Andy Hart Develops an Opportunity Zone Checklist with ThinkAdvisor

The idea of opportunity zone investing is rapidly increasing in popularity. In fact, according to the National Council of State Housing Agencies, more than $18 million worth of investment plans in these zones has already been announced before IRS regulations have even been finalized.

Are opportunity zones actually a good investment? ThinkAdvisor recently spoke with Delegate Advisors Managing Partner Andy Hart to develop a checklist that can help investors answer this crucial question.

The first aspect to consider when analyzing an opportunity zone investment through a fund structure is the quality of the fund manager. Alignment of interest between the fund manager and its investors is highly important. According to Hart, this alignment is much more likely if the fund manager is also an investor in the fund and “has skin in the game.”

Next, it is important for potential opportunity zone investors to examine the individual deal(s). “First and foremost read through the documents,” explains Hart. “You need to be sure they comply with the regulations, not that the fund ‘will comply’ with the [regulations] when they’re finalized.”

When examining the deal(s), it is also important to determine if the fund plans to invest in real estate markets that have already experienced price inflation due to the growing excitement around opportunity zones, such as parts of New York City. For example, Hart reports that the seller of a piece of real estate located in an opportunity zone recently hiked the price by 20% simply because it was located in an opportunity zone.

Another question to ponder: does the fund/investment manager have processes and procedures in place for independent verification of compliance regulations?

When referring to the legislation that grants opportunity zone funds the ability to certify themselves by filing a form with their federal tax return, Hart warns, “Trust but verify… You don’t want to rely on the manager for self-certification.”

Lastly, Hart believes investors should be wary of excessive fees, which can be common among real estate fund managers.

Read the entire ThinkAdvisor article here.

Things You Should Know: Emerging Market Equities

In our Delegate Advisors Asset Class Indicators for the first quarter of 2019, we raised our outlook for emerging market equities from underweight to neutral-to-overweight, reflecting what we believe to be an attractive long-term opportunity. The shift in outlook is based primarily on the current valuation of the asset class. As shown in the below chart, the cyclically-adjusted price-to-earnings ratio (“CAPE”) for emerging market equities was 12.1 as of 12/31/2018, well below its 10-year average of 14.7.

Screen Shot 2019-03-06 at 3.23.36 PM.png

Additionally, while emerging market equities naturally have lower valuations relative to developed markets due primarily to the inherent risks of the asset class, the spread between the valuation of emerging markets and developed markets is currently wider than average, implying that, relative to global developed markets, emerging markets represent a better value.

Given this backdrop, we expect emerging market equities to outperform developed markets over the long term as their valuation converges to the long-term average and as the spread between valuations for developed and emerging markets tightens.

One caveat, however. While emerging market equities may currently appear undervalued, the asset class is historically very volatile, meaning that large, sudden moves (both positive and negative) are common and expected. Thus, investors who are unwilling to “ride out” this volatility should consider an alternative.

Download this article here.

Disclaimer: This material is for information purposes only and for the use of the recipient. Under no circumstances is it to be considered an offer to sell, or a solicitation to buy any investment referred to in this document. Although we believe our sources to be reliable and accurate, we assume no responsibility for the accuracy of such third‐party data and the impact, financial or otherwise, it may have upon any client’s conclusions. Delegate Advisors, LLC, has not audited or otherwise verified this information and accepts no liability for loss arising from the use of this material. The information contained in this document is current as of the date indicated. Delegate Advisors, LLC, undertakes no obligation to update such information as of a more recent date. Any opinions expressed are our current opinions only. Nothing herein should be construed as investment, legal, tax or ERISA advice. You should consult with your independent lawyer, accountant or other advisors as to investment, legal, tax, ERISA and related matters to which it may be subject under the laws of the country of residence or domicile concerning the acquisition, holding or disposition of any investment in the account. Past performance is not indicative of future results. All investments involve risk including the loss of principal. Any investments discussed within this material may be subject to various fees and expenses, which will have a negative impact on performance.

Delegate Advisors Shortlisted for the 2019 PAM Awards in Two Categories

We are pleased to announce that Delegate Advisors has been shortlisted for the 2019 Private Asset Management (PAM) Awards in two categories: Best Multi-Family Office - Client Service - Under $2 Billion and Best Registered Investment Advisor (RIA) for High-Net-Worth Clients.

The PAM Awards recognize the best investment professionals, wealth advisors, legal firms, consultants, and other key service providers in the private wealth management industry that have achieved notable accomplishments throughout the past year. An independent judging panel made up of industry experts determines the winners of these awards by examining both qualitative and quantitative performance indicators.

Commenting on the firm’s shortlisting, Delegate Advisors President and Chief Advisor Andy Hart says, “Each of our clients is unique with different needs and challenges, so we make it our top priority to provide customized, creative, solutions for them to meet all of their financial goals. It is very rewarding to have these efforts noticed by PAM.”

The winners for this year’s PAM Awards will be announced during an evening awards ceremony on Thursday, February 7, 2019 in New York. More information regarding the awards is available here.

About the Private Asset Management Awards:

The annual Private Asset Management Awards - presented by Private Asset Management (PAM) Magazine - is an evening of recognition and reward for top investment professionals, wealth advisors, legal firms, consultants, and other key service providers operating within the private asset management industry. Judges will take part in a judging conference call, where the winners will be decided. Our expert judge per category will be asked to summarize the judges’ comments. Judges have discretionary power to move submissions into alternative categories that they think may be more suitable. All judges are required to sign a disclaimer form to keep information about entries and the final winners confidential. The judges are carefully selected for their wealth of experience and expertise, as well as their absence of conflicts of interest. Judges cannot judge any categories that their company has submitted for and are obliged to declare that they have no conflicts of interest prior to judging.

