Use 19th century technology to defeat 21st century fraud

O'Hara 150x150Jim O’Hara, CISM, CISSP, CEHInformation Security Officer

March 10, 1876. Alexander Graham Bell’s Boston laboratory.

“Mr. Watson come here – I want to see you. I think someone just looted my brokerage account.”

Okay. Those may not have been the exact words spoken over the first useful telephonic device. But similar words are spoken on any given day in the modern world.

In the early 2000s, hackers and fraudsters preyed upon a burgeoning digital world. As financial institutions rushed to establish an online presence, cyber security controls were often overlooked, inadequate, and sometimes nonexistent. Regulatory bodies were slow to adjust to the new playing field as well, and firms could quite literally put their clients at risk without violating written regulations.

After a few hard lessons, smart financials became extremely focused on security, and the regulators followed suit, updating compliance requirements to counter the threats inherent in the brave new digital world. The SEC was no longer telling firms to “exercise responsibility in protecting client data.” They were now saying “deploy and maintain a stateful inspection firewall.” Seeking compliance, firms tossed out the security appliance purchased at the local office superstore and installed second generation firewalls and network intrusion prevention systems. They hired information security professionals who established security departments and put in place comprehensive technical controls and written policies. Game on.

Hackers and fraudsters soon discovered that their old tools and methods were no longer effective. It had suddenly become much more difficult to compromise the now security-savvy financial firms. What to do?

If you can’t pick the lock, steal the key. Criminal focus shifted from defeating the security systems protecting valuable data, to compromising individuals who had direct access to it. Credential theft became the hack-du-jour, and remains so to this day, in the fraudsters’ all-time favorite flavor: Email phishing.

The most effective use of phishing as a fraud tool follows this simple 3-step process:

  1. Phish the investor. Typically, in the form of an email masquerading as the victim’s email provider. The investor is asked to follow a link and validate their credentials. The linked site is usually very convincing, complete with the email provider’s current branding. The victim dutifully enters their username and password and is told “Thank you. Your account is secure.”
  2. Using the stolen credentials, the fraudster logs into the investor’s email account and reviews its contents. They watch and wait. They learn who is managing the investor’s money, how they communicate, and in some cases, they may even see prior communications related to a distribution.
  3. When the timing is right, usually around the holidays or a weekend, the fraudster jumps into an existing email message thread. They talk about how long it’s been since they’ve spoken, ask how Jenny is doing at Cornell, and then….instruct the financial advisor to perform a distribution to a newly established bank account. Usually it’s for a down payment on that dream vacation home, sometimes it’s to buy their spouse the classic convertible they’ve always wanted. A theme common to all the messages is that time is of the essence. The advisor needs to move the money quickly or the opportunity for the house or car will be missed.

Alexander Graham Bell’s invention then comes into play in one of two ways. Either the advisor calls their client and learns of the attempted fraud, or the client calls the advisor a week or two later and asks why their account is short. It’s the advisor who determines which call takes place.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Vlog – Quarter End Q&A: 4Q2018

Brinker Capital Global Investment Strategist, Tim Holland, CFA, asks and answers those questions we think will be top of mind for clients as they open their quarterly statements and think back on the quarter that was:

  1. Why did US equities correct so sharply in 4Q2018?
  2. Why was the market so volatile in 4Q2018?
  3. Is the bull market over?


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 simply complicated season

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

The holiday season is simply the most complicated (or is it the most complexly simple?) time of the year. The logistics of getting the right presents to and being present at the right places at the right times is headache inducing. Yet at the same time, this is family time. We as a species spent the vast majority of our time on this planet living and dying with our tribe. This time of the year is an attempt to return to that way of living for a little bit as the concerns of modern living are put on the backburner. What does any of this have to do with investing? Simply that, much like the holidays, we often make them much more complicated than they need to be. But, investing and saving for the future, much like family, is among the most important things in life.

