Hello, my name is Tom Wilson and I'm the Head of Wealth Advisory. Thank you for joining us for a 20 minute webinar today on the subject of trends. Within the high net worth market, Wealth Advisee works with financial advisors who have clients with a million or more in investable assets. We help those advisors create custom portfolios. Once that prospect says yes, we have an onboarding team that will move those assets from point A to point B. And then as we invest those clients portfolios, we assign a portfolio management team to help the financial advisor work with that client throughout the relationship. Joining me today for our discussion of high net worth trends will be Brian Libby and Dennis Mccart. Brian, Dennis, hello. Hi John, hey Tom. Well, thanks for joining us now Brian and Dennis in your role within wealth advisor, you're both a portfolio consultant and portfolio consultants get involved with case design. You know that is meeting with financial advisors, learning about what their prospects may want from an investment point of view, working with our investment strategy team and creating those custom tailored portfolios. So as as a result of that experience. You're on the front line sort of speak when it comes to hearing and listening about some of the trends that are on the minds of investors. So we thought it'd be appropriate to really have a conversation with you this morning to talk about what those trends, what those trends are. So with with that in mind, I'm going to go ahead and and kick off. I know that when I'm speaking with advisors about some of the concerns that their clients have, they're really right now bringing up quite commonly the US banking crisis. And we we all know that's been in the news as a result of Silicon Valley Bank and and and other banks. And I would say almost that compared to six to nine months ago where China, Taiwan, Russia, Ukraine were sort of on the forefront of investors minds, those international geopolitical questions or issues or or sort of taking a back burner today to the US banking crisis. Brian and Dennis, are you experiencing that as well? Yeah, Tom, definitely and and appreciate the the question because this is definitely a hot topic for a lot of the clients that we work with. They obviously are high net worth investors with a lot of money and need for cash to be held in let's say a bank. So from the beginning we definitely felt here at Brinker and Orion that this was not as much a crisis like we experienced in 2008, 2009, but. More of a liquidity issue, I wouldn't even say crisis because it is much more regional in nature to the banks that given the sharp interest rate increases we have seen and experienced obviously over the last year, it's it has been somewhat of a different environment for a lot of these regional banks to actually manage deposits that they have. So the biggest question from many investors and advisors as well has been what is the most efficient way to be utilizing cash management deposits and create liquidity overall. So at Brinker Capital and our wealth advisory group, we have a number of options that investors have and will have access to while working with us whether it be utilizing A brokerage account to have. High investment grade, high quality bond portfolios that we can custom create almost like owning your own money market or depending on your broker dealer affiliation. We actually have a FDIC insured high yield program that we can offer with FDIC insurance up to $10 million and possibly more if there's a need for that. So these type of conversations have really helped us and helped our advisor base. Really help alleviate the conversation and a lot of the nervous feel that these clients have experienced through this most recent Silicon Valley Bank issue that we we've seen. Dennis, what what have you been seeing or hearing over the last few weeks here? Yeah, Brian, I think they're great points and you know if I can take a dog to a 5 foot level for just a moment, I'm finding I'm, I'm having a. I think clients are having a lot of benefit when we just have conversations around discussing what is the difference between a bank account and a brokerage account, right. As we know, brokerage accounts chiefly host securities such as stocks and funds. Maybe some cash, a bank account is going to hold cash and unless you write checks and use a debit card, but many of our investors conflate the two, so. Sometimes it just helps to have a conversation around what are the differences between these two business models. Typically a brokerage account assets are going to be held at a custodian bank, which is a very different business from what most clients believe a bank business to be or what they commonly think of as a bank which primarily serves the commercial and retail lending market as well as offering deposit accounts. As such, these different businesses are completely separate from one another. However, it can still be confusing to some investors, so it makes sense for advisors perhaps to take a minute and to speak about the difference between the two different organizations with their clients. I will add that recent developments in some areas of the banking sector are incredibly attention grabbing and concerning. However, it remains incumbent upon us as financial professionals to remind our clients that markets examine many, many different factors, both across the United States domestic economy and even indeed the global economy. And over the intermediate term, the influence of any single factor diminishes, and over the long term, the influence of that individual factor is very small indeed. So you know, interesting guys, Brian, you had mentioned in your comments about the increase in interest rates and we know that the Federal Reserve has raised rates 10 separate times since 2022. And I'm now hearing a lot more questions about yield. You know, 1218 months ago yield really wasn't a question as much because interest rates were so low. Now that rates have gone up. I'm experiencing a lot of questions from from investors