Monthly Market and Economic Outlook: June 2014

Amy MagnottaAmy Magnotta, CFASenior Investment Manager, Brinker Capital

The global equity markets continued to climb higher in May. In the U.S. the S&P 500 Index hit another all-time high, gaining more than 3% for the month. The technology and telecom sectors were the top performing sectors in May, but all sectors were positive except for utilities. In a reversal of March and April, growth outpaced value across all market capitalizations, but large caps remained ahead of small caps. In the real assets space, REITs and natural resources equities continued to post solid gains despite low inflation.

International developed equity markets were slightly behind U.S. markets in May, but emerging market equities outperformed. After a weak start to the year, emerging market equities are now up +3.5% year to date through May, even with China down more than -3%. The dispersion in the performance of emerging market equities remains wide. Indian equities rallied strongly in May, gaining more than 9%, after the election of a new prime minister and his pro-business BJP party.

Despite a consensus call for higher interest rates in 2014, U.S. Treasury yields have continued to fall. The yield on the 10-year Treasury note ended the month at 2.5%, still above its recent low of 1.7% in May 2013, but well below the 3.0% level where it started the year. While lower than expected economic growth and geopolitical risks could be keeping a ceiling on U.S. rates, technical factors are also to blame. The supply of Treasuries has been lower due to the decline in the budget deficit, and the Fed remains a large purchaser, even with tapering in effect. At the same time demand has increased from both institutions that need to rebalance back to fixed income after such a strong equity market in 2013 and investors seeking relative value with extremely low interest rates in Japan and Europe.

Magnotta_Market_Update_6.10.14As interest rates have declined, fixed income has performed in line with equities so far this year. All fixed income sectors were positive again in May. Municipal bonds and investment grade credit have been the top performing fixed income sectors so far this year. Both investment grade and high yield credit spreads continue to grind tighter. Within the U.S. credit sector fundamentals are solid and the supply/demand dynamic is favorable, but valuations are elevated. Emerging market bonds have also experienced a nice rebound after a tough 2013. Municipal bonds benefited from a positive technical backdrop with strong demand for tax-free income being met with a dearth of issuance.

We approach our macro view as a balance between headwinds and tailwinds. We believe the scale remains tipped in favor of tailwinds, with a number of factors supporting the economy and markets over the intermediate term.

  • Global monetary policy remains accommodative: Even with the Fed tapering asset purchases, short-term interest rates should remain near-zero until 2015 if inflation remains low. The ECB announced additional easing measures, and the Bank of Japan continues its aggressive monetary easing program.
  • Global growth stable: U.S. economic growth has been slow but steady. Economic growth declined in the first quarter, but we expect it to turn positive again in the second quarter. Outside of the U.S. growth has not been very robust, but it is still positive.
  • Labor market progress: The recovery in the labor market has been slow, but we have continued to add jobs. The unemployment rate has fallen to 6.3%. Unemployment claims have hit cycle lows.
  • Inflation tame: With core CPI running below the Fed’s target at +1.8% and inflation expectations contained, the Fed retains flexibility to remain accommodative.
  • U.S. companies remain in solid shape: U.S. companies have solid balance sheets that are flush with cash that could be used for acquisitions, capital expenditures, hiring, or returned to shareholders. M&A deal activity has picked up this year. Corporate profits remain at high levels and margins have been resilient.
  • Less drag from Washington: After serving as a major uncertainty over the last few years, there has been some movement in Washington. Fiscal drag will not have a major impact on growth this year. The deficit has also shown improvement in the short-term.

Risks facing the economy and markets remain, including:

  • Fed Tapering/Tightening: If the Fed continues at the current pace, quantitative easing should end in the fourth quarter. Risk assets have historically reacted negatively when monetary stimulus has been withdrawn; however, this withdrawal is more gradual and the economy appears to be on more solid footing this time. The new Fed chairperson also adds to the uncertainty. Should economic growth and inflation pick up, market participants will shift quickly to concern over the timing of the Fed’s first interest rate hike.
  • Emerging markets: Slower growth could continue to weigh on emerging markets. While growth in China is slowing, there is not yet evidence of a hard landing.
  • Election year: While we noted there has been some progress in Washington, we could see market volatility pick up later this year in response to the mid-term elections.
  • Geopolitical risks: The events surrounding Russia and Ukraine are further evidence that geopolitical risks cannot be ignored.

