Dinner with Janet

By: Chuck Widger, Founder & Executive Chairman

Yellen_small-2On April 4, I joined a group of 15 private sector investors for a dinner with former Federal Reserve Chairwoman, Dr. Janet Yellen. It was a delightful, insightful, interesting, and informative evening. Below is a mix of her thoughts on the economy, Fed policy, and where we are headed. I am also noting important policy nuances raised by a couple of her core economic policy principles.

Yellen has a positive outlook on the economy. She sees economic growth in 2018 and 2019 at +2.5% and +2.8%, respectively. She described the economy and the labor market to be in excellent shape and expects tax cuts and spending to lift real GDP in 2018 and 2019 by one-half to three-quarters of a percentage point above the economy’s current growth rate of 2.6%. The labor market is almost at full employment, with the potential for the unemployment rate to drop another 0.6% to a level of 3.5%. However, the labor force participation rate may not improve because of structural reasons.

Absent extraordinary circumstances, the Fed will continue on its current path and pursue a total of three increases in the Fed Funds rate this year. What might those extraordinary circumstances be? While Yellen believes there is not a lot of pressure on margins from wage costs and thus no present inflation problems, overheating from all the stimulus is a possibility. Faster growth and a tighter labor market could cause the Fed to make a policy mistake. Significantly faster and greater increases in interest rates could (and they have in the past) chill growth and lead to a recession.

In discussing the economy and Fed policy-making, Yellen showed appealing humility. She acknowledged that our monetary leaders bring their best judgment not an absolute certainty to making policy choices. For example, while commenting on the natural rate of interest, she observed, “What if it’s higher than I/we anticipate? While I have a view on what it is, I do not have absolute certainty.” Humility combined with significant intellectual talent is always an appealing character trait.

So, what are the nuances? Two points stood out. First, her emphasis on the Phillips curve as the only actual framework for understanding the relationship between inflation and unemployment, and second, her view that tax reduction and full capital expensing will have little supply-side effect on economic growth. Both raise important policy distinctions between Keynesian and supply-side economics.

Keynesian economists put greater emphasis on the Fed’s ability to fine tune the economy than supply-siders. In contrast, supply-siders favor letting the natural forces in a market economy do their thing. Yellen’s emphatic statement endorsing the Phillips Curve as the only framework for predicting the tradeoffs between unemployment and inflation is quite Keynesian. For example, if unemployment is high, the policy choice is to reduce interest rates and increase the money supply to create demand and thereby reduce the unemployment rate with little impact on inflation. This is fine-tuning through government intervention.

phillips-curve-2Yellen similarly sees the tax reform’s rate reduction as increasing demand and thereby spurring demand because consumers have more to spend. Tax reform and full capital expensing will provide only a small spur to economic growth through increased production by businesses.

Supply-side economists, like the new Chair of the President’s Council of Economic Advisors Larry Kudlow, beg to differ. They believe when businesses produce and sell more because they have more after-tax cash, they create more demand through the purchases they make and the increased wages they pay. Supply-siders really aren’t interested in the demand side of the supply-demand equation because supply will create its own demand. Therefore, there is not much need for the Fed to “fine tune” the economy. Market forces will balance and grow the economy naturally.

These are important nuances. They reflect an economist’s view on the extent to which the Fed (and the federal government) should intervene in the economy.

The reality is there is something to each of these frameworks. The emphasis on application is, and should be, a matter of degree. There are very few absolutes in economics. The pragmatic application of theory works best.

Below are a few additional pieces of information from our discussion with Dr. Yellen.

