiduciary. Fiduciaries have a stricter duty, and legal obligations, and as a result advisers who operate under this standard must act in the interest of the client at all time.
On the other hand, the suitability standard provides way less protection to investors, especially because compensation is commission-based. Under this standard, “investors rarely come out on top,” argues Barry Ritholtz.
“So the ordinary individual investor has three problems with the suitability standard: 1. It favours the brokerage firm and its employees over the investor. 2. It costs much more than services provided under other standards. 3. And it creates an inherent conflict of interest between the adviser and the investors,” argues Ritholtz.
Policy-Driven Reform Could Liberalize Nigeria’s Economy (AllianceBernstein)
For some reason, Nigeria seems to be off of everyone’s radar. However, it’s one of the biggest economies in Africa and is also one of the world’s largest oil and gas producers — so it deserves a second glance.
Electrical power outages are the biggest hurdles that are holding Nigeria back from huge economic growth. But “resolving its electricity-generation gaps could significantly boost the country’s economic growth — and provide opportunities for equity investors,” argues Henry S. D’Auria.
Investors can capitalise on this potential policy-driven reform because many industries will grow at incredible rates. Manufacturing capacity and efficiently will improve, and there will be greater employment and economic stability.
Many investors are afraid to rebalance their portfolios. They’re worried that they will rebalance too early and thus forego potential gains — especially when they have a handful of well-performing assets in their portfolios.
But investors should remember that rebalancing “is a discipline designed to manage risk rather than maximise return,” argues Colleen Jaconetti. The future is uncertain, and as a result even the assets that have been performing recently may suddenly drop tomorrow.
“Losing capacity for financial decisions is something advisors need to be ready for, as it is likely to affect a huge part of our population,” writes Carolyn Rosenblatt. By 2030, there will be 72.1 million people aged 25 and over in the US, and an estimated 7.7 million of them will have Alzheimer’s Disease.
There are two things that advisors should do. First, they need to “explicitly” plan for the possibility that clients will have “diminished financial capacity,” writes Rosenblatt. And second, advisors should communicate with the client and find out if family members can act as proxies in the future.
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