PANC 2015: “Industry Insights”

Pensionmark and CAPTRUST executives talk about their strategic partnership.

Pensionmark Financial Group and CAPTRUST Financial Advisers formed a strategic partnership in March. At the 2015 PLANADVISER National Conference in Orlando, Florida, Pensionmark CEO Troy Hammond and CAPTRUST CEO Fielding Miller talked about what prompted the deal and how it is benefiting advisers.

Pensionmark has an adviser support program to help advisers respond to inflection points, Hammond said. Much like other advisers, Pensionmark hit an inflection point last year and wanted to expand. “We spent a lot of time last year evaluating how to take Pensionmark to the next level, to evolve. CAPTRUST and Pensionsmark have been very friendly competitors. We share clients as well as best practices,” he said. He then just picked up the phone to speak with CAPTRUST and started talking about the potential of working together.

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For its part, CAPTRUST “had a strategic interest in an affiliate because we expect the bull market for retirement plan advisers to continue for some time,” Miller said. “A lot of advisers will need a strong retirement back office, so we decided to partner with Pensionmark, allowing them to take a 49% stake. We have both an affiliate and a partnership model.”

NEXT: The various roles Pensionmark and CAPTRUST play

CAPTRUST is the broker/dealer, and Pensionmark supplies the back-office support and registered investment adviser (RIA) intellectual capital, Hammond said. “I’ve been in this business for 25 years and have had four partners. This is the first time I’ve had a partner with whom Pensionmark is philosophically and morally aligned. CAPTRUST has some great resources, which has allowed us to roll out the Smart Lifecycle custom target-date fund since forming the partnership.”

Miller added: “Troy and his team run the business. We are a strategic partner that brings capital and business acumen.”

As to whether the advisers the two entities serve are different or the same, Hammond and Fielding said that in both cases, they are retirement specialists looking to grow their business. Asked whether the advisers can be affiliates or acquired, Miller said it depends on the adviser preference. However, given the strong CAPTRUST and Pensionmark brands, “advisers to independent firms can benefit from affiliating under one brand,” he said.

NEXT: Upcoming trends in the retirement plan industry

As to the trends advisers will face in the coming years, Miller said that requests for proposals (RFPs) for advisers have become standard. “That will rationalize the industry,” as it will make it clear to plan sponsors which advisers only dabble in retirement plans, he said. Fee transparency will also bring increased competition from other advisers. “Our fees are out there for public consumption, so there is a lot of pressure for us to bring more value to the table.”

Thirdly, as investment menus increasingly use passive investment and target-date funds (TDFs), it will be a challenge for advisers to prove their value, he said. Fourth, he foresees more demand for advice and wellness programs. If advisers aren’t already offering this, they will be at a disadvantage, he said. Lastly, regulatory pressures are rapidly increasing. “The price of poker is going up. It will be much more expensive” to do business, Miller said.

In addition, advisers must think about succession planning, Hammond said. “Otherwise, your practice will dissipate,” he said. By partnering with CAPTRUST, Pensionmark solved this problem for itself, he said.

PANC 2015: Featured Speaker from DoubleLine Capital

Jeffrey E. Gundlach, chief executive officer and chief investment officer for DoubleLine Capital, shares his insights on central bank policies, global markets, pockets of opportunity and stress.

There are multiple reasons why the Federal Reserve will not raise rates for the foreseeable future, said Jeffrey Gundlach, chief executive office and chief investment officer at DoubleLine Capital, speaking at the initial session at the 2015 PLANADVISER National Conference in Orlando, Florida.

“One week before the Fed meeting on September 17, [Federal Reserve Chairman] Janet Yellin would have predicted she would raise interest rates,” Gundlach said. “Every risk asset class has gone down every day since then. Thank God they didn’t raise rates, because it would be worse.”

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The U.S. economy seems to be entering a “new phase,” he said. “Janet says she needs greater confidence inflation will go to 2% but that it will actually be weaker in the next few months. Global market conditions continue to deteriorate. I applaud the Fed for not cheerleading the markets. At least they are getting a dose of reality that the economy has been weakening. There are troubling developments in the markets. In September 2012, the Fed started [quantitative easing] QE3 at the rate of $85 billion a month. Now market indicators are worse than they were in September 2012.”

NEXT: Leading indicators

Gundlach then pointed to numerous indicators that point to weakness in the U.S. and global economies, starting with the Goldman Sachs Financial Conditions Index. “It’s worse than it was in 2012 and in 10 years.” The Bloomberg Financial Conditions index is now in negative territory, he added. Commodity prices are at a multi-year low—the same as they were in 1995. “Junk bonds are extremely sensitive to the economy and are now at a price of 36.4, a five-year low,” Gundlach said.

“Emerging market equities are at a six-year low and heading lower,” he said. “Why hike interest rates when emerging markets is in a free fall? Inflation expectations are at zero for the next two years. The bond market is yelling at the Fed that inflation is at a seven-year low.”

Gundlach also noted the Price Stats, which gauge increases in consumer prices, are now at -1.1%. The Employment Cost Index , at -0.2%, is at its lowest ever, he said.

The U.S. Dollar Index rallied by 25% in 2014 and is now moving sideways, “causing big problems for China since their currency is loosely pegged to the dollar,” Gundlach said. “The trade-weighted value of the Chinese Yen increased 30% over the past five years. It will be tough for China to go from an overbuilt economy to a consumer economy, especially since their population growth will be zero for the next generation. China has been the engine of global growth, but its market crash last year was akin to what happened in the U.S. in 1929” with the start of the Great Depression. China’s construction was 20% to 30% a year. Now it’s -11%, he noted.

NEXT: Global growth projections

As for emerging market currencies, Latin America’s declined 25% in the past year, he said. Brazil is expecting -2.2% economic growth in the next year. “Overall, global growth could be 1%, and it always has a dispersion around it, which means that that there will be plenty of countries that will be negative,” he said.

The JPMorgan Emerging Market Bond Spread is at 437.87, “a critical level and likely to spike,” Gundlach said.

“In the U.S., the stock market is worried about corporate earnings,” he said. “Between 2002 and 2007, the market grew nonstop, but it has been sideways since 2014, and it is down year-to-date because there is no earnings growth, indicating it will change direction. The S&P 500 had a massive spike downward in August. Today it is at 1932. Biotech, another driver of the economy, went up five times since 2012. Now it is declining. How can the Fed throw an increase against these conditions?”

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