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CPI, Financial Advising, and DC Latest · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller.
0:05
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news.
0:14
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
0:17
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash
0:20
Speaker 1: podcast map. We're down here at the broadcasting live from
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Speaker 1: Commonwealth's twenty twenty three National Financial Advisors Conference, or at
0:26
Speaker 1: the Gaylord Rockies Resort in Aurora, Colorado, literally right next
0:30
Speaker 1: door to the airport. I mean, you've plans of flying over,
0:32
Speaker 1: flying out's and for somebody likes planes, it's a great
0:35
Speaker 1: place to be here. We're joined here at the conference
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Speaker 1: down here by Trap Cloman, COO and President of Commonwealth. Trap,
0:43
Speaker 1: thanks so much for joining us. Thanks for having us
0:45
Speaker 1: down out here in Denver. Talk to us about Commonwealth.
0:48
Speaker 1: You guys have got it's like two thousand financial advisors.
0:52
Speaker 1: What do they need from you guys? Because these markets
0:55
Speaker 1: are very either they're very difficult to navigate, equities, fixed income, alternatives.
1:01
Speaker 1: How do you try to help your rias out there?
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Speaker 3: Yeah, it's it's a fascinating and endlessly challenging opportunity for
1:09
Speaker 3: us because so much is continuously changing, both in the
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Speaker 3: financial markets. Frankly, technology has become such a big part
1:16
Speaker 3: of any business, but especially for financial advisors. And then
1:20
Speaker 3: of course you overlay regulation. So as you think about
1:23
Speaker 3: the opportunities we have, it's to be a great business
1:25
Speaker 3: partner for these rias and duly registered advisors who really
1:30
Speaker 3: you know, their greatest opportunity, the greatest value, is their
1:33
Speaker 3: relationship with their clients. So if we think about our
1:36
Speaker 3: role in the ecosystem, how can we maximize their time
1:38
Speaker 3: their opportunities to spend time with their clients. Uh So, yeah,
1:42
Speaker 3: we look through our research team to take on as
1:46
Speaker 3: much of that work as possible, and especially in these
1:49
Speaker 3: markets and you know volatile global political events, bringing our
1:54
Speaker 3: economists to bear to help them help navigate that, you know,
1:58
Speaker 3: really build a lot more portfolios, bring more takeechnology so
2:00
Speaker 3: they can do research faster, trade faster, and then white
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Speaker 3: label and communicate it out to their clients so they
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Speaker 3: can really present themselves rightfully. Is subject matter experts and
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Speaker 3: really you know, tying personal needs on an individual level
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Speaker 3: to you know, the marketplace and I just think that's
2:19
Speaker 3: a fantastic service that they do, you know, for over
2:22
Speaker 3: five hundred households in America, and you know, we're very
2:24
Speaker 3: proud to be a part of that.
2:25
Speaker 1: So when I talk to some of the rias around
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Speaker 1: here this year and other years, they say, Man, the
2:30
Speaker 1: back office stuff is really consuming more and more of
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Speaker 1: my time. That's where I need some leverage so I
2:35
Speaker 1: can talk to my clients. So I can you know,
2:37
Speaker 1: really provide some value out of advice. How do you
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Speaker 1: guys try to address that?
2:42
Speaker 3: Yeah, that's exactly it, and it's only growing if you
2:46
Speaker 3: look at some of the rule proposals right now about
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Speaker 3: protection of consumer data, which we fully agree with, but
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Speaker 3: the difficulty in navigating that and managing the technology. So
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Speaker 3: one of the values of having scale and being in
3:01
Speaker 3: the business that we're in we can focus on the
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Speaker 3: complexity of trading, of compliance, of technology and you know
3:08
Speaker 3: ri I as. You know, if you look at the history,
3:10
Speaker 3: it really started upstream with large institutional rias. And what's
3:14
Speaker 3: great about what's going on in the industry is that's
3:16
Speaker 3: been moving downstream because it goes downstream to you know, smaller,
3:21
Speaker 3: more retail focused uh RIA shops, there's greater need to
3:25
Speaker 3: outsource more of those capabilities to subject matter experts, and
3:28
Speaker 3: we have the size and the scale to get incredible technologists,
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Speaker 3: incredible INFOSEC people, you know, great people again in our
3:35
Speaker 3: research teams, if you will. So we really look to
3:39
Speaker 3: surround them on every way possible and then you know,
3:43
Speaker 3: be there to meet them in their needs. Because every
3:44
Speaker 3: advisor is also different. We don't take a cookie cookie
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Speaker 3: cutter approach.
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Speaker 4: They're all different.
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Speaker 2: But you know, what's the average size of the of
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Speaker 2: the I R I A that you guys are supporting
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Speaker 2: And is it easier now for them to compete with
3:59
Speaker 2: the big banks than it would have been, say ten
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Speaker 2: years ago.
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Speaker 3: Yeah. Absolutely.
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Speaker 5: So.
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Speaker 3: We we have over twenty two hundred advisors, but they're
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Speaker 3: in about nine hundred offices together, and so we tend
4:15
Speaker 3: to measure productivity across those offices and it's about two
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Speaker 3: hundred and forty you know, two hundred and fifty depending
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Speaker 3: on the market's million on average per office. And so
4:24
Speaker 3: outside of the wirehouse landscape, you know, we have the
4:27
Speaker 3: largest producers in the industry. When you start to look
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Speaker 3: at the regionals and independence and some of the insurance
4:33
Speaker 3: and bank place and one of the reasons we have
4:36
Speaker 3: been so successful, I love the question, is because a
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Speaker 3: lot of the capabilities that used to only be accessible
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Speaker 3: in that bank, you know, the wirehouse, the large bank environment,
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Speaker 3: are now available much more broadly and individual rias you know,
4:52
Speaker 3: can't necessarily access that on their own, and so there
4:55
Speaker 3: are more and more business partners who are bringing more
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Speaker 3: alternative investments, banking capabilities, more sophisticated trust solutions, high net
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Speaker 3: worth absolutely, and having you know, a monopoly on internal
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Speaker 3: product and a fiduciary world isn't an advantage anymore. So
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Speaker 3: I've really like kind of the democratization of what's going
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Speaker 3: on in the industry, and it's really given advisors a
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Speaker 3: lot more choice and flexibility and how they do their business,
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Speaker 3: which is obviously great.
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Speaker 4: Why does and I read about this.
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Speaker 1: I've been on Wall Street for over thirty five years,
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Speaker 1: and it's been a constant trend advisors leaving some of
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Speaker 1: the big wirehouses and going out independent, and it kind of,
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Speaker 1: I guess it ebbs and flows in terms of the
5:31
Speaker 1: of the pace. What's the general reason why an advisor
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Speaker 1: would leave a Merrill Lynch, a Smith Barney and kind
5:38
Speaker 1: of go out on his or her own.
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Speaker 6: Yeah.
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Speaker 3: The reasons have you know, changed and involved and fluctuated
5:43
Speaker 3: over the years, but one of the constants has been
5:46
Speaker 3: ultimately you are now an entrepreneur, you own your business.
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Speaker 3: And one of the fascinated trends, one of the great
5:52
Speaker 3: trends going on in the industry is the value of
5:54
Speaker 3: those businesses is going up significantly. So I expect to
5:58
Speaker 3: see that trend rise because when you're as an employee, uh,
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Speaker 3: you know, you're obviously you paid your salary hopefully you know,
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Speaker 3: they treat you well on the way out, But ultimately
6:08
Speaker 3: it's the bank's book. It's the bank's clients that they're
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Speaker 3: going to you know, push it back out to all
6:13
Speaker 3: of their other employees. When you've broken to independence and
6:17
Speaker 3: you own your own shop, you can you know monetize
6:20
Speaker 3: that business, uh for great value. And so if you
6:24
Speaker 3: think about your own financial planning, you're getting a higher
6:26
Speaker 3: payout and you can sell your business at the end financially,
6:29
Speaker 3: it just makes a world of sense. And then you know, uh,
6:32
Speaker 3: the other big trend as advisors really like having the
6:34
Speaker 3: autonomy and the flexibility to make their own decisions and
6:37
Speaker 3: put their clients first and not to say that isn't
6:40
Speaker 3: necessarily happening in the employee model per se. But there's
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Speaker 3: a lot of competing, uh, you know, priorities in that
6:48
Speaker 3: type of environment. When when you're an employee, and also
6:50
Speaker 3: especially of public companies. Uh, when when you have the
6:53
Speaker 3: opportunity to go independent, you're your own boss and we're
6:56
Speaker 3: a partner for you. You don't work for commonwealth, we
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Speaker 3: support you.
7:00
Speaker 1: What's the what's the typical kind of I guess asset
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Speaker 1: allocation for one of your rias? Is it you know,
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Speaker 1: stocks and bonds or is it also alternatives? I guess
7:11
Speaker 1: how sophisticated did they get? How how far away did
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Speaker 1: they get away from that sixty forty portfolio?
