Andy Hart in U.S. News & World Report: What Is a Flattening Yield Curve?

The difference in the yields between short-term and medium-term interest rates is narrowing, and it has many investors asking if this means a recession may be looming. In a recent U.S. News & World Report article, Delegate Advisors President Andy Hart explains what the flattening yield curve means for investors.

In normal markets, yields for longer-duration bonds are generally higher than shorter-duration bonds. When short- and long-term yields move closer together, it's known as a flattening yield curve, the publication explains. If the yields for bonds of different durations narrow to such an extent that the yield curve inverts – meaning short-term yields are greater than long-term yields – a recession often follows.

A flattening yield curve doesn't necessarily mean the yield curve will invert. Hart says the CME Group's federal funds futures contract doesn't show short-term interest rates moving much higher in 2018, even after pricing in two interest rate hikes for the year. Those increases wouldn't be enough for short-term rates to overtake long-term rates in 2018, assuming long-term rates stay the same.

Hart also notes that current economic and monetary conditions may prevent an inverted yield curve, at least for 2018.

“The yield curve has flattened over the past two years since the Federal Reserve ended quantitative easing, the monetary policy that kept interest rates ultra-low, and began slowly raising interest rates,” says Hart. “Because the Fed only controls short-term interest rates, its monetary policy affects the short end of the yield curve more than the long end. Although the Fed's actions can trickle up the yield curve, other conditions can influence longer-dated maturities.”

New Tax Law Likely to Boost Corporate Earnings

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law. This bill represents the largest change to taxation in the US in the last 30 years, permanently lowering the corporate tax rate to 21% (from 35%) and putting in place a temporary tax break for individuals. Proponents of the new tax law argue that the lower corporate tax rate will make the US more competitive and will encourage businesses to hire more workers and raise wages.

Detractors of the new law argue that it does not go far enough in providing immediate, direct relief to middle- and lower-class citizens and that the projected increase in the deficit could hamper future GDP growth.

The short-term benefit of the new tax law to corporations is immediately clear: a substantially lower tax rate. This change is almost immediately accretive to corporate bottom lines and will cause earnings to be higher than they would have otherwise been with a higher tax rate. In this regard:

  • UBS’s head of US equity strategy predicts that corporate earnings will be 7% higher in 2018 than they would have been under the old regime, resulting in S&P 500 earnings per share of $141.35.
  • KKR estimates that 2018 aggregate earnings per share for the S&P 500 will be $153.90, a 16.5% increase from estimated 2017 S&P 500 earnings per share of $132.10. KKR attributes $13.80 of its estimated $153.90/share to the increased corporate tax rate (9%).
  • Factset reports that analysts increased their 2018 S&P 500 EPS estimates from December 11, 2017, to January 11, 2018, by the largest amount over that period since Factset began tracking this data in 1996. President Trump signed the tax bill during that interval.

While this higher earnings outlook should provide a significant tailwind to US equity prices in the short- to medium-term and likely improves the risk/return profile for domestic equities, market optimism is tempered by the following factors:

  • Relatively high current valuations; Factset estimates that the forward S&P 500 P/E ratio is 18.4, above the 10-year average of 14.2.
  • Operating margins may peak due to higher labor and input costs.
  • The domestic economy is likely running at or near full employment, which may lead to wage inflation pressure and higher long-term yields (although wage inflation has been largely absent since the 2009 global financial crisis).
  • Potentially unsustainable levels of low volatility in public equity and bond markets.

With an estimated 2018 S&P 500 earnings per share range of approximately $140-$155, the implied value of the S&P 500 at its current forward P/E ratio (18.4) is 2,576-2,852; as of January 16, 2018, the S&P 500 Index value was 2,770, above that range’s midpoint of 2,714, but below the high end.

We therefore revise our outlook on both large- and small-cap US equities from neutral/underweight to neutral as corporate earnings growth is likely to support peak valuations in the current low interest rate environment. Due to elevated valuations, we will likely not recommend a neutral/overweight or overweight posture until valuations appear more reasonable. Furthermore, we carry a bias for quality and value, as certain segments of the equity market appear to be overvalued and ripe for dislocation. For example, as illustrated below, the relative valuation premium for the Russell 1000 Growth Index over the Russell 1000 Value Index is at its largest since the “dot com” bubble burst in the early 2000s.

