Castle Rock Investment Company

Independent Guide, Trusted Partner.

Michele Suriano

Water Cooler Wisdom: Fourth Quarter 2015

by

“What, if anything, can the rest of the world do to mitigate the volatile China impact?” – Anonymous client

Great question…and unfortunately, I don’t know the answer. Free trade is a basic American principle than underpins our capitalist system (my editor removed “mostly capitalist”). Of course, we all know that free trade isn’t truly “free” and America still operates from an unfair position with China. This is not new in 2015 but what’s changed over time is how quickly information is disseminated to “investors,” (human or not) and the speed at which our intermediaries can transfer funds.

Watching China move from a manufacturing to a service economy is like watching an awkward teen move into adulthood. You can’t hasten the pace, or make them mature overnight, since some things just take time. China implemented market circuit breakers on the first day of trading in 2016 that were tested that same day. Trading was suspended for 15 minutes when the market (CSI300 Index) dropped 5% and halted the rest of the day after the market dropped 7%. The circuit breaker was deactivated later that week after halting trading twice and exacerbating the market sell-offs it was designed to limit.

Back at home, the U.S. economic numbers generally look sound but there’s nothing to get excited about. We are missing that one glaring opportunity to spur inflation and, in turn, wage growth. Long-term GDP growth of 1.5% is a yawner, labor force participation is down to 62.5%, and we know the graduating class of 2015 is the most indebted class ever.  In other words, they’ve already consumed a larger part of their future income than previous graduates. Talk about a drag…on the economy.

It is ironic but a drop in the value of the U.S. dollar, an increase in interest rates, and a drop in the supply of oil actually sounds good right now (see “Oil Markets”). It makes me long for the days of 13% interest rates and long lines at the gas pump when you could only fill up on odd or even days (depending on the last number on your license plate).

But then again…stagflation is depressing. I’d take today’s economy over the 1970’s any day. Economists disagree on whether there will be three or four Federal Reserve rate hikes in 2016 (see “The Fed and Interest Rates”) and in spite of a 0% return in money markets, we have almost $12 Trillion in cash (notice the capital “T,” see “Cash Accounts”).

Conclusion
As usual, we recommend a balanced portfolio with a risk profile suitable for each investor’s tolerance and goals. 2015 seemed to play out the new normal of volatility, but we should continue to invest wisely, steadily and with discipline. Volatility is here to stay.

Water Cooler Wisdom: Third Quarter 2015

by

During last quarter’s review meeting, I promised a snarky review this quarter, but “good grief” as Charlie Brown would say. The “Grexit” story from July feels insignificant at this point. Greece is now negotiating the “transfer” of over 50,000 migrants and refugees. In fact, the International Organization for Migration reported that more than 35,000 migrants and refugees arrived in Greece during the first week of October alone for a total of almost 435,000 since January.

Perspective: It’s hard to get upset about a reduction in your pension check when you are surrounded by refugees who were forced to flee their homes by armed conflict. A tough year is all relative.

The vast majority of Syrian refugees have fled to neighboring countries, including Turkey (about 1.9 million), Lebanon (about 1.1 million), and Jordan (about 630 thousand). The impact of the global migrant crisis and the response by government leaders is a bigger issue than can be addressed here. Germany is expecting more than 800,000 people to claim asylum this year, which may provide a little relief with their aging demographic issues. Perhaps a silver lining?

But let’s move on to the stories that impacted the bottom line.

China Slowdown

At the beginning of August, we became aware of the ongoing slowdown in China when July’s Purchasing Managers’ Index (“PMI”) fell to 47.8. Just eight days later, the Chinese government unexpectedly devalued the Yuan by 2.0%, surprising markets and sending stock prices tumbling around the world and making us all believers that something was awry in China. When the August PMI came in at 47.3, it reinforced concerns of a global slowdown. That weighed even further on global commodities and markets prompting the Fed to leave rates unchanged yet again. It appears that China is struggling to transition from an investment-driven economy to a consumer one and they may have mistakenly used one of their tools as a sledgehammer.

