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All right, let's go to geopolitics for a moment. Dan Williams is standing by his reporter based in Jerusalem. Israel is holding talks in Washington, and that's as the country is weighing how to respond to an Iranian missile tech about a week ago. And this comes as a year anniversary of what happened in Israel and Gaza. Okay, so Dan, what are where are we in terms of the actual talks. We kind of know where the military fighting is. What about the talks?
Well, Israel's Defense min So you have Gallant will this evening set off for Washington for talks with his US counterpart, Lloyd Austin. And also we hear other members of the Biden administration. This is an especially brought period in this alliance because while the Biden administration very supportive of Israel's war effort in terms of supplying weaponry, moral support diplomatic support.
The sides have been locking horns at times about specific moods, including this move into Lebanon on the ground over the last week by the Israelis, including how Israel might carry out its threat and retaliation for Iran's one hundred and eighty ballistic missiles that were fired also just a few
days ago. So they're expected to discuss that, try to work out something they might agree on that the Americans would not see as needlessly rattling the region, perhaps setting off an energy shop and a major shipping crisis and terrorism crisis, just as the United States is in the last weeks of the selection campaign ahead of the vote in November.
Should we be surprised, Dan, that Israel has not yet responded against Iran for that missile attack. I kind of thought we would have seen something by now.
That has been said. On the other hand, this is a pretty weighty period attacking Iran. Again, It's worth remembering that the Iranian ballistic missile salver of last week was the second such attack by Iran. It conducted one in mid April, to which Israel responded with a very low signature. In fact that these raleised to my knowledge, never acknowledged it.
They somehow managed to get some kind of strike vehicle into Iran to hit a radar at a key air base, but at the time they kept it very low key. So the question is would they do it again now or would it have to be something pretty spectacular in order to register as a deterrent. Now within Israel there as open discussion of whether Israel should go all the
way and strike Iran's nuclear facilities. This is something that's been threatened for years, never carried out, or the oil facilities or goo for something more limited military politics and all that. This is really not something anyone would enter into rashly. I think these Reelis will be very careful to keep the Americans on side, and that is the
reason for this trip. And with the pace of this war, I imagine even if the attack is carried out today, next week, in a month, it will still be seen as half of the course when it comes for this current standoff or I should say face off between Israel and i Ram.
All right, Dan, we really appreciate it. Thank you very much. Dan Williams, reporter for Bloomberg News based in Jerusalem, joining us there on the latest An Israel response to that Iranian missile attack.
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Let's stay on that China story for a moment, and Bloomberg News and the current joins us now on China. So, and you lived in China for many, many years, you are obviously has an economics background. What we heard out of China today felt a little same old, same old. These are the things that we normally seem to think about when it comes to China stimulus. Is that a fair assessment?
Yeah, good morning. I think they had raised expectations because the officials from the National Development Reformer Commission said they were going to hold a press conference on the first Tuesday back after the week long holiday. And given that last week and the week before we had news about pending China stimulus and expectations of warwide, this might be the next leg. Here comes the government to explain things further and announced new measures. But what happened was they
didn't announce any new measures. They spoke about bringing forward and spending maybe tune out billion worth of spending, some support for businesses and for some support for the less privileged and poor in society, but not much by way of detail. And I think that lack of detail on the spending side is what this point in markets and up ended trading.
The way he sought.
But to be clear, though, what they did say was that they reaffirmed the commitment to meeting their five percent growth target. That might sound like nothing to people living from overseas, but it does mean the government's going to hit that political sense of target, you know, at all costs, and that means that at the very least they will
continue to support the economy. And remember, the five percent growth target for China is obviously slower than double edgit a decade ago, but it's five percent on a much bigger base than it was a decade ago as well, so it's not nothing.
And in reality, I guess from a political standpoint, maybe from economic standpoint. In reality, what can President Jijiping do in terms of fiscal stimulus, Well.
They have room and certainly room to borrow and spend at the central government level. And now when you get into the local governments and the provinces, and that's where a lot of the property stress is located. That's where the business model of selling landolf to developers raise finances that seems to be broken at the moment. So that's where your debt pile is. But the central government has a lot of it of physical space. Use the jargon,
they could intervene. They could start shoring up projects or recapitalizing the banks, which you have not of that in recent weeks, or make sure that they get those property construction sites finished. So there's a lot they could do. There's a feeling though that they're still being cautious because of the legacy of debt and leverage that was left by previous rounds of China Stimmus and not just the Flantic crisis, but also over the.
