(New York)

The nature of financial advice needs to be constantly evolving to client needs. The industry is generally responsive to this, one need only look at the large growth of independence and fiduciaries since the Financial Crisis. One new direction clients are driving advisors towards is goals-based investing. The main idea is to invest a client’s assets with particular life goals in mind (and not just retirement!), and then report on the progress towards those goals over time. The aim is to empower clients to meet their objectives and make saving and investing feel less abstract. Asset managers are also getting on board. For instance, Franklin Templeton has just announced the launch of their new Goals Optimization Engine, which “provides investors with personalized investment paths for their unique goals, and allows financial professionals a scalable way to offer a differentiated investment solution and deepen client relationships”.

FINSUM: Getting into the behavioral psychology aspect of this, studies have shown that individuals often have a hard time saving now for gains in the future—the desire for instant gratification works against long-term interests. Therefore, by focusing on near- and long-term goals, you make saving less boring and abstract, which helps clients commit.

(New York)

When the pandemic first hit, recruiting slowed down, with less advisors moving firms. However, after a couple of months, things started to pick up. According to a TD Ameritrade survey, 40% of advisors now say they are more likely to move than they were before the pandemic. Only 15% say they are less likely. If one comment sums up the increased velocity of recruiting, it might be this, “Advisors are at home and working in an independent environment. That can cause them to question what they are paying for at their firm. ‘Do I need the overhead and management of the wirehouse? Am I doing alright without it now?”.

FINSUM: On top of the questioning of whether all the overheads associated with a wirehouse make sense when they are working from home, the other big thing driving moves is the simple fact that it is easier for recruiters to reach advisors when they aren’t in the office. This makes the whole courting and exploration period much simpler.

(New York)

The initial winners from the pandemic were sorted out long ago—FAAMG, Zoom etc. Investors are now trying to figure out who the winners will be over the potentially long next stage. The recovery may take several years and the economy is changing right before our eyes, so this is a time of great alpha capture if you can identify the next big trends. With that in mind, here are three stocks to look at: MercadoLibre, Ryan Air, and SAP. The first is like the Alibaba of Latin America. Their market cap is only $60bn versus Alibaba’s $800bn, and Latin America is roughly half the size of China (population-wise), so a $400 bn goal seems reasonable. It almost feels like investing in an early stage Amazon. Ryan Air is a best-of-breed European airline whose operating model and unit costs run circles around the competition. They will likely gain the most as airlines come back. Finally, SAP is a great cloud play. They are relatively new to the cloud game, but grew very quickly through acquisition, so as the market digests their new business line and WFH drives huge cloud growth, they should be in a position to benefit.

FINSUM: These seem like very refined and well-considered choices. MercadoLibre feels like the largest opportunity to us.

(New York)

A new survey by the Money Management Institute and AON has come up with some interesting findings as it relates to client satisfaction with their advisors. One of the most intriguing findings was that clients say they wished their advisors used more goals-based financial planning. Goals-based planning is the idea that you plan around clients’ individual life goals (e.g. saving enough money to pay for children’s college) and then continually report to clients how they are doing in those areas. Incorporating values into their financial planning is another area where clients say advisors could improve.

FINSUM: Many advisors already do this, but there is likely room for improvement, especially as it relates to reporting. Very few invest and save just for the sake of accumulation without a plan for their money, so reporting on the key areas they are making progress towards is a good step. There are even funds that specialize in helping aid goals-based investing.

(Washington)

Most brokers out there have been relatively happy with the new DOL Rule. No one likes new regulations, but it is reasonably un-disruptive, and miles easier to stomach than the first DOL rule. However, under the surface lurks another problem that the new DOL rule has actually worsened—the push for state-level fiduciary rules. Many states had been pushing for their own fiduciary rules, and some had been standing by to see what the federal rule would look like. With the adoption of a new fiduciary rule for Massachusetts yesterday, it is clear that many states are not satisfied with the new federal rule and will keep designing their own. Thus, the new threat is a patchwork of differing fiduciary regulations across the country.

