As we approach the end of the year, it’s safe to say 2022 has been a tumultuous year for the financial markets. Major indexes have dropped significantly, interest rates are rising, and inflation has been pervasive.
But for wealth managers, financial planners, and asset managers, dealing with this volatility and building successful, long-term strategic plans for clients is part and parcel of the job. At Strothman Wealth Care, our focus is on building a portfolio composed of a variety of asset classes and investment strategies to minimize downside risk, reduce volatility, and capitalize on new opportunities.
We caught up with Ryan Antepenko and the Strothman Wealth Care team; Shawn Edelen, Michael Jocksimovic, and Patrick Gaughan to get their thoughts as we approach the end of the year.
Below, you’ll find a summary of our discussion where we explore the issues facing wealthy individuals and business owners. If you have any questions about the issues discussed below, we encourage you to contact Strothman Wealth Care.
AIF Financial Advisor & Wealth Management Segment Leader, Strothman Wealth Care
The Top Issues in Wealth Management in 2022: Q&A Session
Q: You’re all Financial Planners and Wealth Managers. What common questions are your clients asking you right now?
Ryan Antepenko (RA): What most people really want to know is whether they’re okay or not. They read the news and think that’s the reality, but oftentimes, the picture is better for them. We focus on the long-term, remind clients of their goals, and emphasize that they’re still on track.
Some people might not want to look at their statements right now, but I think the opposite is true. Because if you’re still in good shape now, you’ll be in even better shape when the market does rebound.
Shawn Edelen (SE): I agree. It’s important clients focus on their specific goals and account allocations. So much of the news focuses on how the broader market is doing, but the reality is that their portfolio isn’t always directly tied to that. We like to refocus our clients on how their individual portfolio is allocated and contextualize what the performance of the wider market actually means for them. Often, we find that calms clients and if anything, actually gets them more excited about what’s to come and the opportunities that are present right now.
Michael Joksimovic (MJ): Over the past year or two, I’ve been getting a lot of calls from business owners asking me for help transferring their business. These business owners are getting a lot of inquiries from people that want to buy their business, and the owners need help with valuation and planning for their future.
I’ve had a lot more of these calls than I expected. And a lot of clients of mine have gone ahead and sold their businesses to retire early, which can prompt even more questions: what do I do about health insurance? Where should I put my money? Even as the economy changes, this is still happening.
Patrick Gaughan (PG): As we approach year-end, I get a lot of questions about what people can contribute to retirement accounts in 2022, and what the limits are in 2023.
SE: We also get a lot of questions from business owners and high-net-worth individuals about how they can reduce their taxes. And there are opportunities there, from leveraging HSA accounts to redesigning their retirement plans to be more efficient. We’re making clients aware of those opportunities so that they can discuss them with their CPA.
PG: As financial planners, we’ve always loved working with CPAs on that long-term tax planning type work. Having CPAs support our partnership with clients really helps us take the value we provide to clients to another level.
MJ: We always tell our clients that our process is client-centered and advisor supported.
Another thing that’s coming up more now is that a lot of my clients are at the point in life where they’re raising their parents, so to speak. Their parents are getting older and they need to evaluate long-term care options while figuring out how to preserve their parents’ assets.
SE: We also see a lot of new clients who you might expect to already have a cohesive financial plan come to us and ask us where to start. Our answer is with your CPA and your attorney. Of course, asset management is a huge part of wealth management, but there are so many people that need to be involved to build a secure financial future. For us, developing those relationships with other professionals and being able to introduce our clients to trusted professionals is very
Common Pitfalls to Avoid
Q: You’ve hinted at the fact that some people might be having a fear-based reaction to the performance of the market in general. Are there any decisions people are making just now that concern you?
RA: Clients work with us to have a sounding board that helps them avoid making poor decisions. Accountability goes both ways: if clients are thinking about making a big portfolio decision, I always encourage them to contact us so that we can explore all the different options to find the best solution for their goals and risk appetite.
SE: As interest rates have risen, it’s actually opened up more opportunities for families or individuals to get income with less risk. Instruments like Certificates of Deposits (CDs) and bonds are paying more now. There are options today that weren’t attractive at the start of the year but are attractive now.
MJ: Previously, everyone was invested in stocks and bonds. But now with higher interest rates, there are new alternatives out there, and we’re doing a lot of work to revamp our clients’ portfolios to capitalize on those. There are some safer income-producing assets now.
RA: I-Bonds are the prime example of that – they’re tied to inflation. When inflation was low, it wasn’t a popular investment, but in today’s economy, they’re more attractive. Today, the rates on those bonds are 6.89% and they’re guaranteed by the Treasury.
