We hope everyone had a great summer. Our last newsletter was in May, so we have quite a bit of ground to cover. That said, we aim to keep this newsletter short.
Below we will discuss the markets, products as well as highlight a major regulatory change that will dramatically impact the financial advisory landscape. These regulatory changes will have little to no impact on CRA, as the firm currently operates under the new guidelines.
This summer saw the firm’s continued expansion in terms of clients and assets under management as well as finalizing a move into our new office space. As we approach the final quarter of 2016, and into 2017 we look forward to continuing providing unbiased investment advice and planning for our clients. As an independent RIA firm, we are not limited in our investment product selection. We work with only the most tax efficient, liquid, transparent and low cost investment products available and on the industry’s leading technology platform Every investor should have access to institutional quality products, fee only advice and have their assets on an industry’s leading custody platform.
The markets have been on a very good run over the last few months. The broad stock market is up 4% over the last 90 days, and it is up nearly 8% year to date. The performance of equities goes hand in hand with our view that the US economy is actually in decent shape. Many commentators and analysts in the industry have been quick to find fault with the overall health of the economy, but this is simply not the case. Home prices continue to rise nationally, inflation is muted and GDP is growing at a manageable pace.
We expect the Federal Reserve to make another incremental increase in short-term interest rates this year, and to continue doing so into 2017. We have felt for years that the Fed should have begun this process some time ago and it finally appears that they have run out of excuses to keep interest rates artificially low. This morning’s job’s report, reflecting a good economy, may still not give the fed enough reason to make a move in September.
We also feel strongly that the current interest rate outlook should have minimal long-term impact on the markets. We expect that the measured pace of Fed policy will allow ample time for markets to adjust to rate hikes. The ultimate goal implied by the Federal Reserve is that normalized short term interest rates should be approximately 3%, and given the pace of the expected hikes it will take a long time for that to be realized. However, as we begin to see this realized shift in rates we will continue to look for opportunities to adjust and re balance client portfolios as needed to take advantage of the changes in the rate curve.
Product and Regulatory Update
–Jim Etten and Dave Falicia
Over the past year our clients have benefited from core equity ETFs and actively managed funds that focus on the fundamentals. In addition, we have been seeking specific ETFs and funds that focus on corporate fundamentals along with consistent dividend performance. Although this strategy and group of investment options has performed positively, we continue to keep an eye out for any downside risks that may arise and will adjust and weigh risks accordingly.
With a shift in interest rates on the horizon, we will start seeing more value on the Fixed Income (Bond) front. Investments that allow us to reduce interest rate sensitivity, while still providing attractive yields will come into focus. As conditions exist now we have a good mix of options in both credit quality and duration for our clients in the fixed income market but that list will continue to grow as more opportunities present themselves going forward.
In addition, we continue to interview managers and thoroughly analyze alternative investment options. These “alternatives” seek to provide returns that are non correlated to moves in the broader equity and fixed income markets. We are in the process of narrowing down the list to a few select holdings that we feel would meet the needs of our client base.
The Department of Labor (DOL) recently passed sweeping reforms aimed at returning up to $17 billion dollars a year to investors that the government estimates is taken by firms charging excessive fees. The rule(s) take effect next April, and requires all financial advisers to recommend what is in the “best interest” of a clients needs when they offer guidance on investment accounts. Brokers and Broker Dealers face the greatest disruption to their business models. It is expected that firms such as Edward Jones, Raymond James as well as the largest bank/brokerage firms in the country will have to significantly change the way they operate and provide advice to clients. This change will come at a significant cost to these firms in terms of compliance, training as well as much needed cultural change.
In terms of the new reforms Independent RIA’s such as Copper River are not directly impacted as RIA’s already operate in the “best interest” of their clients by serving in a fiduciary capacity. RIA’s already operate in a “fee based” model and do not receive commission, kickbacks or take a spread on any investment product in turn allowing a clients goals to be properly aligned to investment selection and risk parameters. The financial industry expects the rule change will be a big win for RIA’s, and will only speed up client defection and advisor defection to the RIA model, a trend that has been taking place over the last decade.
Should you have any questions or wish to discuss any of the information above in greater detail please do not hesitate to reach out to Dave or myself at anytime.
Have a great Labor Day Holiday!
Jim & Dave