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Speaker 3: Yeah, the sixty to forty portfolio is definitely evolving, but
7:20
Speaker 3: it's more in the construct of it. So I think
7:23
Speaker 3: the end result is greater diversification. But you're obviously seeing
7:28
Speaker 3: much more use of ETFs than mutual funds for you know,
7:31
Speaker 3: greater tax efficiency, much more demand for SMA solutions with
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Speaker 3: something separately manage the council where you can have you know,
7:42
Speaker 3: individual holdings within a portfolio, a managed portfolio and an index,
7:47
Speaker 3: but then you can self select a little bit. So
7:50
Speaker 3: if you have some preferences that align with your goals
7:52
Speaker 3: or beliefs, or you have some holdings that you know
7:57
Speaker 3: you don't want to part with because of tax consequences,
8:00
Speaker 3: but you want to jump into a model, You're not
8:02
Speaker 3: forced to sell out of your position just to adhere
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Speaker 3: to a model. So it gives our team and our
8:06
Speaker 3: advisors the ability to really make many more investments much
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Speaker 3: more individual, uh, you know, customize for their investor. And
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Speaker 3: so yeah, at the end of the day, we're seeing
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Speaker 3: steady growth in SMAs and you know which ultimately hold
8:21
Speaker 3: mute funds, ETF stocks, fixed income, but also you know,
8:25
Speaker 3: greater growth in alts. You know, I mentioned a minute
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Speaker 3: ago how the democratization RIA is moving downstream. The same
8:31
Speaker 3: with the investment product. The massive flin American has now
8:35
Speaker 3: far greater access to alternative investments and you know funds
8:39
Speaker 3: of funds with private equity and hedge funds. So we're
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Speaker 3: seeing for you know, greater demand there and opportunity, which
8:44
Speaker 3: is great.
8:45
Speaker 2: So what's your view on the economy given your position there?
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Speaker 3: Trap I far smarter people than myself who spend a
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Speaker 3: lot more time on the economy. In short, the way I,
8:59
Speaker 3: you know, I try and think about it is if
9:00
Speaker 3: you are chasing whether it's the markets, interest rates, or
9:03
Speaker 3: the economy, and trying to run your business solely in
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Speaker 3: that moment, you're often going to be left behind. What
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Speaker 3: what how we like to manage commonwealth and work with
9:16
Speaker 3: our advisors is see through the economic uh, you know,
9:20
Speaker 3: variables in the market fluctuations and the interest rate volatility.
9:23
Speaker 7: Uh.
9:23
Speaker 3: Plan long term as as best you can. And of
9:26
Speaker 3: course you have both businesses and clients who have immediate
9:30
Speaker 3: short term needs. And then again, the people are far
9:32
Speaker 3: smarter than myself come to bear and can really help
9:35
Speaker 3: out in those situations.
9:36
Speaker 1: TRAP undergrad from the University of Virginia. I'm a big
9:39
Speaker 1: fan of the WA Who's one and five in football?
9:42
Speaker 3: Yeah hopefully not the football team, Yes, yeah, I go
9:47
Speaker 3: Who's But yeah, it's it's it's real hard these days,
9:50
Speaker 3: and it's been hard for a long time. My daughter
9:53
Speaker 3: just went to Syracuse though, so I was all ready
9:54
Speaker 3: to follow Syracuse as well, but that they're struggling too,
9:58
Speaker 3: So I guess I have to wait next year.
10:00
Speaker 1: Yeah exactly, But you always have a basketball season as well.
10:03
Speaker 1: Let's at the Paul Truder Jones Arena.
10:06
Speaker 3: John Paul Jones, John Paul Jones.
10:07
Speaker 4: Yeah, okay, awesome, very good stuff, all r beautiful place. Yeah,
10:09
Speaker 4: it is all right. Trep.
10:10
Speaker 1: Plumbing, thanks so much for joining us. Trap is the
10:12
Speaker 1: COO and president of Commonwealth. They're sponsoring this conference here
10:17
Speaker 1: in Denver, Colorado. Just outside of Denver in Aurora, Colorado.
10:21
Speaker 1: Some good stuff out here.
10:23
Speaker 6: You're listening to the team Ken's are live program Bloomberg
10:27
Speaker 6: Markets weekdays at ten am Eastern.
10:29
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10:31
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10:34
Speaker 6: wherever you get your podcasts.
10:38
Speaker 1: Matt Miller, he's in that Bloomberg Interactor Broker studio in
10:40
Speaker 1: New York City. I am here live from the Commonwealths
10:45
Speaker 1: twenty twenty three National Financial Advisors Conference. We're at the
10:48
Speaker 1: Gaylord Rockies Resort in Aurora, Colorado, and Matt I can
10:51
Speaker 1: report that the sausage biscuits are to die for here.
10:55
Speaker 4: Awesome.
10:56
Speaker 1: Fire you right up, get you set for the rest
10:58
Speaker 1: of the day. All right, let's talk to our next guest,
11:00
Speaker 1: your Advance Bars. He's a wealth strategist and founder at
11:02
Speaker 1: your Dedicated Fiduciary YDF. Vance, thanks so much for joining
11:07
Speaker 1: us here. Tell us what you guys do at y DF.
11:10
Speaker 9: WHYDF is a family office style fiduciary financial planning firm
11:14
Speaker 9: that discretionarily manages assets for our sixty seven families which
11:18
Speaker 9: are all around the country, and our focus really is
11:22
Speaker 9: in the advanced planning area. Prior to founding my firm
11:26
Speaker 9: eight years ago, I spent a decade traveling the country
11:29
Speaker 9: full time, specifically consulting and teaching private wealth managers on
11:34
Speaker 9: how to invest for their high net worth clients. And
11:37
Speaker 9: I realized that much of the industry, unfortunately doesn't focus
11:40
Speaker 9: on advanced planning, and that is why I started our firm.
11:43
Speaker 1: Hey, Matt Vance, he's part of that financial mafia there,
11:48
Speaker 1: Danielle Di Martino Booth, David Kotok, all those folks Camp
11:51
Speaker 1: Kotok know, so he goes to Camp camp Kotok. Absolutely,
11:55
Speaker 1: Hey Vance, I'd love to just kind of get here.
11:57
Speaker 1: We love talking to Danielle and mister Kotok and kind
12:02
Speaker 1: of like to get their views. So when you go
12:03
Speaker 1: up there and you chat with those really smart folks
12:06
Speaker 1: about the markets, if you had to go up there today,
12:09
Speaker 1: what would your call be?
12:10
Speaker 4: Right now just in terms of the markets, the economy,
12:12
Speaker 4: how are you looking at things?
12:14
Speaker 9: It would be the same call that I had a
12:16
Speaker 9: couple months ago when I was at Danny Camp Kotok,
12:18
Speaker 9: which was amazing because I have read and corresponded, you know,
12:22
Speaker 9: with these folks, and then to be a peer among
12:25
Speaker 9: them is just truly amazing. I'm in the higher for
12:28
Speaker 9: longer camp, which is an unpopular view.
12:31
Speaker 4: Higher inflation, higher rates kind of yes, okay.
12:33
Speaker 7: Yeah, very much so, and there's there's rationale to that.
12:37
Speaker 9: My view is that the economy changed during COVID, and
12:41
Speaker 9: there's this collective palpable belief not only among our clients
12:45
Speaker 9: but also the investing public that because of the interest
12:51
Speaker 9: rate raises visa Viva FED starting in March of twenty
12:55
Speaker 9: twenty two, that unemployment is going to spike and that
12:59
Speaker 9: we're going to have this recession and it's going to
13:01
Speaker 9: be horrible, and if the FED is going to cut
13:02
Speaker 9: rates back to zero, launch the printing press again. And
13:05
Speaker 9: I fundamentally disagree with that. During COVID, people age fifty
13:09
Speaker 9: five and older were able to retire largely. Hey, you
13:13
Speaker 9: know what, it's a pleasure to be here, right, I'll
13:16
Speaker 9: get there someday.
13:17
Speaker 8: I hope.
13:17
Speaker 7: I'm in no rush, by the way, But in any event,
13:20
Speaker 7: they were able to.
13:21
Speaker 9: Retire because of the large s of their nest eggs,
13:24
Speaker 9: which was a product of the thirteen year quantitative using
13:28
Speaker 9: zero interest rate policy era that we had. People thirty
13:32
Speaker 9: years of age and younger were able to move back
13:34
Speaker 9: in with mom and dad and go back to school.
13:36
Speaker 9: So how human beings behave has materially changed, and because
13:41
Speaker 9: of that we have a different economy, if you will.
13:44
Speaker 9: If the Fed were to come out and cut rates now,
13:47
Speaker 9: my view is that it would reignite inflation and we
13:49
Speaker 9: would be in this sort of vicious cycle. So if
13:51
Speaker 9: we look at the real rate, which is interest rates
13:53
Speaker 9: minus inflation, were at about two and a half over
13:57
Speaker 9: the last five decades, what has it been about two
13:59
Speaker 9: and a half, So we believe that we're not going
14:03
Speaker 9: to see a precipitous drop in that. Because of that,
14:06
Speaker 9: the investment landscape has in fact changed, But there's opportunity there.