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For individuals, the tax bill reduces the top tax rate from 39.6% to 37%, doubles the standard deduction, caps state and local tax (“SALT”) deductions at $10,000 (as opposed to the previous rules which allowed all SALT to be deductible), and limits mortgage interest deductions to mortgages up to $750K, down from $1M. Important to high net worth families, the bill increases the exemption amount subject to the estate tax to $11.2M from $5.6M. While Delegate cannot provide tax advice, this piece from Keiter summarizing the changes may be helpful, and we strongly recommend discussing the new tax regime with your tax advisor in order to properly prepare and account for 2018 and beyond.

While the short-term implications of the new tax regime benefits corporations and many individuals as noted above, the long-term implications are unknown. On the one hand, the reduction in the corporate tax rate may lead to job, wage and, ultimately, higher GDP growth. On the other hand, the increase in the budget deficit caused by the reduction in national revenue may not be offset by expected increased GDP growth, serving as a headwind to the domestic economy in the decades to come.

A New Fed Chair Inherits a Flattening Yield Curve

On November 2, 2017, President Trump announced that Jerome “Jay” Powell will replace Janet Yellen as the Federal Reserve Chair starting in February 2018. According to sources, five candidates including Powell and Yellen were considered in the running for the job. The end of Yellen’s tenure is marked by low unemployment (4.1% for December 2017) and stable, even if lower than targeted, inflation for the duration of Yellen’s term.

Jerome Powell, Yellen’s replacement, was appointed to the Fed’s Board of Governors in 2012 by President Obama. When compared to the other candidates for Chairman, economists believe that Powell’s monetary policy views compare most favorably to Yellen’s. Additionally, like Yellen and Ben Bernanke before her, Powell is considered a leader who will favor open decision-making rather than centralized power in the Chairman. Collectively, these similarities lead experts to believe there will be a smooth transition of leadership and that the Fed will remain on its established course of steadily rising interest rates and what markets hope will be a gradual reduction in the Fed’s balance sheet.

The Fed continued on this course in 2017 by announcing a 25 basis point increase in interest rates at its December 13, 2017, meeting, raising the Federal Funds rate target that heavily influences short-term rates to 1.50%. This marks the fifth 25 basis point hike since December 2015, which can be seen below on the short end of the current yield curve when compared to yield curves from one and five years ago. Economists currently expect an additional two-to-three 25 bps raises in 2018.

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These yield curves show a “flattening” where yields on the short end have increased, while yields on the long end have slightly decreased. Another way to view this flattening is by analyzing the spread between short- and long-term treasuries. As shown below, the spreads between the 2-year and 10-year Treasury and between the 2-year and 30-year Treasury have both declined over the past 5 years.

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This is largely due to the absence of inflation concerns in the long end, meaning that further tightening by the Fed may not be warranted. An inverted yield curve is never a good sign for the economy. The argument to stay shorter in duration is therefore not supported by risk due to further rising rates. It is supported, however, by the fact that the risk premium for taking longer duration risk is minuscule. We therefore maintain our neutral/underweight posture on investment grade debt and continue to recommend that investors seek yield through short duration and floating rate bonds that are less sensitive to interest rates and through exposure to private credit markets that feature generally more favorable risk/return profiles.

With respect to high yield, current option-adjusted spreads (“OAS”) of 340 bps are well below the 20-year historical average of 557 bps and much of the universe is trading above par. Additionally, in Europe, the desire for yield has pushed European high yield spreads to extreme lows, with a year-end OAS of 294 bps versus a historical average of 609 bps. As a result, the yield to worst for the Barclays Pan-European High Yield Index (2.99%) is lower than the dividend yield of on the MSCI Europe Index (3.28%). Due to tight spreads around the world, we revise our outlook for high yield fixed income from neutral/underweight to underweight.