SE: Another trap we see clients fall into is not reviewing their financial situation and long-term plan on a regular basis. The ones that do learn about these opportunities and tend to outperform those that don’t. A ‘set it and forget it’ works for some investments but not for your broader financial planning needs. Markets change, life changes, and your strategy should change to account for that.
RA: People don’t realize just how often a market like this happens. A bear market like this isn’t uncommon: it happens every five years or so. The markets don’t only go up, they go down too, but we expect that: it’s part of your journey, and it’s built into your plan.
MJ: Every client has a different risk tolerance. The value of any portfolio might decrease at some point, but provided a financial advisor has done a good job managing their relationship with clients, that should be expected. It’s then more a question of how much you’re willing to let that portfolio drop before you get nervous and start making changes.
Right now, we’re not getting a lot of calls from our clients because they understand that we’re constantly reviewing their portfolios. Clients understand the risk of being invested in the market: the ones that don’t have that risk appetite aren’t in the market in the first place.
RA: People don’t realize that they might not be in the markets that are hurting the most right now––their portfolios are more diversified than they realize.
MJ: The challenge we’ve had this year is that the bond market has been bad. When interest rates go up, bond prices go down. Some portfolios have lost value and we’re working hard to find alternatives that recover that lost value. Historically, when stocks go down, bonds go up, but this year has been the exception to that rule as interest rates have been rising so quickly.
RA: I want to build on what Shawn said earlier about opportunities. When the market is down, as it is just now, there are always opportunities, especially for younger clients who have a longer time horizon and can acquire assets at a discount. At Strothman, we’ve got a proactive review process where we reach out to clients to proactively review their portfolio. In Q4, it’s a review of their financial plan that assures them they’re still on track for their goals, even if the market has
had a bad year. In Q1, it’s a review of their investments. We reach out to them––they don’t reach out to us.
MJ: A lot of clients are focused on when they can retire. But for business owners, it’s a little more complex. They might have questions about how to take care of their employees, whether that’s through 401(k) plans, profit-sharing plans, or defined benefit plans. The contribution limits for a lot of these are increasing due to inflation, and the Department of Labor and IRS are encouraging more people to put money away. So, we’re focused on resigning client plans to take advantage of that and help them grow their wealth in a more tax-efficient way.
Looking Forward: Advice for 2023
Q: What key pieces of advice, warnings, or points of consideration do you have as we move into 2023?
MJ: If you’ve got a good plan, stay the course. Historically, the U.S. economy goes in cycles. We’ve been through this before and we’ve come out of it. And we’ve come out of it strong.
RA: People see the market is volatile and feel like they need to do something. But unless your goals have changed, there’s usually not much that you should be doing differently. We’ve already built in the expectation that the markets will have volatile periods. If your risk tolerance or goals change, you can change your asset allocation, but if not, you probably don’t need to make any drastic changes.
SE: It’s easy to get tunnel vision when the market behaves as it has recently. But as financial advisors, it’s our job to pull clients away from that and give them a 10,000ft view of how the market’s current performance affects their long-term situation.
RA: When we meet with clients, we always find that they feel a lot better once they come out of the meeting with us. If you’re unsure about anything, reach out to your financial planner and have a conversation. Most of the time, the reality is better than what you initially thought.
Q: Do you have any final observations on the trends we’re seeing in the market today?
RA: People want to take minimal risk but still want high returns. And there are solutions out there that enable clients to hedge their bets in both directions. A movement toward plans like that is definitely a trend we’re seeing.
PG: Working with the same team of partners for a long time goes a long way toward helping you achieve your goals. You want a team of financial advisors, CPAs, and attorneys, and the earlier you start, the better. People need trusted advisors to navigate them through the good and the bad and address any issues head-on.
SE: Usually, there’s some kind of pain point that prompts people to go and see their financial advisor. And when those pain points are solved, clients are much less stressed and much happier. A financial advisor curates every available option and helps clients assess them. We’re independent financial advisors, which means we’re not being told to push certain investment products. We’re not selling––we always just want to make the best decisions for our clients.
MJ: I’ll finish with a brief story. One of the proudest moments in my 36 years of doing this came a few years ago. One of my clients is a business owner, and his eldest daughter was graduating college. The day she graduated, her mother sent me a picture, and on her mortarboard was my name. She did that because she knew that I helped her parents put aside the money to put her through college.
That was really touching, and that’s why we do this.
Interested in working with Strothman Wealth Care? Contact us today.