Delegate Advisors Shortlisted for the 2019 Family Wealth Report Awards

We are pleased to announce that Delegate Advisors President and Chief Advisor Andy Hart is a finalist for the Family Wealth Report Awards in the Outstanding Contribution to Wealth Management Thought Leadership (MFO/Wealth Advisor/Manager) category.

The winners of the 2019 Family Wealth Report Awards will be determined based on the finalists’ independence, integrity, and genuine insight. In order to ensure that commercially sensitive information is kept confidential and to avoid conflicts of interest, there will be two judging panels for the awards. One panel will be responsible for judging the private banking categories, and the other will judge the trusted advisor categories.

“Being shortlisted for the Family Wealth Report Awards is a great honor,” comments Hart. “Delegate Advisors is a special team that constantly puts the needs of our clients first. We focus on delivering quality independent wealth advice, and it is a great feeling to have our efforts recognized.”

The winners of the Family Wealth Report Awards will be announced during an awards dinner at the Mandarin Oriental in New York City on March 20, 2019.

About ClearView Financial Media LTD (“ClearView”)

ClearView Financial Media was founded by Chief Executive, Stephen Harris, in 2004 to provide high quality ‘need to know’ information for the discerning private client community. London-based, but with a truly global focus, ClearView publishes the Family Wealth Report group of newswires, along with research reports and newsletters, while also running a pan-global thought-leadership events programme. With teams based in New York, London, Singapore, Switzerland, South Africa, and Malaysia, the company is one of the fastest-growing media groups serving the financial sector.

Andy Hart Discusses Amazon's New Opportunity Zone Location with ThinkAdvisor

After months of speculation, Amazon finally announced the locations of its two new headquarters: Long Island City, New York and Arlington, Virginia. This announcement has sparked interest among certain investors, particularly because the Long Island City offices will be located in an area that is part of one of New York’s Opportunity Zones. According to the Tax Cuts and Jobs Act of 2017 and subsequent preliminary IRS and U.S. Treasury guidelines, investors in Opportunity Zones, such as Amazon, may be eligible for certain tax benefits if the Opportunity Zone investment meets certain guidelines.

Amazon’s new Opportunity Zone location has generated substantial feedback and many questions, with many wondering if the Long Island City headquarters will fulfill a major purpose of Opportunity Zones: economic benefits for people living and working in the area.

To help understand the potential impact of Amazon’s Opportunity Zone story, ThinkAdvisor recently spoke with Delegate Advisors President and Chief Advisor, Andy Hart. In the article, Hart states that the Amazon development could benefit local residents as long as the city established certain policies for Amazon to follow. For example, a ban on in-house cafeterias on the new Amazon campus could encourage the development of local restaurants and, as a result, more jobs for local residents.

Hart also describes how, depending on investor preferences, the most attractive Opportunity Zone investments may be located in the upper right-hand corner of a chart where the y-axis measures the financial health of the investment and the x-axis measures its social impact. “We’re trying to have both,” explains Hart, who notes that Opportunity Zones should be a “real boon to the real estate industry” while potentially sparking economic development.

Read the entire ThinkAdvisor article here.

Andy Hart Discusses Opportunity Zone Investments with American Banker

On October 19, 2018, the Internal Revenue Service and the U.S. Treasury Department issued proposed regulations regarding Opportunity Zones designed to encourage economic development by providing tax benefits to individuals who invest money into projects that are located in certain designated districts. The regulations are not yet final and are subject to change, but according to the recently proposed regulations, investors may be able to defer capital-gains taxes for 10 years on prior investments if the gains are transferred to Opportunity Zone investments and certain other conditions are met.

Delegate Advisors President and Chief Advisor Andy Hart recently spoke with American Banker to provide insights on the specific advantages of these investments. In the article, Hart describes how Opportunity Zone investments can be extremely appealing to individuals who are interested in avoiding a huge tax bill on a corporate stock that has skyrocketed in value. “For a person who’s got a gain in a highly appreciated tech stock, they’re going to look for Opportunity Zone investments,” states Hart.

Hart goes onto to explain that tax cuts introduced by the 2017 Tax Cuts and Jobs Act have not lessened the appeal of other types of tax benefits. Even with the federal tax cuts, individuals are still searching for other ways to minimize capital gains taxes. Because Opportunity Zone investments may enable capital gains taxes to be deferred for close to a decade and possess the potential to increase in value, it is no surprise that these investments could become an attractive option for investors. 

Subscribers to American Banker can read the entire article here.

Andy Hart in ThinkAdvisor: Opportunity Zone Funds Are Coming to Market

ThinkAdvisor recently featured Delegate Advisors President and Chief Advisor Andy Hart in an article about Opportunity Zone funds. In the piece, Hart describes how Opportunity Zone funds might attract investors who are sitting on gains of highly appreciated assets, such as tech stocks, and want the ability to defer taxes on those gains. Because the final rules and regulations regarding Opportunity Zones have not yet been finalized, most funds attempting to capitalize on them have not yet come to market. We anticipate that, once the rules and regulations are final, fund managers will begin aggressively marketing investment options.

Opportunity Zones are often high-need communities selected by states and are located throughout the U.S. Thus, Opportunity Zone funds not only have the potential to provide tax benefits for investors, but also the potential to create positive impacts on low-income communities.