Risk assets should continue to perform if real growth continues to recover; however, we could see volatility as markets digest the continued withdrawal of stimulus by the Federal Reserve. Economic data will be watched closely for signs that could lead to tighter monetary policy earlier than expected. Equity market valuations are fair, but are not overly rich relative to history, and may even be reasonable when considering the level of interest rates and inflation. Investor sentiment remains elevated but is not at extreme levels. Credit conditions still provide a positive backdrop for the markets.

Our portfolios are positioned to take advantage of continued strength in risk assets, and we continue to emphasize high conviction opportunities within asset classes, as well as strategies that can exploit market inefficiencies.

Asset Class Outlook Favored Sub-Asset Classes
U.S. Equity + Large cap bias, dividend growers
Intl Equity + Frontier markets, small cap
Fixed Income Global high-yield credit, short duration
Absolute Return + Closed-end funds, event driven
Real Assets +/- MLPs, natural resources equities
Private Equity + Diversified approach

Source: Brinker Capital

 Brinker Capital, Inc., a Registered Investment Advisor. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Past performance is not a guarantee of similar future results. An investor cannot invest directly in an index.

Embracing Innovation: Envestnet Advisor Summit Wrap-up

VradenburgGreg Vradenburg, Managing Director, Investment Services

Last week we were honored to be one of the Premier Sponsors at the Envestnet Advisor Summit in Chicago. The theme of the event was “the next big thing” and it was evident everywhere. Envestnet Chairman and CEO Judson Bergman opened up the conference by talking about how advisors need to be disruptive innovators in order to succeed and overcome looming industry challenges. He stressed the importance of embracing technology, building brand and perfecting marketing and reminded us of past giants such as MySpace, BlackBerry and Blockbuster that did not take these steps and were not aware of happenings in the new markets and seemingly fell behind.

Envestnet President Bill Crager also talked about how the role of the advisor will become increasingly important in the next five years. As older advisors begin to exit the business, Crager projects that the average advisors assets will increase from $90 million today to $145 million in 2020. (Source: “9 Takeaways from the Envestnet Advisor Summit”, Financial Planning, May 20, 2014)

Conference attendees were also introduced to the Envestnet Institute, an online advisor education portal that features white paper, videos and webinars. Brinker Capital is proud to be one of the contributing content partners for this exciting new unified education portal.

Finally we were pleased by the informative “Liquid Alternatives Panel” that our CIO, Bill Miller, participated in. All panelists agreed the education around alternatives is key for both clients and advisors. Alternatives firmly fill a role in a portfolio by providing greater portfolio diversification as well as access to unique opportunities and strategies; however, they are just a piece of the overall pie.

Our thanks go out to Envestnet for hosting such a great event that allowed us to network with colleagues, investment professionals and Envestnet representatives! We look forward to next year’s Advisor Summit!

Implementing Technology

Sue BerginSue Bergin, President, S Bergin Communications

You don’t necessarily need the most cutting-edge technology to get to the top of your game. According to a recent study, you can start by leveraging the technology you already have.

Fidelity Institutional Wealth Services’ 2013 RIA Benchmarking Study reveals that high-performing firms—those in the top quartile for growth, profitability and productivity—focused on smart technology and adoption, not getting the latest and greatest. These high-performing firms focus on optimizing their technology in three areas: portfolio management, service, and client reporting.

Here are ten steps you can take to make sure you get the most from your technology.