Last decade or so.
They didn't want to go on that road again. And also there's a view that maybe they're holding their powder somewhat dry. They want to get past the US elections see what comes out of that, because that could also.
Be material for China.
So to that point, the market reaction was quite swift. So the way you're talking about is like, look, they're a little long term strategic. They don't want to make any mistakes. They want to kind of see how the election pans out. Golden Dragon indexes down, commodities are getting hit really hard. Paul was pointing out Ali Baba's down and by about eight percent. That's a proxy for the
China consumer. Is that market reaction legit? Like? Does it measure up with what we actually heard in your experience and understanding Chinese economic policy?
Well, typically the top policymakers in China, you know, markets are not necessarily their number one concern. That's a rough
rule of thumb. But I think what happened over the past couple of weeks was China's economy had reached such a kind of a funk that when the officials came out with the measures that they did, which is bringing them boring costs, talking about putting money back into the banks, the measures they announced for the Chinese break heighten explications that more money might be under way real physical spending. And that's when the market's went to open a tear.
And now we've reached a point where a wait a minute, what exactly are they saying here. They're obviously putting support into the economy. They obviously want to hit that five percent growth target. That's a political target. But are they going to actually go out and borrow and spend more money, like real new money. We're not there yet. They may yet do that. The anthem might yet be coming, but
that's not the signal for now. I think that's where both the disappointment and they can fusion has come into the market side of things. Is clearly not planning to rep things up the way they have in previous downturns. They're going to take their time working the way out of this.
And I mean, just real quickly.
For me, it's the long term issues with their population aging. I mean, some of those issues are just long standing. I don't know how you get around those things.
Yeah, no, absolutely right. I mean I should have mentioned the structural issues. You've got the demographics, you've got the long term death story, You've got the system of political control, which some people will argue will ultimately keep a cap on Chinese economic potential. That's the point of debate, but it's one of the structural challenges that people talk about, all of which is weighing on China's growth. There's a view out there that over the past four decades, the
low hanging fruit was picked. China had a manufacturing export model. It was gangbusters. It all went well, throw in a property boom to finish it off. But now we're the point where, of course, making those gains so much harder, aging workforce, a lot of debt, and giopolitical tensions means the China story is going to be much more more complicated in years ahead.
Hi, very good, end the current.
Thank you so much for joining us endocurrent Bloomberg Global Economy reporter, giving us the latest on China.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Card playing Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Steele Paul Sweeney, we are live broadcasting live in Orlando with the World Center.
Merit.
This place is huge, huge, I mean, how many steps did you clock yesterday?
Fifteen thousand?
What?
Yeah, it's crazy and that's you know, but I'm all over the theme parks. We're common Well's national conference for financial advisors. I got like twenty twenty three hundred folks here. A lot of smart folks come in here trying to talk about the business and helping their clients with their financial advice. Brad McMillan joins us here today. He's a managing principal Wealth and Investment Management and the CIO at
Commonwealth Financial Network. Brett Aside from the coming hurricane, what are your registered investment advisors asking you at this conference this year? I mean it, I know it's S and P's up twenty percent. I'm making money on my bonds, making money on my cash. It's probably a good time to be a financial advisor.
But what are they asking you going forward?
Well, the real question is always what happens next? Paul, And you know, we've heard a lot of news. I mean, the hurricane coming in is a great kind of metaphor for impending doom. You know, we've got wars.
We get blue sky, so there's something that there, but a little bit.
Of a mixed message, you get that, right, But you know, so there's a lot of stuff that can go wrong. The FED cut by fifty basis points. What do they know that we don't so the question is everything looks okay, but is it really you know, is there a hurricane out there despite the blue skies we see? And I think the answer to that is, actually, things are okay. There's still a lot that can go wrong and we
need to keep an eye on it. But my talk this conference was actually going to be it's gonna be okay.
But I think that's the real takeaway.
And to be fair, you're gonna speak tomorrow, but you guys had to cancel the morning because of the hurricane. So if if your talk is yeah, it's stormy, but we're gonna be okay, how how is that reflected in a portfolio allocation?
Well, I think you can actually see it in what's happening in the market today. I mean, one of the things out there were was we're gonna have a recession. We've got to get defensive, We've got to go with value rather than growth. And that's not actually what we're seeing in the market today. We're seeing the Nasdaq out performing, and we're seeing the now which is relatively defensive, underperforming.
