Wealth Management Predictions for 2017

Transcription

1 PRACTICE MANAGEMENT Wealth Management Predictions for 2017 January 9, Views Advisors and experts offer insights about the changes and issues the industry will face this year. This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors). Between the f iduciary battle and a changing political climate both here and abroad, the year 2016 was a wild ride. In the new year, what lies ahead for the wealth management industry? We asked advisors and experts for their predictions for what the new year will bring. Here are their projections: "Volatility could be quite severe at times." Kevin Norris, president, Univest Wealth Management, King of Prussia, PA As investors turn their attention to 2017 the new administration, economic growth, stock valuations, interest rates, etc. what keeps us awake at night is the groundswell of nationalism. The movement began in June 2016 with Britain unexpectedly voting to leave the European Union (EU). While Britain always took a one foot in and one out approach to the EU, the outcome of the vote was nevertheless a surprise. It continued here in the United States during the recent presidential election, when Republican and nonpolitician Donald Trump def eated lif e-long politician Hillary Clinton in a surprising result. The most recent indicator of popular discontent was Italy s recent ref erendum, when voters rejected constitutional changes proposed by Prime Minister Matteo Renzi. It seems that everywhere around the world political establishments are being blamed f or tepid economic growth, f ar too f ew job opportunities, and stagnant household income. The status quo is unacceptable to voters. This political instability could continue next year with elections in Germany, France, and the Netherlands. Should the deep divide among electorates continue in these elections, the continued viability of the EU could lead to a European banking crisis, which could lead to a Black Swan-type event. These new and unpredictable f orces warrant close monitoring. It s f or this reason that investors shouldn t abandon their def ensive holdings, as volatility could be quite severe at times. "Realities of the national budget will force presidential campaign promises to be broken." Tom West, managing director, Signature Estate & Investment Advisors, McLean, VA 1

2 In 2017, many of the expected changes in the economy and the markets simply won't materialize. The stock market will neither collapse nor soar it will be mostly f lat. Valuations are starting of f high and expectations of global growth are already pricing in mostly optimistic projections. With that said, GDP will still grind f orward without any major negative surprises. Similarly, those anticipating big changes in the bond market, given the U.S. Federal Reserve s recent posturing will find that U.S. and global interest rates will look a lot like current figures in 12 months. Market optimism about the possibility of grand bargains between a Trump White House and a Republican Congress will wane as the realities of the national budget winnow the promises of the 2016 campaign to a much more modest scale. House Republicans, in particular, will balk at the prospect of signif icant government borrowing and a simplif ied corporate tax ref orm and simply will not get in line. The Trump budget that eventually gets passed will be notable f or highlighting politically expedient but cosmetic changes, and closer inspection will show more similarities to previous budgets than the new administration will like to admit. "Multi-employer plan programs will decrease in popularity." Aaron Schumm, CEO, Vestwell, New York, NY Multi-employer plan (MEP) programs allow multiple small businesses to adopt a single retirement plan collectively. These will decrease in popularity, as cost-ef f ective retirement programs replace the driver behind the MEP offering. Regardless of what version of the [Department of Labor s] f iduciary standard goes into ef f ect, the f inancial service f irms that succeed in the marathon race will be positioned to do what's in the best interest of their clients. Those closest to their clients will be able to best serve as f iduciaries, requiring a level of personal interaction. Leveraging technology to better service clients will be a must in order to of f er retirement programs at a "best interest" price acceptable by regulators. Defined contribution plan contribution participation rates will continue to increase. "Year-end loss harvesting could be less beneficial for those who are currently subject to the 3.8% tax." Jody King, vice president and director of client services, Fiduciary Trust Company, Boston, MA While it remains unclear what specif ic tax and f inancial planning changes will actually be enacted af ter the inauguration of President-elect Donald Trump, there remains the potential f or signif icant changes that f inancial advisors may need to consider in 2017 and beyond. Under Trump s tax proposal, the long-term capital gains tax rate f or individuals with adjusted gross incomes of more than $112,500 (or $225,000 f or married f iling jointly) would remain at 20%. The 3.8% net investment income tax, however, would be repealed. While it is uncertain whether this repeal will happen, it indicates that year-end loss harvesting could be less benef icial in 2017 than in 2016 for those who are currently subject to the 3.8% tax. Due to changes in the tax code over time, the alternative minimum tax (AMT) designed to prevent the wealthy f rom avoiding f ederal income tax by claiming signif icant itemized deductions now 2