  1. Make adoption a priority. Commit putting in the time and effort to learn how best to maximize all of the system’s features. If you can’t do it yourself, make someone else in your office accountable.
  2. Plan. Learning a new software program is like learning a new language. It’s hard to know where to start. Your technology provider should be able to give you an implementation guide to show you the steps to follow, and milestones to hit.
  3. Set aside time. If you don’t carve out time on your schedule, it isn’t going to happen.
  4. Network. There are relatively few programs out there that haven’t already been tried and tested by others in similar positions as yours. Talk to everyone you know who has gone through the implementation process and find out what they did and what they wished they had done better.
  5. Gather resources. Request an inventory of the training your technology provider makes available. Once you know what they have for support materials, you can choose the format that best matches your learning style.
  6. Optimize Your TechnologyGet names and numbers. You need to have key information handy in a few different areas. Know the software name, version number, and license holder so that when you call or go online for help you can be sure you are asking about the right program. Also know the names and numbers of customer support persons at your technology provider.
  7. Troll the internet. Use social media find online user groups or other social media sites that could provide helpful implementation hints. For example, there may be a LinkedIn User Group already established for the purposes of optimizing your software.
  8. Monitor progress. Perform periodic self-checks to monitor your progress towards the goals set in your implementation plan.
  9. Celebrate incremental success. Even if you haven’t learned everything there is to know, make note of how the technology improves your efficiency. Success is a powerful motivator and will prompt you to plow through your learning curve.
  10. Provide feedback. Software engineers constantly strive to innovate. If there is something you don’t like about your program or would like to see handled differently, let them know. You may just have a function named after you in the next version!

The views expressed are those of Brinker Capital and are for informational purposes only.

Tech Talk: Adding Value Through Technology

Brendan McConnellBrendan McConnell, Vice President, Business Administration

I recently participated on an advisor technology panel at the 2014 FSI OneVoice event in Washington, D.C. One of the topics of conversation highlighted the number of new technologies available and what technology an advisor should consider adopting. It starts with creating a solid technology foundation.

Financial services, not unlike most other industries, is a competitive landscape where it can be difficult to separate yourself from the pack, so to speak. There are a lot of skilled institutions and personnel promoting similar products and services. Embracing the right technology is one way to differentiate yourself. Adding technology to your practice can be disruptive, but a firm with the right appetite for change finds success in transforming the customer experience. Let’s look at a few tools and concepts you should start considering adding to your business.

Adopt a Customer Relationship Management (CRM) System
CRM systems are designed to help you manage your business more strategically and efficiently. They serve as the ecosystem where all relevant business data exists—from client contact information and account data, to prospect opportunities and service requests. Your CRM is the hub around which all other technology revolves. Most CRMs are now offered as cloud-based technology, giving you access anywhere on any mobile device and eliminating the need to support the technology infrastructure. The cloud delivery also makes CRM much more affordable. Use CRM systems to automate workflows and eliminate those time-consuming, manual procedures. Set up alerts so that you know when a new proposal is run or an account hits a specific threshold. Have emails proactively sent to your clients when a service case is completed or for an anniversary or birthday. Time is your most valued resource, add more of it through a properly implemented CRM system.

Adopt a CRM SystemIf you are currently using a CRM, your future technology choices should include an evaluation of integration with your system. Think of your CRM like a power strip that all other technology plugs into. This will provide you with a simplified infrastructure with one source and a single log in. If you are shopping for a CRM, take a look at your current core system, software, and platforms and find the CRM that will integrate best with your existing technology. If you follow this strategy it will eliminate the siloed technology approach, which often leads to inefficiencies.

Improve the Client Onboarding Process
As important as embracing technology is to your internal processes and procedures, it’s vital for enhancing the client experience. This is where you prove to the client that you add more value than simply serving their investment needs. A recent Fidelity RIA Benchmarking survey found that 77% of high-performing firms were focused on using technology to enhance the customer experience and satisfaction.

Client onboarding, for example, is an area worth the technological investment. Tools that allow for pre-population of forms, applications that allow secure, electronic signatures, using CRM data to customize templates—all of these enhancements create a unique and personal experience for the client. And we all know the adage “a happy customer is a loyal customer.” In addition, a paperless workflow technology can provide a tremendous amount of efficiency and process standardization that can help reduce resources required (time and money) and help eliminate mistakes.