Cryptocurrencies Take Off

Cryptocurrencies (e.g., Bitcoin, Bitcoin Cash, Ethereum, and Litecoin) have taken off this year, dominating headlines in the fourth quarter amid spiking prices and unprecedented volatility. Cryptocurrencies are generally open to both individuals and institutions and are widely unregulated, extremely volatile and not backed by any government or physical asset. Bitcoin, specifically, gained substantial credibility at the end of the year when Bitcoin futures began trading on the CBOE after being approved by the CFTC. Many experts note, however, that cryptocurrencies lack certain characteristics that tend to define currencies. Specifically, their value is unstable, transaction processing can be slow and security is questionable. Additionally, cryptocurrencies lack certain exchange and contract infrastructure that protects all parties in a currency transaction.

While the consensus among economists recently surveyed by the Wall Street Journal has called Bitcoin a speculative bubble, Delegate does not take a view on cryptocurrencies because they are virtually impossible to underwrite. Furthermore, even if effecting transactions by cryptocurrencies becomes more legitimate and mainstream, they remain currencies (i.e., non-earning stores of value) and thus should not be considered investment assets.

Risks That Hinder Global Growth

While 2018 is shaping up to be a year of coordinated global growth, key risks that may serve as headwinds to this growth include:

  • Brexit: The UK and EU still do not have a plan in place for how the UK will leave the union, and both sides appear to be far apart at the negotiating table.
  • Housing in the US: The potential negative impacts of the new tax regime on homeowners (i.e., limits on the deductibility of mortgage interest and state and local taxes, including property taxes) could put pressure on home prices, especially in high-cost areas.
  • Commercial Real Estate: The growth of e-commerce continues at the expense of traditional retail will likely lead to a glut of unused “brick and mortar” real estate, putting stress on the retail sector of the commercial real estate market.
  • Geopolitical Events: The chance of a geopolitical event that could result in a flight to safety appears to be increasing (e.g., armed conflict or trade war).
  • Slowdown in China: With Chinese growth expected to be a large contributor to global GDP, the effects of any substantial economic slowdown in China could reverberate around the world.

Delegate 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.

Delegate Advisors Shortlisted for the 2018 PAM Awards in Two Categories

We are pleased to announce that Delegate Advisors has been shortlisted for the annual Private Asset Management (PAM) Awards in two categories: Best Multi-Family Office - Client Service - Under $2 Billion and Best Multi-Family Office – Overall - Under $2 Billion.

In 2016, Delegate won the PAM Award for the Best Multi-Family Office - Client Service - Under $2 Billion.

The PAM Awards are designed to recognize investment professionals, wealth advisors, legal firms, consultants and other key service providers operating within the private asset management industry who have proved themselves over the course of the last year.

The judging process uses an independent panel made up of industry experts and will be based on a mixture of qualitative and quantitative performance indicators to select the winners of the 2018 awards. Successful candidates must demonstrate:

  • Financial progress: candidates must be able to demonstrate a performance track-record over the course of the last twelve months
  • Growth: client numbers, internal hires and geographic expansion
  • Client satisfaction: provide evidence of client satisfaction, including evidence of exceptional service and direct client statements
  • Product innovation: details of new services and products launched over the course of 2016/2017

Commenting on the firm’s shortlisting, Delegate Managing Partner Andy Hart says, “It’s an honor to continue to be recognized by PAM. Serving our clients is always our top priority, but it is rewarding to see our efforts noticed by the financial media.”

The PAM Award winners will be announced at an evening ceremony on February 8, 2018 in New York City. More information 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. One 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.


About Private Asset Management Magazine:
Private Asset Management (PAM) – the industry publication that exclusively covers the wealth management and family office industry – brings to readers actionable information regarding best business practices, investment management and trust services. It incorporates breaking industry news, people moves, in-depth trend articles and profiles on top multi- and single-family offices and wealth management firms. In conjunction with Pam’s monthly breakfast briefings, the magazine advises, educates and fosters a sense of community and peer-to-peer networking opportunities. PAM’s readership includes family offices, private bankers, money managers, high-net-worth units, hedge fund managers, consultants, concierge firms, lawyers and accountants. PAM is published by Pageant Media, a leading provider of business information and insight.

Delegate Managing Partner Andy Hart Speaks to FundFire About The Growth of Family Offices

Delegate Managing Partner Andy Hart recently commented to FundFire about the growth of the multi-family office channel and the increased interest by investment managers to reach the ultra-high net worth family wealth market.

