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Fiduciary

Mar 5

Ethics, Disclosure and Your Value

I find myself writing this due to all the problems I see daily in this industry. Optimist Capital was born because I wanted to operate to the highest ethical standard possible and I wanted to protect my clients from bad actors, that they as well as I have had the displeasure of dealing with. We have covered many times the issues of Annuities and Mutual Funds, we won’t revisit those here, rather we are going to dig deeper into Advisors and Firms that do not disclose their inappropriate activities as required or in some case disclose activities which should be signs that you should run away fast.

Let’s start with the disclosure part. The first thing you must do with every Advisor/Broker/CFP etc. is to look them up in brokercheck.finra.org. If they have disclosures read much more closely. It would shock most of you to know, that many of your Advisors have been found to do such horrible things as create documents in your name in order to transact business without your interaction, putting people in investments which are criminal or inappropriate (Annuities are the usual culprit here). In the worst cases we have found folks that have lied to maximize commissions or actually stolen from clients through sales of conflict laden investments. These individuals are still handling money, and still out there selling to their clients or potential clients. We come across them daily.

Though the individual’s disclosures can be readily found, we find that Firms, through ineptitude or just plain criminal actions, do not disclose the inappropriate actions of their employees. There is a specific section within every Investment Advisers’ brochure that states: Disciplinary Information. Often, a firm will employ an individual with disclosures and fails to report in that section about that individual or action.

The second part of this would be Firms that make it clear they care little about you. A great example of this is a fairly well-known firm near our headquarters. They are a Registered Investment Adviser firm like us, and as such are required to treat each client equitably and put each client ahead of themselves. This particular firm grades clients by how much they make from them. If you earn them less than $7500 a year you are labelled a Bronze client, and as such they will only review your assets once a year. Keep in mind, if you hand them up to $750,000 to manage you are the bottom rung to them. Now if you are paying them over $22,000 a year, you are lucky enough to be a Platinum client. A platinum client will get 4 reviews a year. Ask yourself, does that sound appropriate. Oh, and it gets worse, as of this writing they have now created a new tier of Titanium which is $30k or more. This is actually spelled out, clear as day, in their brochure which is public information. Whether this is legal or not is a gray area, however it is clearly unethical. It is an obvious claim that you as a client are less valuable depending on how much they make from you. This is the exact reason commission-based business is a problem, your value is directly tied to how much they make from you.

Here is why this can be a real problem:

  • Let’s say you like working with them and you tell friends.
  • Those friends invest more and become higher tier clients than you.
  • They are now treated better than you, yet this firm would have never received those clients without you. Seems inappropriate right?

Every client should get your equal treatment if you take them on as a client. It is my belief, that if they were a truly ethical firm and they wish to operate this way, they should not take on any clients who earn them less than their top tier. We all know this isn’t going to happen, rather they will likely just change their brochure once they get a whiff of this article and their clients will never know if they are getting equitable treatment or not. Don’t get me started on the fact that they put roughly 50% of their clients assets in Mutual Funds and Annuities, I would love to know how they explain the fees and lockups as in your best interest. It should be no surprise that their performance has been far less than stellar. I have only one questions to ask from this:

Why would anyone ever work with a group like this?

In close, I want full disclosure for everyone, and I want every investor out there to be well informed. I want Equitable treatment for all clients. Read Investment Adviser brochures, look up the firm and individual at brokercheck.finra.org. Run from advisors with disclosures that show clear bad actors and run from firms that don’t disclose those bad actors or make it clear you are only as valuable as what they make from you at this moment in time. We are in the relationship business, long term is the outlook, grading clients by who they are now or how much you make from them now, fails to value who they will become and the relationships they will bring.

You deserve better, you deserve the highest ethics and a manager that is always there for you, that reviews your assets frequently, that keeps you informed and above all else treats you with value regardless of how much you invest.

Jan 24

The End of the Beginning

The stock market appears to have experienced a cathartic event as the recent decline painted out three consecutive 80% down days followed by a 90% up day on December 26th. Then two violent rally days have contributed to the signs that at least a short term bottom has formed.