14:13
Speaker 2: What do you think about you know, Paul's been asking
14:15
Speaker 2: this allocation question. I heard top I heard the surveillance
14:18
Speaker 2: team talking about it this morning as well. Forty sixty
14:22
Speaker 2: we're supposed to see a comeback, and it seems like
14:24
Speaker 2: bonds and stocks are moving the same direction every day.
14:27
Speaker 2: How do you solve that? Solve that problem.
14:32
Speaker 9: Interestingly, cash is no longer trash because of the interest
14:36
Speaker 9: rate and environment that we are currently in. Clients have
14:40
Speaker 9: come out and pointed out the fact that we can
14:44
Speaker 9: really have a great return stream in money markets and
14:48
Speaker 9: or tea bills. This is this funny term tea bill
14:50
Speaker 9: and chill. And we were an early adopter to the
14:53
Speaker 9: tea bill trade, having largely blown out of bond mutual
14:56
Speaker 9: funds in December of twenty twenty one. So if you
14:58
Speaker 9: rewind back the Fed, the House, the Treasury, we're all
15:01
Speaker 9: saying inflation is transitory. Inflation is transitory. Inflation is transitory.
15:05
Speaker 9: When you hear that messaging consistently over multiple months, yet
15:08
Speaker 9: the inflation data keep increasing, Maybe just maybe it's not transitory.
15:14
Speaker 9: And we all know the rest of that story. When
15:17
Speaker 9: we look at the correlation between equities and fixed income,
15:20
Speaker 9: it is important to diversify, but we have to go
15:23
Speaker 9: back to the pre COVID era playbook and understand how
15:30
Speaker 9: to deploy across equities and fixed income and real estate
15:34
Speaker 9: and so forth. So given the interest rate and environment,
15:37
Speaker 9: we think we're pretty close to the FED largely being done.
15:42
Speaker 9: That creates an opportunity for getting back into specific types
15:47
Speaker 9: of duration, whether it's individual issues or some bond funds
15:51
Speaker 9: or even potentially ETFs. Regardless, we're going to be long
15:55
Speaker 9: duration here in the next three to six months, depending
15:59
Speaker 9: on how it plays out.
16:00
Speaker 1: All Right, So we sit back here and we've got
16:03
Speaker 1: a FED that I guess we're high.
16:04
Speaker 4: I'm in the Campta.
16:05
Speaker 1: It is just kind of high for longer, and I
16:06
Speaker 1: think I think eventually they're gonna cut because I need
16:09
Speaker 1: to refinance my mortgage I just took out. When you
16:13
Speaker 1: talk to clients, one of the things I hear a
16:14
Speaker 1: lot when I'm talking to private wealth is family offices
16:18
Speaker 1: and kind of just tax planning and estate planning. I mean,
16:22
Speaker 1: do people get that right yet? I mean, do people
16:25
Speaker 1: you talk to are they are they savvy enough to
16:27
Speaker 1: kind of deal with that?
16:28
Speaker 9: No, And having spent thousands of hours inside of wealth
16:32
Speaker 9: management firms and with financial advisors for a decade, that
16:36
Speaker 9: was my largest observation. There's a huge generational shift in
16:41
Speaker 9: terms of asset transfer that's going to happen from the
16:43
Speaker 9: boomers to largely Gen X, but also millennials. And people
16:48
Speaker 9: like to make jokes about millennials, but let me tell
16:50
Speaker 9: you they're a very purpose driven cohort. They're really smart.
16:54
Speaker 9: They grew up with technology. They really don't need to
16:58
Speaker 9: have help selecting ets. The real alpha, if you will,
17:02
Speaker 9: is in the advice idiosyncratic to the family. And my
17:06
Speaker 9: cry to the wealth management industry is to bring maximum
17:09
Speaker 9: value by way of incorporating true tax planning. For example,
17:13
Speaker 9: a financial advisor cannot bring maximum value to a family
17:17
Speaker 9: unless they are literally looking through and analyzing the tax returns.
17:21
Speaker 7: I'd liken it to this. If a client has ever been.
17:23
Speaker 9: To a medical specialist, what's the first thing they ask
17:26
Speaker 9: for the general health history from the GP, Well, I
17:29
Speaker 9: need that. I need the equivalent of that, which is
17:32
Speaker 9: the last three to five years of tax returns, so
17:34
Speaker 9: that I can look for different planning opportunities. Big planning
17:37
Speaker 9: cliff coming up, which is the sun setting of the
17:40
Speaker 9: Tax Cuts and Jobs Act, and that will happen December
17:43
Speaker 9: thirty first of twenty twenty five. We're going to blink,
17:46
Speaker 9: it's going to be here, but the current estate tax
17:49
Speaker 9: threshold will be cut in half. So the largest underserved
17:53
Speaker 9: cohort in the wealth management industry is that million to
17:56
Speaker 9: twenty five million.
17:57
Speaker 8: Dollar liquid profile.
17:59
Speaker 9: Why because many of the retail financial advisors and I'm
18:03
Speaker 9: talking old guard retail financial advisors don't have the advanced
18:06
Speaker 9: planning technical expertise and acumen to understand certain things like
18:11
Speaker 9: idgits and islets and grots and different types of grand
18:14
Speaker 9: tour trusts and so forth.
18:16
Speaker 7: And if you're.
18:19
Speaker 9: One with a really high level money problem, which is
18:22
Speaker 9: having twenty five million liquid a lot of the private
18:24
Speaker 9: wealth firms don't focus on you because their minimum is
18:28
Speaker 9: fifty million.
18:28
Speaker 7: And above me.
18:29
Speaker 9: And these are big numbers, right, But there's a huge opportunity.
18:32
Speaker 9: And one of the great things about Commonwealth is that
18:35
Speaker 9: there's a big push for the advanced planning area with
18:38
Speaker 9: respect to bringing maximum value.
18:41
Speaker 1: All right, So I gotta go to this because this
18:43
Speaker 1: is a theme I've been going on.
18:45
Speaker 4: University of Maryland.
18:46
Speaker 1: The worst conference decision of all time for you guys
18:50
Speaker 1: to leave the ACC and it's set off twenty five
18:53
Speaker 1: years of disaster in college sports. Twenty five years later,
18:57
Speaker 1: what did the Terps feel about their.
18:59
Speaker 4: Moved leaving for the Big ten?
19:01
Speaker 9: I'm really sorry to disappoint you. So I love San Diego,
19:04
Speaker 9: California very much, and I grew up in Maryland. Right
19:07
Speaker 9: native of Maryland or not crabby, I might add. But
19:10
Speaker 9: I had moved to San Diego at nineteen and realized
19:12
Speaker 9: that if I stayed, I probably would never go back
19:14
Speaker 9: to school. So I went back to Maryland, to the
19:17
Speaker 9: University of Maryland because they have a great neuroscience program. Yep,
19:20
Speaker 9: seldom do I use my undergrad degree at neuroscience. But
19:23
Speaker 9: then again, i'd use it every day when looking at
19:25
Speaker 9: portfolios and estate planning and tax planning and so forth.
19:28
Speaker 9: But I couldn't tell you the first thing about the terps.
19:33
Speaker 9: As soon as I graduated, I went right back to
19:35
Speaker 9: San Diego. Smart move life had a different plan, and
19:38
Speaker 9: I ended up in institutional investing and then here.
19:41
Speaker 4: Good awesome stuff. Vince, thanks so much for joining us. Vance.
19:44
Speaker 1: Barci's a strategist, a founder at YDF. That's your dedicated fiduciary.
19:50
Speaker 1: I working with a lot of the folks here at Common,
19:53
Speaker 1: with a lot of the rias at Common.
19:54
Speaker 4: Author.
19:55
Speaker 6: You're listening to the tape Catcher Live program Bloomberg Markets
19:59
Speaker 6: weekdays at tenn Eastern on Bloomberg Radio, the tune in app,
20:02
Speaker 6: Bloomberg dot Com, and.
20:04
Speaker 8: The Bloomberg Business App.
20:05
Speaker 6: You can also listen live on Amazon Alexa from our
20:08
Speaker 6: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
20:14
Speaker 2: Fuck now about politics, though, because yesterday the GOP chose
20:19
Speaker 2: a Speaker of the House candidate, it's not been brought
20:22
Speaker 2: to a vote on the House floor yet and may
20:24
Speaker 2: not be brought to a House a vote on the
20:26
Speaker 2: House floor this week. Wendy Schiller joins us professor over
20:30
Speaker 2: at Brown University. Wendy, this is obviously a gigantic mess.
20:38
Speaker 2: And I noticed today that there's a few never scalezers,
20:43
Speaker 2: which I think that term is meaningless because of course
20:46
Speaker 2: they'll vote for scalize if they get what they want.