Customization is KeyProvide Customizable Client Reports
What about the ongoing servicing of existing clients? Client reporting, much like the onboarding process, helps enhance and maintain successful relationships. Each one of your clients has an investing objective that is personal to them. You need to be able to provide them with a custom report that shows how they are measuring against their goals rather than trying to fit them into a predefined template. The one-size-fits-all model is no longer going to meet your clients’ expectations for the evolving world of goals-based investing.

The driver behind successful adoption of technology for any practice is internal participation. You must have buy-in within your organization or practice. Whether a one-man show or a team of 20, everyone has to commit in order to maintain a culture of innovation. With proper adoption of technology, enhanced client experience and satisfaction will be within reach.

Brinker Capital at the Financial Services Institute OneVoice 2014 Conference

Noreen BeamanNoreen Beaman, Chief Executive Officer

In June, we announced Brinker Capital as a Premier Sponsor of the Financial Services Institute (FSI), a voice of independent financial services firms and independent financial advisors.  FSI’s mission is to ensure that all individuals have access to competent and affordable financial advice, products and services.

FSI’s OneVoice 2014 Conference kicks off next week in Washington, D.C. where Brinker Capital is proud to be a Premier Sponsor as well as a presenter.  OneVoice is FSI’s annual conference for the independent broker/dealer community to network and gain knowledge of the latest within the industry.

FSI OneVoice Conference 2014We are honored to have our Vice Chairman, John Coyne, chosen as a panelist for the Alternative Investment panel; our Vice President of Business Administration, Brendan McConnell, as a panelist to share insight on the latest technology tools to help advisors gain efficiencies; and behavioral finance expert, Dr. Daniel Crosby, as a presenter on understanding investor behavior.

This year’s conference promises to be a good one as FSI celebrates 10 years of advocacy for independent financial service advisors and firms.  We look forward to seeing many of you there!

Technology Watch: Investing Into The Future

Dan WilliamsDan Williams, CFP, Investment Analyst

I recently had the opportunity to attend a conference that centered on the big ideas in technology happening right now. Hearing from such people as Andrew McAfee (author of the 2012 book Race Against the Machine and his most recent The Second Machine Age), Steven Kotler (author of Abundance: The Future Is Better Than You Think), and Charles Songhurst (former Head of Corporate Strategy at Microsoft), I can make a few blanket statements.

First, these guys are humbled, awestruck, and blown away by the advances being made in technology; specifically in robotics, 3D printers, and in general computing power. Second, the individual and the consumer will be empowered by this technology. Lastly, don’t try to pick the winning company, rather win by picking the area as a whole.

3D PrintingThis last point may seem to some as a “coward’s way out”, but consider the CNN Money article from December 31, 1998, Year of the Internet Stock. In this article Amazon, eBay, AOL,, Cyberian Outpost, and a few other names that have since been lost to history, are listed as stocks that had a great year and are part of the revolution. In the 15 years (1/1/1999 to 12/31/2013) following this article, Amazon and eBay clearly have proven to be the winners among the group, returning a cumulative return of 644.81% and 445.81% respectively as the others essentially went to zero. However, if you broaden the technology space, Apple would have been the big winner with an astonishing 5,569.77% cumulative return for this 15-year period. In other words, the idea that the internet was going to be a game changer in the way we communicate and the technologies we use was right, but our clever execution by picking the few likely winners likely would have missed the boat.

Now, let’s fast forward to today as we stare upon a robotic and biotech revolution. While there are a few select names that seem to be the smart bets to land among the big winners—given the magnitude of impact these two areas will have on the way we live and the uncertainty in the specifics of the path this change will actually take—picking an individual winner involves a level of hubris, while diversification within this idea can add value.

Future of TechnologyI left the conference fully convinced that these concepts, both current and future, are going to change the world; however, I remain very cautious regarding the execution and process. Without giving any type of recommendation, there exists at least half a dozen Biotech-focused ETFs. Late last year, the first robotics-focused ETF (ROBO) was launched—and it won’t be the last. All of these are less exciting answers to investing in new technologies versus trying to pick the winner, but as the American poet Ogden Nash once wrote, “Too clever is dumb.”