In fact, Opportunity Zone funds might become a viable option for investors with capital gains, a long time horizon, and a desire to make socially responsible investments. With Opportunity Zone funds, investors can receive certain tax benefits with respect to their capital gains as long as they reinvest their gains into a fund that places a defined proportion of its assets into a business located in an Opportunity Zone.

Investments in Opportunity Zones, however, are not a guaranteed success. Rather, these investments are “potentially great but they have to be a good investment to begin with,” explains Hart. “If it happens to be in an opportunity zone, we would look to rebalance a client’s portfolio to generate gains and then invest in a fund. We focus first on the investment side, not the taxes.”

Find ThinkAdvisor’s entire Opportunity Zone funds article here.

Delegate Advisors Receives Award from The Family Wealth Alliance

We are pleased to announce that Delegate Advisors has won the Best in the Industry Award in the category of Boutique Multifamily Office (Firm) from The Family Wealth Alliance.

The Family Wealth Alliance, commonly referred to as “The Alliance,” frequently provides thought leadership on both trends and developments in the industry.  According to Thomas R. Livergood, Founder and CEO of The Alliance, “Because of the role The Alliance plays within the family wealth industry, we have enjoyed a unique vantage point from which to identify the trailblazers among us.” 

Delegate Advisors received this honor from The Family Wealth Alliance during its Anniversary Awards Gala. Held in partnership with The Alliance’s Fall Forum, this year’s gala included 165 industry leaders in attendance as winners of 18 prestigious Best in the Industry Awards were presented.  

The winners of each category were determined by a judges panel. “We received more than 100 nominations for this year’s awards, and our judges had an extremely difficult time choosing the category winners,” explains Livergood. But despite the competition, Livergood adds, “each finalist deserved to win, as the businesses represented were truly best in class in so many ways.”

The judging criteria for The Family Wealth Alliance’s Best in the Industry Award for Boutique Multifamily Office (Firm) consisted of the following: A firm with $5 billion or less in assets under management that has demonstrated impressive leadership in terms of marketplace differentiation, exemplary service, successful client outcomes, and excellent management.

“Winning this year’s Best in the Industry Award for Boutique Multifamily Office (Firm) from The Family Wealth Alliance is a great honor,” comments Delegate Advisors President and Chief Advisor Andy Hart. “Our special team at Delegate Advisors is extremely committed to always putting our clients first. We feel so rewarded to have our determination recognized by other professionals in the family wealth industry.”

View the full list of categories and winners of this year’s Best in the Industry Awards here.


The Global Financial Crisis: Ten Years Later

September 15, 2018, marked the tenth anniversary of what many consider the key event of the global financial crisis (“GFC”): the fall of the venerable Wall Street firm, Lehman Brothers. On this tenth anniversary, our quarterly letter will touch on some root causes of the crisis, how certain issues related to it echo through capital markets today and, finally, what this means for Delegate clients. While we will discuss many aspects of the GFC in this letter, we recommend the following sources for a more complete retrospective of the 2008-2009 period, when the world teetered on the precipice of total economic collapse:

At a high level, two primary causes of the GFC were poor underwriting of mortgages and a long period of deregulation. As home prices began to rise in certain parts of the country (e.g., South Florida, Las Vegas), lenders loosened underwriting standards to almost comically low levels under the false belief that home prices would always remain high. The resulting toxic mortgages were packaged together in often highly leveraged, illiquid structures and held by, in many cases, depository banking institutions and investment banks. When home prices crashed and these structures collapsed, the investment banks’ capital (e.g., Bear Stearns, Lehman) immediately dried up and “mom and pop” began to fear that they would not be able to withdraw from their local bank because it had invested their deposits into these toxic structures. This occurred against a backdrop of an almost 30-year period of capital market expansion and deregulation beginning with the savings and loan crisis of the mid-1980s, a small-scale prototype for the GFC. Lessons that markets and investors learned as a result of that crisis were apparently forgotten. 

Since the GFC and until very recently, the regulatory pendulum has swung in the opposite direction, toward more regulation rather than increased deregulation. The Basel Accords III and the Dodd-Frank Act were attempts to rein in many of the practices that caused the GFC and strengthen banks’ capital requirements to prevent future insolvency.

These new regulations caused a boom in the “shadow banking” industry, which sounds nefarious but is really just the business of private lending outside of the banking system. Since the GFC, as illustrated below, global private direct lending assets under management has increased from $39 billion to $181 billion, a 4.6x increase over an eight-year period.

Source: Preqin.

Source: Preqin.

This shift is generally thought of as a positive effect of the GFC, because the riskier loans are now knowingly held by sophisticated investors (e.g., pension funds, endowments, ultra-high net worth families), rather than by depository institutions who used “mom and pop” deposits to fund suspect investments. 

While the growth of private lending is an encouraging sign, the explosive growth of public high-yield “junk” and bonds rated BBB has created the potential for future distress. 

As shown below, the size of the domestic corporate high-yield market has tripled since 2009. Not only has the size of the market grown drastically, lenders have increasingly agreed to relaxed covenants, which limit their ability to monitor borrowers and to take action if necessary to limit the risk of a default. 

Source: Bloomberg.

Source: Bloomberg.