20:48
Speaker 2: But one of them is George Santos. So we're in
20:51
Speaker 2: a position where the Republicans have to bargain with George
20:55
Speaker 2: Santos to get their candidate elected as House Speaker of
20:58
Speaker 2: the House.
21:00
Speaker 10: But you're raising a really interesting point because also any
21:03
Speaker 10: measure to expel, because the House can expel its own members.
21:07
Speaker 10: They can censure, but it can also expel, and so
21:10
Speaker 10: any measure to expel George Santos requires that there'd be
21:13
Speaker 10: a governance structure of the House, that there'll be a
21:15
Speaker 10: speaker in place. Now the interim Speaker, Patrick McHenry of
21:19
Speaker 10: North Carolina, he can do that. He can be in
21:22
Speaker 10: the House that way, So they could actually try to
21:24
Speaker 10: kick George Sandos out before they have repeated votes on
21:28
Speaker 10: the speakership.
21:28
Speaker 5: This is an absolute to.
21:30
Speaker 10: Me, a crisis for the Congressional Republican Party, but not
21:34
Speaker 10: necessarily for Donald Trump or Ronda Santis or Nikki Haley
21:37
Speaker 10: or Tim Scott or any of the other contenders for
21:39
Speaker 10: the presidential nomination. So there are you know, there's pressure
21:43
Speaker 10: on the Republicans, but it's really how do you keep
21:45
Speaker 10: the House? And are the voters of California New York
21:48
Speaker 10: who really gave the Republicans the majority with additional seats
21:52
Speaker 10: and flip seats in twenty twenty two, are they going
21:54
Speaker 10: to be happy with this and put up with this
21:56
Speaker 10: or will the Democrats manage to put a moderate up
21:59
Speaker 10: in those races and take those seats back.
22:02
Speaker 2: One of the other things I noticed, Wendy, you know,
22:03
Speaker 2: we all talk about the fact that maybe the Senate
22:07
Speaker 2: needs to come down here and like put an adult
22:12
Speaker 2: in the room, right, But even when you know, Kevin
22:16
Speaker 2: McCarthy does a bipartisan deal, and of course he's punished
22:20
Speaker 2: by being thrown out of that position. But even then,
22:24
Speaker 2: what they're, what the adult in the room is allowing
22:26
Speaker 2: them to do, is spend recklessly like children. So it's
22:29
Speaker 2: like there's no good solution, right, either they're shut down
22:32
Speaker 2: and not governing, or they're governing but spending like there's
22:35
Speaker 2: no tomorrow.
22:37
Speaker 4: What's going to happen.
22:39
Speaker 10: Well, when you say spending, I goes, there's no tomorrow.
22:41
Speaker 10: There was a debt ceiling deal.
22:44
Speaker 2: And I'm saying, if you keep running one and a
22:46
Speaker 2: half trillion dollar deficits and we have thirty three trillion
22:49
Speaker 2: dollars in debt, that's not the way you should run
22:52
Speaker 2: your finances.
22:54
Speaker 5: So what's interesting to me, though, is that the choices.
22:57
Speaker 10: That are framed, I think are a false dichotomy for us,
23:00
Speaker 10: for the American people, for everybody.
23:02
Speaker 5: Right, you say yourself, oh, well, you know you have.
23:04
Speaker 10: To cut this kind of spending, but we still want
23:06
Speaker 10: to have tax cuts and give money back to the
23:08
Speaker 10: American people. But the American people also need a national defense,
23:11
Speaker 10: they need roads, that aren't going to destroy their cars.
23:13
Speaker 10: They're going to need some sort of mass transportation. They're
23:15
Speaker 10: going to need climate help to adjust the climate change,
23:18
Speaker 10: they need disaster relief.
23:19
Speaker 5: How do you pay for all that? You can't cut
23:22
Speaker 5: all the revenue and.
23:23
Speaker 10: Still pay for all these things that Americans are used to,
23:25
Speaker 10: not to mention the big entitlements, which as you well know,
23:27
Speaker 10: are about thirty to forty percent now of the federal budget,
23:31
Speaker 10: which are just you can't touch them, right, So.
23:34
Speaker 2: Why why can't we touch them? And how much longer
23:36
Speaker 2: do we have enough money to pay Social Security without borrowing?
23:41
Speaker 5: Well, I don't know. I'm old enough to remember.
23:42
Speaker 10: You know, the last two times SO Security was in
23:44
Speaker 10: crisis and.
23:45
Speaker 5: They came to terms.
23:46
Speaker 10: They raised the age, they raised how much money they
23:48
Speaker 10: have to pay. You know, one of the good things
23:50
Speaker 10: I think is that income levels are now adjusted for inflation.
23:54
Speaker 10: They go up in terms of how you know what
23:55
Speaker 10: income level is the cap I'm paying So Security. You
23:58
Speaker 10: can raise that cap quite a bit more and still
24:00
Speaker 10: generate money. People are living longer. We want great healthcare
24:03
Speaker 10: in America. Therefore, if we want everybody to have it,
24:06
Speaker 10: I don't disagree with you that cuts need to be made,
24:08
Speaker 10: and in particular, the Democrats have a problem because they
24:11
Speaker 10: want everything from the federal side. But in fact it's
24:14
Speaker 10: easier to hold things accountable sometimes at the state level.
24:16
Speaker 5: It's closer to home. Theoretically, I'm a tiny state, Rhode Island.
24:20
Speaker 5: We have a huge budget. We can't keep track of
24:22
Speaker 5: all the money.
24:23
Speaker 10: So government itself is you can argue unmanageable and inefficient,
24:28
Speaker 10: but targeting programs that actually affect that, you know, the
24:31
Speaker 10: people who need the money most, it's probably not the
24:33
Speaker 10: smartest way to make government work better.
24:36
Speaker 5: And they're just so polarized they can't see straight. But
24:38
Speaker 5: I don't see any of the people, including.
24:41
Speaker 10: The eight people who are blocking the speaker, turning down
24:44
Speaker 10: federal money.
24:45
Speaker 5: Some states are trying.
24:46
Speaker 10: To do that because they don't want implement policies that's
24:49
Speaker 10: you know, the state government. But those federal commerce people
24:51
Speaker 10: are not saying no to the Highway AID, they're not
24:53
Speaker 10: saying no to the Day After AID, They're not saying
24:56
Speaker 10: no to the fundamental things that the federal government funds.
24:58
Speaker 10: So there's also a fair bit of a hipocracy that
25:00
Speaker 10: runs rampant, not just the Republican side, but the Democratic
25:03
Speaker 10: side as well.
25:06
Speaker 1: Hey, Wendy, let's switch gears a little bit of focus
25:08
Speaker 1: on Israel that it was quite the past two or
25:10
Speaker 1: three days for President Biden. The administration Secretary Defense Lincoln
25:15
Speaker 1: is in Israel as we speak. How do you kind
25:18
Speaker 1: of view the Biden and the Biden administration response so far.
25:24
Speaker 10: Well, there's the national security element of course, anti terrorism,
25:28
Speaker 10: and I think many people have equated the sentiment.
25:31
Speaker 5: In Israel to the one that we experienced after nine
25:34
Speaker 5: to eleven, So.
25:35
Speaker 10: The shock, the destruction, the loss of life, but there's
25:38
Speaker 10: also a tremendous amount of loss of life now in Gaza,
25:42
Speaker 10: militarily people, but also Amas, but also civilians, many, many civilians.
25:46
Speaker 10: This is a really difficult time for the Democratic Party
25:49
Speaker 10: politically because the very left wing of the Democrat Party,
25:52
Speaker 10: as we saw in New York last week, has been
25:55
Speaker 10: advocate at very vocal in their support for Palestine, and
26:00
Speaker 10: you know, not as willing to criticize Hamas sometimes as
26:02
Speaker 10: other people. This is very delicate for the Democrats who
26:06
Speaker 10: need every single vote possible a year from now. And
26:10
Speaker 10: how do you actually perceive a strong coort for Israel
26:13
Speaker 10: if Israel continues to defend itself but the casualties civilian
26:19
Speaker 10: wise in Gaza increase, that becomes a problem for the Democrats,
26:24
Speaker 10: and you know, that's a very hard balance for the president.
26:28
Speaker 10: The sentiment in America is generally pro Israel to defend
26:31
Speaker 10: itself against the terrorist attack. How long that lasts depends
26:35
Speaker 10: on how much involvement Biden approves in terms of the
26:38
Speaker 10: United States.
26:39
Speaker 5: No boots on the ground. I think there's no support
26:42
Speaker 5: for that in America. But what do you do?
26:45
Speaker 10: How do you give military support but stay within the boundaries.
26:49
Speaker 10: Biden has a lot of experience, and one thing Americans
26:52
Speaker 10: might want to think about is when you are electing
26:54
Speaker 10: the next president, how much.
26:55
Speaker 5: Experience do they have.
