FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
The Financial Advisory Industry Is Shrinking (Financial Planning)
The advisory industry is losing between 3,000 to 4,000 financial advisors every single year, according to Mark Tibergien, the CEO of Pershing Advisor Solutions. And they’re not being replaced.
“The resulting shortage is an ‘acute problem’ for the industry, pushing compensation costs up and profits down.”
The shortage is so significant that some RIAs “without deep pockets should consider recruiting individuals in other professions with ‘transferable skills,'” said Frank Pare, president of Oakland, California based PF Wealth Management Group.
He adds that the financial advisory business is about ‘people skills’ so someone who works at Nordstrom’s might have those skills, as might a social worker.
Everyone’s antsy about when the Fed will finally hike rates. “We believe we’ll see the first rate increase sometime in the first half of 2015,” Brad Sorensen writes. Schwab took a look at the last seven Fed tightening cycles and the performance of major sectors surrounding the hike.
Historically, cyclical sectors tended to be the best performers six months leading up to the rate hike. “That’s because the economy should be running on all cylinders at that point, with energy, materials, industrials, and technology leading the way.” On the other hand, sectors that are most sensitive to rates — such as utilities and telecom — tend to lag.
Typically after rates are hiked, defensive sectors, consumer stables, and healthcare tend to do really well. On the flip side, the consumer discretionary sector is the “biggest loser.”
It’s important to note that history doesn’t predict the future. But, “sectors tend to move on macroeconomic events and with the business cycle, “so paying attention to performance surrounding Fed moves is important,” Sorensen adds.
Emerging markets haven’t being doing so well recently. Following a summer rally, EMs have been struggling because of “increasingly erratic” Russian policies, slower Chinese growth, and higher US rates.
Despite the recent outflows, BlackRock blog’s Russ Koesterich thinks that “EM stocks represent a long-term opportunity and that investors underweight the asset class should consider bringing their exposure back up to at least a market weight.” However, he warns that not all EMs are equal — Asian EMs, and in particular China, are the “particularly attractive” ones.
Right now, EM Asia valuations are “currently largely in line with their historical average, providing some room for future multiple expansion should EM fundamentals continue to improve.” Plus, the Chinese economy is still growing at a “decent” pace, and “government officials seem committed to growth of around 7%.”
“With the exception of Indonesia and India, the major countries in Asia have generally sizeable current account surpluses. And even in the case of India and Indonesia, both countries have posted significant improvements in their current accounts,” Koesterich adds. Consequently, the region has been and will probably continue to be resilient to higher US yields and “any potential” of interruption of capital inflows.
The current and ongoing bull market for stocks has been pretty impressive. In aggregate, stocks have performed “well for more than five years.” But even though things are going well, it’s important to not get complacent.
Wellington Management Company warns “that the buoyant effects of the central bank liquidity on global markets will not be followed by significantly better economic and business conditions in the near term. Market valuation therefore seems disconnected from fundamentals.” And on top of that, the markets’ “extremely low” volatility during “mediocre” global conditions is “notable.”
“When markets are unusually tranquil, it can be easy to lose sight of fundamentals, especially the importance of rebalancing. Without periodically adjusting your asset allocation so it stays in line with your goals and risk tolerance, you can end up with a portfolio that’s very different from, and potentially riskier than, the one you have intended to have,” says Vanguard CEO Bill McNabb.
In other words, when the stock market keeps moving in the positive direction, investors get a little too comfortable — and that can prevent them from achieving their desired financial goals.
Wells Fargo Advisors Settles Burger King Insider Trading Charges (The Wall Street Journal)
Wells Fargo Advisors LLC “has agreed to pay a $US5 million penalty to settle Securities and Exchange Commission charges that a former broker engaged in insider trading of Burger King Worldwide Inc. stock before the company’s 2010 buyout,” according to the WSJ’s Josh Beckerman.
The SEC charged Wells Fargo Advisors with “failing to maintain adequate controls to prevent an employee from insider trading.” And on top of that the SEC also charged the firm with “delaying its production of documents and providing an altered internal document.”
Wells Fargo admitted to its missteps.
Back in 2010, a brokerage customers invested in a 3G Capital fund, and Waldyr Da Silva Prado Neto — a former Wells Fargo financial advisor — figured out that Burger King would be sold to 3G Capital Management. Prado allegedly bought Burger King stock after this, and then quickly sold them after the acquisition.
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