on the subject of yield, Dennis, Brian, are you seeing that as well? Yeah, Tom, I mean who knew 18 months, even 12 months ago, I didn't think I would be sitting here discussing alternatives to money market accounts, right. But the money markets are paying four and three quarter percent, maybe sometimes 5%, which is incredibly compelling to investors and savers who for many, many years. These accounts were basically paying nothing and they're relatively low risk when compared to some other alternative investments. However, Tom, you're probably familiar that the latest CPI print came out last week. It indicated that inflation was running around 4.9%, right? So this is a far cry from the 9% that we experienced in June of 2022, so. There, this is adding fuel to speculation that before the end of the year the Fed could begin to reduce interest rates. Now we don't have a crystal ball, so that is so we will wait to see if that indeed happens. But if it does happen, what's going to happen to money market rates, money market funds is that those rates, those yields on those funds is going to decrease in lockstep with decreases in interest rates, so. That being said, perhaps some more interesting way to take advantage of these current higher yields is to invest in individual bonds. Individual bonds are going to have longer maturities. Said a little differently, those investors can lock in those higher yields for longer, and if indeed we do see we do begin to see declines in interest rates, then those individual bonds will benefit from appreciation, whereas fixed income. Whereas money market rates are not going to benefit from that appreciation. But Dennis, are you, are you getting into some situations where some clients are just saying, hey, why should I bother with the market? I can get 4% plus in money market that's good enough. You know, I don't want to invest or maybe even the opposite, Take Me Out of the market, just throw me in the money market. Well, it's a matter of. Go ahead, Dennis. It's a matter of this inertia, right. So when you consider the recent volatility within the equity markets and the markets overall and the prospect of getting a relatively risk riskless yield of 4 1/2 to 5%, then that's a very compelling argument for investors to make. And so we need to be cognizant of that and be and be diligent in making our investors aware of what alternative yield and yield options there are that will benefit investors for a longer term. Yeah. And the reason I was really chiming in there is because it it's almost a very, I feel very excited about this situation right now because investors have not seen this type of yield sitting in cash that it almost creates a huge opportunity for us to even educate high net worth type type investors and clients and even advisors. Because the one thing I've I've definitely been focusing on. That people need to really realize is that when you're getting yield, it's important to actually be looking at what is the best net yield as well. So what a lot of investors and especially high net worth investors look to do is maybe purchase a CD or put it into a money market, but they're not really focusing on what those instruments financial instruments. Are giving them in terms of taxable yield in those environments. So what we've been able to do is and I mentioned this before in our last discussion is looking at actual money market, but a personal money market that maybe is potentially A taxfree yield that they can be generating within their overall portfolio and cash needs and liquidity and and not only that is, is keeping liquidity very high for them as well is important. In this type of environment that we're experiencing right now, so the, so the really a couple items I'd like to highlight here is 1, make sure that your high net worth investors are focused on after tax yield. But then two, Dennis made this point earlier is that we might see the Fed going the other direction changing rates to the to the decline in 2024. And therefore there's money market rates that appear to be high today, may not be so high tomorrow. So if you have a longer time horizon maybe. Selling out of the market and going to the money market with all of your assets you know not such a not such a good idea Brian you had you know again mentioned the idea of the after tax return which I think is a good place for us to pivot into the subject of tax management high net worth investors just not today but have always been interested in their after tax returns I've. I sometimes get around and say I've yet to meet a high net worth investor who has told me they feel it's their patriotic duty to pay more in taxes. So what are you seeing out there as of late with respect to questions, concerns around tax efficiency or tax management? Yeah, Tom, many high net worth investors received an unwelcome surprise in 2022 during a period when we had unfavorable market returns. But at the same time. And they were still liable for capital gains distributions from their mutual fund portfolios, right. And according to Russell investments, depending on whether you were in a value fund or depending on whether it was a growth fund, those capital gains distributions could have been as high as 6 to 7% of the net asset value of that fund. This is in a year when the return on the S&P was was lower than -, 19%, right? And so the reason for these capital gains distributions of course is where we're is that within mutual funds or Co medical investment vehicles, we own that security along with a lot of other Co investors. So for whatever reason, there's other Co investors might not want to be invested anymore. So they're requesting distributions or they're requesting redemptions. The mutual fund manager has to place trades within that portfolio to fund those redemptions as it so happens. Many of these mutual funds have embedded capital gains and the remaining mutual fund investors are liable for that cap for the tax liability on those capital gains distributions. Now within wealth advisory, when we construct portfolios, we're