26:56
Speaker 10: Dealing with these kinds of crises versus having no experience
27:00
Speaker 10: with them. I think that's going to affect our presidential
27:02
Speaker 10: considerations as well.
27:04
Speaker 2: I wonder if they can tie aid for Ukraine to
27:08
Speaker 2: aid to Israel, because a lot I'm sure of these,
27:11
Speaker 2: especially right wing Republicans, who don't want to help Ukraine
27:16
Speaker 2: defend itself against a Russian invasion definitely do want to
27:21
Speaker 2: help Israel. Do you think they tie those things together
27:23
Speaker 2: or is it insulting to do that?
27:28
Speaker 8: No?
27:28
Speaker 10: I mean I mean the Democrats putting those two things together.
27:31
Speaker 10: I think strategically fighting against incursion and invasion.
27:37
Speaker 5: Might be a theme.
27:39
Speaker 10: And certainly Russia has been accused of atrocity and Ukrainian
27:43
Speaker 10: soldiers have also been accused of atrocity, so I think.
27:46
Speaker 5: It gets very tricky to do that.
27:49
Speaker 10: But it also limits the capacity for Republicans to be isolationists.
27:53
Speaker 10: Now right, you can't say we don't want to get involved,
27:56
Speaker 10: but we want to help Israel. That's just really hard
27:58
Speaker 10: to do an independents and districts won't really put up
28:01
Speaker 10: with that, I don't think. So it puts the Republicans
28:03
Speaker 10: in a tough mind to say yes to Israel but
28:06
Speaker 10: no to Ukraine.
28:08
Speaker 5: And I think you're right, but I think to actively tie.
28:11
Speaker 10: Together in a package has risks for the Democrats as well.
28:14
Speaker 10: But the pressure is on the Republicans to decide whether
28:17
Speaker 10: they want to sort of say no to in being
28:19
Speaker 10: involved in anything, but then get credit for supporting a
28:22
Speaker 10: response against Hamas.
28:23
Speaker 5: So I think it puts pressure.
28:24
Speaker 10: And since there is no leader really of the Republican
28:27
Speaker 10: Party in the House right now, you know, the spokesperson's
28:29
Speaker 10: Mitch McConnell on the Senate sign and we know that
28:31
Speaker 10: he's been having health difficulties.
28:33
Speaker 4: But he has experienced. He doesn't you're a fan of experience.
28:37
Speaker 4: Mitch has it.
28:40
Speaker 10: Mitch has it, but there's a fair number of other
28:42
Speaker 10: Republicans in the Senate right now that that do. And
28:44
Speaker 10: it's it's it's interesting to me how we you know,
28:46
Speaker 10: one year it's the Senate's fault. They're filibustering, Ted Cruise
28:49
Speaker 10: is shutting everything down.
28:50
Speaker 5: They're horrible. Let's get rid of the philibuscher, Let's make
28:53
Speaker 5: it more.
28:53
Speaker 7: Like the House.
28:54
Speaker 5: And then the House falls apart and we look to
28:56
Speaker 5: the Senate and say, oh, can't they save the day.
28:58
Speaker 10: So I think we have a christ the leadership on
29:00
Speaker 10: all sides, more so right now in the Republican Party.
29:04
Speaker 5: Than the den.
29:06
Speaker 1: All Right, Wendy, thank you so much for that. We
29:08
Speaker 1: really appreciate getting your thoughts there. Wendy Schilder, she's a
29:11
Speaker 1: professor at Brown University.
29:15
Speaker 6: You're listening to the Team ken'shar Live program Bloomberg Markets
29:19
Speaker 6: weekdays at ten am Eastern on Bloomberg dot Com, the
29:22
Speaker 6: iHeartRadio app, and the Bloomberg Business App, or listen on
29:25
Speaker 6: demand wherever you get your podcasts.
29:29
Speaker 2: Well, we have Asam Naji here in the studio. I'm
29:32
Speaker 2: pleased to say he's the president CEO of Marcus and
29:35
Speaker 2: Milla chap and we're going to talk a little bit
29:37
Speaker 2: of real estate with him in the face of, you know,
29:40
Speaker 2: rates that just continue to arise.
29:42
Speaker 7: Paul Hassan.
29:43
Speaker 2: Paul the other day was quoting, I think the bank
29:45
Speaker 2: rate thirty year mortgage out to eight percent, which has
29:51
Speaker 2: got to put real pressure on a market where affordability
29:55
Speaker 2: is already off the charts. What does this mean for
29:57
Speaker 2: real estate?
30:01
Speaker 8: Back with you.
30:02
Speaker 11: The answer to that question, Matt, is a severe disruption
30:06
Speaker 11: in trading activity, in investors' ability to value real estate,
30:11
Speaker 11: and a lot of uncertainty out there. On the housing front.
30:14
Speaker 11: We're seeing anyone who has a low interest rate already
30:18
Speaker 11: declined to bring inventory to market or stay put, which
30:22
Speaker 11: is really reducing sales velocity there As a buyer. The
30:27
Speaker 11: affordability has gone so out of control that people are
30:30
Speaker 11: renting apartments longer, they're staying in their apartments much longer
30:34
Speaker 11: than anticipated, and the renewal rates of apartments are actually
30:38
Speaker 11: showing really good rent growth. On the commercial side, it's
30:41
Speaker 11: not just the price to this location. It's the fact
30:43
Speaker 11: that banks have pulled out of the market by pricing
30:46
Speaker 11: themselves out of the market, and other lenders have not
30:49
Speaker 11: been able to step in to make up for what
30:51
Speaker 11: banks normally do in financing commercial real estate. So there's
30:55
Speaker 11: a real log jam in the marketplace as we speak.
30:58
Speaker 2: So on the housing side and the residential side, there's
31:02
Speaker 2: just not any preowned houses trading hands. Right on the
31:06
Speaker 2: commercial real estate side, what you're saying is people can't
31:10
Speaker 2: get refinancing that they need, and so what are they
31:14
Speaker 2: forced to sell.
31:16
Speaker 11: Well, the refinancing issue in and of itself is a
31:19
Speaker 11: serious one because the loans that are maturing today were
31:22
Speaker 11: issued five to seven years ago. Thankfully, a lot of
31:25
Speaker 11: equity has been built up, a lot of rank growth
31:27
Speaker 11: has been basically achieved, So not every maturing loan is
31:31
Speaker 11: in trouble, but there is a pretty good chunk of
31:34
Speaker 11: the maturing loans, especially in office not really so much
31:37
Speaker 11: any other property type that is having to either be
31:40
Speaker 11: sold as distressed or having to get a workout between
31:44
Speaker 11: the lender and the borrower. The Treasury and the Fed
31:47
Speaker 11: have really pushed lenders to work with the borrowers to
31:50
Speaker 11: avoid a fire sale if you will. So we're not
31:52
Speaker 11: expecting a huge wave of fire sale and even in
31:56
Speaker 11: the office sector, but you're already starting to see some
31:59
Speaker 11: distress sales in older office product. Newer office product is
32:02
Speaker 11: actually performing better than most people realize.
32:07
Speaker 1: All right, haseam, I am a huge bear when it
32:09
Speaker 1: comes to commercial real estate in you know, particularly the
32:12
Speaker 1: office space. I just think we have a doom loop
32:14
Speaker 1: kind of building here where you know, and you know
32:18
Speaker 1: the values of these real estates are nowhere near enough
32:21
Speaker 1: to support their debt. And it's going to become really
32:24
Speaker 1: apparent when we see some transactions across the market and
32:27
Speaker 1: reset the market. So I'm wondering, have we ever have
32:30
Speaker 1: we seen anything in like New York, Chicago, San Francisco, La. Like,
32:34
Speaker 1: I haven't really seen any big, big property in New
32:36
Speaker 1: York trade. And when it does trade, I'm afraid it's
32:39
Speaker 1: gonna be at thirty forty fifty percent discount.
32:43
Speaker 4: How are you thinking about that?
32:45
Speaker 11: It really depends on the asset. Some of the assets
32:47
Speaker 11: that are going to trade will phone the exact description
32:51
Speaker 11: that you're sharing right now. Older office product has vacancy
32:55
Speaker 11: rates in the twenty to twenty five percent or higher
32:58
Speaker 11: newer office product on average, meaning the build in the
33:01
Speaker 11: last fifteen years or earlier, is half that about eleven percent.
33:07
Speaker 11: So there is a huge dichotomy and the obsolescence of
33:11
Speaker 11: older office buildings. Unlike obsolescence of shopping centers, where you
33:15
Speaker 11: could knock down a shopping center or an old warehouse
33:18
Speaker 11: that is obsolete and have a reuse or reimagination, it's
33:21
Speaker 11: much harder to do that with older office product. So
33:25
Speaker 11: the reuse is one rescue channel. Another is just a
33:29
Speaker 11: pure discounting of the asset to what the fair market
33:32
Speaker 11: value would be. Believe it or not, there is a
33:35
Speaker 11: lot of entrepreneurial buyers of that product. We're actually helping
33:39
Speaker 11: a number of them either go directly to the lenders
33:42
Speaker 11: or wait for product to come to market, but the
33:45
Speaker 11: cycle will be pretty ugly for that older office stock
33:49
Speaker 11: that you're describing, Paul.