While BBB-rated debt is still considered investment grade, it is the lowest-rated class of investment grade bonds. Since 2008, the total value of the investment grade market has grown from $4.8 trillion to $9.3 trillion. In 2000, BBB-rated debt comprised about 20% of the investment grade market ($1.2T). Now, BBB rated debt comprises over half of the investment grade market ($4.8T). The primary reason for the growth in both high-yield and BBB-rated debt is that investors, facing historically low interest rates, are searching for yield in increasingly higher-risk investments. If there is a troubling sign for the current economy, this is it. While “mom and pop” are somewhat more insulated from risk with their cash at the bank than ten years ago, retirement accounts might be invested in riskier investments than they realize. Additionally, many of these risky investments are packaged in increasingly popular ETFs and mutual funds that offer overnight liquidity and so are obligated to sell when they get redemption requests, regardless of whether it is prudent to do so. 

Source: SIFMA.

Source: SIFMA.

In summary, while private debt investments are protected by lock-ups that prevent the need for “forced selling”, public investments in ETFs that hold risky debt would likely become stressed in a credit or liquidity event similar to what occurred during the GFC. To mitigate against this risk, we have generally advised clients to reduce high yield exposure to zero. 

So what does all this mean for a Delegate client? We believe the three most important lessons for investors coming out of the GFC are:

  • Don’t panic.
    Investors who panicked and sold at the worst time (early-2009) have missed out on a historic bull market in US equities. We repeatedly, for good reason, look to Warren Buffett’s simple advice in times of stress to be “fearful when others are greedy and greedy when others are fearful.” 

  • Use long-term planning to avoid getting into a liquidity bind.
    At Delegate, we treat each client like their own financial system and project their cash needs far out into the future to determine how much cash and short-term, liquid investments to hold in case the economy’s gears grind to a halt. 

  • Have a plan in the event of a crisis.
    Work with a trusted advisor to understand what would cause personal stress in such an event, and establish a plan to mitigate that stress. Create an investment plan designed to be opportunistic in a crisis, capitalizing on fear and market dislocations. The best time to establish a crisis plan is when there’s not a crisis (i.e., now).

The good news is that we do not see signs of an impending crisis in the near term. We see where we believe it might manifest if we had one (e.g., high yield credit or dollar-denominated emerging market debt), but we do not currently see a catalyst to trigger the “next” GFC. If a crisis begins to emerge, it will likely not be as catastrophic as the last one. To safeguard against a shock, however, we have been advising clients to begin to:

  • Build cash positions to above policy targets

  • Maintain short duration, high-quality fixed income portfolios

  • Reduce equity positions to neutral or slightly underweight versus policy targets

While economic activity is expected to remain strong, financial assets may struggle to generate compelling absolute returns due to high current valuations and the fading effects of fiscal and monetary stimulus. With the still-present tailwinds of the corporate tax cut driving earnings ever higher and the continuing expansion of corporate stock buyback programs providing price support for equities, however, this economy has positive momentum that we believe can take it well into 2019.

The Bull Market Shows Its Age

In the third quarter, domestic equity market values continued to increase, reaching new, all-time highs. The strong performance was driven by the ongoing results of last year’s tax cuts, which have boosted corporate profits throughout the year. Markets continue to discount potential bad news, notably, signs of a trade war brewing with several of the United States’ largest trade partners. While an outright trade war would certainly be a negative for the global economy, markets seem to believe that a neutral or even positive outcome is more likely in the form of renegotiated trade agreements. For example, the U.S., Mexico and Canada recently agreed on a renegotiated NAFTA, with Canada seemingly capitulating to the U.S.’s aggressive negotiating tactics. A renegotiation of trade terms with Europe is likely next up, with China looming. 

As the quarter turned, however, global equities sold off quickly and deeply, with markets showing signs that the decade-long bull market may be nearing an end. The end of bull market expansions is typically marked by several run-ups to record highs and “corrections” before capitulation to an inevitable recession. In times like these, we remind our clients that long-term investors should be less concerned with daily volatility and that investment returns should be measured over an economic cycle (i.e., 8-10 years). In this regard, we are generally advising clients to reduce public equity exposure to the low end of policy ranges, and to tilt equity exposure toward value over growth. As illustrated below, domestic value stocks have underperformed growth over the last ten years. This will likely reverse over the next phase of the market cycle, as growth stocks tend to outperform in bull markets, while value outperforms in bear markets. 

Source: Bloomberg.

Source: Bloomberg.

Delegate Advisors' Asset Class Perspectives

Below are our asset class perspectives:

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Disclaimer: This material is for information purposes only and for the use of the recipient. Under no circumstances is it to be considered an offer to sell, or a solicitation to buy any investment referred to in this document. Although we believe our sources to be reliable and accurate, we assume no responsibility for the accuracy of such third‐party data and the impact, financial or otherwise, it may have upon any client’s conclusions. Delegate Advisors, LLC, has not audited or otherwise verified this information and accepts no liability for loss arising from the use of this material. The information contained in this document is current as of the date indicated. Delegate Advisors, LLC, undertakes no obligation to update such information as of a more recent date. Any opinions expressed are our current opinions only. Nothing herein should be construed as investment, legal, tax or ERISA advice. You should consult with your independent lawyer, accountant or other advisors as to investment, legal, tax, ERISA and related matters to which it may be subject under the laws of the country of residence or domicile concerning the acquisition, holding or disposition of any investment in the account. Past performance is not indicative of future results. All investments involve risk including the loss of principal. Any investments discussed within this material may be subject to various fees and expenses, which will have a negative impact on performance.

