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In the Face of Change, Sometimes Inaction is Best

By Thomas Coyle December 23, 2016

Change is in the air as we head into 2017. In this two-part series — and in the face of potentially significant political, tax, monetary and market-cycle shifts — we’ve reached out to six financial advisors to learn how they’re preparing clients for the year to come. This is part one. Part two will be published next week.

For Harriet Brackey of BDO Wealth Advisors in Fort Lauderdale, Fla., most conversations with clients heading into the new year have revolved around the election of Donald Trump and the Federal Reserve’s recent rate hike.

“There’s a new administration and a different economic landscape,” says Brackey, whose employer manages around $350 million.

And while action can be contemplated in the context of Fed tightening — lowering durations, for instance — the impact of the incoming political regime is more of a puzzler, according to the advisor.

Given the time it can take for things like tax overhauls and other big measures to become law, “in the face of change, you don’t have to take action immediately,” says Brackey. “There’s not a lot of new planning you can do beyond being aware of what might happen and what it might mean for clients.”

For instance, Brackey wonders what will happen if income taxes go down, as Trump promised on the stump. Once it’s horse-traded and focused-grouped through Congress, “By how much will they decrease, and for whom?”

Adds Brackey: “As soon as we have something concrete to act on, we’ll act.”

Another conversation Brackey is having with clients hinges on the bull market’s maturity. With a few fits and stops, the S&P 500 has been on a tear since early 2009.

In this context some clients “see stocks at an all-time high and want to know why their portfolios aren’t,” says Brackey.

Usefully enough, these questions open the door to productive discussion about diversification and other fundamentals.

Generally, when clients get nervous, “it’s time to pull out the plan” and remind them to set realistic return expectations in the context of a prudent financial plan, says Brackey.

“I believe in the market but I also believe in dollar-cost averaging,” she adds. “The market isn’t going to bail you out from being a poor saver.”

Jon Luskin of Define Financial in San Diego shares Brackey’s view that taking action — even in the face of change — isn’t always advisable.

In this sense, Luskin views January 1 as just another date, not an automatic call to arms.

Equally, acting on suppositions about an imminent stock crash, a tax-law shakeup, or the Fed’s next moves after years of laxity seems less than prudent to him.

“The solution is to stay the course,” says Luskin.

Erika Safran

Erika Safran is another FA who finds the New Year’s concerns of clients and prospects about one issue can lead to useful discoveries about other issues.

With a view to reviewing one gentleman’s bond- and preferred stock-rich portfolio, she found something even more disturbing than an obvious lack of diversity.

“The internal expenses of the bond funds on the statement were at 1.6%-plus,” says Safran, whose New York-based firm manages about $70 million. “It’s not possible to be a success when the internal fees are higher than the yield.”