Consider the volatility that we often find ourselves focusing on with our investments. Focusing on the movements of our investments on a daily basis for goals 10+ years in the future is similar to asking if “are we there yet” 10 minutes into a 6-hour drive to grandma’s house for Christmas. There may be detours and alterations made to our trip but always the end destination should be in mind. While the journey may not be as smooth as we like, the end goal is a long ways off for most of us and obsessing about the minutiae of the interim will only add stress.

Consider the alarm that many feel with evidence that China may soon surpass the United States as the largest world economy. Given that the Shang dynasty ruled over a well-organized and civilized northern China over 3,500 years ago and China has a population almost four times that of the United States, the question is not how China is positioned to be the world’s largest economy but rather what took them so long. Being envious of China is like a three-person household in the largest house on the block being alarmed that the overflowing 10+ person household down the street is getting an addition put on their house. It is about time frankly and life is still very much better on a per person basis where you are! Also, economic success is not a zero-sum game. If the house of the US is in good order and prospering, we should welcome the success of the households of our economic neighbors. With that said, this is not to excuse our neighbors taking our stuff (whether it be a snow shovel, hedge clippers, or intellectual capital). We all should strive to be good neighbors.

None of this is to say we should be complacent regarding investment management and economy. Rather we should keep perspective on the time horizons of our goals and judge our success in the absolute terms of how we are improving and not on a relative basis of keeping up with our neighbors. Also, remember what is truly important and enjoy the holidays. I hope we all get to spend them with the important people in our lives.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Honoring those who served

beaman 150 x 150Noreen D. BeamanChief Executive Officer

As we celebrate the 100th anniversary of Armistice Day on Sunday, later changed to Veterans Day, please take a moment to recognize and thank those who currently are serving or have served in the United States military.

On this Veterans Day, we say thank you to the veterans in the Brinker Capital family: Tom Daley, Jimmy Dever, Lee Dolan, Jim O’Hara, Jeff Raupp, Rock Robertson, Bill Talbot, and Chuck Widger.

“As we express our gratitude, we must never forget that the highest appreciation is not to utter words, but to live by them.” – President John F. Kennedy


Brinker Capital, Inc., a registered investment advisor

A quick take on the mid-term elections

Raupp_F_150x150Jeff Raupp, CFA, Chief Investment Officer

The 2018 mid-term elections were one of the most highly-anticipated mid-terms in recent history. As we digest the results and understand the new landscape, here are some initial thoughts on the potential impacts to the markets.

Uncertainty is reduced and that’s a positive for markets. Part of our rationale for cutting our risk weighting in September was that elections tend to bring uncertainty, and markets dislike uncertainty. While a few individual elections are still up in the air, we know we have a Republican-led Senate and a Democrat-led House. Since 1950, the S&P 500 Index had a positive return in every 12-month period following a mid-term election (17 straight periods!), with an average return of over 15%. Reducing uncertainty is a powerful force.

Both sides will claim victory. Democrats took the House, Republicans expanded their margin in the Senate. From a fiscal policy perspective, this looks to be a neutral outcome. For example, tax reform is unlikely to be rolled back, but also unlikely to be expanded.

There is potential for some compromise. Nancy Pelosi has traditionally believed in results over resistance, and many of the new Democratic House members lean moderate. There are a lot of variables here, but we may have some compromise over gridlock.

The biggest risk seems to be raising the debt ceiling in 2019. The Democrats biggest leverage point will be the debt ceiling vote in early 2019. In 2011, Republicans used that to gain concessions from President Obama to reduce spending. Early indications are that Democrats won’t go the route of brinksmanship, but it’s something we’ll watch.

Headline risks may increase. The Mueller investigation, changes at the SEC, oil and gas production/pipelines and more are potential headline initiatives, more likely noise with regard to the broader markets than anything larger.