33:50
Speaker 2: Yeah, what's going to happen to you know? Bloomberg Business
33:52
Speaker 2: Week did a cool piece last year about the Third
33:55
Speaker 2: Avenue Corridor, which has a lot of that office space
34:00
Speaker 2: with the problem that you're talking about. It's just unconvertible.
34:03
Speaker 2: There's no way to make it into apartments, and nobody
34:06
Speaker 2: wants to use.
34:07
Speaker 4: It as office space.
34:08
Speaker 2: What happens do We just have a ton of storage
34:10
Speaker 2: space buildings all the way down Third Avenue and in
34:13
Speaker 2: the middle of Manhattan, some of the most expensive real
34:15
Speaker 2: estate in the world.
34:16
Speaker 11: Here's what I predict. I predict opportunistic buyers will come
34:20
Speaker 11: and buy it, as Paul was saying, thirty forty cents
34:22
Speaker 11: on the dollar. They'll upgrade it, do a value add
34:26
Speaker 11: and wait for the return to office to improve. It's
34:29
Speaker 11: never going to go back to pre pandemic. But I
34:31
Speaker 11: also think we've come off the lows of people's resistance
34:35
Speaker 11: to come back into the office. Urban America is not
34:37
Speaker 11: dead forever. It's hit really hard right now. But those
34:41
Speaker 11: opportunistic investors, because of the basis points they're going to
34:44
Speaker 11: basically come in on acquiring those assets or the price
34:48
Speaker 11: point versus replacement cost, have a much longer kind of
34:53
Speaker 11: a viewpoint on it and a time horizon than a
34:55
Speaker 11: two or three year hold.
34:56
Speaker 2: So there's just a repricing then of assets. That's your
35:00
Speaker 2: view then, and this gets big, this is like thirty
35:02
Speaker 2: five thousand feet, But what's your view on the cities
35:06
Speaker 2: of America?
35:08
Speaker 11: Well, Urban America is taking it on the Chin, no
35:11
Speaker 11: question about it, whether it's Chicago or San Francisco or
35:14
Speaker 11: Seattle or anywhere else. Now, if you look at Miami,
35:18
Speaker 11: if you look at even the comeback we were seeing
35:20
Speaker 11: in somewhere like Seattle versus San Francisco, Chicago, or New York,
35:25
Speaker 11: you can see that the comeback can be affected in
35:29
Speaker 11: those other markets. It's just going to take a lot
35:31
Speaker 11: of time. New York, adding one hundred thousand jobs in
35:34
Speaker 11: the last twelve months is actually much better off than
35:36
Speaker 11: other urban areas because we are creating those jobs and
35:38
Speaker 11: a lot of young people want to live here.
35:40
Speaker 2: Yeah, that's pretty well. We haven't got the congestion charge yet,
35:43
Speaker 2: so just wait for that.
35:45
Speaker 4: And John Tucker is.
35:46
Speaker 2: Going to be staying home and doing all of his
35:49
Speaker 2: broadcasting from the shore.
35:50
Speaker 11: But Matt, you know, one thing to add is there
35:52
Speaker 11: is such a judge the book by the cover. Everyone's
35:55
Speaker 11: talking about commercial real estate as though the whole industry
35:58
Speaker 11: is older office build and older office buildings are an
36:02
Speaker 11: important segment. But office, as I pointed out last time
36:04
Speaker 11: I was on the air with you guys, makes up
36:06
Speaker 11: fifteen percent of the total outstanding commercial loans. And if
36:10
Speaker 11: you look at the entire commercial real set industry. It
36:13
Speaker 11: makes up twenty four percent of the total bank loans outstanding,
36:16
Speaker 11: so it's a much smaller percentage of risk than people realize.
36:21
Speaker 11: And we're concerned that this perception of older office is
36:24
Speaker 11: going to affect financing for self storage units or shopping
36:27
Speaker 11: centers even or apartments that are doing much better.
36:29
Speaker 2: So I was going to ask, then, looking at the
36:31
Speaker 2: whole pie of commercial real estate, and office space, as
36:35
Speaker 2: you're pointing out, is just a fairly small piece.
36:39
Speaker 4: What are the parts of the pie that you like?
36:42
Speaker 11: Well, fifty percent of the outstanding commercial loans held by
36:45
Speaker 11: banks is in multifamily, ninety five percent occupancies RENK growth
36:49
Speaker 11: has flattened out after jumping almost thirty percent in the
36:52
Speaker 11: last three years, so it's taking a little bit of
36:53
Speaker 11: a breather. And within multi family, we have a lot
36:56
Speaker 11: of assets that were financed on short term financing with
36:59
Speaker 11: debt fund in the last three years that are already
37:02
Speaker 11: coming due. They're having some problems refining as well, but
37:05
Speaker 11: nothing like the office market.
37:07
Speaker 2: But do you see opportunity there then? I mean, in multifamily,
37:11
Speaker 2: if you get a good deal a low valuation, do
37:15
Speaker 2: you go and snap it.
37:16
Speaker 11: Up absolutely for any property that on an equal to
37:20
Speaker 11: equal basis is coming to market fifteen to twenty percent
37:23
Speaker 11: below peak pricing as of March of twenty twenty two,
37:25
Speaker 11: we have multiple bits, multiple offers for those assets.
37:29
Speaker 2: All right, fascinating stuff, Sam, Thanks so much for coming in.
37:32
Speaker 2: I always appreciate you stopping by. Asam Naji is the
37:35
Speaker 2: president and CEO of Marcus and Millichapter.
37:38
Speaker 6: You're listening to the tape KENSUR Live program Bloomberg Markets
37:41
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune
37:45
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37:46
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37:48
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37:51
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37:56
Speaker 1: We're broadcasting live from Commonwealth twenty twenty three and National
38:00
Speaker 1: Financial Advisors Conference. We're here at the Gaylord Rockies Resort
38:03
Speaker 1: in Aurora, Colorado. Joined next by Shelbyquino. She's a certified
38:08
Speaker 1: financial planner at Independent Wealth Management. She joins me here
38:11
Speaker 1: at the conference here in Colorado. Shelby, so we'll talk
38:16
Speaker 1: about the markets and stuff like that. But what I
38:18
Speaker 1: find interesting about your background. You've been into business a
38:21
Speaker 1: long time, but you lead an all women team of
38:24
Speaker 1: financial advisors. Now, I do see in the mixture a
38:28
Speaker 1: lot of women here, But tell me what's the percentage
38:31
Speaker 1: of women in kind of like the in your line
38:33
Speaker 1: of the business, financial advisory business.
38:35
Speaker 12: Yeah, thank you, Paul, good morning. Right now, the statistics
38:39
Speaker 12: are still under twenty percent women financial advisors in our industry.
38:46
Speaker 12: We haven't grown the way we'd like to have grown,
38:49
Speaker 12: certainly in the last ten years, so we're working on that.
38:53
Speaker 1: So I guess the issue here is for a lot
38:56
Speaker 1: of folks is let me get people into these financial services.
39:00
Speaker 4: I've had a lot of experience in recruiting. At the
39:02
Speaker 4: entry level.
39:03
Speaker 1: You get a lot of diversity because it's easy to
39:04
Speaker 1: go onto a campus or something and find a diverse
39:07
Speaker 1: incoming class. But then four, five, six, seven years later,
39:10
Speaker 1: when it's time to do for the promotion for leadership positions,
39:13
Speaker 1: it's not so diverse anymore. Do you find that in
39:16
Speaker 1: your experience as well?
39:18
Speaker 12: Yes, we do, and we're trying to change that. I'm
39:21
Speaker 12: not sure we know exactly why that is. Certainly there's
39:27
Speaker 12: some extra pressure to you know, run a financial planning
39:33
Speaker 12: practice investment firm along with everything else you want to
39:38
Speaker 12: do personally.
39:39
Speaker 1: So yep, all right, So let's get to your business here.
39:42
Speaker 1: Talk to us about just what you're telling your clients
39:44
Speaker 1: these days about these markets. You know, last year was
39:47
Speaker 1: a tough, tough year, whether in your equities or you're
39:50
Speaker 1: in fixed income. This year is a little bit better,
39:52
Speaker 1: certainly the equity side, if you're in the right names.
39:54
Speaker 1: I guess what are you telling your clients these days?
39:57
Speaker 12: Yeah, you know, this has been historic. Celebrate forty years
40:01
Speaker 12: in the business next year. And I think that twenty
40:04
Speaker 12: two having the combination of the stock and the bond
40:08
Speaker 12: market in negative territory, the average balance fund sixteen down
40:14
Speaker 12: sixteen to eighteen percent. It tested the best of the best.
