That Was The Week That Was- 3rd Week October

 

No One Writes of Says Anything Bad About Trust Companies. Maybe They Should…

 Trust Companies are usually a division within a banking organization to provide fiduciary duties and act on behalf of a person or business entity for the purpose of administration, management and the eventual transfer of assets to a beneficial party.

In addition to bank linked Trust Companies you will also find independent Trust Companies, with no banking connection, that provide the same services and can be introduced through your lawyer, financial advisor, accounting professional or search online. (Call me for names).

Fees for Trust services range from competitive to outrageous. The quality of services also range from sophisticated, competent to clueless. Many, not all, Trust Companies have a broker-dealer relationship through their bank that handles the investment side of the client’s assets. The Trust department dictates to the investment management people how to invest the assets in the trust based upon their interpretation of their client’s needs. These same Trust Companies usually do not allow outside investment firms manage client’s assets even if they introduced the client to the Trust Company. They also ignore input from Trust beneficiaries. However, some Trust Companies do allow outside investment professionals.

A fee for the most basic Trust may be 1% of the account assets charged by the Trust Company and another 1% charged by the bank’s investment broker/dealer. In other cases there are Trust fees for services that range from 200-300 basis points plus the investment firm’s fees and investment management costs. It’s possible for a modest Trust account to incur annual fees totally 4-5% of assets which includes the investment management costs.

It is difficult to tell what you are buying when signing documents appointing a Trust Company. They all sound professional and experienced. The bad thing is that you may choose a Trust Company and then you’re not around to experience their lack of competency.

Here are some of the biggest complaints I have found about Trust Companies:

• Once the Trust is funded rarely do they reach out personally to clients after the point of sale, and smallish accounts get less attention than those with larger assets. Expect boiler plate letters and statements of charges deducted from the Trust account. 
• Trust asset allocations are mostly geared to the conservative side.
• Almost all services, other than the basics, are A la carte. Need accounting work? That’s extra.
• Trust Companies attract young lawyers with little experience looking, of course, to gain experience.
• Trust Companies may have revolving doors with both staff and Trust Officers leaving for greener pastures.
• Phone calls and complaints are like teeth to be pulled from a chicken. Finding someone to return calls timely or clear up a mistake is a process.
• Personalized investment service is almost impossible since the Trust Company sets allocation and risk parameters. Some have cookie cutter allocation for all accounts no matter size.
• One Trust Company recently contacted me and provided identical instructions for three Trust Accounts for three different individuals. When I attempted to have the Trust officer clarify how that was supposed to work she refused my phone calls and I never did get to speak to her. Subsequently the same Trust Company provided written instructions to sell all assets in two of those same three accounts at the lowest point in the recent 2015 market correction costing the client’s significant losses.

What to do:

• Ask your Trust officer for their qualifications and experience specifically in the area of Trusts and Trust management.
• Present hypothetical situations and ask the Trust office how they’d handle the problem. (Remember, that individual may be competent but be-gone by the time you revisit the offices).
• Shop and compare.
• Be aware of the revolving door and constant changing of staff.
• You can appoint a family member to act as Trustee if they are capable of managing money or the Trust is simple to manage.
• Look to a Bank Trust Company that allows your personal investment professional to handle the investment portion of the Trust ( Yes-The Trust Company could fire them and replace them with someone else).
• Negotiate all terms and get them in writing before you sign.
• Don’t be bashful to pull the business and take it to another Trust Company. Most people don’t know they can move an existing Trust from one Trust Company to another.

 HERE’S THAT R WORD. Recessions are strange economic moments. You cannot tell for sure you are experiencing one until it is over. Here’s the question, how long does a recession last? The following chart helps.

The fact that we’re due for an economic pullback isn’t surprising considering that it’s been over 6 years since the Great Depression 2.

Message to The Fed From IMF Central Bankers: Quit Dithering!

It’s called ‘Fed Fatigue’ and its enveloped emerging market officials to the point that they just want the Fed to raise rates and move on. The waiting is consuming unknown amounts of energy and creating huge amounts of uncertainty. The Fed understands and wants to mitigate more capital flowing to the U.S. markets once they do raise rates from emerging markets. The EMs understand that and have done what they can but say delaying the increase will not solve the issue.They say, almost in one voice, that those EMs that have taken on too much debt there will be a day of reckoning. Delaying a Fed rate hike won’t do much about that. The one thing good about all this most EM bankers realize is that the Fed has given them plenty of time to move their money and prepare. But it is the uncertainty that hangs over them and volatility has become a permanent order of the day. WSJ 10/11/2015

 

EARNINGS SLOWDOWN…

 

Bad News & Uncertain Markets Seem to Go Hand in Hand. Housing Bubble, the end of Emerging Markets are just two articles posted on CNBC.com Tuesday 10/13/2015. For investors looking for substance beyond the froth it’s difficult find. Robert C. Doll, CFA, in his weekly commentary, October 12, 2015:

• Modest levels of job growth should promote consumer spending.
• The rise in the dollar and corresponding decrease in energy prices shouldn’t hurt the economy as much as many think.
• We expect the U.S. economy to continue to accelerate modestly, but see possible drags. A correction in inventories and a drag from foreign trade will act as headwinds for the third quarter growth. 

PIMCO QUARTERLY UPDATE:

• U.S.Growth in the range 2.25%-2.75% next four quarters.
• CPI inflation 1.75%-2.25%
• Fed rate hike commences sometime in the next 12 months, but the pace of the hike will be even more gradual than previously expected.  PIMCO QUARTERLY JOURNAL 3Q 2015

 

 Clean Up, Aisle… Markets slide triple digits Wednesday as Wal-Mart forecast a 6% to 12% earnings drop for 2017. The bleak outlook dragged the DJIA down 100+ points shortly after the announcement. USA Today 10/14/2015

 

MARKETS CLOSED UP THURSDAY ON BAD NEWS! Speculation that the Fed would not hike rates in 2015 and not until sometime into 2016 rallied stocks 200+ on the Dow. New York Fed President Bill Dudley added that recent data indicated a slowing economy. Historically the last quarter usually bodes well for stocks and according to CNBC traders may well be trying to get ahead of the rally.

U.S. Economy Continues Modest Expansion, Beige Book. The report cited a strong dollar for holding back tourism in several cities while manufacturing turned in a mixed, but generally, weaker performance.- WSJ 10/14/2015

QUESTIONS, CALL PAUL @ pstanley@westminsterfinancial.com. SHARE THIS BLOG WITH SOMEONE WHO CARES ABOUT THEIR MONEY.

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