FundFire reports that “multi-family offices have outpaced all other high-net-worth wealth management channels in recent years, growing at an annual rate of 9.8% over the past three years to reach $694 billion at the end of 2016, according to a Cerulli Associates report.”

And the growth is only going to continue, according to the report cited by FundFire.

“Cerulli predicts the multi-family-office channel will grow to $1.14 trillion by 2021. Multi-family offices held 8.3% of the high-net-worth wealth management market in 2016, up from 7.2% in 2012. Some of that market share gain has come at the expense of wirehouses and private banks, which have each been losing ground.”

Investment managers are wisely taking note of this trend, and increasing their efforts to reach the notoriously difficult-to-crack family office channel.

“Asset managers have taken note, with the majority of firms interviewed by Cerulli expressing plans to ramp up sales efforts in the multi-family-office channel. In total, 60% of asset managers said they planned to increase distribution efforts in the multi-family-office channel over the next two years,” reports FundFire.

Commenting on the increased interest among managers, Hart tells the publication, “For managers, I encourage them to continue looking at the space. I do think the multi-family office space is going to continue to grow and even more so over the next decade. We are open to being approached by managers and we consider it to be our responsibility to take a look, at least briefly.”

Subscribers to FundFire can see the complete article on FundFire’s website here.



Heard from Clients: How Can We Prepare Our Investments For The Next Market Correction?


 In our previous commentary, we shared our thoughts on how to handle the emotional side of downside risk, market volatility and market corrections. Most of our clients leave this conversation reminded of the portfolio protections they already have in place, realizing that they will likely be able to weather a downturn. Some families, however, want to explore additional options to protect against an inevitable downturn, the cost of doing these options, and even how to potentially capitalize should a market correction occur. We discuss some potential issues below.


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 PDF of this column is available for download here.


© Delegate Advisors, 2017

Delegate Advisors Shortlisted for the 2018 Family Wealth Report Awards

We are pleased to announce that Delegate Advisors has been shortlisted for the Family Wealth Report Awards in the Client Initiative and Best Multi-Family Office Up to and including $2.5 Billion AuM/AuA categories. Core to the nomination for the Client Initiative category was Delegate’s popular Head from Clients series, which highlights common client questions and concerns.

Showcasing ‘best of breed’ providers in the global private banking, wealth management and trusted advisor communities, the Family Wealth Report Awards were designed to recognize companies, teams and individuals that the judges deemed to have “demonstrated innovation and excellence during 2017.”  

Last year, Delegate was also nominated and included on the shortlist for two awards from Family Wealth Report: Best Multi-Family Office with Assets Under Management Up To and Including $3 Billion, and Client Initiative for a Multi-Family Office.

The Family Wealth Report Awards are judged solely on the basis of entrants’ submissions and their response to a number of specific questions, which focus not on quantitative performance metrics, but on the client experience with an emphasis on independence, integrity and genuine insight.

Commenting on the firm’s shortlisting, Delegate Managing Partner Andy Hart says, "Our relationships with our clients are at the center of what we do, and we share the values that the Family Wealth Report Awards seek to recognize – independence, integrity and genuine insight. So we’re honored to be shortlisted for these awards and are grateful that our commitment to our clients is being recognized.”

Winners will be announced at a gala awards dinner which will be held in New York on March 8, 2018 at the Mandarin Oriental.


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 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 program.

Andy Hart Discusses Navigating Uncertainty at the RIA West Investment Forum

Delegate Advisors Managing Partner Andy Hart recently spoke at the RIA West Investment Forum – a conference that brings together approximately 60 RIA executives from the nation’s leading independent RIA firms. Hosted in San Francisco, the event focused on RIA-led discussions and included conversations on how trends such as geopolitical upheavals, the relentless speed of RIA and investment technological innovation, massive demographic changes and ongoing consolidation will all affect the industry and the opportunity and risk landscape in the long term.

Hart shared his thoughts in the behavioral finance segment, focusing on how to navigate and plan for uncertainties. “By proactively talking to clients about potential future challenges or opportunities, advisors can come to a mutual understanding with their clients regarding what they will do when the "what if" becomes real,” said Hart.