Now one day, of course, does not make a market.
But the real message of the jobs report, as I read it, was that the economy is going to keep going. We're gonna see earnings keep growing and growth. You know, you don't have to get defensive. There are still opportunities on the growth side going forward.
A lot of folks when that we saw the short term rates go higher.
I mean, you're able to get I don't know, if you're a Marcus customer, Goldmen Sex, you're going to get five percent on a money market or something four point two five, four.
Point two five.
Now, how do you get your RAS or what's the message for your RAS about is it okay to be in cash or now you need to be in this market.
I think at this point, given where you're getting paid in the money markets, you know, and in the bond market depending, it's okay to sit out. You know, there are opportunities out there, but you look at valuations, there are also risks. I mean, this is not a cloud free sky, you know, go back to the weather metaphor, so, you know, I look at this and I'm saying, if I'm an older client or if I'm somebody who's really risk adverse, I'm happy to sit at four or five
percent and just take it easy. You know, for the first time, in a long time bonds are actually be worth being in for their return. Not great, but it's safe, right, that's important to.
Be fair, Paul, I am thinking about Munie's just so you know, little diversification. That money sitting in Marcus is you know, being very risk averse. I'm still thinking about it. So where does that leave And you were mentioned sort of the sickle goal versus value, except to growth versus value, I should say, where does that leave you in thinking about mid cap and small caps? Because if things are okay ish, but there are worries but we're okay, that's a really weird spot for the small caps.
It is a really weird spot.
And I think when you look at that, you have to start thinking about sector exposure rather than you know, company size.
You know.
And there's a lot of discussion out there about oh, we've got MidCap, we've got small cap, you know.
I think you need to look at it.
Okay, is at a financial well they've been doing pretty well, you know, and small cap or MidCap that matters, but perhaps less than the fact that it's the financial sector or the industrial sector or whatever the sector exposure is. So I don't think it's a time for cap level discussion. I think it's time for sector exposure discussion.
What are some of the sectors that screen well for you guys.
Well, when you look at it, I think anything that's exposed to growth. You look at technology, you know, one of the things we're seeing is companies are trying to manage their costs. I mean, one of the messages of the jobs report was that no, we're not going to be able to hire lots of people cheaply. So any kind of technology that lets companies leverage capital expenditures rather than hiring, I think that's going to go. And that speaks directly to a lot of the megacap stocks. It's
probably a tailwind for the AI bubble. Excuse me, shouldn't have said bubble, but you know, it's a tailwind for the AI industry. You know, it's a tailwind for companies that really enable companies to do more with less, you know. At the same time, I think when you look at that, that's also probably a tailwind for real estate because you've
got to put all these workers somewhere. And that indicates, along with for example, Amazon going back to five days a week, we may be through the worst of it for the commercial real estate market that maybe early I don't know, but you can see signs.
Well, we've been talking to a lot of commercial real estate people and they've been saying something similar like, there's still going to be that ten percent portion. That's not great, but on the other hand, it's going to be okay. So to your point about storms. So when you take a look at that theme, though, there is a narrative out there that once we get past the election, you could see a lot of capex come into the market because one might think that there would be more clarity
on state corporate taxes than tariffs. Do you see that as a headwind tailwind for the economy or hope instead of reality.
I think it's more hope.
But the thing I would say about that is we're already seeing massive investment. I mean, again, one of the things that's driving it is the demographics.
We don't have enough workers.
Yeah, the market is software, so you're being forced to do capital investment. Regardless of who wins the election, you're going to have a situation where we're going to be continued to deglobalise. We're going to continue to restrict immigration,
and that's going to require more capital investment. We are now in a position where we're generating most of the natural guess, which means an enormous amount of the chemicals industry is coming to the United States, and that requires massive capital investment.
This is going to happen regardless of Washington.
So how do you discuss the political landscape the election coming up this year? Because it's coming up in a matter of days. It seems like I'm sure you're getting some questions some comments from your financial advisors here.
One of the things that goes with my job is getting questions from people on both sides. And every single election cycle, I have people on both sides saying if the other side wins, it's going to be a disaster. And I've heard that for the past, you know, twenty years. I've been doing this, and it's always been wrong. One of the things that you have to remember as an investor is the US economy is largely decoupled from Washington. Any effects it has, it has at the margin.
But isn't that the irony though it's not because a fiscal spend, so like a lot of the hiring is in government workers, like the money that's being pumped in is through government programs, et cetera. So in a weird way, it's not.