  • For the GFC (Global Financial Crisis) there is plenty of blame to go around. The Fed failed to supervise the banking system and the shadow banking system. Our banking system engaged in poor practices and pursued unaligned incentives (bad behavior). And, the markets demanded high cash returns through CDAs and mortgage-backed securities.
  • The safety net placed under the financial system post-GFC has not been endangered by the deregulation pursued by the new administration.
  • Current worries are to the upside. An “overheating” economy is of more concern than undershooting the Fed’s inflation target.
  • Another worry is the Fed continues to conduct an accommodation experiment. As it increases rates, it must balance the different risks of slowing the economy and stoking inflation.
  • The Fed is now trying to engineer a “soft landing from below.”
  • Bitcoin is speculative excess according to Yellen. One dinner guest suggested interested investors should consult the 17th Century Dutch tulip bulb mania when considering bitcoin investments.

Yellen is to be thanked for her public service and her leadership as Chair of the Federal Reserve. A record of good stewardship of a vital US institution by a personable, highly intelligent public servant offers a refreshing reinforcement of public trust in a vital US institution.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice.  

Brinker Capital, Inc., a registered investment advisor. 

Chart source: The Economics Book: Big Ideas Simply Explained. DK Publishing, 2012. pg.203

Extra! Extra! The sky isn’t falling!

Coyne_HeadshotJohn Coyne, Vice Chairman

Growing up in an extended family passionate about politics, I have been watching elections closely since 1968. It seemed that every four years if “our guy (now gal as well)” didn’t win; go get Marlon Brando and remake the movie Apocalypse Now. The world as we know it was over, the economy would collapse and…life went on.

Most importantly, let’s first remember that the fear and anger that is driving these apocalyptic visions are being created by the media’s desire to sell advertising! Now I am the first to admit that there are characteristics to this election that are different in many ways than we have seen in the past and they center on the historically high unfavorable ratings of both presidential candidates. Nevertheless, we have not become the most envied democracy in the world by accident. Regardless of the rhetoric, both parties will accept the outcome and we will have a new President of the United States and a new congress in January.  Will they be as ineffective as some believe they have been in the past? Maybe. What is for sure is that our lives will continue, people will retire, get married, divorced, change jobs, fight illness and move forward. And they will need to invest in order to deal with all the mundane components that make up our hopes, dreams and anxieties.

Our friend Dan Clifton at Strategas Research Partners has been providing us with some of the most outstanding “in the moment” political and market analysis for the past 18 months. He has been doing this with an eye towards providing us with the sectors of the economy that will be impacted by the makeup of a government whether all Democrat, all Republican, or a mix. He has deftly pointed out the potential winners and losers by sectors and asset classes and provided historical context to demonstrate that the presumed wisdom that says we do better with this party or that is never always the case and often is the exact opposite of the believers assumption. He also notes that active investment managers understand this.

Chuck Widger, Brinker Capital’s Founder and Executive Chairman, has been educating advisors and investors throughout his career on the idea that emotions can wreak havoc on a lifetime of careful planning. He uses a bucket approach to categorizing assets that you could consider adopting in light of the election results. Are your safety assets going to remain that way? Highly probable. Are your income assets going to continue to work? The Fed has more influence than the President of the United States, but much of these investments are already locked in. It is more important that you have a good manager going forward than worry who the next Speaker of the House will be. What about your accumulation bucket? Your long-term money will outlast this incoming administration and probably many beyond it. Regardless of who is elected, there will be times of turmoil and unbridled enthusiasm. The only thing that is predictable is that in the proper hands your investments will compound over time.

So put on your seatbelt and get ready for a nasty, scary ride for the next few days…but leave the portfolio alone.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Personal Benchmark was Made for Days Like This

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes

Chuck Widger and I released our New York Times bestselling book, Personal Benchmark: Integrating Behavioral Finance and Investment Management, on October 20, 2014. Although the book was published in 2014, the writing process began in 2013, and Chuck’s original idea for a goals-based investing system is much older still. Both 2013 and 2014 were great years to be invested, with the S&P 500 returning 32.39% and 13.69% respectively. But although Personal Benchmark was crafted in a time of prosperity it was created with an eye to days just like today.

