60/40 Portfolio: Worst Performance in ‘Almost 100 Years,’ Yet Silver Linings

The RIA model has gotten even stronger each time the markets have been challenged, says a leading advisor.

By Linda Hildebrand 

Some of wealth management’s top experts see silver linings in the volatility in global markets.

On one hand, a 60/40 portfolio today has had “the worst annual performance of a 60/40 portfolio in the last almost 100 years,” said Raj Bhattacharyya, CEO of Robertson Stephens, an advisory firm based in San Francisco with more than $3.9 billion under management. “It has been a very difficult year for our clients.”

“But we’ve been in scarier times,” Bhattacharyya said.

In 2008, the whole global financial system appeared at risk during America’s subprime and mortgage-backed securities meltdown.

That was scary,” he said.

In 2001, the entire technology sector looked like a catastrophe with the dot-com bust, he said. Not only did the global economy recover, but the tech sector, like a well-pruned rose bush, came back as the biggest sector in growth and returns for almost 20 years.

And Wall Street survived the Fed’s 1994 “hiking spree,” he recalled from early in his career.

In context: “We’ve been here before,” Bhattacharyya said.

“In every one of these situations, a properly managed portfolio managed by an advisor who takes into account the client’s wealth plan has withstood the test of time,” he said.

Scott Slater, a vice president at Fidelity Institutional who hosted the roundtable, “Wealth Management M&S Trends in a Volatile Market,” in mid-October offered a proverb: “It’s often darkest before the dawn.”

At Fidelity, some deals have risen even in this on-again, off-again bear market, Slater said. “Activity is healthier than some of us thought.”

RIA business grows

Studies show the registered investment advisor (RIA) industry has continued to grow, even as it becomes more fragmented, said Peter Nesvold, partner at Republic Capital Group.

More than 500 new RIAs opened during the Covid-19 pandemic amid so many small businesses in general shuttering, he said. Similarly, some RIAs he knows that opened in 2008 are thriving now.

“It’s a testament to the resiliency of the RIA model,” Nesvold said.

That stands to reason, said Mark Tibergien, former CEO of Pershing Advisor Solutions.

“It’s hard to justify value when markets keep going up,” Tibergien said. Good wealth managers are essential, especially for business clients, in times like this.

“I see opportunity when there’s an oversupply of clients and an undersupply of people who supply advice,” Tibergien said.

So much so, he said, that RIA firms are competing for the shortage of talent, causing the same profit-margin challenge their business clients face in confronting rising compensation and overhead costs.

Redouble focus on relationships

RIAs should redouble their focus on their relationships with clients during these difficult times, Bhattacharyya said

“The relationship element is still the fundamental pillar of this industry,” Slater agreed. What has made the RIA industry special is its close connections to clients, he said. “There’s confidence in this model.”

Slater said now, more than ever, being introspective “is an important part of getting to the next step successfully.”

He suggested “Practice Made Perfect: The Discipline of Business Management for Financial Advisors,” which Tibergien wrote with Rebecca Pomering in 2005.

“I think (the book) is still very applicable to what we’re going through,” Slater said, even though the RIA industry is much different now.

“The biggest beneficiary of what’s happening here will be the validation of the RIA industry model and clients,” Bhattacharyya said. “The RIA model has gotten even stronger each time the markets have been challenged.”

However, Nesvold warned, the RIA industry should expect some modest decline in the volume of transactions in the next year.

“But I think people will be pleasantly surprised with how resilient the industry is,” Nesvold said.

Linda Hildebrand is a longtime newspaper editor and consumer reporter.

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