Trust, but Verify

John CoyneJohn Coyne, Vice Chairman

I recently had the opportunity to participate in the 2014 FSI OneVoice conference in Washington, D.C. on a panel centered on issues related to both liquid and traditional alternative investments.  Our nation’s capital proved to be a great venue for the discussion as it called to mind the signature quote that Ronald Reagan used in his discussions with the Soviet Union, “Trust, but verify.”

As the former chief compliance officer here at Brinker Capital, I was impressed by the thoroughness of the due diligence process outlined by the audience of compliance gatekeepers during their discussions about the products circulating through their companies in both the liquid and illiquid space.  It was clear that while they maintain excellent relationships with their product sponsor partners (no, they do not treat them like the evil empire), they have really elevated their game, particularly in understanding the advisor/investor motivations in determining the appropriateness of a particular investment.  It is clear that many eyes are on the investment decision as it winds its way through the Broker/Dealer pipeline.

Financial Services InstituteFSI is providing the type of farsighted stewardship that recognizes that the product manufacturers, custodians, Broker/Dealer’s and the advisors must have a common communion around the needs of the client.  Events like the OneVoice conference demonstrate that their fostering and encouragement of an effective dialogue among all these parties creates the best potential for success.

Taking care of the client…the Gipper would be proud.

Financial Advisors Finally Confident in U.S. Economy, Q3 Brinker Barometer Finds

We have the results of our third quarter 2013 Brinker Barometer® survey, a gauge of financial advisor confidence and sentiment regarding the economy, retirement savings, investing and market performance.

For the full press release, please click here, but in the meantime check out the infographic below for some of the highlights:


Brinker Capital Launches Brinker Investment Services

We are happy to announce the official launch of Brinker Investment Services—a division of Brinker that will be dedicated to serving the audience of independent Registered Investment Advisors. Heading up the BIS team is Bill Simon, Managing Director.

Concurrent with the launch of BIS, we are also happy to announce our partnership with Schwab and the availability of our offerings on their Advisor Services platform. To support this new distribution channel, we’ve brought Frank Pizzichillo on board as RIA Regional Director.

Please click here to read the official press release.

Applying Behavioral Finance To Investment Process Crucial To Financial Advisors, Brinker Barometer Finds

Earlier this week, the results of our latest Brinker Barometer advisor survey were made public. Click here to read the full press release. This particular Barometer had a focus on aspects of behavioral finance and how advisors gauge progress towards meeting their clients’ financial goals.

Check out some of the most interesting survey results in the infographic below!


Classic Indexes Are Hurting Retirees

Personal Benchmark InvestingEngrained in most retirees is that as the markets go, so do their savings—up markets are good, down markets are bad. It’s not that it’s inherently wrong to think that way, it’s just that there’s a better way of looking at your savings in action. Historical benchmarks do a disservice to investors at indicating how successful they can be in creating real purchasing power.

Chuck Widger, Executive Chairman of Brinker Capital, was brought on to, a leading financial news website, to discuss this new line of thought, and how the industry needs to redefine its value proposition.

Check it out here: Classic Indexes Are Hurting Retirees

*Please note that references to specific holdings in the video are for illustrative purposes only and not necessarily owned by Brinker Capital.

Economic Headwinds and Tailwinds

Magnotta @AmyMagnotta, CFA, Brinker Capital

We continue to approach our macro view as a balance between headwinds and tailwinds. The scale tipped slightly in favor of tailwinds to start the year as we saw a slight pickup in the U.S. economy, some resolution on fiscal policy, and even more accommodative monetary policy globally. However, we continue to face global macro risks, especially in Europe, which could result in bouts of market volatility. The strong market move in the first quarter, combined with higher levels of sentiment, and a potentially disappointing earnings season, may leave us susceptible to a pull-back in the near term, but our longer-term view remains constructive. While the second quarter may bring weaker growth in the U.S., consensus is for economic activity to pick up in the second half of the year.

Accommodative monetary policy: The Fed continues with their Quantitative Easing Program and will keep short-term rates on hold until they see a sustained pickup in employment. The European Central Bank has also pledged support to defend the Euro and has committed to sovereign bond purchases of countries who apply for aid. Now the Bank of Japan is embracing an aggressive monetary easing program in an attempt to boost growth and inflation. The markets remain awash in liquidity.