What is needed during times of fear is an embedded solution that helps clients say “no” to short-termism and say “yes” to something bigger.

As we wrote in the book, “While investor awareness and education can be powerful, the very nature of stressful events is such that rational thinking and self-reliance are at their nadir when fear is at its peak.”

Financial advisors do their clients a great service by educating them about investing best practices, but at times of volatility, logic is often thrown out the window. What is needed during times of fear is an embedded solution that helps clients say “no” to short-termism and say “yes” to something bigger.

When presented with an extremely complicated decision, it is human nature to seek simplicity, something psychologists refer to as “answering an easier question.” Rather than deeply consider and weight the relative importance of social, economic and foreign policy positions, voters tasked with choosing a Presidential candidate tend to instead answer, “Do I like this person?” Confronted with a complex dynamic system like the stock market, the easier question that we ask ourselves is, “Am I going to be OK?” Part of the power of the Personal Benchmark solution is that it helps clients answer this important question in the affirmative.

bookOur book discusses the human tendency to engage in “mental accounting”, the psychological partitioning of money into buckets and the corresponding change in attitudes toward that money depending on how it is accounted for. Page 154 features the story of Marty, a Philadelphia-area gang member who separated his money into “good” and “bad” piles depending on whether it was honestly or ill-gotten. Marty would tithe to his local church using the good money, but reserved his bad money for reinvestment in his criminal pursuits. Although we are hopefully all more civic-minded than Marty, we are no less likely to label our money and spend, invest and think about it relative to that label. One huge advantage of Personal Benchmark the solution is that it sets aside a dedicated “Safety” bucket for days just like today. When a client asks herself, “Will I be OK?” she can take comfort from the fact that her advisor has accounted for her short-term needs. Being comforted in the here-and-now, she will be less likely to put long-term capital appreciation needs at risk.

“While investor awareness and education can be powerful, the very nature of stressful events is such that rational thinking and self-reliance are at their nadir when fear is at its peak.”

Besides helping clients say “no” to short-termism, Personal Benchmark also helps advisors paint a more vivid, personalized picture of return needs. Page 203 of Personal Benchmark tells the story of Sir Isaac Newton, who lost a fortune by investing in what we now refer to as the “South Sea Bubble.” Newton invested some money, profited handsomely and eventually sold his shares in the South Sea Company. However, some of his friends continued to profit from their investment in South Sea shares and Newton was unable to sit idly by and watch people less gifted than he accrue such fantastic wealth. Goaded on by jealousy, he piled back in at the top and lost almost everything, saying after the fact, “I can calculate the movement of the stars, but not the madness of men.” Newton’s failure is a direct result of anchoring his benchmark to keeping up with his friends instead of attending to his own needs and appetite for risk. If Personal Benchmark’s Safety bucket is for providing comfort today, then the Accumulation bucket is a vehicle for rich conversations about the dreams of tomorrow. As clients simultaneously manage their short-term fears and identify their long-term goals, they are able to experience the best of a goals-based solution.

Personal Benchmark was created in a time of comfort and even complacency on the part of some investors, but was done so with a perfect knowledge that there would be days like this. At Brinker Capital we believe that an advisor’s greatest value is providing “behavioral alpha”, increasing returns and mitigating risk through the provision of sound counsel. Our goal is to be your partner in that sometimes-difficult journey and Personal Benchmark is evidence of that commitment.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Brinker Capital Founder and Executive Chairman Charles Widger Makes Historic $25 Million Investment in the Villanova University School of Law

Coyne_HeadshotJohn Coyne, Vice Chairman

All of us at Brinker Capital are proud to recognize the generosity of our founder and executive chairman, Chuck Widger, who has made a transformative $25 million investment in the Villanova University School of Law. In recognition, the school has been renamed the Villanova University Charles Widger School of Law.

