Category: IHT Articles

Advisors need to understand they can’t go it alone.

I recently had an eye-opening exchange with a fellow advisor at an industry conference. On the surface, he was like so many others in this space, having started a prosperous solo practice and possessing an insatiable drive to serve clients and build his business. Professionally, everything seemed in place for him and he looked to have a bright future.

But as he told me a few years back, his prospects didn’t always look so great after he was diagnosed with cancer – which, as you might imagine, temporarily turned his life upside down. Upon hearing the news, naturally his concern immediately turned to his family: What would they do without him? Thankfully, years earlier he had taken out an insurance policy and already had an estate plan in place. That put his mind at ease a bit.

Then, he thought about what would happen to his business, and in what turned out to be a strange twist, a good diagnosis from his doctors almost became a major hiccup for his practice. Because the cancer was detected early, it was eminently treatable and a full recovery was expected. That was the good news.

The bad news, however, was that he did not have a contingency plan that would cover him in the event of a temporary disability caused by sickness or a major accident. Luckily for him, he bounced back much quicker than his doctors initially thought, allowing him to save nearly all of his client relationships. Had he been sidelined much longer, though, he could have lost his clients, his business and, ultimately, his livelihood.

According to a recent fact sheet compiled by the Social Security Administration, most Americans believe there is only a miniscule chance that a disability will prevent them from working for three months or more at some point during their career. But the actual odds are close to 25 percent. That’s too great a risk to take for any advisor, especially if you have a small or solo practice. Here are some top things to look for in a contingency plan partner, someone who can help keep your business afloat and take care of your clients in the event you become disabled on a temporary basis:

Make sure they are within the same broker-dealer and custodial network.This will make the transition as seamless as possible for your clients, who will have access to the same set of services, investment solutions and products via your contingency plan partner. Among other things, it also means clients won’t be burdened with troublesome logistical items such as repapering, only to have to go through the process again once you are fully recovered – which would be an enormous waste of time for all parties.

Team with a large group. Typically, it’s not a good idea to have a contingency plan partner that is also a solo practitioner or part of a small team, since they are unlikely to have the excess bandwidth necessary to absorb an entirely new roster of clients, even if it is just for a short time. As such professionals can attest, the day-to-day grind of running a small business can be difficult, and with only so many hours in the day and limited administrative support it makes an already delicate task almost impossible. The best contingency plan partners, therefore, have a large team of advisors and extra administrative resources to handle the swell of temporary work when you are away.

The same culture, same investment approach. Just as clients need to be comfortable with you, you need to be comfortable with whomever you entrust to take over your business, both from a service and investment approach standpoint. Essentially, the only question you need to ask is this: Would you do business with this advisor if you were the client? If the answer is no, continue your search. It could require some vetting and a lengthy get-to-know-you process to find the right fit. But if your partner is not an effective steward of your business, you will lose clients.

Someone younger but qualified. As a practical matter, your contingency plan partner should probably be younger than you – or at the very least someone that is not planning to retire in the near future – and in good health. This is just being smart and playing the percentages. (After all, this is your backup plan, and you want to make sure they aren’t going anywhere). And in keeping with the above, they need to be professional, knowledgeable and capable of delivering world-class service and advice. Finding someone who meets all these criteria can be a delicate balance. But if you find the right fit, as an added plus there’s no reason this relationship cannot form the basis of a succession plan when it comes time to retire and sell your firm.

Advisors need to understand they can’t go it alone. Indeed, much like you should never have to go through a personal trauma alone, professional headaches should not be something you have to confront by yourself either. If you do not have a contingency plan, take the steps to get one today, because if you wait till it’s absolutely necessary, that’s when it is too late.

Steven Dudash is President of IHT Wealth Management (www.ihtwealthmanagement.com), a Chicago-based firm.

To view original article on wealthmanagement.com

To view original article from First Trust Economics Blog click here.

The stock market is not the economy, and the economy is not the stock market. Nonetheless, many are convinced that the market correction of the past few weeks is a certain sign of impending recession. Never mind that China just reported 6.9% real GDP growth. Never mind that a barrel of oil costs less than $30, which means consumers are saving hundreds of billions of dollars per year on top of what the drop in natural gas prices has saved them.

And in just 10 days, the US will report another quarter of Plow Horse economic growth. Right now we estimate real GDP grew about 1% at an annual rate in Q4. It’s below trend, but that’s nothing new. Since mid-2009, real GDP has had six other quarters with less than 1% growth. The US economy grew only 0.9% for a full year from mid-2012 to mid-2013.

Inventories were the real challenge for GDP in Q4. Working off those inventories slowed manufacturing, rail traffic and transportation. But “right-sizing” inventories is not likely to be a persistent problem. Excluding inventories, trade, and government – none of which can be counted on for long-term growth – the economy probably grew close to a more respectable 2% rate.

Real (“inflation-adjusted”) consumer spending grew at a 1.5 – 2.0% rate in Q4, while home building likely grew at a solid 9% rate. Consumers’ financial obligations, the share of their after-tax incomes they need to make recurring payments (mortgages, rents, car payments, student loans…etc.) is hovering at its lowest levels since the early 1980s. Meanwhile, more jobs, mildly accelerating wages, and lower fuel prices mean consumers are in pretty darn good shape.

And as much as home building has recovered, there’s still much further to go. Back in 2009-11, housing starts were running at an average annualized pace of about 600,000. Last year, builders started about 1.1 million homes. But fundamentals, like population growth and “scrappage” (voluntary knock-downs, fires, floods, hurricanes, tornadoes, earthquakes…etc.) suggest a “norm” of about 1.5 million.

In other words, Consumer spending and homebuilding look poised for solid growth in 2016.

But, hey, this ain’t a perfect world. Over the past several years, some of the world’s production facilities focused too much on generating raw materials for China and finding new oil. Now, they face creative destruction. Much of the pain these producers will face is hitting right now.

But stop and think about the rest of the world that now gets to enjoy lower oil prices. Just two years ago, the leading experts were forecasting around $100 oil as far as the eye can see. Non-energy producers are benefiting hugely from cheap oil, and are generating new goods and services that cost less as a result. So, it’s not all bad news on the drilling and mining front.

Still, Donald Trump’s populism is stirring up support for slapping huge tariffs (maybe 45%) on China. This is a tax that will ultimately be paid by the populace. So much for populism! But, Congress would most likely prevent such an unwise tax.

And don’t forget growing geopolitical turmoil. The Spratly Island dispute with China may be a harbinger of ill winds if the US continues to step down from its ability and willingness to project military power. And Russia’s economy stinks, so “wagging the dog” and flexing muscles in the Baltics like it did in the Ukraine can’t be ruled out. Will the US balk at its NATO obligations if this happens?

Worst of all is the Middle East. There’s a whiff of World War I in the air with regional powers picking sides. Who knows what would happen if some young Kurd is able to assassinate the leader of Turkey.

But, chances are that all these scare stories will just be added to the long list of other stories the markets have confronted the past several years. Remember the impending implosion of commercial real estate or the European financial system? Remember Greece leaving the Euro? Remember, the “hidden inventory” of unsold homes about to hit the US market?

US equities were relatively cheap before 2015 started and even cheaper today. We recommend keeping a stiff upper lip, and waiting for pessimistic investors to realize their mistake. Even with more rate hikes coming, the US stock market is still significantly undervalued.

Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist

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