Advisers brace for slower growth

MAY 01, 2013
By  DJAMIESON
Like everyone else, financial advisers are bracing themselves and their clients for a long-term slowdown in U.S. economic growth. Although the Commerce Department reported last week that the economy grew at a faster-than-expected 2.7% annual rate from July through September, that growth is expected to slow significantly in the months ahead because of Hurricane Sandy and uncertainty about tax hikes and spending cuts. Over the long term, a growing chorus of experts predict an even more significant slowdown in gross domestic product growth as baby boomers age. That has some advisers, such as Todd Ganos, looking for new investment options. “I'm moving to more international,” said Mr. Ganos, a principal at Integrated Wealth Counsel LLC. With declining or flat populations in Europe, Japan and the United States, “you have to look to other Asian, Latin American and emerging markets,” he said. “That's where the growth is.”

"BROAD MIX'

Decent returns with reduced volatility are “going to need to come from a pretty broad mix of asset classes,” said William Paxton, principal at Davidson & Garrard Inc., who has been warning clients about the slow-growth environment. He uses dividend-paying stocks, master limited partnerships, real estate investment trusts, non-U.S. bonds, gold and absolute-return strategies. Jeremy Grantham, GMO LLC's chief investment strategist, lit up the slower-growth debate late last month with a report predicting that the U.S. economy will grow at just 1.4% in the near future, not the 3%-plus average of the past 100 years. In simple terms, growth in population, employment and productivity combine to determine GDP growth. Mr. Grantham thinks that all three are declining. And while other economists and analysts — most notably Bill Gross and Mohamed El-Erian of Pacific Investment Management Co. LLC — share his view, not everyone agrees with his dire outlook or even thinks that would be cause for alarm, should it come to pass. Developed-country growth rates have been “remarkably stable” for two centuries at about 1.8% a year, Laurence Siegel, director of research at the Research Foundation of the CFA Institute, wrote in an article in the November-December Financial Analysts Journal. “There is every reason to expect the long-term trend to continue,” he wrote in the article, “Fewer, Richer, Greener.” An aging population indeed will put a drag on productivity growth, Mr. Siegel added in an interview. ”But what you're trying to get at is prosperity, and [productivity growth] isn't a completely reliable measure of it.” Per-capita GDP is a better yardstick and can fall with rapid increases in population, he said. In his article, Mr. Siegel predicts that productivity growth should continue apace since “creativity and invention have not stopped, but seem to be accelerating further.” Money manager Research Affiliates LLC has been pounding the low-growth drum for some time and, like Mr. Grantham, bases its gloomy forecasts in part on population trends. Christopher Brightman, head of investment management at Research Affiliates, beat Mr. Gran-tham to the punch last month with a research piece titled “1% ... The New Normal Growth Rate?” GDP growth “will be much closer to 1% over the next two to three decades” than the 3.5% the U.S. historically has enjoyed, Mr. Brightman said. He conceded that productivity growth “is notoriously difficult to pin down, so if those productivity numbers vary, I wouldn't be surprised.” Productivity numbers can be “sort of a mystery,” agrees Scott Brown, chief economist at Raymond James & Associates Inc. Mr. Brown thinks productivity gains will run from 1% to 1.5% per year over the next decade, and combined with population growth of about 1% will produce U.S. GDP growth of 2% to 2.5%. For advisers, raising the specter of slow growth is important, even if it is not clear how slower global growth might affect equity markets. “One of the most important things we can do is manage expectations, and if Mr. Grantham and Research Affiliates are trying to reset expectations, good for them,” said Tom Sedoric, an adviser with Wells Fargo Advisors. “We [advisers] should be doing the same,” he said. [email protected] Twitter: @dvjamieson

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.