High Profit Margins Outlook in 2014

Miller, Bill 2Bill Miller, Chief Investment Officer

Throughout this year, we have been in the camp that profit margins would not mean-revert.  Better measures of labor and manufacturing productivity, technology improvements and cheaper imports have all helped profits.  As the chart below shows, that was the case in the third quarter.  In 2014, we expect margins to remain persistently high.

The big three—productivity, technology and cheap imports—should help again next year.  Plus, we do not see excesses in business investment, inventory or debt (personal or commercial) in 2014.

Persistently high profit margins should help equities in 2014.

S&P 500 Operating Margins (Quarterly)

Source: International Strategy & Investment (ISI) Group LLC

The views expressed above are those of Brinker Capital and are not intended as investment advice.

Will Advisors Get to The Promised Land?

Sue Bergin,Sue Bergin@smbergin

The maturation of the baby-boomer generation turned into a bit of a “promised land” for advisors.  New products, services, specialties and strategies were devised better to serve this massive market.  Advisors, along with the rest of the financial services industry, eagerly waited the fees, commissions, and product sales that would naturally flow as boomers prepared for, and transitioned to, retirement.  Everyone was ready, but will those who were promised ever even reach the so-called promised land?

In an article (subscription required) published in Financial Planning, “Advisor Threat? Wave of New Online Services Incoming”, Charles Paikert reports the influx of venture capital and clients flocking to the online advisory space. Many of the services who have staked a claim on the promised land are getting clients before advisors even get in the door.  Financial Guard is an example of a service offered directly to individual investors/employees.  It provides advice and recommendations to employees on their 401(k) portfolios.

10.30.13_Bergin_PromisedLandWhile these services are arguably tapping into a segmented market, it is important to note the increase in their popularity.  However great the rise, it does not diminish the experience of working directly with a financial advisor. Let’s take a look at some of the applications and services with a presence in the online world:

  • SigFig, a mobile application that tracks, organizes, and makes recommendations on financial assets garnered $50 billion in assets managed in just nine months after the app launched.[1]
  • In February 2013, online investment company Betterment had amassed $135 million in assets under management, investing on behalf of 30,000 users.[2]
  • Online wealth management firm Personal Capital amassed $120 million in assets under management, 75% of which came in the first quarter of 2013.  The firm continues to add $20 million to its platform monthly.[3]
  • Jemstep, which provides recommendations on retirement goals, has attracted 10,000 users and tracks approximately $2 billion in assets.  It has only been up and running since January 2013.

These new entrants are a prime example of what late British author and psychologist Havelock Ellis had to say about the promised land—It always lies on the other side of the wilderness.

[1] TechCrunch, “Financial Planning App SigFig Crosses $50B in Assets Managed Though the Platform,” 1/14/13

[2] Pandodaily, “With 135 million in Assets Under Management Betterment Lures Two Key Hires Awa From Traditional Finance.”  2/12/13

[3] Pandodaily, “Wealth management isn’t for old farts anymore.  Personal Capital uses technology and design to spice up a boring topic.”  4/11/13

What to Do With All Those Receipts?

Sue BerginSue Bergin

There are many little annoyances that an advisor must deal with as a cost of doing business. Tracking expenses is a prime example. Out of necessity, advisors have developed systems for tracking expenses that vary in sophistication. Ranking high on the list is the empty-the-pockets-on-the-assistant’s-desk-and-let-her-deal-with-it system and the stack-the-receipts-in-a-pile-for-a-slow-day-project approach.

While these systems are second nature, the beauty of living in the digital era is that annoying tasks have spawned clever digital solutions.