For now the entire bear market decline may have run its course, and the resumption of the bull trend has begun. However should we reach new all time highs or numbers close, we will need to institute a heavily defensive position. As we have stated previously, growth can’t go on for ever, and what growth we see now is just that created by the volatility referred to in the first article.

Given the behavior of the market during the recent weakness, we are quite suspicious that the larger and complex bear market is the most probable and still on track with our expectations. Obviously, the market’s behavior during the first quarter will be critical to the actions required vis-a-vis risk and portfolio management.

Our views from the above described are best explained as “The End of the Beginning.” We expect to see some performance for the next few months. This was just the first phase of the end of the bull markets. Please keep in mind, bull phases exist within a longer Bear market, just as the opposite exists within a longer Bull market. The numbers we see coming out of the government and employers, continue to be strong. I want to reiterate, though, that these are lagging factors.

We still strongly suspect the end of 2019 will be larger phase of the Bear market. Whether it is triggered by political or economic events continues to be a question. One we are working on the answer for every day here.

 

 

 

Jan 24

Volatility is Here to the End

The year began calm enough, had a rough patch early on, then some solid growth until the fourth quarter. October came in with a bang. All the political and economy based factors came to a head. Growth across the board peaked and we continue to see good numbers from businesses and low unemployment. As we have said in previous newsletters these are items that occur near the end of a cycle.

Typically these factors become the driving force behind large institutional money. Simply put, when normal growth is at maximum, the only way to create growth is through volatility. Those large institutions will start to create ranges in the market. They sell when a specific number is hit and buy back when a bottom number is hit. The bottom number is usually in a range where the common investor is too scared to hold onto their investment. Volatility is by definition a range bound item. When we have strong growth we see a steady upwards trend, and the inverse, when we have weakness we see a steady downwards trend. The peak volatility in any given market is usually at (or close to) the top or bottom.

 

Oct 8

Our new Senior Portfolio Manager’s First Post

I want to invite the recipients of these weekly updates to come by and visit if you find yourself in South Florida. I’ve just moved to a new office with Optimist Capital LLC in the Harbour Financial Center. We are located at 2401 PGA Blvd, Suite 148 (next door to Carmine’s), and we invite friends and clients to drop by for a visit. Optimist Capital LLC is a Registered Investment Adviser (RIA).
The financial media was sounding the alarm this past week that rising interest rates were casting a shadow on further rally in the stock market, and some have even begun to hypothesize that a bear is already stalking the bull market. Well their theory may be right, as rising interest rates do have a history of being an enemy of mature bull trends, as the return on fixed income instruments becomes more competitive with the expected returns from stocks. While this lengthy bull trend in stocks can certainly be characterized as mature, the rising trend in interest rates is, from a historical perspective, still in its infancy. My clients total account return net of all fees and commissions are up in the range of seven to ten percent this year depending on when their cash became available to invest, so does anyone receiving this update believe nominal rates are competitive the equity return my clients are seeing on their end of quarter statement? And, bond holders in a rising rate trend are seeing a decline in the value of their bonds. Given that interest rate cycles tend to be very long, think twenty to thirty years, bonds will likely be a relatively risky asset class. Rising rates will be a problem for equities make no mistake about it, but at what level, 4, 5, 6 or north of 7%?
Readers of these updates know that I am not in the prediction business, something I gladly leave to others. However, let us now take a look at what the stock market is saying about itself. If you will take a look at the attached chart of TATY, a representative supply and demand indicator, you will notice a declining red line drawn connecting the top in January through Friday’s close. You will notice the price of the S&P 500 has touched new all-time highs, as this multi-month divergence in the indicator has remained negative. This implies the supply and demand balance driving the price to new highs has been growing marginally weaker as the price has ostensibly remained strong. So clients should not be surprised if volatility begins to increase, and/or if some kind of newsy event is blamed for a spontaneous, and perhaps nasty decline in say the 3 to 8 percent range occurs seemingly out of the blue. I would view this as normal as breathing in and out is to you and I. The indicator is still painting out bottoms at or above the red zone, so even if a sudden decline happens driving the indicator into the caution zone surrounding the 120 level, I would not be alarmed, and may even treat such a decline as an opportunity to put excess cash to work? So what is the bottom line for clients? Read on.