FINSUM: The idea of a fiduciary rule is kind of like playing whack-a-mole at present. You may “win” in one area, but then it pops back up in another.

(New York)

Banks have been absolutely hammered since COVID erupted, and they have not come back very much at all. Overall they are down 33% on the year versus a 5% gain for the S&P 500. Worries about loan losses and low interest rates headline the set of fears for the banking sector. However, banks may have an ace in the hole. Early in the year they set aside tens of billions for loan losses—which hurt earnings, but that may now be their good fortune. Loan losses have not been as bad as expected and many suspect that banks may start to let some of those loss provisions flow through to the bottom line in the next couple earnings seasons.

FINSUM: In our view, this would be a double whammy to the upside for the sector. Not only would it result in blowout earnings, but it would officially alleviate a big fear—that loan losses are going to be very bad because of COVID. Altogether seems like a good opportunity.

(Chicago)

Earlier this year LPL launch its new Strategic Wealth Services program. It is a special program designed to help advisors with all aspects of setting up their own business, including everything from finding an office to setting up a tech stack to executing payroll. Best of all, LPL promises to do this with “zero out-of-pocket costs for the advisors”. Despite the pandemic, the program seems to be doing well. Once advisors from a Wells Fargo team that recently departed for LPL commented on the program that “LPL’s new affiliation model really appealed to me. It allows me to be an independent advisor but solves for the business operational needs”.

FINSUM: This is a smart program. It appears specifically designed to address the multitude of anxieties advisors feel when moving to an IBD.

(New York)

The market is falling again the day after the Labor Day holiday, and many tech stocks are nearing or in correction territory. It is a rough start to the week, and Goldman Sachs is not offering much hope. The firm published a research piece this weekend which was bullish on stocks overall, but said that another 10% correction may arrive soon. Goldman says that if investors start to doubt the trajectory of the recovery in the face of the super quick snapback in economic output that the market has priced, then stock prices will likely fall.

FINSUM: On the whole Goldman was pretty positive, but they also clearly allowed room for a short-term “shake out” in share prices. This correction we have on our hands might also lead to a change of market leadership, which would be an interesting shift.

(New York)

Bank stocks have been heavy maligned by investors since COVID erupted. Several bank indexes, like the KBW, are down significantly on the year. KBE, a popular bank ETF is down over 30% on the year versus a small gain for the S&P 500. Ultra-low interest rates and loan losses are the big factors weighing on banks, but within the latter could be the spark of a rally. Banks have been setting aside tens of billions of Dollars in loan loss reserves, and seem to have been very bearish in their allocation of said reserves. Such reserves are also understood to likely have peaked at the end of Q2. That means that if loan losses aren’t as bad as forecast, some of those billions will likely be allowed to flow into the profit category for banks, allowing great earnings reports which could prompt a rally.

FINSUM: Banks are play on the recovery and can be had very cheaply. Additionally, this loan loss reserve aspect creates a nice catalyst for why a rally would start.

(New York)

The real estate space—at least parts of it—have been red-hot since COVID began. Residential real estate in particular has done well, as the fall in interest rates has sent mortgage issuance surging. One area of residential that you might want to stay away from, however, is apartments. Investors have been shying away from the sector. For instance, the FTSE Nareit Equity Apartments index is down 21% to-date. The big fall comes despite landlords saying rent collections are strong. The reason why seems to be the big rent reductions in coastal cities. Landlords in New York, San Francisco etc have had to drop rents by 15% or more to keep tenants and attract new ones, and that figure doesn’t even price-in other incentives, like months of free rent.

FINSUM: Our view here is that COVID will likely lower demand for urban apartments, since the pandemic highlighted some of the weaknesses of densely populated buildings. However, occupancy overall seems likely to stay strong.