But you're wrong, because how am I wrong? That is a relatively small part of the economy, and that.
Is the workers.
Yeah, small part of the economy, and all the money.
Small part, yes, And you look at all of the spend out there, And the question is even if you even if you're correct, is that going to change up or down significantly depending on the administration.
It's not. You know, they're not going to No.
It's going to keep growing that like, and deficits are going to grow.
That is that a tailwind or a headwind for some economy? It's a tailwind, okay, as we've seen.
I mean one of the interesting things, and I'll go back to history a little bit, is you go back to the seaquester and how that was supposed to cut spending and stop the growth of the deficit. You know what, it worked. So we've seen that before when federal spending cuts, that slows growth down. But if you say the federal spending is going to increase, that is a tailwind for growth going forward.
So what do we do here?
If I'm the federal Reserve, I feel pretty comfortable that just that fifty basis points and then you can kind of do their twenty fives as they like.
I'm comfortable with that. Are you comfortable with that?
I think fifty basis points was a mistake. I was really surprised they did that, and the reason I was prizes.
You've got two mandates.
Okay, you've got employment, which, as we've seen, slowed down a little bit, but it's still at boom levels historically and is coming back up. And then you've got inflation, which is not where they want it to be. It's moving there. But then you look at the components. Housing is not going to We've been saying how I've been saying housing is gonna Inflation is going to get down for the past three years.
Guess what it hasn't.
And then you're gonna have inflationary things like you know, reduced immigration. You look at wage growth that's still up. So I think the Fed is going to end up having to reverse sometime in the next year or two.
You mean stop cutting or hiking hiking. Wow, Okay, that would be huge. That would be a huge change for a portfolio allocation for the whole thing.
Yeah, I think they I think they mistake. I think they made a mistake with the fifty basis points, you know. But that said, when you look at it, why are they gonna have to hike? It's going to be because growth continues, and that's actually gonna be good for corporate earnings.
And when you.
Look at stock prices, there are in nominal terms, they're not in real t so actually get you get more of a headline return even as inflation continues to go up.
All right, very good, appreciate it.
Hopefully you guys have a good show for the remainder of the day here today before people look, I think making an early exit.
BREDC.
Millan, managing Principal Wealth and Investment Management and CIO at Commonwealth of Financial Networks. We're here at their conference in Orlando, Florida. They have over two thousand of their financial folks down here talking about the markets.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa, playing Bloomberg eleven thirty.
Sir Alex the alongside Paul Sweeney. This is Bloomberg Intelligence Radio and we are broadcasting to you live from Orlando at the World Center Mariot at Commonwealth's National Conference for Financial Advisors. They're about two thousand and five over the last couple of days getting expert guidance on how to manage their clients and their businesses. And the theme of the conference this year is the Future is Now, and this is the tenth year the Bloomberg Radio has been
privileged to broadcast from the conference. Well, joining us now here is a Rob Kain, investor, director of Alternative Investments over at Commonwealth Financial Network. Now he joined back in July of twenty thirteen as an alternative investment analyst, So this is great. So we just had a great conversation about the broader market and how to allocate, et cetera. Where do alternative investments come in. What's the right percentage?
You've got to look at alternatives through a holistic approach, in my view, and I always say, if you want to start with a nice allocation, but ten percent to really move that portfolio. But I think you can make a good argument that twenty maybe even twenty five percent for those higher net worth clients make a lot of sense once you start.
Getting that endowment type model.
Unless you're able to source and you have that breadth and skill to get those types of investments, largely, you're going to be paying up for beta exposure. So that's why we would say thirty percent is probably at the high end you want to be.
Where do I go?
You know, growing up, it was for me it was just you know, private equity, some hedge funds. Now private credit is a big source of capital sieing crypto. Yeah, exactly, So how do you how do you guys, I guess, ease your clients into, ease your advisors into that space.
You know, I think private credit is almost the path of least resistance because everyone understands that fixed income concept there. And the story makes a lot of sense because we've seen traditional lenders pull back here the banks giving what's going on here, and these non traditional lenders are just fueling the economy with this. At the end of the day, it's debt. We need to ensure that they're able to
pay it back. And yes, we can command a premium for those types of returns, but we need to ensure that's going to come through, and that's looking at good quality managed to do that.
So when you're talking to clients, is it fifty forty ten, is it sixty thirty ten?
It all depends what the client's looking for.