3 applies to a broader range of taxpayers. If Trump s plans are enacted, the AMT will be repealed, and he would reduce the top income tax rate, from 39.6% to 33%. However, he also has suggested capping total itemized deductions at $100,000 f or single taxpayers and $200,000 f or those married f iling jointly, which would drastically reduce the tax benef its associated with largescale charitable giving compared with Last, it would be advisable f or advisors to keep an eye on changes to estate tax legislation, as it may affect planning for lifetime gifts as well as whether assets receive a basis step up at death. "Natural gas will make a resurgence as an industry." David Root, CEO of D.B. Root & Co., Pittsburgh, PA Natural gas will make a resurgence within the energy industry owing to a lif t of regulation and a f ast-tracking of the Keystone Pipeline. This will help regions like our own. Investments such as a natural gas ETF will continue their advance in price, as they have since the November election. The 10-year Treasury bond is more likely to see a retreat in yield, back to 1.5% than an advance to 3.5%, given the lateness of the current U.S. economic cycle and a mounting risk of recession. President-elect Trump's protectionist policies likely will result in a high-stakes clash with Silicon Valley. He views the tech industry as made up of global citizens who will move manuf acturing anywhere where costs are cheapest globally. This provides a direct challenge to his America First policy. "Financial gurus will brag about their winners and not mention their losers." Allan Roth, Wealth Logic, Colorado Springs, Colorado Investors will buy high and sell low. The hottest investment will gather the most money. Financial gurus will brag about their winners and not mention their losers. Clients will be pitched something with high returns and low risk. "The DoL rule will stand under the next administration." Ajay Kaisth, principal, KAI Advisors, Princeton Junction, NJ I am preparing for the likelihood that the Department of Labor (DoL) rule will stand under the next administration. It will be hard to repeal or change drastically. Digital advice will lead to additional demand f or services f rom advisors with expertise in comprehensive f inancial planning. Low-cost robo-advice has brought awareness to clients that their f inances can be complex, they are better served by taking goals into account, and that the value of personal advice in turbulent market times can be very signif icant in terms of enhancing their net worth. "The SEC begins to work on a fiduciary standard for all assets." Drew Horter, president & chief investment strategist, Horter Investment Management, Cincinnati, OH On the subject of the new DoL regulations to start in April, the priorities for the Trump administration are to work on Dodd-Frank changes, repeal Obamacare, and tax cuts both corporate and individual. While the new DoL regulations are very important, changing them may not make top priority in the 3

4 next three to f our months. Many brokerage f irms have already redesigned their compensation structures with level f ees, while some have stayed with a commission structure requiring a BIC client agreement. It is very possible given these developments and the committed f ee structure adoptions that the DoL regulations are here to stay. It would not surprise me if the SEC to begins work on a fiduciary standard for all assets since they have watched how the DoL has handled various questions and comments over the past 18 months. As for the economy, 2017 could very well be a very bumpy ride for the stock and bond markets. With a push toward inf rastructure needs, def ense spending, and a desire to reach a 3-4% GDP, the Trump administration may well cause interest rates to continue their upward movement to combat real or perceived inf lation. The stock market may be the recipient of huge amount of money coming out of bonds and cash as retail investors move into the greed phase of the new irrational exuberance of With a high price-to-earnings multiple already in the stock market today, the euphoria of stocks combined with a struggling bond market could propel stocks to 20,000 or more on the Dow. "We'll see some firms go all in on marketing." Joe Anthony, PR strategist, president, Financial Services at Gregory FCA, Ardmore, PA In 2017, there will be many advisors and advisory f irms f acing an identity crisis and perception problems can arise from that. The way we see it, the outcome of the fiduciary rule both from the DoL and the potential SEC angle can wreak havoc. If the rule stands as proposed, there will be a rush of f irms and advisors looking to meet the standard and demonstrate that they are in the f iduciary camp. If it is modif ied, it creates another slew of issues, including leaving some advisors in limbo in terms of how they want to position their businesses and, by extension, their brands and marketing. If it gets tossed out, there will be a huge opportunity for fee-only advisory firms operating as f iduciaries to take advantage of the f iduciary platf orm to elevate themselves over the advisors that are on the other side of the fence. So, my prediction is that we ll see some firms go all in on marketing, others being drowned out by the noise, and still others that might simply give up or choose to merge with f irms that have powerf ul enough brands or position in the whole f iduciary discussion. "Most predictions are wrong." Kristi Sullivan, Sullivan Financial Planning, Denver, CO Most predictions are wrong: Out of more than 6,500 predictions made by market pundits f rom , only 47% were correct. I am a boring diversify across asset classes, buy for the long term, and occasionally rebalance type of investment advisor. Theref ore, I never make predictions about short-term market movements, or listen to them. The inf ormation provided is f or general inf ormation purposes only and is not intended to be legal, tax or investment advice. The inf ormation contained herein has been provided by sources other than Lord Abbett which are believed to be reliable; however Lord Abbett cannot guarantee the accuracy or completeness of this inf ormation. 4

5 Investors should carefully consider the investment objectives, risks, charges and expenses of the Lord Abbett Funds. This and other important information is contained in the fund's summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, you can click here or contact your investment professional or Lord Abbett Distributor LLC at Read the prospectus carefully before you invest or send money. Not FDIC-Insured. May lose value. Not guaranteed by any bank. Copyright 2017 Lord, Abbett & Co. LLC. All rights reserved. Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC. For U.S. residents only. The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances. 5