Locally based CPA firm since 1956

The Markets – U.S. equities began the month of March with year-to-date gains of 7.41% but have since slipped a bit with a year-to-date gain after the close March 31st of 5.99%.

Washington – As suspected, 100% of the Democrats and some of the Republicans would not support Trump’s proposed Health Care repeal and replace. We remain concerned that the president promised a “phenomenal” plan to cut taxes. With that promise, the markets have held a fairly steady pace with positive returns, and we view the risk of investor disappointment as extremely high.

The Fed –Recent jobs reports support a growing economy and the Fed is expected to continue raising rates. The conversation now includes how the Fed will address the reduction of its own balance sheet.

Headlines – I recently read about Edward R. Murrow, who some consider to be the greatest journalist of the 20th century. In mentoring young journalists, it’s said that he opined, “Everyone is entitled to his own opinion, but no one is entitled to his own facts.” It seems journalists and politicians alike could heed this advice.

On another note, perhaps the scariest headline is the uncertainty concerning North Korea. China does not want a democratic country on their border, thus they do not want the United States to take military action against North Korea. The United States, and most of the world, do not want North Korea’s Kim Jong-un to have nuclear capabilities. He is considered one of the most unreasonable and unpredictable leaders in the world today. The U.S. certainly doesn’t want him to have the capability of launching a nuclear weapon capable of reaching our west coast.

Upcoming: President Trump recently ordered a review of the Department of Labor’s proposed fiduciary rule. I am concerned that investors and the non-investing public have overlooked the practical implications of this rule.

To review briefly, the rule requires that brokers and other financial professionals who offer investors advice on retirement accounts, act as fiduciaries, putting a client’s best interest ahead of their own financial gain. Specifically the rule would target high fees, commissions, and products such as annuities.

On first brush this rule appears to be a no-brainer. Why wouldn’t investors expect their brokers to act in their own best interest? Well, that question is like a drawer full of knives. If you stick your hand in and swirl it around, you will get cut. Currently brokers must suggest products and services that are suitable. This means they may have multiple products or plans that are suitable but can steer investors towards those products or plans that pay the best commissions.

The fiduciary rule takes the level of suitability to a higher standard and forces the broker to recommend the product or service that’s in the best interest of the client. In other words, he must choose the best product or service from among those that are suitable, regardless of the fee or commission. Fees, by the way, are an important factor when determining the potential outcome of an investment.

Common sense would dictate that you, as an investor, would want to hire someone with your best interest as the standard. However, brokerage firms and their lobbyists do not want this standard imposed because it will cause a downward pressure on their bottom line and increase the risk that their representatives (the brokers) will violate the standard.

Why did President Trump provide more time to review the rule, effectively slowing or possibly eliminating the chance that this rule is ever imposed? Well, look as his cabinet and advisors- Scaramucci, Ross, Soros, Mnuchin, etc. They are all from Wall Street. At a minimum, they have a potential for conflict of interest when dealing with this rule.

We at WCM Wealth are Registered Investment Advisors and as such have been held to this higher standard of fiduciary duty for many years. We sincerely see this rule as an added layer of protection for investors and hope that the Department of Labor is successful in implementing this rule for the sake of unsuspecting investors. It doesn’t guarantee you will get better advice or not lose money, but it does require a higher standard of care from individuals with whom you receive advice.

Book recommendation: Invest Wisely by Lawrence S. Pratt.

Have a question? Let me know! Email me at kcompton@wsmtexas.com.