My name is Tim, and welcome to the Financial LIFE Planning weekly!

Hike And Hold (Says The Fed) - And How To Avoid Financial Deception

published4 months ago
8 min read

With the return of the school year, many loving parents of young children are breathing just a bit deeper right now. Additionally, the dryest of spectator sport dryspells is also coming to a merciful end.

So, naturally, we've got a bit of a pigskin theme running through both this week's Weekly Market Update as well as our Financial LIFE Planning article. Also don't miss some very strong words from ol' Ben Franklin in our Quote O' the Week!

In this FLiP weekly you'll find:

  • Weekly Market Update:
    • Hike And Hold
  • Financial LIFE Planning:
    • How To Avoid Being Victimized By Financial Deception
  • Quote O' The Week:
    • Benjamin Franklin

Weekly Market Update

After an all-green week last week, the markets took a turn into the red this week:

  • - 1.21% .SPX (500 U.S. large companies)
  • - 1.20% IWD (U.S. large value companies)
  • - 2.85% IWM (U.S. small companies)
  • - 2.65% IWN (U.S. small value companies)
  • - 3.01% EFV (International value companies)
  • - 4.35% SCZ (International small companies)
  • - 0.63% VGIT (U.S. intermediate-term Treasury bonds)

Hike And Hold

Contributed by John Marske, CFP®, a Notre Dame grad and generally good guy.

Hike and Hold. I’m not referring to the instructions football coaches give their offensive linemen (are you ready for some football?), but rather the message Fed officials are trying to relay to the financial markets.

As we've discussed in the past, the current inverted yield curve (short-term interest rates yielding more than long-term rates) in the bond market signifies the market’s belief that continued Fed rate hikes will ultimately cause a recession and the Fed will need to lower rates in the second half of 2023 to get the economy growing again.

Fed officials appeared determined to tell the markets this past week that they have no plans to lower rates in the near future. In other words, the game plan is to hike rates….and then hold them.

On Thursday, San Francisco Fed President Mary Daly told CNN International that she was open to raising rates by 50 or 75 basis points next month and that officials would be in no hurry to reverse course next year.

Perhaps the markets are listening. Ten-year interest rates increased from 2.76% at the beginning of the week, to finish the week at 2.97%.

The stock market opened lower every morning this past week…only to close higher by the end of the day…until Friday. We never saw green on Friday, and the day’s losses were enough to pull all the major indices lower for the week.

Some of the more interesting news for the week included the continued mixed picture we are seeing in the global markets. U.S. markets opened lower on Monday on growing concern regarding China’s economy. Oil prices fell over 5% to $87.55 per barrel. While the rest of the world is raising interest rates to fight inflation, China announced a 10 basis-point rate cut as a token measure to focus on growth.

It didn’t take long for the U.S. markets to shrug off the China concerns, with all the U.S. indices ending higher on Monday. The market rally slowed a bit on Tuesday, with the Dow and S&P 500 finishing higher, but the NASDAQ and Russell 2000 finishing slightly lower. By Wednesday, although the markets tried to rally throughout the day, all the indices ended in the red, with the NASDAQ and small caps again being hit the hardest.

As if we hadn’t seen enough strange news this year, Turkey’s central bank shocked markets Thursday with a cut to its benchmark interest rate, despite inflation in the country sitting near 80%.

The country’s main policy rate, which had been at 14% for the last seven months, was cut to 13% in a complete mismatch to what other central banks are doing around the world. Perhaps this just reinforces the belief that U.S. markets seem to be the best option for global investors. All U.S. indicies finished higher on Thursday.

Friday’s market opened lower, and we never recovered. It was almost as if the markets were downright exhausted. While the interest rate moves in China and Turkey might cause some investors to scratch their heads, nothing is more confusing, or annoying, than the performance of some of the so-called meme stocks.

Grabbing the headlines this week was the stock of Bed, Bath & Beyond (BBBY). GameStop Chairman Ryan Cohen disclosed big BBBY options holdings Monday night, causing the stock to double, from $13 to over $27. But on Wednesday night, Cohen disclosed plans to sell all his BBBY stock, which he did on Thursday. Shares crashed Thursday-Friday, ending around $10.50 per share.

There are always going to be investors who live by the motto, “go big, or go home.” Unfortunately, many of those investors go broke.

Financial LIFE Planning

How To Avoid Being Victimized By Financial Deception

“I’m calling it — this is an Apple commercial,” said my teenage son, about halfway into the visually stunning emotional appeal that appeared on our TV while we were otherwise dedicating ourselves to the merciful return of football to the small screen.

Yes, it’s that time again, when companies are rolling out new commercial campaigns in conjunction with some of the year’s most viewed sporting events.

“I think you’re right,” I said to my son, just as the musical crescendo sent a chill down my spine. But then came the verdict.

It wasn’t Apple, after all, even though the tech company is known for its artistic commercial flair. It was a mainstay financial company inviting us to bring the benefit of our long-term financial planning for the future into the present. Brilliant.