Chuck, a 1973 Villanova School of Law grad, proudly refers to himself as a “Villanova lawyer,” and has remained involved with the school in various capacities over the years. He has played an active role in its efforts to revolutionize legal education by infusing vital business coursework and practical experience into the Villanova School of Law’s curriculum. Its tagline, “Where Law Meets Business” perfectly captures Chuck’s vision of what law schools should be doing to train tomorrow’s legal, business, government and nonprofit leaders.

Chuck_BlogChuck stated: “My investment in Villanova Law is an investment in the preservation of the two institutions that are vital to a free society, the rule of law and a market economy, both of which will enable us to flourish as a people for generations to come.”

Brinker Capital is pleased to recognize all of our Villanova alumni: Phil Green, Ping Guan, Ed Kelly, Neal McLaughlin, Jeff Raupp and Jamie Shoup.

More information about the Villanova University Charles Widger School of Law can be found at: http://www1.villanova.edu/villanova/law.html

Brinker Capital, a Registered Investment Advisor.

Addressing Diversity through Gateway to Leadership

Coyne_HeadshotJohn Coyne, Vice Chairman

“The investment advice profession has a long way to go in reflecting the diversity of America,” so says Elizabeth MacBride in her recent InvestmentNews feature, “A Diversity Problemand she’s not wrong. The financial services industry, as a whole, has too often trailed other professions in terms of diversity among the workforce; but, that’s not to say nothing is being done to address it.

At the Money Management Institute (MMI), the national association for the investment advisory solutions industry, we have cultivated a program that purposefully addresses this issue head-on.

GTL_Logo

The Gateway to Leadership program was established in 2007 and is designed to introduce qualified minority students to the investment advisory solutions business. Through the program, we place candidates from historically black colleges and universities (HBCUs) in paid summer internships with leading financial services firms and fellow MMI members.

Brinker Capital has been entrenched from the beginning of Gateway to Leadership as our founder Chuck Widger was one of the original architects of the program. I, too, am fortunate to serve as the chairman of this program and have been able to see many participating students come through the doors at Brinker Capital over the last nine years.

While the placement of 160 students across 31 HBCUs into 34 host firms is small in context to the larger issue, we are proud of the program’s growth, success and the enthusiasm to which it has been received by its participants.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

A Reliable Partner Dedicated to Delivering Better Outcomes for Advisors and Investors

Widger 4_v2Charles Widger, Founder & Executive Chairman

By now, many of you are aware of Curian Capital’s decision to exit the fee-based business to focus on the core activities of Jackson National Life Insurance Company.  I am sure there are many strong, global, corporate considerations that led them to this determination; nonetheless, it does not alleviate the disruption to impacted financial advisors and investors.

This situation reminds me of the motivations that led me to create Brinker Capital 28 years ago.  When our original parent company, Mutual Benefit, floundered in 1991, it was part of an unfortunate reoccurrence taking place in the financial service industry.  Venerable names like E.F. Hutton, Kidder Peabody and Prudential Bache were also falling by the wayside.  I was determined to make Brinker Capital different.

That is why I built an organization with the laser focus of helping advisors and investors succeed by delivering a premier investment experience that would allow them to achieve the outcomes that they were seeking.  I surrounded myself with professionals who were committed to this same vision, and I’m proud that six of the eight founders are still here today and further, that over 40% percent of my employees have been here for over 10 years.

Brinker Capital is 100% employee-owned. That has allowed us to make thoughtful, long-range decisions without outside ownership staring over our shoulder.  We are proud of our independence and will continue to be independent. Independence empowers Brinker Capital to continue to build this great organization that for 28 years has, and always will, put the advisor and investor first.

I, along with my colleagues, will continue to provide the best in investment management and advisor support.

For more information, please click here to read our latest press release.

Brinker Capital, Inc., a Registered Investment Advisor

Happy Holidays from Brinker Capital

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer, Brinker Capital

I wanted to take a moment to wish all of our advisors, the clients they serve, our strategic partners, and all friends of Brinker Capital, a wonderful holiday season.