So those more aggressive type investors, you're going to want to pull from the equity bucket and look for returning hands strategies such as private equity. On the fixed income side, I think it makes a lot of sense to use a private credit by peering from your loans or your credit exposure in general, that will give you a nice balance.
I would say that's where you want to start and almost look at the drivers of returns underneath, try to match those where your traditional batas and exposures are and then put those alls in there.
What types of products do you guys at common Wealth have for your ris So we.
Have private equity, have private credit, we have hedge funds. Right now, private equity is a big seller for us. A lot of folks that gravitating towards that story. We've also seen the decline and the public market opportunity, so it's a larger opportunity sept for people to get into. We're seeing folks like that, and particularly in the secondaries, private equity secondaries, where there more clear insight into the portfolio and that companies know what they need to get to that next level.
Our advisor is really jumping out.
To the story that's interesting, and that's like a way for private equity to offload. So it's like definitely an burgeoning market. How do you think about the risks? One might say that retail being invested in, say, private credit has not been tested. Private creds been around for a long time. It's been through cycles, but not with this kind of money and investor base. How do you think about the risks?
Well, I start with you think about private credit.
There's absolutely ton of risk and the biggest risk is default can I get my income back? But a lot of private credit managers are actually lending to private equity managers, so they're able to navigate these companies through those complex times by injecting equity in. There also the covenant protection and private credit that's much stronger than you see in the syndicated market, and that makes it really healthy and the recovery rates a lot better.
In the long term.
All right, So how has it changed really?
I mean we've been here for ten years, coming to your conference ten years ago versus today.
How's the discussion.
How's your role in terms of communicating with your ris here? I mean, I'm guessing they want to talk to you more often than ten ten years.
It's funny.
We joked that we were in the corner for a long time no one wanted to talk alternatives, and then being mainstream, we're having those conversations every day. Our advisors have really embraced it. We've seen those allocations increase significantly over the past few years, and then we had to meet that demand with products, so Commonwealth we took a lot of time to increase our offering set for our advisors.
And give them everything that they need now. So we're very competitive in that space.
What do you think is the biggest misunderstanding when it comes to alternatives.
A lot of folks think alternatives.
They think they see on the news these returns of one thousand plus percent. I said, that's not your alternatives. The alternatives have a role in the portfolio, usually that uncorrelated or lack of correlation. They're not all returning answers and having that discussion, particularly when you're talking to clients as well. You could have had that discussion and frame.
That correctly, so meaning that investors come to and they're like, all right, let's use my portfolio by big time exactly exactly.
We haven't seen are real or maybe ask another way, have we seen our Are you concerned about seeing a big correction in private equity, in private credit in headgshrends?
We haven't really seen that, have we?
We haven't.
You know, private credit is one area I'm staring at and seeing what's going on there. We have seen non accruise and defaults start picking up a little bit. The interest rate cut will help that out. But if we start thinking about those lower middle market type of companies, they are highly indebted. The longer interest rates stay, the more they're going to struggle. And that's the concern that
I'm watching the upper market. These type of companies usually are more resilient, not tied to the economy like the lower middle market, So I'm not as worried about that, but lower middle marketing.
What other questions are you getting right now, either from investors or from other arias well.
It's funny a lot of people say where do you go?
And one hand, I can make a strong argument where the economy is going, and it's we're going to go and look at the equity markets. We're going to perform very well. On the other hand, you can see a tiring economy. So a lot of people say, what do you do in this? So we're having discussions about absolute return hedge funds really not making any direction bets here, just taking idiosyncratic ideas. Let's leverage those up a little bit and get those returns. And that's what we're having
with those folks having those discussions. Longer term, we are having that private equity discussion, and we're talking about the public markets declining, the opportunity set where can you go and private equity makes a.
Lot of sense.
Crypto is that in the conversation you didn't mention it.
That's actually interesting.
It's very it's very episodic, and when it comes a lot of people will jump on there. But when they start seeing those swings, a lot of people think they have that stomach for that volatility, but at the end of the day, they truly don't.
So we've seen that, Wayne net What about.
Gold and yeah, start there and then yeah, I know we do like gold.
We're not gold Bug, so to speak. We think there makes a lot of sense there. And the one thing I always look at, if you look at the international buyers, they're going to jump in, so there's a supply to man factor in there. Obviously you have the interest rates I tied in there. Gold has been on a great tear. We do think it makes a lot of sense in the polio still and we have to look there's a lot of volatility risks out there, so I think Gold should say the portfolio.