allocating our clients equity positions within the portfolio to primarily individual stocks. If not 100% to individual stocks and by doing so, what we are able to do is to decouple that investors tax experience from the actions of other investors within wealth advisory. We give high network investors the opportunity to take more control over tax management and at the same time limit or minimize the capital gains liability that they will have rather than investing in mutual funds. Yeah, great. Great. Boy tennis. And and I actually for our discussion today, I actually prepared a chart that would, I think is a really compelling visual of why it's important to have that individual security ownership. So everyone's very aware of of what the S&P 500 is. Now there's a lot of different ways to be investing in the S&P 500, but what if I told you you could actually own? The individual securities within the S&P 500, what does that do and what does that look like on a year to year basis? So the chart I'm showing here, this is actually showing the stocks with losses and the stocks with gains on a year to year basis. Now what I want to actually focus on is the year 2020, so great year in terms of returns in annual returns of the S&P 500. Double digit, nearly 20% in that year. But one thing I want to really point out is that in 2020, there were still 200 stocks that had negative returns on the year. Now if you were to own an ETF or a mutual fund that actually limits you from taking advantage of those losses, yes, you're happy you received almost nearly 20% in the year. But what if I told you? That you could receive 20% but then also harvest the loss that you can carry forward to offset any gain you're realizing. Now within our Brinker Wealth Advisory Group, we have a number of different options, not just the S&P 500 that we can help investors utilize and take advantage of that tax loss harvesting that we can do and be actively managing throughout the year within our wealth advisory group. It's in, in my opinion, Tom and Demis, it's almost like having your cake and eating it too in that type of situation. Yeah, I love it. And your comments are on tax loss harvesting, remind me that when we're transitioning assets, right, when we're bringing assets into wealth advisory, we have the ability to transfer those legacy low cost basis securities in kind many people associate tax transitioning. With individual stocks, but perhaps it might be news to people that in addition stocks we can also transfer and we routinely transfer mutual funds, ETFs, even individual bonds. And by transferring these securities in kind, we're able to find a place for these securities within the clients, enhance the portfolio so that the overall combination of the legacy securities and and the portfolio that we design is cohesive while at the same time. Minimizing the friction associated with liquidating low cost basis securities unnecessarily. Yeah, yeah. And and Tom, before you step in, I definitely want to point out because this is in my opinion, something that we want to really hone in on with with clients is that we can save them 1 to 2% a year through this tax management. Now that just doesn't even bring in potential clients at that point, but it really keeps client retention in the long term. Clients and that's a big part of what we do, which I'm sure you can agree with Tom. No, absolutely, absolutely. I was just thinking the subject of tax loss harvesting, you know it's just not trying to sell off your losers in December of of every year and your point about 20-20 would be a great example of that if you waited until December of 2020. Well, at that point, the market was up significantly from where it started. Your ability to take losses has been reduced. But if you're taking losses throughout when the market was going down February and and March of 2020, that would have created those, those economic assets that you referred to earlier, Brian, that you would be able to carry forward then into 21 and and beyond. So it's important that tax management is just not a something you do at the start of a relationship with transmit Securities in kind or just simply December of every single year. It's something that needs to take place constantly within the portfolio to really maximize your, your tax efficiency. Well, let's let's move on to another subject, inflation. Dennis, you mentioned it earlier, it has started to come down. But it's certainly high from historic point of view. What type of questions, concerns you've seen these days on the inflation subject. Yeah, Yeah, Tom, it's definitely been a big conversation just because it's top of mind for everyone. I mean, everyone obviously feels it when they go to the grocery store. I don't know about both of you, but I have a hard time getting one bag at the grocery store and not paying $100. That hurts. So really what is our view going forward on inflation and how to actually weather the storm with a portfolio. So our view at Brinker Capital and Orion has very much been to actually create a multi asset class approach to your portfolio. We think in the long term and not just short term that can really create a better outcome for your portfolio overall. Dennis, would you, what do you agree with that? Yeah. I find I get a lot of runway with having a conversation with clients and advisors by the difference between price takers and price makers, right. So if you're familiar, if you're not familiar with those terms, price takers generally have limited control over the costs of their inputs into their businesses and limited ability to pass along those cost increases to consumers. Price makers on the other hand. Have more control over the cost of those inputs and have greater ability to pass along increases in their products to consumers and breaker capital. We use specialized strategies that are going to be able to differentiate between price makers and price takers. Said a little differently, the strategies that we incorporate within our portfolio are going to be different from, let's say, an