Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

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Hurricane Matthew

Written by Nick Schiavi.

hurricane-facts 0Hurricane Matthew was a scary time for DWM as it approached the US. For one, we know how devastating natural disasters can be to people’s lives, businesses, homes, and general well-being. Secondly, Matthew could potentially have directly affected our DWM family as it was expected to first touch the US in South Carolina, where half of our team and many DWM clients are located. It was an unsettling experience as our Charleston team/clients, along with much of the southeast coast, were instructed to evacuate to safety.

As Hurricane Matthew first formed as a category 5 hurricane and started its approach toward the US, analysts from JP Morgan projected it to be the second most costly US hurricane on record for insurers, behind Hurricane Katrina in 2005. To earn this devastating title, Matthew would need to reach a total of $25 billion in insured losses. While still devastating, the most recent projections from CoreLogic (a real estate data provider) estimated around $10 billion in total losses, making insured losses between $4-6 billion. If these totals are confirmed, it would make Hurricane Matthew the 22nd most devastating storm since WWII, according to a recent estimate by Goldman Sachs. By the time Matthew made landfall in the US near McClellanville, South Carolina, it was reduced to a category 1 hurricane.

Even with Hurricane Matthew having inflicted significantly less damage than originally projected, Goldman Sachs still estimates it may cost about 5,000 US jobs in October. When storms like Matthew hit, jobs in the restaurant, hotel, and education sectors normally suffer the most. For example, 30,000 jobs were lost in those sectors when Hurricane Sandy struck, however, 40,000 jobs rebounded (mainly in construction) during the rebuild of the 2012 catastrophe.

While businesses almost always suffer and sometimes risk closing their doors when catastrophes like Matthew strike, homeowners can typically expect a higher burden. “These days homeowners who live close to the coast tend to opt for a 5% deductible on the hurricane wind damage portion of their policy,” said Bob Hunter, Director of Insurance for the Consumer Federation of America. Meaning: a homeowner, whose $500,000 house was fully destroyed, would have the obligation to pay $25,000 of repair costs before the insurance company covers the remaining $475,000.

While it is good news Matthew did not strike the East Coast with the force we originally expected, that reinsurers will likely be able to cover all insured losses, and that only .003% of all jobs in the US will be affected; it all pales in comparison to the 34 lives that were lost in the US and over 1,000 lost in Haiti. DWM’s thoughts and prayers go out to all families affected during this awful natural disaster.

P.S. Our new Charleston office at Church and Broad streets came through unscathed with no damage.  And, Les, Ginny Wilson, and our newest team member, Grant Maddox, and their families evacuated and all were safe and dry.  Grant, by the way, is a recent College of Charleston graduate in finance who has had some very interesting internships.  These included a stint as deputy finance chairman for the successful campaign of Charleston’s current mayor, John Tecklenberg.  Please join us in welcoming Grant to the DWM team.

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Brexit- A Surprise?

Written by Les Detterbeck.

brexit-first-starThe Brexit vote Thursday was a big surprise to some. As voting closed, some London bookies were putting the odds of a vote to leave at less than 10%.   Pollsters and “experts” had shown a 10 point margin 24 hours earlier for “Remain” yet “Leave” prevailed 52%-48%.   Stock markets don’t like surprises and responded with declines of 3% to 9% worldwide before markets closed for the weekend. With the flight to safety, as expected, most fixed income and some alternatives, especially gold and some managed futures, were up.

The result shouldn’t have been a surprise. We said the referendum was “too close to call” a month ago in our blog.  http://www.dwmgmt.com/brexit/.  In large numbers, the “Leave” supporters were expressing their anger with the status quo and a desire to return to the “good old days.”  They haven’t benefited personally from globalization and now their homeland is being “taken over by immigrants.”

The issue isn’t just Britain leaving; it’s really about the future of the EU.  EU institutions have failed in a number of key areas; including lack of planning and administration relative to the integration of the various member nations and migration of people among the countries.   Now, Britain and the EU have two years to work out what could be a highly acrimonious divorce.  And, while this is happening, all across Europe countries, including Germany, France and Spain, will be holding national elections debating the question of whether sovereignty and nationalism outweighs economics.  These same issues frame the U.S. Presidential election and others around the world.

Despite Friday’s selloff, Brexit is no Lehman.  Back in 2008 after the collapse of Lehman Brothers, investors indiscriminately fled all assets connected to the American housing bubble.  Subprime mortgages had been sold to investors worldwide and panic spread like a virus.  This time, the trouble is more identifiable.  London’s ambition to be the world’s most important city is over.  The pound has lost some luster.  The EU will likely continue to splinter and perhaps disband.  If nations reject globalism and free trade, world economic growth will likely be reduced.  In 2008, central banks did not recognize nor prepare for the mounting disaster.  Today, the financial systems in the U.S. and Europe are less leveraged and better capitalized than eight years ago. Just last week, all major American banks passed the new stress test requirements.  The CBOE, Market Volatility Index, or VIX, remains far below the level of past panics.

The U.S. economy should weather the Brexit storm. American companies remain more insulated from global developments than any other country.  U.S. companies generate 70% of revenues domestically.  U.S. corporate balance sheets are strong, interest rates are low and the U.S. economy is on a pace for a 2.5% growth in the second quarter.  Consumer sentiment remains strong in the U.S., coming in at 93.5.

