What the Evolution of Financial Advice Means for Your RKL Wealth Management Experience
By Laurie M. Peer, CPA, CFP®, RKL Wealth Management President
“Everything should be as simple as possible, but not simpler.” – Albert Einstein
Financial planning first emerged as a profession in the 1970s. Since then, it has expanded to encompass the terms “wealth management” and “life planning.” Over the last decade, the academic fields of behavioral finance and financial psychology have grown substantially.
At RKL Wealth Management, we’ve long taken this type of holistic approach in our service to clients and their families. Our focus extends beyond investment returns and account balances as we strive to understand our clients’ life goals and then develop and execute a customized plan to achieve them. Working with RKL Wealth Management, you can expect us to deliver on these key promises grounded in our client-centric mission.
- Put you first and serve your best interests. Above all else, we are dedicated to providing the expertise and services you need to successfully manage your wealth.
- Understand your unique financial circumstances and goals. In order to serve your best interests, we first must know what your values are. Next, we take stock of your current situation and what challenges, opportunities and transitions you face. All of this diagnostic information allows us to align your wealth with your ideal meaning and purpose in life.
- Support you with a team of experts. As a client-centric firm, we employ deep expertise to provide you with personalized recommendations and counsel. This includes seasoned, credentialed professionals with investment, retirement, tax, estate and trust, and broad financial industry experience.
- Educate you. We try to make complex concepts profoundly simple. As we educate and guide you, we avoid industry jargon and clearly communicate financial principles that will help you progress toward your goals with a higher level of satisfaction and lower levels of stress and confusion.
- Co-develop your game plan. We will be right by your side as we discover, develop and implement your unique plan. Combining our wide range of financial planning and wealth management expertise with your lived experience and perspective lets us clearly visualize your future and execute the plan in a steady, dedicated fashion.
- Manage your risks. Part of a successful plan is mitigating risk. We help you meet your goals without taking risks that could jeopardize them. Our team considers “risk manager” to be part of our unofficial titles – that’s how seriously we take this promise.
- Conduct effective client meetings. In every meeting, we discover what’s relevant or what’s next in your life. We answer your questions, and address any issues or problems that are top of mind.
- Adhere to best practices in financial psychology and behavioral finance. These areas of academic research are built on the premise that human beings don’t always act in their own best financial interests. Behavioral biases like comfort with the status quo and emotional versus rational responses leave individuals vulnerable to detrimental financial decisions, such as holding on to poor investments for too long, failing to diversify a concentrated stock position, overspending or financially enabling someone close to us. Thanks to our understanding of financial psychology, we will help you pinpoint these biases, rectify potentially costly errors and promote healthier financial behaviors.
- Monitor progress. Our team works with you to co-create a definition of how to measure success. As part of our ongoing vigilance, we meet with each client at least annually to evaluate progress, keeping short-term returns in perspective.
- Coach you out of the news and media. We keep the focus on facts, self-restraint and moderation in adherence with a long-term financial plan. To maintain confidence through periods of volatility, we are transparent with our investment approach and keep the focus on your strategies and processes.
These are our core promises as we help you achieve your unique goals and invest in something greater. As always, we welcome your questions and feedback.
Market & Economic Update
By Nicholas A. Boyer, Chief Investment Officer/Executive Vice President
Believe it or not, the U.S. economic supercycle continues
In July, the current economic expansion entered into its 10th year, becoming the longest in U.S. history. As we’ve covered previously, this much-maligned economic growth story has remained intact despite an incredible number of potential risks including everything from the U.S.-China trade dispute to Brexit, among a bevy of other geopolitical conflicts. Still, based on research by the Federal Reserve, we know that economic expansions don’t simply die of old age.