This exercise not only empowers the clients to weather a downturn, but also puts them in a better position to take advantage of it.

“While market volatility may be at or near record lows, it is clear we are living through times where uncertainty reigns at virtually every level of an investment decision,” said Hart. “We believe it is our job as advisors to coach our clients through these periods and to help them to remain calm so they can make rational decisions that will benefit them in the long term.”

Heard from Clients: How Do I know my investments are okay?

In today's volatile global financial markets, headlines of doom often dominate our morning reading. Many times, no investment action is needed, but how do you know when you should act? When is it time to make adjustments in your portfolio? This article will provide an answer to the question, "How do I know my investments are ok?"

An interesting thing has happened in 2017. Our clients have become increasingly nervous and concerned about high market valuations and downside risk at the same time that market volatility is hovering near all-time lows. When we ask clients why they are worried about risk and volatility right now, the answer usually comes down to uncertainty. At this time, especially here in the United States, there is a great deal of uncertainty about proposed domestic initiatives such as tax restructuring or infrastructure spending in addition to global concerns around a looming trade war with China or a potential conflict with North Korea.  For clients who are feeling concerned and nervous about macro issues like these, questioning the safety of their portfolios is only natural.

This is the way uncertainty works in the market, too.  If investors are confident in the direction of the global economy, they tend to accept a slightly higher price for growth.  If investors are uncertain about the direction of the global economy, they tend to value security over growth.  In other words, I might pay $100 for a shirt from a brand I love and know it will fit me perfectly, but I might only pay $50 for the same shirt from an unknown brand simply because I’m less certain it will fit me well.  It’s the same phenomenon with stocks: clients and investors who are feeling more uncertain naturally put a higher premium on safer assets. 

Our job as an advisor to our clients means we need to help them control their “animal spirits.”  Keynes noted years ago that individuals are often driven to take actions based on their emotions rather than logic.  Hence, we, as advisors, first try to listen and understand what is driving our clients’ concerns?  Once they put a voice to the real fears they have, we try to offer mitigating factors or play devil’s advocate.  If the client is concerned about a trade war with China, we would discuss all the reasons a trade war would be bad for both sides.  Often times, clients will have read or listened to a convincing thesis that argues for an extreme outcome.  That may be what eventually happens, but it is often unlikely.  Sure, some people correctly foresaw the debt crisis, but some people also incorrectly foresaw the demise of the dollar and made claims that oil production had peaked.  All of these forecasts are worth understanding, but we need to look at both sides of the argument.  We also remind clients that their portfolios are often structured to provide downside protection in a market downturn.  We show them that their conservative portfolio assets likely won’t reprice materially if equities fall. 

Assessing Risk

At this point, hopefully some of the fear and urgency will have been removed from the discussion, allowing us to reach a critical point in managing a long-term portfolio: deciding how much risk to take.  While allocators often speak about ability to tolerate risk, we also think about a client’s willingness to accept risk.  Investors in aggressive portfolios in 2008 did just fine if they remained invested and stayed aggressive through the downturn and in the following years.  Passive portfolios did just fine if they remained passive and did very well if they took a more aggressive stance during the downturn.   The investors who suffered material losses were those who were aggressively invested heading into the crisis but then became nervous and turned conservative (i.e., they sold assets at the trough) instead of staying the course and participating when markets recovered.  Hence, we test our clients at this point as to how they would react to the market’s being down 30-40%.  If they indicate they’d be inclined to sell and de-risk the portfolio, then they are probably too aggressively positioned for their real risk tolerance, and the portfolio needs to be adjusted. 

However, if their risk tolerance is appropriate for the portfolio risk level, then the best strategy is simply to prepare for the downturn emotionally.  Expect that it will come; eventually there will be a time when there is extreme uncertainty producing mispriced assets.  As our CIO says, you want to be the guy walking into the burning building with a wad of cash to buy it on the cheap.  Right now, we’re testing our clients’ risk tolerances, de-risking portfolios as needed and warning our clients they may be asked to walk straight into that burning building sometime in the next 2-3 years.

Andy Hart

Managing Partner, Delegate Advisors


A PDF of this column is available for download here.