Andy Hart Discusses Cybersecurity Risks with MarketCurrents

Family offices currently face a heightened vulnerability to cyberattacks. To help family offices tackle these threats, MarketCurrents recently sat down with Delegate Advisors President, Chief Advisor, and Managing Partner, Andy Hart, to discuss why family offices need to protect their data more meticulously than the average corporation, and the best ways to do it.

With substantial experience following cybersecurity best practices in the family office industry, Hart understands cybersecurity and cyberattacks well. During his Q&A with MarketCurrents, Hart explained how the issue of cybersecurity became a priority to him after witnessing a handful of sophisticated cyberattack attempts.

“Our first attack happened about six years ago and we were lucky to stop that one,” says Hart. “Ever since then, we have been vigilant and we feel we’ve done a pretty good job by strongly advising our clients to take certain actions on their side to button up the situation.” To protect yourself from cyber-related threats, Hart recommends simple actions to greatly reduce or eliminate the odds of future cyberattacks such as freezing credit, two-factor authentications, email security, and low balance alerts on credit cards.

In addition to explaining how families can minimize their chances of getting defrauded, Hart also discusses how to reduce the chances of internal breaches at family offices through extremely thorough background checks during the hiring process, weekly scrubs of data from all computers, filters that compel employees to use complex passwords that are changed frequently, and more.

The interview ends with Hart emphasizing that, unlike the rest of corporate America, family offices must go a step further when it comes to cybersecurity. As Hart tells MarketCurrents, “When you’re wealthy, you automatically become a target. Your travel plans, what you do, and where you are can all leave you vulnerable.”

To learn more about tackling cybersecurity risks, read the full Q&A here.

Andy Hart Discusses Cybersecurity in

Seven Tips to Defend Against Cybersecurity Threats

The multitude of high-profile data breaches over the past several years has caused concerns about cybersecurity for both advisors and their clients. According to, high-net-worth families are particularly at risk for individualized cybercrime because they tend to be a more visible target. 

 Delegate Advisors President Andy Hart recently spoke to and offered several actionable ways families and their advisors can greatly reduce the risk of becoming a victim.

“I used to think email was a secure way to communicate with our clients, but not anymore, especially after witnessing firsthand how sophisticated the criminals have become,” says Hart. “Thankfully, each of the attempts to defraud our clients have been prevented. By being more than a bit paranoid about money movement, we hope to defeat all future attempts as well.”

Hart shared the following tips to help protect wealthy families from cybersecurity threats:

  1. Place a permanent freeze on your credit: This ensures that your personal credit cannot be accessed by anyone who doesn’t have the personal PIN number, which is assigned when you freeze your credit.

  2. Use two-factor authentication for online accounts: Less than 1 percent of people use two-factor verification even though it is one of the best ways to protect yourself from hackers.

  3. Use a separate computer or device to log into all financial accounts:This prevents hackers from gathering login IDs and passwords through malware delivered by email or online advertising.

  4. Minimize your online footprint:Limiting who can see social media posts can prevent hackers from gathering useful information.

  5. Use a secure Wi-Fi network to access email or financial accounts:If the network is unsecure, only use email with an encrypted link.

  6. Establish low balance alerts:This ensures you are aware of potentially suspicious activity on credit and debit cards.

  7. Verify any wiring instructions received by email with a phone call:Hackers are known to secure access to an email account and wait for an opportunity to change wiring instructions.

To learn more, see the full article here. It includes a slideshow with more details on each of these tips.


How Can We Prepare Our Investments for The Next Market Correction And Impending Volatility?


Selling everything and going to cash is generally a suboptimal investment decision. There is an old Wall Street saying that the market can remain irrational longer than you can remain solvent. Many great investors have been humbled by acting too early, even if they were ultimately proven correct. Many great books on managing wealth for the long term explore this lesson. Timing the market is very difficult; thus, we encourage our clients to act when valuations are what we consider to be extreme, that is, around two standard deviations from the long-term average. When we develop a strategic allocation for our clients, each asset class or strategy has a target allocation and a range above and below the target. When valuations are at relatively high levels, we recommend that clients reduce exposures to the lower end of the appropriate range. We would likely only recommend that clients exit an asset class entirely when they would probably not be rewarded for taking risk in that asset class and that they may, in fact, stand to lose substantial value if they remained in that asset class.


If reducing exposure is warranted, we recommend starting by selling the “easy things,” which we generally identify as the riskiest of an investor’s liquid assets. Ideally, these sales should be part of a general rebalancing plan. Systematic and intelligent rebalancing is one of the better practices an investor can establish and maintain. Outside of regular rebalancing, investors might consider reducing exposures to the most liquid of the riskier asset classes that are most overvalued. Downside volatility in previous market corrections may also be an indicator of assets to potentially sell, but history does not always repeat itself. Current examples of relatively more risky asset classes are domestic equities, international equities, emerging markets equities, high yield fixed income and REITS. Taxable investors should consider the tax friction of any sale before taking action. For positions with a long holding period, chances are good that a portion of your sales will result in realized gains, which may be taxed. Even with today’s relatively low capital gains rates, the tax friction can be material, depending on the relevant state and country of residence and how highly appreciated the positions are. Investors can typically can find some positions in a portfolio to sell with minimal tax friction. It may take some time to ferret out the relatively new positions or specific tax loss from an older position, but the search is worth the effort if you can sell riskier assets with minimal friction.


If tax friction or other limitations prevents selling assets, consider a hedging program. We have explored both the purchase of out-of-the-money (“OTM”) put options and “cashless collars” (where OTM call options are sold to fund the purchase of OTM put options with minimal cash required to establish the position). The tax rules involved with such positions can be complex, so consulting your tax advisor is a necessary step when considering establishing a hedging program.