U.S. companies remain in solid shape: U.S. companies have solid balance sheets that are flush with cash that could be put to work through M&A, capital expenditures or hiring, or returned to shareholders in the form of  dividends or share buybacks. While estimates are coming down, profits are still at high levels.

Housing market improvement: The housing market is showing signs of improvement. Home prices are  increasing, helped by tight supply. The S&P/Case-Shiller 20-City Home Price Index gained +8.1% for the 12-month period ending January 2013. Sales activity is picking up and affordability remains at high levels. An improvement in housing, typically a consumer’s largest asset, is a boost to confidence.

Equity Fund Flows Turn Positive:  After experiencing years of significant outflows, investors have begun to reallocate to equity mutual funds. Investors have added over $67 billion to equity funds so far in 2013 (ICI, as of  3/27/13), compared to outflows of $153 billion in 2012. Investors continue to add money to fixed income funds as
well ($70 billion so far this year).

European sovereign debt crisis and recession: The promise of bond purchases by the ECB has driven down borrowing costs for problem countries and bought policymakers time, but it cannot solve the underlying  problems in Europe. Austerity measures are serving only to weaken growth further and cause higher unemployment and social unrest. After how it dealt with Cyprus, there is again risk of policy error in Europe.  We are also closely watching the Italian elections in June after February’s elections were inconclusive.

U.S. policy uncertainty continues: After passing the fiscal cliff compromise to start the year, Washington passed a short-term extension of the debt ceiling and more recently agreed on a continuing resolution to avoid a government shutdown. The sequester, which was temporarily delayed as part of the fiscal cliff deal, went into effect on March 1. The automatic spending cuts have not yet been felt by most, but it will soon start to show  up in the second quarter and will shave an estimated 0.5% from GDP. In addition, the debt ceiling will need to be addressed again this summer.

Geopolitical Risks:
Recent events in North Korea are cause for concern.

This commentary is intended to provide opinions and analysis of the market and economy, but is not intended to provide personalized  investment advice. Statements referring to future actions or events, such as the future financial performance of certain asset classes, market segments, economic trends, or the market as a whole are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. These statements are not guarantees of future performance, and actual events may differ materially from those discussed. Diversification does not ensure a profit or protect against a loss in a declining market, including possible loss of principal. This commentary includes information obtained from third-party sources. Brinker Capital believes those sources to be accurate and reliable; however, we are not responsible for errors by third-party sources on which we reasonably rely.

The Law of Unintended Consequences

Andy RosenbergerAndrew Rosenberger, CFA, Brinker Capital

History is littered with examples of “unintended consequences” – a term referring to the fact that decision makers (and more importantly, policymakers) tend to make decisions that later have unforeseen outcomes.  I was reminded of such a fact this weekend as my wife and I launched into our annual (and seemingly unending) springtime yard cleanup.   In addition to the mulching, planting, trimming, and other routine undertakings associated with yard maintenance, every year, we spend more time and money than I care to admit trying to rid our yard of the dreaded English Ivy.  As any other homeowner with a similar problem can sympathize with, there is no amount of weed killer, weed-whacking or online product remedies that seem to tackle the problem.  Our English Ivy problem is the unintended consequence of the prior homeowners’ decision to turn their yard into an “English Garden”.

On a much grander scale, unintended consequences pop up everywhere.  Most go unnoticed by the broader public.  As one such example, The Wall Street Journal recently ran an article titled “U.S. Ethanol Mandate Puts Squeeze on Oil Refiners”.  The article highlighted that consumers could see higher prices at the pump due to government enacted mandates that force refiners to purchase market-based ethanol credits.  The original idea was that increasing the amount of ethanol used in gasoline would make gasoline cleaner burning and be better for the environment.  However, since the policy was enacted, two unforeseen issues have unfolded.  First, prices for these ethanol-based credits have skyrocketed in the past few months.  The higher ethanol credit prices mean that refiners will be forced to pass along higher prices for gasoline to the end consumer.  Second, automakers are suggesting that cars and trucks aren’t well equipped to burn the new gasoline blend.  As a result, we have a policy that was intended to produce cleaner burning gasoline which ultimately turned into higher gas prices for a product which most cars aren’t able to use.

consequencesThe reality is that the vast majority of consumers will never be informed of policy misstep.  Only industry experts and select individuals with knowledge of the matter will truly understand the costs involved.  Sometimes; however, unintended consequences have a much more visible impact on the broader economy.  That’s been the case over the past two weeks as policymakers have tried to tackle the banking problems in Cyprus.  If we rewind to last year, Greece was the conversation of topic.  Ultimately, policymakers decided that private sector bond holders should bear the brunt of the losses on Greek debt.  Fast forward to today and we have insolvent Cyprus banks.  Why?  Because Cyprus banks, which were one of the largest holders of Greek debt, were forced to write-down their assets.  So while at the time the policy of having private sector investors take the loss on Greek debt seemed like a good idea, ultimately the unintended consequence was that it would later result in Cyprus banks becoming woefully undercapitalized.