For the long term.
All right, Rob, thank you so much for joining us. Really appreciate it. Rob Kane.
He's the director Alternative Investments at Commonwealth Financial Network.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Alex Steel, Paul Sweeney.
We are broadcasting live in Orlando at the World Center Mariot at Commonwealth's National Conference for Financial Advisors. Joining us here this morning is Peter Aslink, Senior Vice President, head of advisory solutions for Commonwealth Financial Network. Peter, talk to us first of all, thanks for joining us here and in various processes going to their meetings before they bug out for the hurricane.
Talk to us about the.
Portfolio management platform you guys pro for your RIS.
Sure, absolutely so. We have two main platforms at Commonwealth. One is an advisor discretion or DIY platform where they are responsible for all trading oversight, full discretion into portfolios, management, choosing securities, et cetera. The complement to that is called PPS Select where it's a home office discretionary portfolio where advisors can outsource all management responsibilities to us.
Oh okay, so would you be in place of like AI then, because like isn't that what AA is supposed to do?
It is, and what we're doing has developed new solutions. Really, what we're trying to do is redefine the way advisors that think and work with their client relationships. Where if you look at the investment management industry over the last twenty years, by and large, it's mostly become commoditized, right where if you look at the assets in the universe, approximately seventy five percent of model based assets follow ten providers and in large part a lot of those providers
are their own proprietary strategies. So we've taken a bit of a different approach with our strategy, where it's a multi manager approach. We have over one hundred different models, and most recently we're announcing some new enhanced features, beginning with personalized indexing, which is more commonly referred as direct indexing, and as you know direct indexing, the features that come
with that, it's greater personalization, customization. Tax efficiency really takes it from an environment where advisors have moved into largely adopting one to five portfolios where they assign clients into one of those allocations, to now expanding to an infinite number of possibilities and allocations through utilizing personalized indexing alongside using it as the core alongside other elements of the portfolio with mutual funds and ETFs.
So, I mean, that's some of the talk we hear at these conferences is that you want your ri as your advice be spending more time with the clients, less time with plumbing and all that kind of stuff. So how does do they do most to I guess, outsource the management of those of that capital their clients.
That's great question.
So two thirds of our advisors outsource and utilize the PPS Select platform. We've run a number of different analyzes, and the advisors who predominantly use an outsourced solution at Commonwealth on average grow faster and they receive better performance.
And that actually coincides with a lot of the literature that you see across the industry where you know, it's not rocket science if you're spending more time in front of clients, engaging with them, servicing them, really driving the advisor alpha piece which comes through financial management or financial planning as opposed to focusing your time and energy on picking stocks and mutual funds on a daily basis. You know, it's pretty evident that you're going to grow faster and
receive better performance. It's kind of like a general contractor, right, they don't want to if you're building a house, You're not going to focus on every single element. You often outsource and sub least two different subcontractors.
So then how are you guys using AI.
AI comes in different forms. As it stands today, it's mostly on the technology side, and it hasn't really other than direct indexing hasn't really made a major splash and
what we're doing from a management perspective. But if you extend that, I mean we are looking at things and going to be rolling out next year tax transition of portfolios, so seamless tax transition, or an advisor could pick one of our models, establish a capital gain budget and then it'll seamlessly tax transition over to the model.
And that would be AI and technology that.
Would do that, yes, exactly.
In addition to that, there's tax overlay, which is the constant monitoring of portfolios to seek out loss opportunities that can be used to offset gains in the portfolio.
So imagine tax loss harvesting.
Constant tax loss harvesting. So think of an environment next year where advisor sits down with their client and says, I was able to generate forty thousand dollars in losses to offset of forty thousand dollars gain in twenty twenty four in an up market.
Right.
So these are some of the capabilities that we're going to be launching next year that really takes things to the next level from a money management perspective.
One of the real interesting growth stories, and I think just global financial services over the last decade has been the growth of ETFs. How do your advisors use ETFs and is it at the expense of maybe traditional mutual funds.
Absolutely, I mean it's a trend that I think the ETF assets in the marketplace have recently surpassed mutual fund assets and that they do serve a place. But honestly, I think directing indexing is going to overtake ETFs where it's one of the fastest growing spaces. There's additional benefits beyond because you can tax lost harvest in an up market and as well as a down market. For instance, the S and P five hundred. In any given year, thirty five percent of the holdings in the index are down.