Such is the case with tracking business expenses. For those who have embraced mobile devices, the days of the crinkled and barely legible receipts can be gone forever. Shoeboxed, Lemon Wallet and ABUKAI Expenses are some of the apps available that make managing receipts painless and efficient. You can download these apps on your Apple, Blackberry or Android device(s), and then simply take photos of your receipts. The expenses are digitally categorized and stored, and in many cases, the data can be imported into a spreadsheet or an accounting program like Quickbooks. With Shoeboxed, you can mail in old receipts and they will make digital copies for you. You can even get multiple “seats” on an ABUKAI account, allowing staff members in your office to contribute to the expense report. Other expenses management software programs, like Expensify and Xpenser, also have mobile applications that result in efficiency gains.

shutterstock_111610157Neat Receipts takes a slightly different approach. They offer a mobile scanner and digital filing system that allows you to scan receipts, business cares and documents. The Neat Receipts software system then identifies, extracts and organizes key information. While these applications might help you to make your practice more efficient, they could also help clients who own businesses. Clients often look to their advisor for tips on how to gain more control over their financial world.

With tax deadlines rapidly approaching, the inefficiencies of traditional approaches are top of mind. Take this opportunity to suggest this small way to remove one of the little annoyances in their lives. You may find that they are quite receptive and appreciative of your efforts.

New Ideas for Growth

Bev Flaxington@BevFlaxington, The Collaborative

Finding creative ways to continue to grow an advisory business isn’t always easy. We asked advisors all over the country what some of the more interesting ideas are for marketing and business building. This blog is devoted to those advisors who are thinking outside of the box and trying new ideas.

Leveraging Social Media
In Greenwood Village, CO, Kelly O’Connor and her team researched the power of video. They realized they already had great information and material to share, so they produced short video commentaries. They have posted these on Facebook, LinkedIn, Twitter, YouTube, and the like. Clients, prospects, and centers of influence, forward these clips to others. Kelly says they’ve found that while people may not read a report or a white paper, they’ll watch a brief video if a friend forwards it and asks them to!

Loving What you Do – and Sharing it!
Sarah Wilson, CGA and CFP of T.E. Wealth in Calgary, Alberta, says that she enjoys financial planning so much that she feels compelled to talk to others “about their lives, goals, and financial aspirations.” She claims she is naturally “nosy,” but the truth is that advisors who are truly interested in others and take the time to talk, listen, and learn, even when a sale may not be imminent, are often open to opportunities that other advisors may miss.

3.4.13_Flaxington_Ideas_for_GrowthFinding Outside Resources
Safe Harbor Asset Management in Huntington, NY, has expanded their client base by doing everything from purchasing leads from specialized marketing companies to sponsoring seminars. They have had success using a service provided by Platinum Advisory Marketing Services, which creates a weekly market update for their clients that can be forwarded to a friend to join the mailing list and receive the same update.  John Boyd, an attorney, launched a site called that helps professional service practitioners arrange targeted networking meetings with the type of people desired as invitees. You can arrange coffee, lunch, or general networking via email.  Jennifer Dziubeck of Kel & Partners in Boston shared information about their firm –, a free web-based tool that enables financial advisors to select and schedule clients’ gifts. This system allows you to put in a year’s worth of events, and with one click, find a vendor or gift that is appropriate for your client base.

Niche Marketing
Kristin Harad, founder of the VitaVie Financial Planning firm in California, targets new parents and families with young children in the Bay area. Because it can be challenging for parents of younger children to get out to a meeting, Kristin’s firm has created “weekend workshops at indoor play spaces.” She says, “The kids have a great time jumping around and having unsupervised play, while we get the parents’ undivided attention for a 90-minute presentation on the financial issues parents of young children face.” At a financial planning firm in Beverly Hills, Ara Oghoorian, CFA, has created marketing materials such as promotional prescription vials filled with jelly beans – the Rx sticker includes their logo and contact information. It’s a fun way to say, “We know our niche!” They also belong to ProVisors – a networking group consisting of CEO and high-level executives. Because they are speaking to the medical community, they spend time contacting medical associations and getting articles published in their newsletters on topics related to retirement, financial planning, and concerns that may resonate with medical professionals.

Try One On
What can your firm do that’s a little different to gain the attention of investors in a crowded market?