“Wait a minute, though,” I said to my boys, “These guys are notorious for hard-selling over-priced insurance policies for big commissions!”

“Whatever they are, it’s a great commercial,” my son said as the next quarter was about to begin.

He was absolutely right. But as I reflected on the power of this particular message and medium, I’ve had this lingering sense that there’s a real danger present.

Sure, we know to be wary when opening the email from a heretofore unknown distant relative in a foreign land inviting us to collect our inheritance, or when we approach a used car lot, or when we see one of those horribly produced local attorney commercials asking if we’ve been hurt in an accident.

But for years, household-name financial companies have been attempting to convince us through commercial messaging that their primary goal is to improve our lives--to help us toast the new beach house, celebrate the accomplishments of our children, or launch that new sailboat--when the evidence seems to suggest the lives they first seek to improve are their own.

Indeed, the company behind these great new commercials--implicitly pledging to put you and your family first--has gone on the record as being opposed to a rule that would legally require them to act in the best interests of their clients at all times.

So, how can you help ensure that you’ll not become a victim of financial deception, however tempting a commercial or individual plea may seem? Consider these two simple steps:

1) Only work with a full-time fiduciary.

It seems like a simple expectation, right? That your financial advisor would pledge to only act in your best interest, and not to allow their personal (or their company’s) profit motive to compromise the very best advice for you? But, unfortunately, it’s not that simple. And by applying this first rule, you’ll likely eliminate many who’ve adopted some version of the “financial advisor” label from the competition to be your financial advisor.

One of the reasons you have to be so careful today is that many who hold themselves out as financial advisors are, indeed, fiduciaries--but only part-time. If your advisor has passed the requisite Securities and Exchange Commission (SEC) exams that license them to charge a fee for investment and financial advice, they are required to act as a fiduciary when operating in that capacity. But they may also sell stocks, bonds, mutual funds, REITs, annuities, and life insurance policies for a commission, in which case they are held to one of multiple lesser standards.

Do they tell you when they take the fiduciary hat off and put the sales hat on?

There has been some movement on this front. The SEC has enforced some version of a fiduciary obligation for those under its purview since 1940, and the Department of Labor is attempting to implement a rule requiring that anyone offering advice on a client’s 401(k) or other retirement-specific account do so as a fiduciary. But you can set your own, even stricter standard by choosing to work only with a full-time fiduciary.

If you’re looking to get something in writing, the strongest, clearest language I’ve seen is the Fiduciary Oath required of anyone who is a member of the National Association of Personal Financial Advisors (NAPFA).

2) Only work with an advisor who puts you at the center of the planning.

While it is certainly true that not every non-fiduciary is a bad advisor (although I still wouldn’t settle for anything less), it’s also true, unfortunately, that not every fiduciary is a good advisor. There are those who’ve chosen to align their business practices with a fiduciary standard primarily because they think it’s good for business. And there are others who are good fiduciaries but simply bad practitioners.

Bad advisors may have a lack of experience or education, but it may also be that they are suffering from the self-deception that they--or their investment philosophy or planning process--are the secret to your success. This perspective may even be a problem baked into the industry norm, its apparent purpose being to create a facade that can compete with the behemoths who can afford great prime-time commercials.

Signs that you’re working with a self-centered planner are that they dominate the conversation with their accomplishments and the preeminence of their or their firm’s success, or that your recommendations seem decidedly generic and aren’t framed within the context of your values and goals.

Signs that you’re working with a client-centered planner are that you remain the focus on both a macro and micro level. The planning engagement should begin with you and what’s most important to you and your family before moving on to your money. Then every conversation in the future should be driven by your agenda, not the advisor’s, and all additional planning should be reconnected back to your values and goals.

(Note: While being a genuinely client-centered financial planner is really just good financial planning--and it’s a method that many good fiduciary advisors have practiced for years--there are those who’ve sought to bolster their strengths via additional training in a technique called “financial life planning,” or simply “life planning,” through educational bodies like the Kinder Institute and Money Quotient.)

I’m a little sensitive to this whole commercial thing, but that’s because the ideal portrayed in these and other great financial industry commercials profoundly shaped, in part, my early career. I wanted to be clients’ trusted advisor, and that’s what all the marketing collateral, and even the interview processes, portrayed. But it took me fully nine years of weaving my way through the industry proper to discover where true financial advice resides.

Hopefully, it doesn’t take you that long.

Quote O' the Week

Benjamin Franklin

Delivering some surprinsingly strong words for those who practice deception:

Tricks and treachery are the practice of fools, that don't have brains enough to be honest.

We'll give ol' Ben the last word this week and wish you a great week to come!


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Oh, and BTW, The information in this article is for educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. That should really come from your financial advisor. I'm thrilled to work for Triad Financial Advisors, but what I write is my opinion, and not necessarily theirs.