You can't harvest those losses in a mutual funder ETF. You can do so when you own them individually through a direct index and a separately managed account. So I really see direct indexing as being the future for investment management.
Just for me, define direct index Oh, thank you sure, sir. A great question.
So direct indexing is owning through a separately managed account the individual securities of an index like the S and P five hundred. Right, So, with a mutual funder ETF it's a pooled vehicle of securities. Direct indexing, it's a sampling of securities from that index, oftentimes the top one hundred to one hundred and fifty names that you own outright.
So at any given time, some of those names are going to be at a loss predominantly hopefully majority of them are going to be at a gain, but you can harvest the losses to offset gains over time, and it's all done through advanced technology.
Amazing. When you talk to advisors, what are the things do they want you to help them with?
I mean, it really is across the spectrum, everything from what time of fee exposure or fee arrangements should I have with my clients, to what type of outsourcing capabilities are on the platform. But what we've seen recently is advisors really looking up into higher net worth and ultra higher networth clients. They demand and are asking for allocations and securities that go well beyond just traditional mutual funds
ETFs and a smattering of bonds and equities. So we're seeing all to play a bigger role in that space. Direct indexing, as I mentioned, just more sophistication beyond the robot commoditized exposure that you see a lot of advisors using historically, what's.
The best way have you seen in your career? Kamath for an advisor to grow his or her business.
The most successful advisors that I've seen have really gone through a segmentation exercise where they segment it out into ABC and D clients. Generally, the clients are in the A and B bracket are bringing in the majority of the revenues, and they look towards the C and D clients as a good outsourced option. So spending your time and energy aspects of your business while outsourcing perhaps some of those clients that aren't generating as much revenue for your practice.
When you say these CND clients outsourcing, what does that.
Mean Generally smaller accounts.
So they outsourced to where either.
An internal discretionary platform that we offer or one of the other TAMP providers turn key asset manager platforms that we have available through our network.
How do new advisors grow their business? I mean, is there a strategy for successfully growing your business from the ground though it's.
Very difficult these days to go the cold calling method, as you quite know. So what we've seen is a lot of advisors and we have a network that we've created for anybody interested in getting into the business, will actually pair them up with existing offices. As you've probably seen today at or this weekend at our conference, we have a number of universities that have also been represented.
So we're continuing to expand our network, both across graduates as well as undergrad areas to continue to expand that network.
What's the interest level for young kids.
We're seeing it.
I would say in the past few years it's picked up pretty significantly. It seems like from most grads it's either financial services or tech right, So I'd say there was a bit of a lull after the two thousand and eight financial crisis, but in recent years we've seen a significant uptake and interest. Absolutely.
And what's the activity I know it's always I've been in the business since mid eighties. It's always been a decision for advisors at wirehouses like a Merrill Lynch or something whether to go on the independent route. How has that changed during.
Your career, Yeah, it's.
Again in recent years.
I do a lot of the prospect visits where it's newer advisors coming in and just trying to understand our business model. More and more, we're seeing advisors coming from the wirehouse channel. Whereas you go back ten to fifteen years and it was mostly transitions from the IBD space. But advisors are in the wire space are looking just for more independence. They don't want to be told what products to sell, right, They want the entire spectrum, the
entire universe of the options. They want to do what's best for their clients, not necessarily what's in the best interests of their partner firm. So that's what the independent channel really offers them as full capabilities.
All right, Peter, thanks lot, really interesting. Thank you so much. Peterlaesla excuse me SPP, head of Advisory Solutions, a Commonwealth financial network kind of working us through a portfolio management platform for Commonwealth advisors there. Thank you so very much.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Alexa playing Bloomberg eleven.
I'm Alexi alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We're broadcasting to you from cloudy, albeit a little rainy and windy Orlando, Florida. We are at the Commonwealth's National Conference for Financial Advisors. The theme is the Future is Now, where Commonwealth brings lots of advisors together and they talk and give ideas and they help them guide them through
the market, guide them through this volatility and this uncertain time. Well, joining us now for his take is Chris Pasiano, Senior portfolio manager at Commonwealth Financial Network. So when you talk to other advisors and you guys, are you know, hanging out doing what advisors do, and you talk about the volatility and you talk about all the uncertainty out there, is there a consensus about where markets are going?
Oh?