 Both of these strategies have positive and negatives aspects. OTM put strategies can provide downside protection, but only for a limited amount of time (the term of the put option). Additionally, depending on the length of term and how close the strike price is to the stock’s current price, these options can be expensive. “Cashless collars” are often considered more attractive by clients because the cash out of pocket at the inception date can be minimal. But, investors must remember that they may lose out on the appreciation of the position above the call option’s strike price. In our experience, clients like having downside protection but are less willing to give up the upside. Regardless, we have found that evaluating these types of hedging strategies is always informative, and clients generally find them useful.

Related to hedging strategies, another way to achieve downside protection is to add non-correlated or negatively correlated assets to the portfolio. For example, to protect against rising interest rates, we might add an investment strategy to portfolios which would do well if rates rose. Were we to do this today, we might employ a rather complex strategy that would act like an ordinary corporate bond yielding ~3% but would return ~15% if the 10-year U.S. T-note’s yield increased by 1% over a one-year period. The downside risk is that if rates on the 10-year U.S. T-note fell, the client’s return could be slightly negative. A small amount of this strategy in the portfolio could provide an outsized return offset to rising rates, thus allaying the fears of families regarding the fixed income portion of their portfolios. If, on the other hand, rates were to decline, we would expect that the slightly negative return of this strategy would be more than offset by the increase in the overall value of the bond portion of our clients’ portfolios. And, if rates remained relatively unchanged, this asset would provide a yield roughly equivalent to the current return on the bond portion of their portfolios.

Accepting market downside risk is a necessary part of being a long-term investor. Without downside risk, there is theoretically no upside reward. We do not believe that riskless arbitrage opportunities exist, and if they do, they only exist for short periods of time. The key is for families to understand and accept the right amount of risk and then stick to the plan, reducing risk as market valuations increase to what we believe to be historically high levels and by increasing risk when market valuations are what we believe to be historically low levels.

It’s worth saying again and again that the investors who get hurt the most in a market correction are usually the ones who hold on the entire way down and then panic only to sell at the bottom. We’ve found that by walking families through the actions we would take if markets were to decline or by looking at available protective actions that can be taken before a downturn, families are better prepared because they understand and accept market risks better than those who have not gone through such exercises. In the end, we feel that prior evaluation and preparation for what clients should do in a downturn is the ultimate portfolio protection plan.

 Andy Hart
Managing Partner, Delegate Advisors

A full PDF of this column is available here

How Do I Protect Myself From Security Threats?

In an age where security breaches and cyberattacks dominate the headlines, personal security is a concern for everyone. The good news is that if you take a few precautions, you can greatly reduce the chances that you will be a target for fraud. We recently met with a group of clients and colleagues for a discussion with former FBI agent and current VP of Fidelity Security Services, Gary F. Rossi, who shared several simple steps you can take to help keep your personal information secure online and keep your family safe at home and while traveling.

We’ve all seen the news accounts of the significant amount of personal information that has been stolen by hackers. Most of us know people who have gone through the extremely tedious and time-consuming exercise of recovering their identities once it’s been stolen. And some of us know individuals who have suffered financial losses from hackers who have accessed their credit cards and bank accounts. It’s more than enough to keep you awake at night!

We recently hosted our second Heard from Clients event where we heard from renowned security expert, Gary Rossi, who served as Fidelity’s Head of Corporate Investigations for nearly a decade. Corporate Investigations leads all customer fraud and identity theft matters, anti-money laundering cases and cyber-related investigations. Before joining Fidelity, Rossi was Chief of the FBI’s Undercover and Sensitive Operations unit at FBI Headquarters in Washington, DC. 

Rossi offered the following practical tips to keep your personal information safe:

  1. Place a permanent freeze on your credit with each of the three major credit reporting bureaus. This ensures that your personal credit cannot be accessed by anyone who does not have your PIN number, which is assigned when you freeze your credit. If your personal information is ever stolen, it cannot be used to open new credit cards or fraudulent loans. The California Department of Justice explains how to do this here.

  2. Use two-factor authentication (secondary verification) wherever possible for online accounts. If your login ID and password are stolen, secondary verification can keep hackers from accessing your account. According to Rossi, less than one percent of people use secondary verification even though it’s the number one way to protect yourself from hackers.

  3. Use a separate computer or device (iPad, etc.) to log into all of your financial accounts. Do not use this same device for email, search, web surfing, social media or shopping. Malware delivered via email and in online advertising is a common tool used by hackers to gather your keystrokes which provides them with your login IDs and passwords. If you never use email or web surf on the device that is dedicated to your credit card, bank, brokerage and other financial accounts, hackers can’t gather your login ID and password via an email hack.

  4. Minimize your online footprint. Sophisticated syndicates use social media to gather information on wealthy individuals. They look for ways to access their social networks and to gain access. Be sure that your privacy settings limit who can see your posts, and be sure that the privacy settings on your children’s accounts are also set to limit access. Be sure to turn off the “location settings” while posting pictures on vacation. 

  5. Never log into your email or financial accounts from an unsecure Wi-Fi network. If you are not certain that the Wi-Fi network is secure, do not use it to access your financial accounts, and only use it for email if you are using an encrypted link.

  6. Establish low balance alerts for all credit and debit cards. So that you are aware of ALL activity on your credit and debit cards, wherever possible establish text alerts to your mobile phone for all charges exceeding $0.01.