ETF where we don't have, where an investor doesn't have any ability to. To discriminate between the positions that they own, whereas with our with our approach we have the ability to differentiate between this is a good company and this is a good company and it's also a good stock to own in an inflationary environment. Yeah yeah. So active management, multi *** class portfolios is one way to sort of combat the inflation question that are on the minds of investors today. I would also just speaking more broadly. If indeed inflation is on the downturn, right? And we'll wait to see additional evidence of that. But if indeed inflation is on the downturn, then that should be stimulative for stocks in general. Because what that means is that the present value of those future cash flows is going to be worth more to investors in today's dollars, and those stock prices are going to respond accordingly. Absolutely, absolutely. Well I have one other subject for us today that's we're certainly seeing that's on the mind of investors and will likely be on the mind of investors you know for the next several quarters to come. And and that's the subject of the US outstanding debt. And for for this part of the conversation we're going to pull up a a slide here. As we look at the slide this is by our research partners Strategus. It's showing you all of the US outstanding debt. As far as maturity goes and I want you to I to focus on the 1st 2 columns. On the left, we see zero to 129.5. Let's round it up. 30% of the US outstanding debt is going to mature in the next 12 months. Then we see 21% of the debt that's outstanding by our country is going to mature in the next one to three years, so combined. We're looking at about 50% of all the outstanding debt in the US maturing in the next three years. All of our debt today, the weighted average interest rate expense is about 1.9%. We were speaking earlier about how the Fed has been raising rates, so now interest rates are a lot higher. So as this debt matures. We're going to be having to issue new debt at higher interest rates. So our cost the service or debt is absolutely going to be going up as a country in the couple of years to to come and we're you know investors are concerned about this and we're going to be hearing about this on the it's already in the news. We're going to be continuing to hear about it in the news in the quarters and years to to to come. So on that subject of a you know how do well So what do we do about this as investors well. The subject Brian, Dennis, you guys brought up earlier about the multi asset class approach. You know one way to deal with this is by selecting active managers they can help navigate into certain securities that might do better in a higher interest rate environment. Dennis to your point about price takers versus price makers as relates to inflation? But but also multi asset class, we have the ability to go outside of US equities. We can actually go into some real assets. So for example, gold might be an area that could potentially do well. If your clients are really concerned about the amount of debt outstanding that probably means they might have concerns about the value of the dollar going forward. So we might see a dollar declining and therefore gold may not be such a a bad place to be, but another asset class that is investors we should be really thinking about would be international. The number one determinant of a US investors returns in the short run when investing abroad is the direction of the dollar. So if interest rates are going up. That could cause the value of the dollar to to go down, more specifically, the amount of our servicing that we're spending to go on our debt. That could cause the value of the dollar dollar to go down and that would create a bit of a tailwind for US investors investing abroad. So there's more than one way to kind of slice it and an all asset class portfolio allows you to have more of what I'd like to refer to as an all weather portfolio. So that might be a a good solution for your clients that are concerned about the level of outstanding debt in the US So Brian and Dennis, we're we're at the sort of time limit that we were trying to keep to today. I think we went a little over 20 minutes which is fine. We're having a great conversation here. Any other items that you like to like to add before we wrap it up? No, Tom, no, I really appreciate Tom, it was great, great speaking to you both today for sure and hope to do it again in the future. So am I going to give you the last word with the all weather portfolio? I think that's good advice. All right. Well, well, thank you both and thank you the the financial advisor. It took time out of your day to to listen to our webinar. If you'd like to learn more about wealth advisory, we encourage you to reach out to your wealth management sales professional and they'd be more than happy to talk to you about the services that wealth advisory could provide to you and your practice. Thank you so much for listening today. _1718779225852

How to Address the Top 4 Concerns of High-Net-Worth Investors

With market uncertainty still lingering, high-net-worth clients are dealing with a broad array of financial scenarios. Some clients are looking for ways to build or protect multi-generational family wealth, while others are business owners and executives - from those early in their careers to those planning an exit.

Regardless of their present situation, there are certain pain points HNW clients tend to have in common.

Join Tom Wilson, EVP, Wealth Advisory, Denis McCartan, VP, Wealth Advisory Portfolio Consultant, and Brian Libby, VP, Wealth Advisory Portfolio Consultant, as they share the most common questions they are hearing from high-net-worth investors and how you can best address them, including:

Orion Portfolio Solutions, LLC d/b/a Brinker Capital Investments a registered investment advisor.

For financial professional use only. Not intended for public distribution.

1367-BCI-5/18/2023

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