However, expect more volatility. Britain’s decision to leave the EU could cause more fault lines in Europe.  Elections across the globe could reverse globalization’s trend.  Chinese growth could continue to decline. There is always a list of potential fears, many of which never materialize (e.g. the “hyperinflation” predictions of 2010 due to Quantitative Easing).

Some investors have not recovered financially and/or cognitively from their losses of 2008.  They are dedicated to making sure that never happens again.  No drawdowns for them-every market blip is cause for concern. “Another collapse is coming.” This risk aversion has led them to miss a huge run-up in U.S. equities (200% since 2009) , as well as decent returns for fixed income and alternatives in the last seven years.

Certainly, one day the expansion will end and investors will feel some temporary pain.  But, trying to determine when and how that will happen is a money-losing proposition.  Maintaining a well-diversified portfolio is a better approach than having a fearful, concentrated one.  Equities, in the long run, will outperform fixed income and alternatives.  And, as we discussed in our seminar last October, the equity “premium,” obtained for taking on risk, will continue- impacted greatly by inflation and economic growth.  Lower inflation and/or lower growth, means lower equity returns.  Your risk profile determines your appropriate asset allocation and the volatility of your portfolio.

Hold on tight, the road ahead may be bumpy, but, since no one knows the future (not even the “experts” as demonstrated above), it’s the best route we have to accomplish our goals for the long term.

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Career Crossroads: The Right Path for My Career in Wealth Management

Written by Nickolas Schiavi.

 

Fork roads in steppe on sunset background

I’d like to start by introducing myself.  My name is Nick Schiavi and I recently joined the Detterbeck Wealth Management team in the hopes of learning wealth management and becoming a Certified Financial Planner.  As I approached the end of my college days, I thought I had everything figured out.  I was about to graduate from Northern Illinois University with a Bachelor’s degree in Finance, Marketing Minor, and a Professional Sales Certificate.  I studied these subjects with the intent of pursuing a career in wealth management.  This seemed like a fairly straight forward career path at the time with the thinking that strong advisors are good with numbers, comfortable with communication and receive the proper training.  I had no idea there were so many different routes this career path offers.

Out of school, I accepted a job with an insurance company and thought I was on my way to becoming a financial planner.  On the first day of training, we were required to cold call and set up meetings with the goal to sell life insurance.  The company did a great job selling the in-training representatives on the idea a whole-life insurance policy is the best place to put your money for retirement.  The other trainees and I were impressed when learning a policy and reinvested dividends grow tax free and can (somewhat) diversify a portfolio.  It made me wonder how many other/better approaches there are in the field.  If a whole life insurance policy is the answer to everyone’s long term financial needs, then why doesn’t everyone just do that?  Why is the field so complex and difficult?  Why do hundreds of books and dozens of TV shows analyze this topic to no end?  I knew there was more to it and I wanted to learn.  So… I decided on a new path and set out to interview at as many financial services companies as possible, and this time, do as much due diligence as I could before making a decision.

I started my search by applying to all of the major wirehouse and brokerage firms with the assumption they were the best at what they do and train their employees to be the best in the industry.  That is what I had heard and believed.   However, the more I interviewed, the more it dawned on me all of these companies are similar in practice to the insurance company that first employed me.  The business model they use is to have their employees pass the licensing test, start selling the products and achieve required sales goals to keep their job.  Many times I was told I could give it a shot, but it would be better to get a sales job for a couple of years and come back when I was ready.  Why would I get a random sales job to become a better financial advisor?  If anything, it seemed I might forget most of what I just spent four years studying in school.

What I really felt was most important was to find someone to mentor me in the industry. I was ready to work long and hard to learn the complexities of investing, planning and overall comprehensive wealth management.  I wanted to believe there are advisors who succeed by being investment experts and wealth managers, instead of being great salesmen.  Don’t get me wrong, sales is great and arguably the most important aspect to any business.  I just felt a financial planners’ best skill should be financial planning, not sales.  The tides turned when I received the advice to look on NAPFA.com and search fee-only advisors in my area, ultimately leading me to exactly what I had been looking for at Detterbeck Wealth Management.

Since starting at DWM, I have learned a lot and now respect how many different hats a strong wealth management team must wear in order to best serve clients.  One of the first things I learned is how little people know about the industry and how easy it is to believe that the big firms are the best place to invest your money.  It reminds me of golf, it is a game of opposites; if you swing left, the ball curves right- swing right, the ball curves left.  Wealth management is similar.  It is normal to think having your money with a big firm is a good idea, it makes sense to think they are the best at what they do (given all the marketing dollars they have to convey that message).  In reality, it is the RIA (Fee-Only Advising) firms who typically have the best client-centric culture rather than a company-centric mentality.  At DWM, it’s about providing value to customers.  These are the advisors who place their clients’ interests first in a fiduciary manner and do not make commissions on sales.  RIA firms like DWM bring clients on slowly to fully understand their needs and create the best possible plan.

All in all, the start to my career has been great.  Coming out of school I wanted to learn this industry and had no interest in “faking it until making it.”  There is no faking at DWM; every time I am given an increase in responsibility it is because I have been trained and fully understand what I am doing.  I’m new to the real world, but this seems like the proper way to run a business – especially one focused on helping people achieve their personal and financial goals.

Nickolas SchiaviEditor’s Note:  Please join us in welcoming Nick Schiavi to our DWM team.  Nick joined our firm in late April as a service associate and is training/learning/working toward becoming a junior advisor. Welcome aboard, Nick!

 

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