Trade and fundamentals likely to take a leading role for markets. Softening of the trade rhetoric with China has been the primary cause of the 5+% bounce over the last week or so. The White House has recognized that, with President Trump’s re-election in 2020 now on the horizon, we would expect progress in 2019, albeit not linear progress. And, 3Q earnings are now projected to increase over 28% year-over-year. While concerns of peak earnings growth are probably founded, on an absolute level earnings should continue to be strong in 2019. As a result, we’ve seen stock valuations come down to levels below their 20-year average. In addition, economic growth continues to be solid and capital expenditures have been moving higher as corporations are putting their extra cash to work.

Brinker Capital’s Investment Committee continually monitors market conditions and follows a structured process for implementing decisions.  We employ a dynamic asset allocation approach that complements our long-term strategic allocation with active asset allocation shifts.  The active shifts are based on short- and intermediate-term macro views and enable our portfolio managers to take advantage of potential market opportunities and reduce exposure to potential risks, while staying aligned with portfolio objectives.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Investment Insights Podcast: The dreaded yield curve inversion

Andrew Goins
, CFA, Investment Manager

On this week’s podcast (recorded September 24, 2018), Andrew discusses the probability of future Fed rate hikes and the potential impact of the yield curve.

Quick hits:

  • The more highly anticipated event will be the release of the Beige Book following this weeks meetings, which covers everything discussed and includes the widely followed dot plot.
  • We’ve been dealing with a very flat yield curve for much of this year.
  • Everyone is watching closely for the dreaded yield curve inversion, which has been an ominous sign for impending recessions historically.
  • While the curve remains flat, but positively sloped, and with the weight of the evidence leaning positive, our portfolios remain overweight to equities.

For Andrew’s full insights, click here to listen to the audio recording.

investment podcast (2)

This is not a recommendation for Facebook, Amazon, Apple, Netflix and Google. These securities are shown for illustrative purposes only.

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.

Don’t be trapped in the past

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

Just over 10 years ago on September 15, 2008, Lehman Brothers filed for bankruptcy shocking the global financial markets. In retrospect, the collapse trajectory was there for all to see with the shock being more attributed to people’s reliance on things staying the same than any new data. This clinging to the past was so strong that a postmortem analysis showed that Lehman Brothers employees, the very people who were the insiders to see the company’s problems, were shown to have kept buying stock. Many believed, both insiders and the public, that the stock was a compelling value as they anchored their valuation toward the stock high of $86.18 in February 2007. When the end finally did come for Lehman it was a long time coming based on the data stream but felt abrupt based on our ability to process the new reality. When a character in Ernest Hemingway’s novel “The Sun Also Rises” was asked how he went bankrupt he said, “Two ways, gradually and then suddenly.”

Not all individual stock downturns lead to a rapid collapse or even a permanent lower price range. Still, this anchoring to past prices is prevalent enough for investors to frequently be told to fear “value traps.” A value trap is a stock which looks cheap based on previous stock prices, but an analysis of future prospects show that the underlying stock’s fortunes have significantly and potentially permanently changed for the worse.

The fact that companies’ future prospects are always changing is a sign of a dynamic economy that through creative destruction increasingly improves the products for the consumers of an economy. Much has been made of the disruptive Amazon effect that through making the purchasing of products easier as the one-stop shop for online shopping has crushed traditional brick and mortar businesses and other smaller online retailers. It is bad for those businesses left behind but the consumers win.

This lesson of unreasonably expecting things to remain the same holds meaning outside of just the financial markets. In George Friedman’s 2009 book “The Next 100 Years” he opens by taking a quick survey of the way of things at 20-year intervals starting at 1900. He notes that in 1900, London was the capital of the world and Europe was at peace with great prosperity, in 1920 Europe was torn apart by an agonizing war, in 1940 Germany had reemerged to dominate Europe, in 1960 Germany was crushed and the United States and the Soviet Union were the superpowers, in 1980 the United States had been defeated in war by tiny communist nation North Vietnam showing communism was on the rise, and finally in 2000 the Soviet Union had collapsed with a United States hegemony being the state of the world. If I would take license to write his 2020 view, it would talk of the global uneasiness of a China on the rise to legitimately challenge the United States as an economic and political power.

