Gaining Perspective

RIA merger and acquisition activity achieved yet another milestone, crossing 200 transactions within a calendar year for the first time ever. The year’s 200th RIA M&A transaction was announced just prior to the Thanksgiving holiday. 2021 is the eighth successive record year for RIA M&A activity. For context, the industry posted 159 transactions in 2020 and 131 in 2019.

Northern Trust, one of the world’s largest asset managers, foresees 2022 as a year of transitions. Central bank fiscal policy might become less accommodative or stimulative through a reduction in bond purchases. After years of virtually no inflation, investors are becoming more aware of the importance of hedging against it, given its recent sharp emergence. While there are indications of inflationary pressures decreasing in key supply chain bottlenecks, this is countered by strong housing and labor markets. 

Research from the Alliance for Lifetime Income shows that individuals’ concerns about financing their retirement increased during the pandemic. Eighty percent of American pre-retirees are at least somewhat anxious that their savings may not provide them enough to live on in retirement.

Investors are taught that highly concentrated portfolios mean taking on more risk, but that is not always the case. In some cases, the perceived risk of holding a concentrated portfolio can be offset by owning high-quality investments. By owning a concentrated portfolio containing only the highest quality companies, investors can take meaningfully less risk than the market while generating greater long-term performance.

Among the many themes that advisors must consider in constructing portfolios for clients, three stand out: reducing volatility, hedging against inflation and incorporating ESG factors. My guest today, Chris Huemmer of Northern Trust FlexShares, will discuss why a low volatility approach to equities makes sense, his preferred ways to help clients address rising inflation, and how clients are looking to invest with ESG concerns in mind.

Last night, I went to the Positivly site and took its financial personality assessment. I was asked a series of 13 questions about my risk tolerance, investment priorities, and which causes – such as ESG – were most important to me. It took less than five minutes, and the results were quite accurate. It showed that I place a lot of weight on the safety of my investments and the purpose they fulfill, and that I don’t want to be burdened by worrying about my portfolio.

The bull market in U.S. equities has driven a need for investment products that protect against downside risk. But those products must offer upside participation because nobody will ring a bell when the market peaks. Advisors must consider defined-outcome ETFs, low-vol and long-short funds, structured insurance offerings and a variety of other products. My guest today is here to discuss a unique solution that meets the goals of upside participation and downside protection.

As we head towards the close of 2021, advisors are faced with the challenge of managing client expectations amid record-high equity markets, dismal interest rates, and heightened threats of inflation. In addition to market headwinds, the gap in future return expectations between advisors and clients is at all-time highs.

The U.S. equity market is characterized by extreme dispersion. Virtually all the gains in the last eight years have been concentrated in six stocks: the FAANGs plus Microsoft. Strip out those six stocks, and the S&P 494’s performance has been utterly mediocre, roughly equal to that of the rest of the world. Here to discuss the role that dispersion plays in fund management is Chris Davis.

I attended the annual NAPFA conference a couple of week ago, which was held in Boston, where I live.  One of the most important sessions featured Kevin Keller, and he spoke about the initiatives and priorities of the CFP Board. Kevin is here today, along with Tom Sporkin, to talk about those initiatives. We’ll also talk about the steps the CFP Board took following an article that appeared in the Wall Street Journal a little more than two years ago. That article cited some problems with the monitoring of infractions by advisors.