We are thankful for the many partnerships we have with you and the continued support you show us. We are looking forward to another year of commitment to taking great ideas and applying a strong discipline to provide better outcomes.

On behalf of Brinker Capital, Happy Holidays!

“During this holiday season, please pause and take a moment to remember and thank, in some fashion, our men and women in uniform both past and present.”
~Chuck Widger, Founder & Executive Chairman

Announcing our New Book, Personal Benchmark: Integrating Behavioral Finance and Investment Management

Chuck WidgerCharles Widger, Executive Chairman

Today is a very exciting day. I am pleased to announce the completion of my book, Personal Benchmark: Integrating Behavioral Finance and Investment Management co-authored by Dr. Daniel Crosby (@incblot) and published by John A. Wiley & Sons, Inc. This book is dedicated to America’s advisors, as it is these professionals who help investors achieve their goals.

We chose to write this book for three reasons:

  • The current investment advice delivery system is broken
  • In order to fix the system, it’s time to change the conversation toward goals-based investing
  • Behavioral finance needs to be automatic in order to be effective in improving investor behavior

The current investment advice delivery system is broken. The Great Recession of 2008-2009 was the wake-up call for investors and, in turn, advisors and the architects of the wealth management advice delivery system. No investor ever wants to experience a more than 20 to 30% decline in their investment portfolio. And yet, over the decades, this has not been an infrequent occurrence. Too often, encouraged by advisors, asset managers and the media, investors have sought to mimic returns generated by indexes. They tend to discover, albeit too late, that they really didn’t understand the risk involved with index-oriented or relative return investing. Then when the risk hits the fan, investors proceed to sell at market bottoms, having piled in at market tops. The existing system is not sufficiently helping investors.

bookIt’s time to change the conversation toward goals-based investing. We believe the solution to improving the investment advice delivery system begins with a focus toward goals-based investing. We believe it’s time to help advisors improve the investment experience for their clients. It’s time to turn emotion away from being an investor’s worst enemy to its best friend, time to get personal and help investors become more focused on their goals, time to change the conversation.

Behavioral finance needs to be automatic in order to effective. We also believe that in order to improve investor behavior, the elements of behavioral finance must be embedded within the investment management framework. This will help advisors and investors discuss, recognize, and manage behavioral biases. As a result, investors may avoid the typical pitfalls of wanting risk in bull markets, safety in bear markets, and failing to achieve expected returns because they do not properly manage risk.

I encourage you to visit http://www.personalbenchmarkbook.com for more information about Personal Benchmark: Integrating Behavioral Finance and Investment Management and hope that you find the book both educational and valuable.

The views, information, or opinions expressed in this blog are solely those of the authors and do not necessarily represent those of Brinker Capital, Inc. and its employees. The primary purpose of this blog is to educate and inform. This blog does not constitute financial advice. Brinker Capital, Inc. is a registered investment advisor.

Happy Holidays from Brinker Capital

Brinker Capital Executive Chairman, Chuck Widger, provides commentary on Brinker’s investment strategies in 2013, headwinds and tailwinds we will face in 2014, and his thoughts on the the current state of emerging and frontier economies.

Happy Holidays!

Classic Indexes Are Hurting Retirees

Personal Benchmark InvestingEngrained in most retirees is that as the markets go, so do their savings—up markets are good, down markets are bad. It’s not that it’s inherently wrong to think that way, it’s just that there’s a better way of looking at your savings in action. Historical benchmarks do a disservice to investors at indicating how successful they can be in creating real purchasing power.

Chuck Widger, Executive Chairman of Brinker Capital, was brought on to TheStreet.com, a leading financial news website, to discuss this new line of thought, and how the industry needs to redefine its value proposition.

Check it out here: Classic Indexes Are Hurting Retirees

*Please note that references to specific holdings in the video are for illustrative purposes only and not necessarily owned by Brinker Capital.