What is clear is that things change and failing to try to at least look around the next corner is akin to walking backward. Just because you have not walked into a wall yet is a poor reason to expect an unending clear path. Our role as the investors of capital attributes special importance to forward thinking but it is a lesson for all to learn.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Password potato chips

Jim O’Hara, CISM, CISSP, CEH, Information Security Officer

Passwords are like potato chips.  You can’t (and shouldn’t) have just one.

A new trend is developing in phishing and email extortion tactics. Attackers are including the potential victims’ passwords in the messages sent. Why would they do this?

If you’re the target of this attack, you’ll typically receive a message from someone claiming they’ve compromised your computer and have obtained a list of your website usernames and passwords.  The message will contain a set of credentials to a site you’ve used, which were valid at some point. You’ll also be threatened with some sort of undesirable consequence unless an online payment is made. By including valid credentials in the extortion message, the attacker is hoping to instill fear and doubt in your mind, prompting you to take immediate action.

But how did the attacker obtain your credentials?

When a website is compromised, the attacker typically mines the site for useful information, including the login credentials of the site’s users. The attacker knows that people tend to be lazy when it comes to passwords, and there’s a good chance one site’s credentials will work for other sites the user visits. These collections of stolen usernames and passwords are constantly being bought and sold online, and eventually, make their way into the hands of an extortionist. It’s likely the credentials in the email you receive will have been stolen quite some time ago, and in many cases are no longer valid. If you use the same password for more than one website, it will be impossible for you to determine which of the sites you visit was compromised.

This is why it’s so important to maintain unique passwords for each account you have. Yes, it takes a bit more effort to maintain separate passwords, but the additional protection is well worth the effort.

Tips to protect yourself: 

  • Never use the same password for more than one website. To keep track of multiple passwords, consider storing them in a password-protected spreadsheet.
  • Change your passwords from time to time. Especially for email accounts, or other accounts which don’t employ multi-factor authentication.
  • Never use public computers to access sensitive accounts. Even if you direct the browser to not save your credentials, the machine could be compromised in other ways designed to capture your credentials regardless.

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

A crash course in financial maturity: 4 lessons for children going off to college

beaman 150 x 150Noreen D. BeamanChief Executive Officer

As a certified public accountant, I enjoy being organized and find it helps maximize my productivity during the day. Not only does organization benefit my professional life, but it also helps in my personal life, particularly when it comes to discussing financial readiness with my children. As I think back on the financial maturity fundamentals I imparted on my two daughters – one who completed law school and the other who’s completing her graduate degree – I find myself in a familiar position as I focus on my son who is a junior in high school and will be leaving for college in two short years. Below are some of the items on my financial maturity list that may help cover the basics as others face a similar situation.

1. Use resources wisely 

As simple as it sounds, insist that your child knows and makes good use of the resources at his or her disposal. For example, if you’ve bought a dining plan there should be limited spending on food outside the dining plan. Your child should regard credit at the campus store or library/print center as limited resources that only get replenished when wisely used.

2. Be choosy with checking 

Encourage your child to do some research and find the best banking option. According to NerdWallet, a student-focused checking account can save students an average of $110 or more in fees each year, when compared to the most basic account available to the general public. Your child should pay attention to the conditions that allow for the waiver of such fees. For example, some college checking accounts will waive the monthly fee as long as the student maintains a minimum balance, receives regular deposits, or links to a parent’s checking account. Have your child take notice of the banks which are most prominent on campus and those that have easy-to-access branch locations. If your child chooses a bank that does not have a local presence, make sure he or she is aware of how quickly service charges for out of network ATMs can eat into their account. 

3. Credit scores matter 

Your child needs to know the importance of building good credit, as future landlords, employers, and banks will use that score to determine eligibility for housing, jobs, and loans. Building good credit is a process that often starts in college.