© Delegate Advisors, 2017

Equifax Was Hacked - How Can You Protect Yourself and Your Family?

As many of you may know, Equifax, one of the three major U.S. credit reporting bureaus, recently announced that it was hacked and sensitive credit information for ~143 million people was stolen.

Because of the increasing frequency of hacking events like this, we have recommended for years that our clients place a permanent security freeze on their credit with each of the three major credit reporting bureaus: Equifax, Experian and TransUnion. The benefit of such a freeze is that you or anyone else who tries to access your credit information will be required to provide a unique pin code that is given to you when you place a permanent freeze. The charges to place a freeze and for each time you wish to reopen your credit are modest (ranging from $5 to $15), and they vary by state.

While a permanent security freeze cannot ensure that your sensitive credit information won't be stolen, we consider it a best practice. In light of the recent hack of Equifax, we encourage you to consider placing a permanent security freeze with each reporting bureau if you have not already done so.

The State of California Department of Justice provides information on how you can place a permanent security freeze on your account with each credit reporting bureau here.

Laws and procedures regarding placing a permanent credit freeze vary by state, and most states have enacted new laws that permit such freezes. You can find a summary of each state’s policy and instructions regarding credit freezes here.

Financial Advisor Magazine Lists Delegate Among 
the Ten RIAs Serving the Wealthiest Clients

Delegate Advisors has been named to Financial Advisor magazine’s list of the 10 RIAs Serving the Wealthiest Clients based on average client account size for firms that responded to the Financial Advisor survey.

Financial Advisor magazine reports, “According to the most recent RIA Benchmarking Study from San Francisco-based Charles Schwab, the average client relationship increased in size from $1.6 million in 2015 to $1.8 million in 2016.” 

Additionally, for the second year in a row, Delegate Advisors has been named to Financial Advisor Magazine’s Registered Investment Advisor Survey and Ranking for 2017, which is based on assets under management. 

“Ultra-high net worth families have many options when it comes to managing their wealth, and we are honored by the trust our clients have placed in us” comments Delegate Advisors Managing Partner Andy Hart. “Providing client families with independent advice has always been our first priority, and it’s rewarding to see our dedication recognized.”

Financial Advisor’s list of the 10 RIAs Serving the Wealthiest Clients is available here and the complete Financial Advisor magazine list is available here.

To be eligible for the Financial Advisor magazine RIA ranking, firms must be independent Registered Investment Advisors, file their own ADV statement with the SEC, provide financial planning and related services to individual clients, and respond to a Financial Advisor magazine survey. Eligible firms are ranked by total assets under management. 


About Financial Advisor: Reaching 108,000 qualified readers each month, Financial Advisor delivers essential market information and strategies that advisors need to succeed in their increasingly complex environment. FA focuses on sophisticated planning and investment strategies to help advisors better serve their affluent clients, as well as practice management ideas to help advisors build their firms. FA goes in-depth to challenge traditional planning wisdom by introducing readers to new approaches to help them better counsel clients. To achieve these goals, FA continuously seeks to bring together the best team of editors and contributing writers to provide the most compelling publication for the top decision-makers in the financial advisory field.

Heard from Clients: Why the "Why" Questions Matter Most


As an advisor to families of great wealth, we encourage clients to consult with attorneys and other experts in estate and tax planning. Understandably, during these meetings no one likes to discuss his or her own death. Invariably, we often hear similar questions from our clients when broaching the subject of wealth planning. “What plans do I currently have in place?” “How much money should I leave to my children?” Or, my personal favorite, “How much do I have to pay the government to die?”
However, before asking any of the questions we often hear, we should first ask a more important question - “Why should I care about leaving money to my children, to other family members, and/or to charity?” It turns out that the “why” questions are the most important.

How much money you leave, to whom and the types of plans put in place are secondary and tertiary results of answers to the “why questions.” I vividly recall early conversations with a senior partner at the first independent advisory firm I joined. When I first met him in the late 1990s, he and most of his partners had been counseling families regarding their wealth for more than 30 years. On my very first day with the firm he invited me to his office, telling me to take notes. He was going to impart important lessons learned from having spent more than three decades advising CEOs of Fortune 100 companies and others from among the wealthiest families in Silicon Valley.