The European Union’s response to the Cyprus banking issue was subsequently just as perplexing.  As initially proposed, depositors, regardless of their size, would be taxed to cover the insolvency of the local banks.  Ultimately, while the policy was later reversed to preserve deposits below €100,000, the sanctity of small deposits suddenly disappeared.  Most market pundits will agree that Cyprus is too small and irrelevant in the grand scheme of things to bring down the European economy.  I worry, however, that the unintended consequence of Europe’s policy response will make depositors in other peripheral countries a bit more anxious when it comes to where they store their money for safekeeping.  After all, one of the tenants within economics is that if two investments have equal return, investors will choose the one with lesser risk.  With interest rates near 0% across the developed world, wouldn’t it make the most sense for depositors to store their wealth in a place with little chance of future default?  While we often like to believe that these matters are completely thought through and weighed carefully by policymakers, unfortunately, this most recent policy decision appears to driven more for domestic political purposes as opposed to European “Union” driven.

Question Framing and its Role in Retirement Planning

Sue BerginSue Bergin

Many advisors attribute their success to their ability to listen and to ask the right questions.  Knowing the questions to ask, and when and how to ask them, are at the heart of the retirement planning and relationship building process.

When helping a client prepare for retirement, for example, you probably ask clients when they plan to retire and how long they think they are going to live.  You may not have realized this, but the way the question is framed impacts the answer.

John W. Payne of Duke University, recently found that people would give significantly different answers about their longevity depending upon how the question is asked.

questionsPayne’s study participants gave themselves a 55% chance of living beyond age 85.  When the question was framed differently, their answers were far more pessimistic.  Study participants gave themselves a 68% chance of dying by the age 85, which translates to only 32% chance of living to age 85.[1]

In her Harvard Business Review Blog, “How to Frame a Question for Maximum Impact,” Melissa Reffoni suggests that we think about the metaphor behind the concept of question framing.

A frame focuses attention on the painting it surrounds. Different frames draw out different aspects of the work. Putting a painting in a red frame brings out the red in the work; putting the same painting in a blue frame brings out the blue. How someone frames an issue influences how others see it and focuses their attention on particular aspects of it.”[2]

By framing the question in the, “what age will you live to” context, you bring clarity to the retirement planning task.  Their attention is focused on life post-work, not when they are going to die.

The Brinker Barometer: Absolute Return Strategies On The Rise

Each quarter, we conduct a survey among financial advisors to gauge their confidence and sentiment regarding the economy, retirement savings, investing and market performance.  In our most recent Brinker Barometer, we asked respondents to reflect on key financial issues, including their clients’ retirement readiness, investing and the nation’s debt problems.

Click here for the official press release

Below is an infographic that sums up the results of the latest Brinker Barometer survey:


Finding Comfort Outside the Safety Bubble

Sue BerginSue Bergin

The late author Charles Bukowski once said that, “the shortest distance between two points is often unbearable.” The flight to safety that we have seen over the last few years is proof that this sentiment describes how many feel about investments.

The fixed income market has gotten a $700 billion boost in the last three years, and $300 billion yanked from equity markets.  These are sure signs that investors have found the volatility in markets unbearable.

While the comfort of the safety bubble might calm clients of their market jitters, it isn’t necessarily in their best long-term interest. While fixed income securities are generally “safer” than equity investments, they have a downside.  They may produce returns that do not keep pace with inflation.

safety bubble

There is, however, another option outside of the safety bubble.  By incorporating alternative investment strategies that are less correlated to the markets, clients’ portfolios may be protected from downside risk, yet still capture opportunities for growth.

When clients express an aversion to the equity markets, perhaps it’s time to talk about alternative strategies like absolute return.  Absolute return strategies seek to deliver a positive return regardless of market behavior.  Because they typically have low market correlation, they offer some shelter to the volatility that clients find disturbing.  While not right for everyone, a good absolute return fund can add balance and consistency to a portfolio.