40:18
Speaker 12: We do our best to assess where a risk temperament
40:22
Speaker 12: is with our clients and run through the respective you know,
40:28
Speaker 12: tests on that. But this past year we found out
40:31
Speaker 12: where the risk temperament really was. So we're telling them it's,
40:37
Speaker 12: you know, we got to take a deep breath. With us.
40:40
Speaker 12: We're huge proponents of having emergency cash set aside so
40:46
Speaker 12: that we can actually allocate a portfolio of quality investment
40:50
Speaker 12: holdings to see them through on their short term, medium term,
40:54
Speaker 12: long term goals. But this has been such a balancing
40:58
Speaker 12: act between the technicality of this market and the emotional
41:02
Speaker 12: wherewithal So it's it's been a it's been a heavy lift.
41:07
Speaker 2: So do you still how do you diversify a portfolio
41:11
Speaker 2: now or how do you protect against correlations?
41:16
Speaker 12: Yeah, you know, that's that has been an interesting challenge
41:22
Speaker 12: obviously last year, where we've historically relied on the bond
41:26
Speaker 12: market to stabilize the portfolio and create that income stream,
41:31
Speaker 12: we couldn't go there, and so there was heavier cash positions.
41:36
Speaker 12: I you know, we look out in every sector of
41:40
Speaker 12: the market to determine you know, that risk reward temperament,
41:46
Speaker 12: and it's been you know, a combination. So there's some
41:51
Speaker 12: you know, solid dividend paying stocks in there, We've got
41:54
Speaker 12: some commodity exposure. We've tried to keep it simple. I
41:59
Speaker 12: you know, historically have used some of the more advanced
42:05
Speaker 12: instruments and not always been rewarded for the ex or
42:09
Speaker 12: expense we pay. Internally.
42:11
Speaker 1: Well, I mean, you could go I mean I've been
42:13
Speaker 1: telling people after twenty twenty two, where there's no place
42:16
Speaker 1: to highe equities down double digits, even most fixed income
42:18
Speaker 1: classes down double digits, which had never happened before. I
42:22
Speaker 1: can sit here at until your treasury at five point
42:24
Speaker 1: zero seven percent. Even my twenty seven year old daughter
42:26
Speaker 1: called me and says, I'm gonna go put some money
42:28
Speaker 1: into a Hi savings account for Marcus. So she's already
42:32
Speaker 1: playing the markets and she's in the music business.
42:35
Speaker 4: So I can sit there in.
42:35
Speaker 1: Some of these relatively secure places and get a decent return.
42:38
Speaker 12: Yeah, so you know what, And Marcus has been a
42:42
Speaker 12: solid place for short term money and emergency funds. That's
42:47
Speaker 12: an easy call. So for maybe short term emergency funds, great,
42:54
Speaker 12: but we got you know, it's time.
42:57
Speaker 4: To dip your toe in yep.
42:59
Speaker 12: And I think perspective in this environment is the most
43:02
Speaker 12: important thing. And with all the noise that we've got
43:05
Speaker 12: going on out there, that's really hard to do.
43:09
Speaker 1: All right, So what are some of So if I
43:10
Speaker 1: want to come to you, if I came to and
43:11
Speaker 1: I said that, you know, sixty forty portfolio, it sounds
43:14
Speaker 1: reasonable to me. What's what stocks would you look at?
43:17
Speaker 1: What sectors would you look at? Or how would you
43:19
Speaker 1: think about that five set out? You know, I've got
43:20
Speaker 1: my five and ten yere horizon.
43:22
Speaker 12: Yeah, you know, Paul, I think it's actually we we
43:27
Speaker 12: love growth. I mean, this Ai, it's real. But I
43:32
Speaker 12: think at the end of the day, you have to
43:34
Speaker 12: be balanced the heavy you know, we've we've relied on
43:38
Speaker 12: the large cap space for the bulk of the returns,
43:42
Speaker 12: and I think it's time to make sure you've got
43:45
Speaker 12: the mid cap and the small cap exposure for the
43:47
Speaker 12: next wave. You know, we look at that one hundred
43:51
Speaker 12: year chart of this market. We've been through really difficult times.
43:55
Speaker 12: Before we're going to get through this, you've got to
43:58
Speaker 12: be positioned to be able to take advantage of it.
44:01
Speaker 2: Is I mean, you guys, and I'm sure everybody in
44:04
Speaker 2: Colorado is in fantastic shape, but the rest of America
44:08
Speaker 2: needs a little help. You mentioned AI, and it makes
44:10
Speaker 2: me think of what I've come to dub Ai Junior,
44:14
Speaker 2: and that's the GLP one drugs.
44:16
Speaker 7: What do you think about that?
44:17
Speaker 2: Is it really like a strategy changing development or is
44:23
Speaker 2: it just fun for us to talk about in a
44:24
Speaker 2: few stocks.
44:27
Speaker 12: No, you know what, from the sounds of it and
44:29
Speaker 12: everything I've read, it sounds like it is a real thing.
44:33
Speaker 12: And I think, you know, the innovation that we're seeing
44:36
Speaker 12: in the healthcare space and also in the automotive industry
44:41
Speaker 12: is pretty mind bending. So, you know, used properly, I
44:47
Speaker 12: think AI could be enormously impactful.
44:51
Speaker 1: Hey Shelby, thank you so much for joining us. Trancano
44:54
Speaker 1: Certified Financial Planner or Independent Wealth Management, Independent Wealth Strategies
44:59
Speaker 1: joining us here at the conference in Aurora, Colorado.
45:02
Speaker 6: You're listening to the tape cancer our live program Bloomberg
45:05
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
45:09
Speaker 6: tune in app, Bloomberg dot Com, and the.
45:11
Speaker 8: Bloomberg Business App.
45:12
Speaker 6: You can also listen live on Amazon Alexa from our
45:15
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
45:20
Speaker 1: I'm bringing Peter Essel. He is a senior vice president
45:23
Speaker 1: of Investment management and Research at Commonwealth, and Peter I
45:27
Speaker 1: spent a long part of my career in equity and
45:29
Speaker 1: investment research.
45:30
Speaker 4: Tell me how you guys do it at Commonwealth?
45:33
Speaker 13: Sure, absolutely, thanks for having me so. Our role is
45:36
Speaker 13: in support of roughly twenty five hundred independent advisors, where
45:40
Speaker 13: we cover everything from individual equities to mutual fund research
45:44
Speaker 13: to credit analysis on the fixed income side, and what
45:48
Speaker 13: we've seen as of late is that there's been a
45:50
Speaker 13: strong interest in creating model based solutions. So we've really
45:55
Speaker 13: partnered with a lot of our advisors acting more so
45:58
Speaker 13: as like an outsourced CIO capacity, where we support them
46:02
Speaker 13: in their model construction efforts, monitoring, and so forth. In
46:06
Speaker 13: addition to that, there are a number of advisors who
46:09
Speaker 13: have elected to outsource investment management to us, and so
46:12
Speaker 13: we directly advise over twelve billion in assets and then
46:18
Speaker 13: advise on another about one hundred and fifty billion or so.
46:21
Speaker 8: Wow.
46:21
Speaker 1: Okay, So what's a typical I guess what's a typical
46:25
Speaker 1: ask from an RAA from you guys from your organizations
46:29
Speaker 1: to say, hey, should I buy Apple? Or are you
46:33
Speaker 1: know is this AI thing for real? What kind of
46:36
Speaker 1: request do you typically get? Absolutely, honestly, it's anything under
46:39
Speaker 1: the sun at this point, everything from AI stocks to
46:42
Speaker 1: the latest and greatest to going back a few years
46:45
Speaker 1: ago looking at cannabis stocks. And what we've seen recently
46:50
Speaker 1: is a lot of advisors looking for a red flag analysis.
46:54
Speaker 1: So that is everything from taking a deep dive into
46:59
Speaker 1: a client's perspective of portfolio that comes over looking at
47:03
Speaker 1: structured products individual equities like you talked about. In addition
47:08
Speaker 1: to just general outlook and commentary around the direction of
47:12
Speaker 1: the economy. So obviously with inflationary concerns persisting pretty heavily
47:18
Speaker 1: as of late, they want our views on interest rates
47:22
Speaker 1: and what that outlook looks like and how that should
47:24
Speaker 1: be reflected in their portfolio positioning related to duration and
47:29
Speaker 1: so forth. So honestly, it runs the gamut from individual
47:33
Speaker 1: security analysis all the way out to views on the
47:36
Speaker 1: markets and the economy.
47:37
Speaker 2: So what's a red flag I mean?
47:38
Speaker 4: Is that.
47:40
Speaker 2: Is that like if I think two years ago, weedstocks
47:44
Speaker 2: are definitely screaming by because I see that, you know,
47:50
Speaker 2: revenues are picking up in the states where they're legal,
47:53
Speaker 2: and I feel like it's time to get in. But
47:55
Speaker 2: you come back and say, well, they're not federally legal
47:57
Speaker 2: yet and they can't do any banking, so and this
48:00
Speaker 2: would be a very bad idea.