Commodities

Remember the days when it seemed as if China was going to either consume or contractually gobble up most of the world’s natural resources? It reminded me of when my father would complain over dinner about the Japanese buying up Manhattan real estate in the 1980s. The purchase of Rockefeller Center really lit him up. In the slides that follow, you’ll see China’s immense consumption of industrial metals in 2014, a dramatic drop in its GDP contribution from investment in 2015, and the current level of commodity prices.

Conclusion

As usual, we recommend a balanced portfolio with a risk profile suitable for each investor’s tolerance. Participants will not be pleased when they receive their third quarter statements but, hopefully, we have all learned to invest wisely, steadily and with discipline. Good grief.

Full Report with Slides

White House Memo: A Moment of Opportunity for Fiduciaries to Retirement Plans

by

Famous showdown between "Fast Eddie" Felson and “Minnesota Fats” in the iconic American film, The Hustler
Showdown between “Fast Eddie” Felson and “Minnesota Fats” in the iconic American film, The Hustler

If you think we’re letting go of the “fumbling children” reference made by FSI chairman Adam Antoniades, you have another thing coming. He reminds me of the proud “Minnesota Fats” character in the classic film The Hustler— he doesn’t want to recognize the truth and talent of the situation he’s faced with by “Fast Eddie” Felson (Paul Newman), because it means that his reign as best player has ended.

Mr Antoniades goes so far to call the leaked White House Memo from January 13 simplistic, though it refers to more PhD studies than his fumbling response could even spell, so he’ll have to try and respond again.

[Read more…] about White House Memo: A Moment of Opportunity for Fiduciaries to Retirement Plans

Declaration of Independence

by

“Can you be more specific?”

Embarrassing, but true: the retirement industry is asking that of the US government.

The definition of a Fiduciary needs to be more specific because of cases where Plan Sponsors are legally charged unreasonable fees for a long time, but the Department of Labor’s interpretation is undesirable to Wall Street. Of course, Wall Street is on the receiving end of these unreasonable fees.

As an investment advisory firm who identifies in writing as a fiduciary to our clients, we uphold the interests of our client above those of any other interest, because we have no other interested parties. The unfortunate reason that other investment advisors will not agree to sign a fiduciary agreement with a client is because they are “promised” to a large company, who profits from a retirement plan through hidden fees.

While the Plan Sponsor is unaware of this other agreement, and often the Investment Advisor is not entirely upfront about this agreement with the Plan Sponsor’s representatives, it comes out in the end through hidden fees and a whole mess of ugly policies.

The sort of game run here should be illegal. Not because the Plan Sponsors are not careful, instead they often are smart and diligent, but because they are simply not protected by the law. Up to this point, the law is unclear. The Independent Advisor they supposedly hire is not, after all, independent according to a stricter definition now proposed by the Department of Labor, led by Phyllis Borzi.

Insist upon a clear definition of an independent advisor so that you know your advice comes for the interest of your retirement plan, and not for the interest of someone else’s quasi-legal activity. Sign the petition at http://www.thepetitionsite.com/414/401/760/tell-washington-to-stand-up-to-wall-street/

 

Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans. www.CastleRockInvesting.com

Not that Complicated

by

FSI Chairman Adam Antoniades, from Think Advisor
FSI Chairman Adam Antoniades, from ThinkAdvisor

In any fight, there are two sides waving their arms around.

The Financial Services Institute, or FSI, states in response to a recent White House memo that changing the way the delicate fiduciary system is run will ruin everything. The Financial Services Institute, or FSI, is in opposition to redefining the Fiduciary Standard as it is proposed because of various reasons, some more partisan than others. In general, the FSI puts investor advisors first, and the DOL puts workers and clients first.

How could increased or maintained responsibility of advisors lead to greater abuse of power? Among the first things said by the FSI is the atypical “hrrumph, well people outside the industry just don’t understand the complexities of how we deal with these things.” When in reality, it’s not that complicated: you protect the interest of your clients retirement if you are forced to put their interests first under the law, so why not stop dancing around this and just execute the priority anyway?

Demand protection for your retirement you deserve. Sign the petition to here at SaveOurRetirement.org: http://saveourretirement.com/take-action.html

 

Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans. www.CastleRockInvesting.com

Risk Management: Employee Retirement Plans

by

Risk ManagementCastle Rock jumps through hoops to be among the best investment advisors. Not every investment advisor goes through the same rigorous training because these hoops are not legally required. We do not think that making best practices a legal requirement will diminish our status as one of the best firms around, but we do think that selecting an investment advisor should be less risky for Plan Sponsors.