The bottom line is clients should begin to prepared for the possibility of increasing volatility, and perhaps more erratic movements in the price. The rally will likely continue to make efforts to assault new all-time highs, but if the negative divergence between the price and the indicator continues to grow, then new highs will have the potential to become more and more risky for accumulated profits. So the evidence for a spontaneous correction is rising, not so much the evidence for a major top to be followed by a bear market. I will brief clients about the conditions we will be looking for to warn us that the risk/reward ratio for further gains has become so unfavorable as to compel us to protect your wealth. Conditions are growing marginally weaker, but have not reached historically critical levels signaling an eminent major top.
Come see us!
Regards,
Greg

Jul 18

Dear Partners & Friends

Your continued support, as we grow and establish ourselves as the Premier Investment Adviser, is appreciated more than you can ever imagine.

We find ourselves expanding quite quickly. A true Fiduciary in the investment world has never been needed more than today, as seen by our growth . The lack of ethics in the investment world is sadly far to great. We continue to put your interests first and will always operate at the highest Ethical Standard.

Optimist Capital has been a Fiduciary since day one. We abide by the CFA Institute Code of Ethics and Standards of Professional Conduct. We are always held to the highest standard and believe that adhering to such standards sets us apart from the Financial Advisors and Brokers out there, as well as the Investment Advisers we have dealt with in the past.

Please reach out to us anytime with any questions, we are here to serve you . As always, the greatest compliment you can give us as a referral.

Sincerely,

Alexander Cooke

Managing Director

 

Lookup any appropriately registered Advisor at:

WWW.BROKERCHECK.COM

 

 

Jun 22

Investment Adviser vs Financial Advisor/Broker

There is constant confusion in the Investment world around the different types of folks that provide advice and services. The greatest confusion seems to be around the Financial Advisor and Investment Adviser.

The first key difference is anyone holding themselves out as an Investment Adviser, must act as a fiduciary (client comes first) 100% of the time. A Financial Advisor/Broker or anything else they call themselves does not necessary have to abide buy such standards.

I would make the case that anytime a Financial Advisor/Broker etc., is selling you a commissioned product, they are never operating as a fiduciary no matter what they tell you the client. Commissions do not align well with fiduciary duty. Put yourself in the Financial Advisor’s shoes, if he has two products to sell to you, they are identical in every way except one has a higher commission (payout to the financial advisor), which one do you suppose you would lean towards? Simply put, if your livelihood relies on that commission, wouldn’t you always provide the higher payout one? Since this is almost always the case, I have a hard time seeing how you can ever claim you are operating in the clients’ best interest when selling them any commissioned based product. The additional downside to the commissioned based product is the lack of Incentive of the Financial Advisor to make any changes to deal with market situations, rather they would just sell another commissioned product in the event that a necessary need occurs.

Furthermore the Financial Advisor/Broker, is almost always tied to a firm which produces its own investment products. We will get into the inherent problems with those types of investment products in another post. They are typically required to sell those products first on clients, when you are driven to sell an internal product first, can you claim you are working in the clients’ best interest? Once again I would state no, rarely if ever is the case that the in house product is better than anything in the open market.

Now back to the Investment Adviser. The Investment Adviser must always put the client first, is a fiduciary from day one, and earns income from management fees. Management fees can differ fairly widely, but the general situation aligns with the clients’ best interests, as We the Investment Adviser must look for the best possible investments with the lowest possible internal costs, since we make more when you make more. This mutually beneficial agreement is the only reasonable way to manage investments.

OPTIMIST CAPITAL

Registered Investment Adviser