With a surprisingly strong 2013 in the books, many investors fret that the market is set for a 2008-style plunge. "Clients are eager to take advantage of the opportunities out there," says Richard S. Brown, of JNBA Financial Advisors, in Minneapolis, "but they're also wondering whether the market is for real."
The verdict from Brown and many of his fellow Top 1,200 Advisors: The market is legit -- just don't expect it to revisit last year's nearly 30% return. A more realistic range for domestic stocks is 8% to 10%, says Robert Runkle, a Merrill Lynch advisor in Montgomery, Ala.
This is a group worth listening to. Barron's Top 1,200 Advisors represent the cream of the crop from each of the 50 states and the District of Columbia.
We've expanded this annual state-by-state listing from 1,000 advisors to 1,200 to include, for the first time, Registered Investment Advisors, or RIAs. Ranking independent advisors alongside those employed by the large brokerage firms presents some challenges, because they are regulated by different agencies -- the Securities and Exchange Commission and the Financial Industry Regulatory Authority, respectively. But the effort was worth it -- we've wound up with a ranking that represents the top 1% of advisors with substantial practices.
As with all our financial-advisor rankings, this one is based on assets under management, revenues generated by advisors for their firms, and quality of practices. We examine regulatory records, internal company documents, and extensive questionnaires filled out by the advisors themselves.
Investment performance isn't explicitly a criterion, because the advisors pursue a wide range of investment goals for their clients. Since the clients tend to be wealthy -- typically with a net worth north of $20 million -- the goal is often preservation of assets. Last year, the advisors increased their assets under management by an average of 12%, counting both investment gains and new business, up from 10% the year before.
In assembling the rankings, we included more advisors for the larger states than for the smaller ones, in proportion to state populations. In the end, we identified 363 new advisors -- top-notch pros who weren't on the list last year. And some 26 states emerged with new No. 1 advisors.
So what, exactly, can you expect if you sign up as a client of one of our 1,200? The best advisors, of course, don't rely on predictions. Few, after all, foresaw last year's stock market rocket ride. Instead, they make sure you stick to well-thought-out plans that suit your long-term goals and risk tolerance. That means rebalancing portfolios even when it hurts.
"[Some clients say] they don't want to rebalance because the market is going to continue to rally," says Shawn Fowler, with Morgan Stanley Private Wealth Management, in Denver. "That's when you should probably be rebalancing."
To be sure, several of our top advisors are decidedly bullish. Rod Westmoreland, a Merrill Lynch advisor in Atlanta, is among them: "If this was a baseball game, we'd be in the top of the third in an extra-innings game."
James Atwood, with Merrill Lynch in Boston, believes the market will average returns of 15% a year for the next 10 to 15 years. Merrill Lynch's Thomas Buck, in Indianapolis, is a big believer in the U.S. economy's potential. He believes the smart money is on cornerstone businesses such as railroads and airplane manufacturing. The best opportunities "are going to be primarily in the fundamental building blocks of our economy," he says.
BUT MANY OTHERS are more cautious. James B. Stack, in Whitefish, Mont., warns that only one bull market since 1930 has lasted beyond seven years. And Wells Fargo partners Wayne Pichon and Margaret Price, in Anchorage, Alaska, are making a point to embrace flexible investment managers who, "if things got incredibly nasty, could be out of the market completely, say, or short the market," says Pichon.
The U.S. isn't the only place to fish for stocks, of course, and many advisors see European issues as significantly underpriced. Steven Hefter, with Wells Fargo in Deerfield, Ill., plans to increase allocations to Europe to 17.5% by year end, up from nothing in mid-2013.
Meanwhile, the country's best advisors have been getting creative to find yield as bonds continue their funk. Erik Morgan, with Seattle-based Freestone Capital Management, is launching a fund to lend to middle-market businesses, which should generate yields of between 8% and 12%.
On the more conventional side of fixed income, munis are regaining popularity. Fowler, for instance, hails high-quality, 12- to 15-year issues, which have a tax-equivalent yield of 6.5% to 7%.
Munis' revival is partly a function of clients' concern over rising taxes, including the 3.8% investment tax under Obamacare. "Tax efficiency has become a bigger part of the conversation [with clients]," says Mark T. Curtis, an advisor with Morgan Stanley in Palo Alto, Calif.
Gregory Cash, with Merrill Lynch in Charlotte, N.C., agrees, urging clients to get their accountants' input as they make investing decisions.
BUT IT'S NOT just taxes that can eat away at wealth, says Robert Rathbone, a Wells Fargo Advisor in Boise, Idaho. The combination of taxes and "the invisible tax of inflation" will combine to erode money over time, he says. Rathbone's advice: Own what he calls real assets, such as real estate and shares of companies. "If we're going to preserve purchasing power over time, we have to own real assets," he says.
The middle-market lending fund run by Freestone's Morgan, meanwhile, takes another tack in hedging against inflation: The fund's floating-rate loans are designed to counter inflation.
Whatever their outlooks, this year's Top Advisors share a common view: Client money should be invested with a clear view to personal goals. And advisors should handle that money as attentively as if it were their own.
Most on the list have been at it for some time. The average advisor is 53 and has been in the business for nearly 27 years. They've typically been with their current firm for 19 years.
By and large the advisors are backed by teams of financial professionals, with the typical team handling about $2.2 billion in assets. That's up slightly from $2.1 billion a year ago -- the additional 200 advisors, with mostly smaller practices, restrained average growth.
Perhaps the best measure of these advisors' value is their average annual retention rate of clients: 98% in each of the past three years. If only the rest of Wall Street could put up numbers like that.
With a surprisingly strong 2013 in the books, many investors fret that the market is set for a 2008-style plunge.