You are supposed to be careful of sales pitches that avoid using the term “fiduciary” but stress “education” instead, because those are not interchangeable services. The difference between these services would be like exchanging accounting for bookkeeping services, or medicine with surgery, or heads with tails in a coin toss. Providing education does not negate a need for a fiduciary; rather, a fiduciary investment advisor should be around for cases where education does not meet the plan’s needs, and an expert opinion is necessary.

How confident are we that Castle Rock is the place to turn? We are the best retirement investment advisor around. You can check our About Us section to be sure, or better yet Contact Us.

Our qualifications exceed all of these expectations, but you may want to check to see if your own advisor is able to eliminate some of the risks to you as a plan sponsor[1]:

  1. At least 50% of assets under management in qualified retirement plans (ours are 99%);
  2. Has an Accredited Investment Fiduciary™ or similar designation;
  3. SEC Registered Investment Advisor (RIA);
  4. Make sure your advisor has been working in the industry for at least a decade;
  5. Get a fee agreement that clearly states how the fees will be charged; and
  6. Make sure that fiduciary status is in writing.

To show your support for conflict-free advice in all retirement plans, please sign the petition here at: http://www.thepetitionsite.com/414/401/760/tell-washington-to-stand-up-to-wall-street/

 

Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans. www.CastleRockInvesting.com

How May I Help You?

by

Castle Rock is dedicated to making retirement transition easy for you. One of the best ways to do that is to be with you in retirement transition and throughout the different stages of your retirement. We are excited to announce that we will soon offer a Retirement Transition Service to ease the retirement process for individuals, and to provide our clients with the piece of mind that all participants are taken care of.

Because we want you to have a part in how we build this new service, please reach out to me at Katherine@CastleRockInvesting.com with your comments and goals for retirement. We will try to incorporate as much as we can into the best service for you.

Stay tuned as we introduce the details of this program!

Retirement Security with Simplicity and Ease

by

While “Retirement Security with Simplicity and Ease,” is Castle Rock Investment Company’s tagline. nothing is actually easy or simple about figuring out retirement plans. To give an example, we are in the trenches this week – up to our ears in work.

Our team works tirelessly because we care about our clients’ employees’retirement accounts that they have worked a lifetime to save. We admire institutions that find the best way to organize their plans and we love what we do becausewe believe thatfinancial futuresshould not be dependent on the rats and super-rats of finance.

  • We have the highest quality assurance procedures. Michele Suriano, President of Castle Rock, and Kristen Sanchez, Director of Communications, read and ask questions about every piece of material that is posted to our website or that is distributed to our clients.
  • We solve problems in a collaborative work environment. There simply isn’t enough space or time to sweat the small stuff here and we are always available to clients for resolving issues with their funds or for responding to their concerns about economic conditions, etc.
  • We complete projects on a timely basis.
  • Our flexible framework makes accurate work a top priority. Once I misunderstood an assignment and wrote about the wrong topic. Michele, our President, helped me re-organize my workflow to avoid such errors in the future. Not only do we strive for our work to be timely, it is also consistent and accurate.
  • We have strong working relationships with our clients. We spend time sharing information with our participants. Outside of our quarterly visits, we also offer educational services and comprehensive investment advising.
  • We utilize our resources efficiently and thoroughly. If we don’t know an answer, we will find one. We meet monthly to discuss improvements to our communications strategy and to brainstorm new ways to improve our client experience.
  • More than anything, we encourage our clients to know where we stand among our fellow pension advisors. We strongly believe in the work that we do and we are proud of our unique fiduciary role with our clients. A good fiduciary will re-evaluate their professional relationships at least every three years and we encourage our clients to challenge us and do the same.

We work very hard to make retirement simple and easy. So, from the bottom of a heap of binders, sticky notes, and pages – thank you for the opportunity to work for you. If there’s anything we can do to make planning easier, please let us know.

 

Katherine Brown completed a Master’s degree in Global Finance, Trade, and Economic Integration from the University of Denver. She can be reached at Katherine@castlerockinvesting.com.