  7. Never trust the wiring instructions you receive via email. Always contact the financial institution that provided you with wiring instruction by phone to re-verify the instructions you’ve received by email. And, before the wire is released, be sure that your financial institution reconfirms the final instructions with you by phone. Sophisticated fraud syndicates that secure access to an email account will wait for an opportunity to change wiring instructions. This type of fraud is called “man in the middle,” and it has become rampant. Billions of dollars are being stolen using this technique. The only way to stop this type of fraud is to re-verify the wiring instructions by phone.    

Recommended Reading
Our discussion with Rossi lasted over two hours with many stories and lessons learned from his years in the FBI and from his time spent protecting Fidelity’s clients. While we can’t do his stories justice, we can offer this resource Rossi provided called Personal Security from All Angles. It contains a wide array of suggestions for how you can be safer online, at home and when you travel.

As always, please give us a call if you’d like to learn more about keeping your personal information and family safe!   

How Do I Raise My Kids Amidst Wealth?


Heard from Clients Symposium: Findings from Our Conversation

We recently met with a group of clients and colleagues to discuss a challenge that many wealthy families face. We've all seen the worst: heirs of the wealthy and famous with everything who seem to value nothing. That may be typical, but we know it is never a goal, and we know many families who have successfully avoided that outcome. 

Below are some key discussion points from our recent lunch-and-learn that featured a panel of expert speakers who offered tried-and-true practices that help wealth creators prepare their heirs to be good stewards of wealth.

Intentionality makes all the difference.

The families that succeed are often the families that act with intention about how they want their children to behave and treat wealth. In other words, they succeed because they had a plan.

A great starting point is to take stock of what you may be doing unintentionally. What values are you displaying to your children by your current lifestyle? Are you teaching them the values you want?  Are you teaching them the values that helped you succeed? If not, what do you want them to learn from you? Once you have a list of the values you want them to have as adults, work to intentionally display and over-communicate those values to them. Remember that they won’t see the sacrifices you made earlier in life. For example, let’s say you want your children to know that nothing comes without working hard, but you also understand that you’ve made money by working hard for years and now you want to enjoy the fruits of your labor.  To do this, you can still create opportunities to let them see you working now.  For example, explain to them how much time you put into managing the family’s wealth.  Alternatively, you can share with them the stories of how hard you worked when you were starting your career. Parents should also remember that, just like when you asked them to clean up their toys, children will need to hear about your values more than once. Be intentional in how you build that into their daily lives. 

Focus on what matters.

Oftentimes, successful children report never feeling “rich” when they were growing up. They often knew there was wealth, but they firmly feel it wasn’t what was important to their family. Instead, their parents placed importance on school, family vacations and togetherness.

Wealthy families can proactively create this culture by speaking with children early on about the importance of education, saving money, living beneath their means and giving back to community and society. Parents can also actively demonstrate their own work ethic and modesty as an example of how to live.

Philanthropy is a cornerstone.

Philanthropy is about living with values in a physical, practical way. That’s why introducing children to the concept of giving is important in developing responsible stewards of wealth. For example, kids can donate toys to children in foster care here or orphanages overseas, allowing them to express the family’s ethos in a way that’s meaningful, tangible and age-appropriate.

Families can also use travel as a way to expose children to the realities of others and inspire them to act upon what they see. Including in the itinerary a visit to a local nonprofit or an afternoon of volunteering can bring the concept of giving closer to home.

When children learn they must use their money in three ways (spend, save and give), it sets them up for healthy money habits when there is more than a weekly allowance in their bank accounts. 

Protect them from themselves.

It’s important to know the consequences – intended and unintended – that your estate planning documents may have on your children. Parents often set up trusts that distribute at preset ages.

Successful families often avoid allowing children access to the money too early. Make sure they have a firm understanding of money, either through education or practical application, or by working with a financial professional. Family retreats and/or conferences are great way to learn about the practical application of wealth. The more educated your children are (at any age), the better they will be equipped to steward their inheritance and potentially create their own wealth as well.

As an added measure of protection, we recommend clients consider adding a discretionary standard, so the trustee has more power to course-correct if needed.

Communication is always key.

It’s an old belief in the US that you shouldn’t talk about money, but we have seen the opposite to be true.  Engage the entire family in discussions about budgets, major purchases such as homes, retirement and goals for the future. The more common this is, the less taboo it will be for your family in the future. When kids are young, these conversations should be kept to the basics. Young children should understand and see you apply discretion on spending in prudent ways. You might tell them that you were hoping to add another stop to a family vacation, but it would have been too expensive, so you decided not to. Or you could share with them that you have detailed plans for the home remodel, that you are working with everyone to make sure you spend only on necessary things and that all the expenses come under your budget. That could be a great way to say no when they ask to have a slide from their bedroom window directly to the pool.

As they get older, you can selectively begin to share more details with them. For example, you may actually review the remodel budget with a mature teenager or college-aged student. You still want to stress prudence and staying within your means, but you can probably be comfortable that your mature child won’t go running around the playground telling everyone how much your project is going to cost. Remember, the details are what matters to you, but it’s the values and messages that will matter most to your children.

One additional warning is that you need to remember that your children will fill in the blanks if you don’t. One person shared that his father used to play in a regular poker game and would regularly announce the results at breakfast the next day. His father would occasionally shake his head and gravely announce that he’d “lost big.” As a child, he figured this meant thousands of dollars and worried about their family’s well-being. Later as an adult, he nervously asked his father how much money he used to lose on those bad nights. His father laughed and said the most you could lose on any night was $40. Always remember you children will fill in the blanks, and they have better imaginations than you do.