48:01
Speaker 4: This would be a very bad idea.
48:04
Speaker 13: It can come in that form. It generally involves a
48:08
Speaker 13: look into a security as it relates to a client's
48:11
Speaker 13: investment risk tolerance. So, for instance, if there's a high
48:16
Speaker 13: concentration in distressed debt for an eighty year old investor
48:21
Speaker 13: who has very little assets and as a conservatively positioned
48:27
Speaker 13: risk tolerance that would be a major red flag for US, obviously,
48:32
Speaker 13: But there are instances where, yes, on a security specific basis,
48:37
Speaker 13: where you have sort of these thematic plays that are
48:40
Speaker 13: very binary in nature, where they can either sort of
48:44
Speaker 13: the clouds or basically turn out into pennies. That would
48:48
Speaker 13: be a red flag for US as well. But generally
48:52
Speaker 13: it relates to the client's risk tolerance.
48:54
Speaker 1: So what are you telling your clients these days about,
48:58
Speaker 1: I don't know, just kind of you have like a
48:59
Speaker 1: market here that you guys are pretty constructive on the
49:02
Speaker 1: ECUADEM markets are not, So how do you how do
49:04
Speaker 1: you kind of frame it out for them?
49:05
Speaker 13: Yeah, generally we try to deploy a twelve to twenty
49:08
Speaker 13: four month outlook and we often try to sift through
49:12
Speaker 13: the noise. And a perfect example of that would be
49:14
Speaker 13: March of twenty twenty, where obviously there was a lot
49:17
Speaker 13: going on. Markets were down. I believe the SMP was
49:20
Speaker 13: down over thirty percent in the course of a month,
49:23
Speaker 13: and that's an environment where we tend to get a
49:25
Speaker 13: little bit more optimistic and like to add risk into
49:28
Speaker 13: our portfolios, and we did so on In fact, it
49:31
Speaker 13: was on March twenty third twenty twenty where we added
49:34
Speaker 13: equity exposure roughly eight hundred basis points for a sixty
49:37
Speaker 13: forty portfolio. So we like to look for those opportunities
49:41
Speaker 13: of volatility when when investors are rushing for the exits,
49:44
Speaker 13: we're generally rushing in. But as far as as our
49:47
Speaker 13: outlook at this point, you know, there's clearly a lot
49:50
Speaker 13: going on on the geopolitical side of things. Again, we
49:53
Speaker 13: like to look through that noise and you know, deploy
49:58
Speaker 13: that twelve to twenty four outlook, and we are still optimistic.
50:02
Speaker 13: Heading into this year, there was a lot there were
50:05
Speaker 13: a lot of economists out on the streets saying that
50:06
Speaker 13: this was the year of the recession. This is probably
50:09
Speaker 13: the most anticipated recession in my career, and we sort
50:13
Speaker 13: of take the opposite or took the opposite of you
50:15
Speaker 13: to that where we saw more of the goldilocks economy scenario,
50:18
Speaker 13: which thankfully has played out year to date. And we're
50:22
Speaker 13: somewhat concerned at this point because it seems like a
50:25
Speaker 13: majority of those economists have now shifted more in line
50:29
Speaker 13: with what our outlook is, where we continue to see
50:33
Speaker 13: modest wage growth. We do believe inflation is going to
50:37
Speaker 13: to reach the Fed's mandate by Q four of twenty
50:40
Speaker 13: twenty four, And as such, we don't think that there's
50:43
Speaker 13: going to be a significant rise on the long end
50:45
Speaker 13: of the curve, and we're mentioning to our clients and
50:49
Speaker 13: advisors that they think that they should think about redeploying
50:53
Speaker 13: some of that cash that they'd stock potted. Peter does
50:55
Speaker 13: pass six to twelve months.
50:57
Speaker 2: Does the spending of the US government not concern you?
51:01
Speaker 2: I mean, we, you know, post COVID are still running
51:05
Speaker 2: trillion dollar plus plus plus deficits every year, and you
51:10
Speaker 2: know we've already amassed such a huge debt it's towering
51:13
Speaker 2: over our GDP. That's the kind of thing that would
51:16
Speaker 2: make me, as an investor, want to join the bond
51:20
Speaker 2: vigilantes and drive those long term rates up.
51:22
Speaker 4: Drive those long term rates.
51:23
Speaker 13: Up right, I hear what you're saying. I mean, certainly
51:26
Speaker 13: next year the politicians will be throwing stones ahead of
51:28
Speaker 13: the election, and there's going to be some volatility as
51:33
Speaker 13: it relates to the fiscal deficit. But still at the
51:37
Speaker 13: DA I mean, the US Treasury is the benchmark yield,
51:40
Speaker 13: the benchmark asset around the world. So even if there
51:44
Speaker 13: are concerns over our fiscal issues, there's going to be
51:47
Speaker 13: a significant amount of demand from foreign governance, from large
51:51
Speaker 13: pension plans that will help keep yields at a reasonable level.
51:56
Speaker 13: What are you saying about the fixed income space again,
51:58
Speaker 13: I'm kind of a scaredy after what happened in twenty
52:01
Speaker 13: twenty two, where there's no place left the high equities
52:03
Speaker 13: or fixing come and I feel like, if I can
52:05
Speaker 13: get five percent for giving my money to Uncle Sam
52:07
Speaker 13: for a couple of years, that's not a bad thing.
52:09
Speaker 13: That's that's absolutely how we're looking at it. So if
52:12
Speaker 13: you can get four and a half four point seventy
52:14
Speaker 13: five on a ten year treasury locked in and clip
52:16
Speaker 13: that coupon over the next ten years, we feel that's
52:19
Speaker 13: a much more attractive option than placing all your assets
52:22
Speaker 13: into a cash like exposure that perhaps is giving you
52:24
Speaker 13: a little bit more. You're getting five to five and
52:26
Speaker 13: a quarter, but will that be five and a quarter
52:29
Speaker 13: for the next decade. We don't necessarily think so. So
52:31
Speaker 13: that's why we've been advising our advisors to think about
52:34
Speaker 13: inching out in duration and locking in some of those
52:37
Speaker 13: higher yields for the next ten years.
52:40
Speaker 1: How much you use ETFs or how much do your
52:43
Speaker 1: rias use ETFs? Because when I came to the business,
52:46
Speaker 1: there weren't any ETFs, it was mutual funds. Now now
52:48
Speaker 1: the ETFs are taking all the market share.
52:50
Speaker 13: Yep, they certainly are, I believe asset wise it's split
52:53
Speaker 13: fifty to fifty at this point, with maybe just a
52:55
Speaker 13: little bit more in ETFs. We are seeing them, and
53:00
Speaker 13: we've seen a lot of core satellite type portfolios which
53:03
Speaker 13: the core, the base is allocated to either index mutual
53:07
Speaker 13: funds or ETFs, and then advisors are rounding out that
53:09
Speaker 13: exposure with higher active share, higher concentration active mutual fund managers.
53:16
Speaker 13: But certainly over the next few years, with the evolution
53:18
Speaker 13: of ets in the active space, we're really going to
53:23
Speaker 13: become product agnostic, where if there's a viable solution on
53:26
Speaker 13: the ATF side, if it's active, we can allocate to that.
53:30
Speaker 13: We'll take a look at active mutual funds, passive ETFs,
53:32
Speaker 13: et cetera. Alternatives.
53:36
Speaker 4: Do your clients ask you about alternatives?
53:38
Speaker 1: We do get private equity or private credit or other
53:40
Speaker 1: kind of stuff.
53:40
Speaker 13: Oh, absolutely, both on the private and the liquid side,
53:43
Speaker 13: and the way we generally approach alternatives is that it's
53:48
Speaker 13: it's when it get we get asked, well should I
53:50
Speaker 13: allocate to alternatives? It's kind of like saying, well should
53:52
Speaker 13: I I'm hungry, I should eat food? Right, There's many
53:56
Speaker 13: different types of alternatives out there, as you mentioned, private equity,
53:59
Speaker 13: private credit, there's managed futures, et cetera. So it really
54:03
Speaker 13: comes down to the type of exposure that you're looking for,
54:06
Speaker 13: the type of factor you're looking for in a portfolio.
54:11
Speaker 13: But certainly for higher net worth clients, we are seeing
54:15
Speaker 13: a greater interest as of late on the private credit
54:19
Speaker 13: side of things.
54:19
Speaker 1: And that's where all the money's going. It seems like
54:21
Speaker 1: private right, all right, Peter, thanks so much for joining us.
54:23
Speaker 1: Peter sla He's our senior VP of Investment Management and
54:26
Speaker 1: Research at Commonwealth.
54:29
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
54:32
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
54:36
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
54:40
Speaker 2: at Matt Miller nineteen seventy three.
54:42
Speaker 4: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
54:45
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54:47
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