Planners Still Prepping Even Though Fed Holds Off
Though the Fed declined to raise rates immediately, many advisors and their firms are taking the longer view with clients.
"If clients are on pins and needles over whether the Fed raises or lowers, they are focusing on something that should not affect their financial security. Advisors can view events like this as opportunities for teaching moments that can lead clients to a much less stressful investment experience," says Daniel Moisand, CFP and principal at Moisand Fitzgerald Tamayo.
In declining to raise rates, Fed officials cited weak inflation as well as threats to economic growth.
"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed said in a statement. Fed Chairwoman Janet Yellen told reporters at a news conference that while the unemployment rate had fallen to 5.1%, the labor participation rate remained relatively low and "growth remains subdued." Stocks flucuated following the Fed's announcement, while U.S. Treasury bonds rallied sharply.
"Clearly the Fed believes the recent slowdown in China will have a much bigger spillover effect on the U.S. economy than what we have witnessed up to this point," says Jay Sommariva, senior portfolio manager at Fort Pitt Capital Group, a wealth management firm in Pittsburgh. "The linkage between the two economies is greater than at any point in history and ultimately could cause disinflationary pressures in the U.S.," he adds.
In anticipation of the Fed's decision, some advisors have been taking preemptive action. LPL advisor Winnie Sun of Sun Group Wealth Partners in Irvine, Calif., says her team has been discussing potential rate hikes at client meetings and also providing daily videos all week.
Ginger Snyder of 360 Wealth Management of Raymond James says that her team's recent measures have included upping cash levels while reducing clients' exposure to international markets and sectors that are typically sensitive to interest rates, such as utilities and REITs.
"We see the equity market as still volatile and have been increasing cash levels since the beginning of this summer," Tampa, Fla.-based Snyder says. "After seeing some of the technical indicators we follow move to washed-out levels and now reverse up, we have recently started employing some of our cash back into the equity market. Until we see the volatility index decrease, we will move ahead cautiously."
Some advisors reported that clients weren't paying much attention. Greg Onken, an advisor with J.P. Morgan Securities in San Francisco, said most of his clients are "relatively unconcerned" because they know that any rate increase would have been small.
"We spend a lot of time talking with our clients, and they recognize that rates have been at historical lows and have been expecting rates to rise for some time," says Onken, who says he has been discussing rates with clients for several years now.
'VOTE OF CONFIDENCE'
Freddy Menjivar, a director and advisor at Deutsche Asset & Wealth Management, says he is paying more attention to the Fed's tone in explaining its choice rather than its actual decision, saying he wants to see "a more hawkish tone so their credibility isn’t undermined, and they confirm that the economy is stable."
Some advisors felt the Fed missed an opportunity.
"In many ways, a move today would have signaled a vote of confidence in the U.S. economy and taken a key piece of uncertainty out of the markets," says Brad Friedlander, managing partner of Angel Oak Capital Advisors, an Atlanta-based firm.
"There was clearly dovish sentiment emanating from today's statement, largely centered around global flare-ups and growth concerns. This leaves market participants more confused and points to continued volatility through year-end," Friedlander says.
While the Fed deferred action for now, Alex Vicencio, a managing director with Wells Fargo Advisors, says he has been reminding his clients that a hike will come. The Miami-based advisor says many clients have asked him whether that will be good or bad for their portfolios. Vicencio says he has been emphasizing their total returns as well as their diversification strategies.
Clients need to “look at the liability side of their balance sheet to ensure they are properly positioned for upcoming rate moves," Vicencio says. --Additional reporting by Andrew Pavia, Maddy Perkins and Andrew Shilling.
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