So despite some moderation in various economic data over the last few months, we’d reiterate that U.S. growth is still overwhelmingly driven by consumption (see chart below) and the health of the U.S. consumer remains strong. As evidence, the U.S. Department of Labor’s most recent report indicated the U.S. economy just added 224,000 jobs in June, while unemployment claims (the number of people seeking unemployment benefits) remain near their lowest level in 50 years. Meanwhile, even as wage growth has moderated somewhat since its February high, average hourly earnings (AHE) remain solid, having grown at more than 3% every month since July 2018. Meanwhile, U.S. retail sales and factory output in June also meaningfully exceeded market expectations. One key measure of retail purchases in the report, which excludes food, automobiles, building materials and gas, increased 7.5% on an annualized basis, representing the strongest quarterly result since the fourth quarter of 2005. This data confirms a positive outlook for the consumer, which will continue to drive growth in the overall U.S. economy.
There is no need for the Fed to cut rates
Yet somehow a narrative has emerged that the U.S. economy is in trouble and the Federal Open Market Committee (FOMC) needs to act aggressively at its upcoming meeting. Currently, the market is pricing in a rate cut of at least 25 basis points for the July meeting, with even a 30% probability of a 50 basis point cut. While this result may very well drive up equity prices, the overall economic case for a rate cut is unclear. Inflation is low. Unemployment is low. Interest rates are already low. Equity markets, both in the U.S. and globally, are performing well. Additionally, some regional Federal Reserve Bank presidents have recently pushed back on
the growing clamor for a rate cut. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated, “From any employment perspective, the economy continues to perform in a very positive way…And inflation, the numbers I think are not as bleak as some others might suggest. For me, in terms of performing our dual mandate, the aggregate numbers look pretty good.”
With the Fed having just raised rates 25 basis points in December, cutting rates 25 basis points only seven months later would be a tacit admission the December decision was a mistake. Importantly, the adverse economic and financial market effects of monetary policy shocks have been well-documented by the Fed itself.  Accordingly, we believe the Fed should proceed with extreme caution in manipulating rates to avoid further long-term damage to monetary transmission mechanisms.
The S&P 500 trading at all-time highs should not be surprising
Once again, despite a barrage of negative headlines in 2019, the S&P 500 has delivered over 20% in total return year-to-date. Investors who were willing to dismiss the sensational headlines and focus on the facts were rewarded. Those indispensable facts include:
- The VIX – a measure for volatility of the S&P 500 index – has declined over 50% year-to-date.
- Interest rates remain very low with the U.S. 10-year yield at 2.1%.
- U.S. financial conditions remain favorable, as measured by nearly any index (ie, Chicago Fed National Financial Conditions Index, Bloomberg U.S. Financial Conditions Index).
- Corporate credits spreads remain tight signaling minimal concern regarding corporate credit.
- Subdued inflation means input costs for businesses remain largely restrained.
- Various fundamentals for the S&P 500 are all trending healthy including basic metrics like gross margin, operating margin and profit margin.
- First quarter corporate profit growth was steady and beat most of the market’s pessimistic expectations.Even mid-single digit growth in corporate profits for 2019 could drive meaningful price appreciation.
- While the S&P 500 is trading around 19x trailing earnings (approximately 18x forward earnings), valuation metrics do not appear unreasonably stretched given the environment described above.
- One of the main supports for the current bull market in equities has been the relative attractiveness of stocks to bonds, which persists given the low rate environment.
Just don’t get caught out reaching for yield
When nominal interest rates are high, individuals and institutions have little problem earning enough yield to cover their liabilities or to reach their investment goals. But just as in many past cycles, when the central bank cuts interest rates to boost the economy, investors have more difficulty finding investments that provide the yield they’re seeking, as risk premia (the return investors receive above the “risk-free” rate of interest to compensate them for taking risk) eventually recede. While this is part of the reason that lower interest rates generally elevate asset prices, especially for riskier assets, it also creates dangerous incentives as investors assume more risk than is necessary or appropriate. This ultimately leads to malinvestment and contributes to the “boom and bust” nature of the credit cycle. Given that interest rates remain low and could go lower, we caution against reaching for yield and recommend focusing on credit risk to avoid sacrificing quality for yield.
