Good morning.
Private equity’s breaking records again.
October marked the highest monthly volume of M&A deals targeting registered investment advisors on record, according to DeVoe & Company. Declining interest rates sparked new interest in RIAs from PE groups and PE-backed buyers, which accounted for 83% of the transactions. The 39 deals smashed the previous highwater mark of 33 set in January 2021. Beacon Pointe, Cerity Partners and Waverly Advisors each completed three deals last month alone.
But, unlike plenty of industries that see PE as a death knell, some RIAs are welcoming the extra capital. At least, for now.
Advisors Wary of Fixed Income Ahead of Trump 2.0
Lower taxes, increased spending, heavier tariffs? The bond market can be notoriously hard to predict, but Trump’s election may have just made it impossible.
While stocks have been on a tear since the former president was reelected to the White House, fixed income has been far less predictable. ING strategists said in a note last week that bonds have been acting strangely as investors weighed the GOP’s plan of lower taxes and higher tariffs. “Historically, we’ve never seen a rate-cutting cycle where the 10-year yield consistently rose after the first cut,” they said.
It’s made for a confusing few weeks for advisors, and has become an issue that will almost certainly spill over into traditional 60/40 portfolios come 2025. “Trumponomics presents both opportunities and risks,” said Arron Bennet, CFO at Bennett Financials. “Post-election, advisors are closely analyzing fixed-income.”
Outlook Not So Good
The 10-year Treasury yield surged to touch 4.5% at the end of last week, the highest since May 31, enticing some investors to make big wagers. While proposed tax cuts and increased spending sound like a home run, they could also drive up inflation, meaning higher yields and lower bond prices. There are also significant risks that the growing national debt could reduce US creditworthiness.
“We caution advisors to not be overly dependent on longer-term bonds as their equity hedge,” said Steve Cucchiaro, CEO of 3Edge Asset Management. Instead, shorter-duration Treasuries and hard assets like gold could be ways to protect clients from an equity downturn, he said, adding that a tariff war could lead to a global “economic slowdown.”
Hat TIPS. Treasury Inflation-Protected Securities (TIPS) have become a real area of interest. In addition to the yield, the products pay out on the Consumer Price Inflation index, meaning those investments are built to keep up with inflation. The real yields (after inflation) are above 2% on many of the securities and they’re quickly gaining ground with the investing public:
- Yields on certain durations of TIPS are near their highest levels in roughly 15 years, according to the Wall Street Journal.
- Investors poured $42.4 billion into mutual funds and exchange-traded funds that specialize in TIPS in 2021.
Where Does It Hurt? For advisors, though, the safer plan may be to hold tight. Fixed income provides an important safety net, even in the face of inflation, according to Cynthia Luna, a CFP and advisor with Moonshot Financial Group. It’s also necessary to keep a total portfolio’s risk levels in line. “Let’s not forget that we feel pain from perceived loss more than we feel happiness from gains,” she said. “It’s important to be prepared for volatility.”
Credit Scores May Help Advisors Recognize Cognitive Decline
Financial advisor David Demming Sr. had an uneasy feeling when an elderly client called his office requesting money for home renovations. An employee heard a voice in the background whisper: “Tell him it’s for the porch.” His firm, Demming Financial Services, eventually realized a neighbor was attempting to take advantage of his client.
“We got even because one of her kids was a federal prosecutor,” Demming Sr. said. “But it was one of those situations where clearly there’s a vulnerability and you need to get involved.”
It’s an all-too-familiar scenario for aging clients especially those suffering from Alzheimer’s disease and related dementias. Some 2 out of 3 Americans now suffer from some level of cognitive impairment by the age of 70, according to ScienceDirect. But, new research points to warning signs that can help advisors protect their clients well before that.
Credit Check
Falling credit scores appear on average five years before a health diagnosis is determined, according to a New York Federal Reserve Bank study published in May. Additional metrics like, missed credit card and mortgage payments, may also point to a problem, the research found. “Advisors encounter these situations more often than many realize,” said Melissa Pavone, founder of Mindful Financial Partners. “We encourage clients to consider these ‘what if’ scenarios early.”
Other signs of cognitive decline include confusion about financial matters that clients previously handled with ease or unusual savings withdrawal patterns, Pavone told The Daily Upside. These warning signs could be important tools that give advisors an edge in stopping financial scams.
Time for a Talk: When the time comes to address cognitive decline, the conversation is often difficult. Pavone advises a step-by-step approach, often involving trusted family members or pre-authorized individuals. It’s also crucial to adjust financial strategies, moving toward more conservative investments, setting up checks on account activity, and establishing legal protections like a power of attorney. “It’s vital to approach them with patience, empathy, and clarity,” she said.
Demming Sr. suggests initiating these conversations in a client’s 50s, before cognitive decline becomes a pressing concern. “When the kids move out, it becomes a more natural conversation,” he said.