Among the many lessons imparted that day, two stand out as particularly surprising: “When it comes to giving money to children, just give it to them and get out of the way, ” and, regarding timing, “If they haven’t figured out how to manage their affairs by age 40, they probably never will.” 

But what about generational tax planning? The senior partner’s perspective at the time was direct: “Parents shouldn’t try to rule from the grave.” Despite the obvious tax benefits, he believed 

that parents should let their children decide how best to pass wealth on to the next generation. It was at this point that his view and mine diverged. 

I was particularly focused on multi-generational planning, noting the tremendous benefits of compounding a family’s wealth over many generations without a 40%-50% loss to transfer taxes at each generation’s passing. It seemed to me that such a powerful planning tool is something my learned partners should be recommending. My opinion then and now is that trusts that avoid transfer taxes are an essential tool in helping families avoid the infamous “shirt sleeves to shirt sleeves in three generations” curse that befalls many wealthy families. 

A Prior Question

I only learned over time that there is a prior question that must be answered before deciding how much, to whom and when one passes control of one’s wealth to the next generation. That question is, “Why do you want to preserve your wealth? Is it to provide your heirs with a common legacy to care for and preserve? Or is it to provide your heirs with a comfortable lifestyle through your children’s generation and perhaps the next? By answering the “why” behind each planning question, we can identify what type of planning is best for a family. No matter what the solution, experience demonstrates that it’s important to discuss wealth transfer early, and to begin with the “why questions.”

My personal opinion became and remains that there are a few key reasons why we all should want to leave as much as possible to our grandchildren, great grandchildren and future generations. Simply put, one needs comprehensive healthcare and a good education to compete in our society. With strong family discipline, and family values focused on handing down the family’s legacy, future generations may be positively affected by careful planning and foresight. In my personal experience in advising clients, they all agree that it should be a priority to fund a trust to provide for the very best medical care and future educational needs. Future family members need to be healthy and well-educated to pursue their chosen careers. Further, future family members may suffer from a disease like MS, or a mental disability, which can rob them of their ability to care for themselves and their families. I haven’t met anyone who wouldn’t want to prepare for this possibility, even if for a future family member he or she will likely never know. 

Well, the senior partner didn’t immediately agree with my perspective. After all, with my limited experience at the time, what did I know about advising wealthy families? But, he did appreciate my perspective and began to share it with our clients. Actually, from that day forward, whenever he would discuss estate and wealth transfer planning with a client, he would invite me to join him so that we could each share our respective opinions on the topic. Almost all of our clients chose to fund multigeneration-skipping dynasty trusts in support of healthcare and educational needs. In time, that same senior partner did as well for his own family.

Asking the “why” questions has been a great way to begin conversations with clients around the topics of wealth transfer and how best to support future generations. It’s been a real eye-opener for most of them to even consider supporting grandchildren, much less future generations they may never know. Some agree that they want to make a difference in a beloved grandchild’s life. But what about that grandchild’s future children and grandchildren, whom they will never know, but whom their grandchild in turn will love just as much? When it comes enhancing their perspective on wealth transfer, asking the “why” questions is essential to broadening their perspective. 

In my next piece, I’ll circle back to tackle some of the “learnings” from decades of collective wisdom on the topic of wealth and family. 


Andy Hart

Managing Partner, Delegate Advisors


A PDF of this column is available for download here.


© Delegate Advisors, 2017

Delegate Advisors Recognized by Financial Advisor Magazine

Delegate Advisors has been ranked number 123 on Financial Advisor Magazine’s Registered Investment Advisor Survey and Ranking for 2017, which is based on assets under management (AUM). The list ranks more than 600 independent RIA firms across the country. This is the second year Delegate has been named to the list, moving up nine spots from last year’s ranking.

This year’s Financial Advisor special report explores the impact of market conditions on investors’ perception of the need for trusted financial advice.

“In times of sluggish market growth, people are scared and want help,” the Financial Advisor Magazine report states. “In 2016, however, the S&P 500 grew by just shy of good markets with robots offering a lot of investment management services and low-cost passive indexes available, people think they might not need help at all.”