Students with little or no credit history can often obtain credit if they are able to provide proof of capacity to repay debt, or if they have a co-signer, who can bear the financial responsibility for the debt.

If your child is going to get a credit card, make sure he or she knows to pay the full balance each month, and on time. They should also be advised only to make a purchase on credit if they know how to pay for it when the bill comes due. You should have a conversation about the importance of building a positive credit history to pave the way for future financial transactions. Additionally, they should understand that your credit score, as a co-signer, is at risk if they abuse the card privileges. 

4. Know where it’s going

Set the expectation with your child that when you ask where all the money is going, they have an answer. Encourage your child to download a free app, like Mint, to easily track and monitor spending and stay on top of account balances. Explain that tools such as Mint help increase awareness and lead to better financial decision-making.

There are only 940 Saturday’s between a child’s birth and leaving for college so enjoy the last few days, months, or years before they start the next chapter of their lives.

We at Brinker Capital believe goals are personal, so solutions should be too. Learn more about Brinker Capital and our investment solutions at

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Considering the use of benchmarks

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

A common, yet hard to answer, question for clients is “how are my investments doing?” By definition, the answer lies with benchmarks as a frame of reference but the semantics of their proper use often proves to be a stumbling block. Do you use a single broad index such as the S&P 500? Do you look at a risk equivalent blend of multiple broad indexes? Do you just look at the absolute return number? Additionally, do you look over the quarter, the year, or the decade of performance? Often the best way to properly use benchmarks is drilling down the context and the intent of this seemingly simple question.

This is to say, if the question is to assess how an investment portfolio is performing in the context of the current market environment, a blended benchmark of the neutral weights of a portfolio over a short time period is best. This is to say if you are looking at a large cap growth stock fund, you could look at the Russell 1000 Growth Index over the past quarter or year. If you wanted to judge a moderate risk portfolio with a neutral weight of 60% equity and 40% fixed income, you would turn to a blended benchmark of the same risk level over a similar period of time. However, while this shows how the portfolio is relatively performing currently, this comparison will serve as a poor judge of the true skill of the portfolio managers. Market conditions in the short-term favor different styles of investing over others. These preferences wax and wane over time with skilled managers proving their worth through the long-term of multiple market environments rather through every market environment.

Considering the use of benchmarks

As such, if the question is instead to evaluate the skill of a portfolio manager, the answer requires a much more rigorous analysis. You would like to see skill over various market environments and not just the current market environment. Accordingly, one of the many statistics that we look at is the percent of rolling 36-month periods that a strategy has outperformed its market benchmark. It is unreasonable to expect a strategy to outperform all such 3-year periods but a skilled manager should hope to do so more often than not. Additionally, looking at 7-year or longer time horizons provide a clearer view of how a manager faired after the dust has settled over one or more market cycles. As always looking at past performance only provides evidence of past skill and not necessarily future skill. The complete manager due diligence process extends beyond the numbers and requires additional work with regards to the qualitative characteristics of the managers and their organization.

A final way for this question to be asked is what should be most meaningful to the client. Specifically, how are the investments doing with regards to accomplishing the clients’ financial goals? Here we leave the market-based indexes behind and instead look to the absolute return numbers to determine if purchasing power is growing at a pace consistent with the investments savings goals. The time horizon of the evaluation should be consistent with the time horizon of the goal. In practice, a conservative portfolio that strives to deliver 3-5% a year for a goal that is 3-4 years away, should be evaluated by whether after 3-4 years if this return mandate is met. Similarly, an aggressive portfolio that strives to deliver 7-9% for a goal that is more than 10 years in the future should be evaluated over a period of at least 10 years against this return mandate. These return mandates could be further tweaked to be a spread in excess of inflation or a risk-free rate as clients’ goals are best defined as a growth in purchasing power rather than just a raw performance number.

It is clear that there is no one right way to tell clients how their investments are doing. Hopefully though helping clients define their “how are my investments doing” question can improve the relevance of the benchmarks and time horizons used to give an answer.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.