I don't think there's a consensus at this point. But the advice that we give a Commonwealth remains the same no matter what the consensus is, and that's keep calm and carry on. There's there's always opportunities the market, no matter what's going on, and sometimes volatility presents those best
opportunities that you can add value to clients' portfolios. So I think in general, the consensus right now in the marketplace is that the FED will successfully and guide the economy to a soft landing and inflation's moving in the right direction, and people view that as a supportive background for the markets.
How important are earnings for your market? Call Chriscus.
We're gonna have JP Morgan is gonna be kicking off this Friday, another round of earning season. We'll get another lookout Corporate America is doing. How do you frame out earnings for your clients.
Yes, so we're encouraged by earnings at this point, but it is an important element of the future direction of the market. We look at our acid class decisions, and any investment decisions have two pieces to valuation and in fundamentals, you need both of those to have good long term investments. So we've been encouraged by earnings growth. Look at twenty twenty not surprisingly because the global economy was shut down, earnings dropped. We had one good year of solid earnings growth.
These the economy reopened, and then in twenty twenty two. In twenty twenty three, Corporate America struggled with inflationary pressures,
cost increases, and earnings flat lined. The rally we saw over the last couple of years has then been due to valuations expanding But if you look now, as you mentioned, we're about start earnings period for the third quarter at the end of the week right now, consensus estimates are for ten percent growth this year, and even better from an earnings perspective for next year, fifteen percent consensus earnings growth.
And is that going to be in mags seven or is that going to be in the other four hundred ninety three six.
This is the best part I think for the market going forward, is that for the time being, all that earnings growth has been in the magnificent seven. So if you come back to what I said, valuations fundamentals, that's why those stocks have acted so well. But what we're going to see next year is the beginning of the divergence within earnings growth start to close. So you're going to start to see better earnings growth from the rest of the market, and we believe that that will lead to better.
Breadth in the market.
So you'll see not only the other four ninety three start to work, but small cap mid cap they should begin to participate as that earnings gap narrows.
How do you guys feel about just real simply stocks versus bonds here because I can now get a decent year to my two year government treasury, I can if I want to take a little credit risk, I can do a little bit more.
Bonds are relevant. That's how we fail about the equity bond mix. But we don't try to time the market at Commonwealth. We think it's really hard, if not impossible. So we believe that you should have allocations to whatever the appropriate equity target is for your client and fixed income. But as you point out, bonds are pretty attractive now
because you can get yields across the curve. And one of the things that we have spent times talking to advisors about is to make sure that you take advance to increase your duration and move out on the curve where you can still get relatively attractive rates as your money market and CD rates come down. But if you look historically, anytime the Fed has cut rates, high quality fixed income, longer duration has outperformed cash going forward.
We've asked this question to a bunch of guests over the last two days in terms of alternative asset allocation, and is it sixty forty zero, is it fifty forty ten, is it sixty thirty ten. I'm doing all that fast math.
It was pretty good, right, yeah, thank you?
The how do you look at it?
So we deliver solutions to our advisors to use for their individual client situations and deliver the appropriate allocation for them. So we offer over one hundred different model suites at Commonwealth, and we have models with alternatives in our model suites that are used by our advisors. We view that as keep fixed income as your core and use alternatives.
So whatever was forty forty.
Twenty would be the way we look at it, and have alternatives that tend to have equity like exposures, so you can participate but de risk the portfolio's going forward.
What are you hearing this week in Orlando from your rias that maybe you.
Haven't heard in the past.
I think the big question really is fixed income. Understandably, what happened in twenty twenty two still leaves a lot of scarves, and people don't necessarily want to go back into fixed income if they've lost their ability to provide ballast when the equity markets provide volatility. Right, and I look at it, the scenario that we had in twenty
twenty two is the perfect storm. Rates went up, they went up fast, and they surprise people but we believe that going forward that historical relationship between equity and fixed income will continue. And if we get into a period for equity volatility, you'll see more like twenty twenty where bonds went up what the equity market. So we're having those conversations with advisors of getting people comfortable back.
In the bond space.
Oh, what's their biggest misconception? You think about that thesis?
Oh?
I think people look and it's human nature.
Right.
We all look at short term interest rates and see four seventy five and we see four on the tenure.
Yeah.
Right, but you've got to think of the total return that is available to you across your portfolio.
Right.
So we believe in balance and diversification to navigate uncertainty in portfolios. So instead of trying to time it and make that shift, gradually make that shift and have the balance and diversification.
All right, Thanks so much, Chris. We really appreciated Chris, Senior portfolio manager of Commonwealth Financial Network. We appreciate that.
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