Equities and risk assets will continue to perform well
Whether another rate cut juices stocks in the near term or the market sells off because the Fed holds rates steady, ultimately consistent economic progress and steady corporate earnings should matter more for investors. Regardless of the short-term impact of the Fed decision, we believe that U.S. and global equities will continue their upward march, while persistently low interest rates and accommodative monetary policy should continue to support risk assets. While a market correction is always possible, as with the December 2018 sell-off, we view the merits of a correction or a major market reversal as fundamentally unconvincing. We encourage investors to remain disciplined in their strategy and focused on long-term results. As always, we will be closely monitoring these developments and encourage our clients to reach out at any time to discuss strategy and individual circumstances in further detail.
1. Rudebusch, Glenn D. “Will the Economic Recovery Die of Old Age?,” FRBSF Economic Letter, Federal Reserve Bank of San Francisco, February 2016 (https://www.frbsf.org/economic-research/publications/economic-letter/2016/february/willeconomic-recovery-die-of-old-age/)
2. The Employment Situation – March 2019, U.S. Department of Labor, Bureau of Labor Statistics, June 2019 (https://www.
3. Bloomberg Economic Statistic Update <ECST GO>
4. Pickert, Reade and Dmitrieva, Katia, “U.S. Retailers, Factories Enjoy Solid June as Fed Weighs Cut,” Bloomberg News, July 16, 2019
5. Bloomberg World Interest Rate Probability <WIRP GO>
6. Matthews, Steve. “Two Fed Regional Chiefs Say a July Rate Cut May Not Be Warranted,” Bloomberg Economics, July 11, 2019
7. Bu, Chunya, Rogers, John and Wu, Wenbin (2019). “A Unified Measure of Fed Monetary Policy Shocks,” Finance and Economics Discussion Series 2019-043. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2019.043
8. Haltom, Renee. “Reaching for Yield,” Federal Reserve Bank of Richmond, Econ Focus, Third Quarter 2013
Team Updates and Accolades
Boyer Named to RKL Partnership
We’re proud to announce that Chief Investment Officer/Executive Vice President Nick Boyer was admitted as a partner in our parent firm, RKL LLP. He will continue in his RKL Wealth Management roles. Nick leads the way in providing our clients a robust, integrated service model that harnesses all of the wealth management and business advisory capabilities offered by RKL. Congratulations to Nick on this professional milestone. We look forward to his continued contributions to the firm, our clients and our team.
Etter Promoted to Chief Compliance Officer
After three years of managing daily operations for RKL Wealth Management and coordinating with our compliance professionals, Stephanie Etter has been promoted to Chief Compliance Officer. In her new role, Stephanie is responsible for developing and monitoring the firm’s compliance program, ensuring that all activities of the firm meet regulatory requirements and acting as a liaison with legal and regulatory bodies on compliance-related issues. Congratulations to Stephanie on her significant leadership role for our firm.
Adams, Schwartz Earn New Credentials
The expertise of our team continues to grow, as Senior Portfolio Manager Brandon Adams and Wealth Advisor Haley Schwartz recently earned new credentials. Brandon earned the Chartered Alternative Investment Analyst (CAIA®) credential, which recognizes knowledge and expertise in alternative investments. Haley earned the Certified Financial Planner (CFP®) credential, which is the nationally recognized standard for professional, ethical and experienced client engagement. Brandon and Haley’s commitment to the extensive training and expertise involved in these certifications is exceptional. We congratulate them both on these significant accomplishments and their dedication to professional development.
The views and opinions expressed are for informational and educational purposes only as of the date of writing and may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. The information and data contained herein was obtained from sources we believe to be reliable but it has not been independently verified. Past performance is no guarantee of future results.
RKL Wealth Management LLC is a registered investment adviser. To learn more about how we can help you meet your goals, please contact our office at (717) 399-1700 or via our website, rklwealth.com. Additional information is available upon request.
© 2019 RKL Wealth Management LLC – All rights reserved.