Yet despite the perceived ease of generating returns, the RIA channel still saw growth. According to Financial Advisor, the average number of client relationships rose more than 12% and the average number of employees rose 8% for the firms on the list*, demonstrating the continuing increase in demand among investors for independent financial advice.

“We are honored to be named on this year’s Financial Advisor list” comments Delegate Advisors Managing Partner Andy Hart. “Our relationships with client families remain our focus through the best and worst of market conditions. We are grateful to be recognized for our commitment and applaud the growth of the other independent advisors who join us on this list.”

The complete Financial Advisor Magazine list is available here.

To be eligible for the Financial Advisor Magazine RIA ranking, firms must be independent Registered Investment Advisors, file their own ADV statement with the SEC, provide financial planning and related services to individual clients, and respond to a Financial Advisor Magazine survey. Eligible firms are ranked by total assets under management.

 Source: Financial Advisor Magazine:


Delegate Advisors Recognized by San Francisco Business Times

We are pleased to announce that Delegate Advisors has been named to the San Francisco Business Times list of 25 Bay Area wealth management firms ranked by local assets under management.

“San Francisco is home to many sophisticated investors who have their choice of wealth management firms to work with,” says Managing Partner Andy Hart. “We are honored that an increasing number of families are placing their trust in us and recognize the value of independent financial advice.”

The annual list includes wealth management firms with offices located in the Bay Area that responded to a San Francisco Business Times survey. List rankings are based on assets under management in Bay Area offices for individual clients with separate or individually managed accounts. There are no fees or other considerations required to apply for inclusion in the list.

To see the full San Francisco Business Times list, click here. 

Delegate Advisors Named to 2017 Financial Times 300 Top Registered Investment Advisors

Delegate Advisors announced that it has been named to the 2017 edition of the Financial Times 300 Top Registered Investment Advisors, as of June 22, 2017. This is the second year Delegate has been included on this list, which recognizes independent RIA firms from across the U.S. 

After meeting a minimum set of criteria, RIA firms that applied were evaluated on six factors: assets under management (“AUM”); AUM growth rate; years in existence; advanced industry credentials of the firm’s advisors; online accessibility; and compliance records. There are no fees or other considerations required of RIAs that apply for the FT 300.

“We are honored to be recognized by the Financial Times – one of the leading publications in our industry,” says Managing Partner Andy Hart. “Our dedication to building long-lasting wealth management relationships based on trust is at the core of what we do, and it’s rewarding to have that dedication recognized.”

To view the full FT Top 300 list, click here.


The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by the Financial Times (June, 2017). The FT 300 is based on data gathered from RIA firms, regulatory disclosures, and the FT’s research. The listing reflected each practice’s performance in six primary areas: assets under management, asset growth, compliance record, years in existence, credentials and online accessibility. This award does not evaluate the quality of services provided to clients and is not indicative of the practice’s future performance. Neither the RIA firms nor their employees pay a fee to The Financial Times in exchange for inclusion in the FT 300.

The State of the Secondaries Market: Delegate Advisors CEO Bob Borden Comments to FundFire

The secondaries market, the market to buy and sell limited partner stakes in private equity funds, has experienced significant growth since the 2008 financial crisis, reaching the $42-billion-mark in 2011 and leveling off at $37 billion last year, according to FundFire. Delegate Advisors CEO Bob Borden recently commented to the publication on this maturing and increasingly segmented market and what the future may hold for it.

“Despite the growth, what there may not be in the long run is many new entrants to the space,” Borden tells FundFire. “Secondaries deal activity favors firms that have built longstanding relationships in the market with brokers, institutional investors, placement agents, and the general partners of funds whose stakes are being sold, which typically have to give approval for sales within their funds.”

“I don’t think you get crowded away quickly in this market,” Borden summarizes.

Subscribers to FundFire can read the full article here.

Delegate Investment Update: A Brief Review and Look Ahead

This first letter of 2017 will present an outlook for what we believe to be the most important economic and investment themes for the year ahead. Additionally, this letter will incorporate information from our annual Global Economic Outlook and Asset Class Assumptions presentation (available upon request). In the letter, we highlight certain actions that we recommend investors take to protect and grow their portfolios in 2017.

Read the full letter here.