Account for sibling differences.

Because kids are not all the same, they shouldn’t necessarily be treated the same way. This concept might go against parents’ first instincts, but it is often critical to the sustainability of family wealth. One child could be successful in his or her own right. Another could have a substance abuse problem. Another could have a disability. In many cases, “fair” may not mean “equal.”

Because the default option is to split the pot with the children evenly, our experts strongly advised parents who are choosing a different method of distributing their wealth to communicate their decision early. The earlier this concept is shared within the family, the more successful the message will become. For example, you may want to acknowledge to your children that one of the siblings needs additional resources due to a health challenge that might limit his or her ability to work and that you are structuring your estate to make sure that child is taken care of and does not create a burden on the other siblings. If you repeat this message often, your children will understand your intentions when the distribution breakdown is revealed.

If you don’t tell your children why you did something, they may never know. Conjecture is very hard on families. Transparency about how everyone is being treated leads to better outcomes. Lack of communication leads to conflicts and even litigation, which often damages the family forever. If you are not comfortable speaking directly with your children about these issues, enlist help and support from your advisors, or write each of your children a letter to be opened in private before the full will is read.

It’s all about the legacy.

Start by instilling early the lessons and values you wish to pass on. As your children get older, often around college age, begin to provide more information, but keep the focus on the family’s wealth and what that means to you. Try not to focus on each child’s personal inheritance because personalizing wealth should be avoided. It’s also the time to ask them what roles they want to play in the family. Family foundations are an excellent way to get children involved, as inheritance is part of the foundation model.

One expert recommended documenting the family wealth – the legacy, the story, the lessons learned on the wealth journey, history of the wealth journey, etc. This will help future generations explain who they are as a family and what the parents and grandparents hoped for the succeeding generations to have.

Interfamily Transfers.

Not all gifts are from parents to children; we have seen children gifting to their parents, or sibling-to-sibling, nieces or nephews. Communication around these gifts is critical to both enhance the gift and to be sure they are received in the proper way.

If you intend to give funds to another family members’ children, communicating with the parents is very important. We have seen many well-intentioned gifts received negatively. For example, let’s say Charlie is going to surprise his sister Sally’s two kids with paying their college tuition when they are 18. Meanwhile, Sally and her husband have been saving and sacrificing for their kids’ college education and could have had family vacations and sent their kids to private school with the funds they had saved for college. The gift, while amazing, would have been nice to know early on so they could use their savings for other costs. Other parents might simply see it as an intrusion. Others may want to use the funds for something else, such as paying down debt or using it as a down payment for a better home. Just like any surprise, it could be received in a number of ways.

The other piece of wisdom around all gifts is, once you make the gift, never speak of it again.  It could be awkward if someone says, “Did you use that money to buy the boat?” Once the gift has been given, it is the recipient’s decision to do whatever he or she wishes to do.

It’s never too late to start.

While it’s best to start early, it’s never too late to start the conversation, even if you’re already experiencing problems among family members. Every family has problems. Wealth just amplifies some of them. With a good plan, though, you can turn things around. Experts are available to help reboot and find a way to pivot. 


A PDF of this column is available for download here.

Yield Curve Moves Toward Inversion, Traditionally Signaling Recession

As we commented in our last quarterly letter, the yield curve has been flattening, and is moving toward becoming inverted. An inverted yield curve occurs when long-term yields fall below short-term yields. The difference in these yields is measured by a spread. When the spread lowers to below zero, the yield curve is inverted. As of 7/26/2018, the spread on 10-year U.S. Treasurys over 2-year US Treasurys was 28.5 bps, down from a 2018 high of ~75 bps in early February and the lowest since the last recession. 

Additionally, as illustrated below, the yield curve tends to flatten while the Federal Reserve (the “Fed”) is in a tightening cycle, which is the current environment. When the Fed increases rates, it does so by affecting the federal funds rate, an overnight rate that moves the short end of the yield curve higher.

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Numerous Fed officials, economists and market pundits have opined that a flattening of the yield curve is a major phenomenon to watch, as it has frequently preceded recession in the post-war era. Inversions of the yield curve have preceded the last seven recessions, with only two “false positives” (i.e., the yield curve inverted and a recession did not occur until after the next inversion). A flattening yield curve often portends recession because short-term rates have risen to a point where the bond market believes that GDP is going to slow and perhaps be negative (i.e., recession). Markets anticipate that inflation pressures would be lower, increasing the likelihood that the Fed would lower rates in the future to stimulate the economy and generate GDP growth.

While an inverted yield curve often portends recession, the actual inversion is not generally a signal to sell equities immediately. According to Bank of Montreal, a recession (i.e., two consecutive quarters of negative GDP growth) follows the inversion of the yield curve by 15 months on average. In this regard, Scott Minerd, the Chief Investment Officer at Guggenheim Investment Management recently noted that current data were in line with their model, forecasting a recession in 2020. Additionally, former Fed chief Janet Yellen opined in June that trade policy (discussed below) and high valuations have created an environment ripe for shocks. She also noted that a long period of stability (the current expansion is almost the longest in US history) can, over time, induce instability, and that the Fed may continue to raise rates to test the limits of tightening. Thus, we are closely monitoring the yield curve and are currently advising our clients to trim public equity positions when appropriate, potentially to below policy targets. Thus, we revise our posture on global public equities to underweight, and we may recommend more aggressive selling if the yield curve does, in fact, invert.