Personally Invested In Your Future™

  1. The Proprietary Product Dilemma: Why Families Should Prefer Independent Advice

    For high net worth families, one of the many pitfalls that is not often discussed when hiring and evaluating a wealth advisor is the use of “proprietary products” in their investment portfolio. The use of proprietary products is very common in the investment industry. Here is how it works: a family hires a bank or large financial firm to manage their investment assets. Over time, the family begins to see that their portfolio is increasingly full of mutual funds and investments that bear the name of the firm that they hired.

    Let’s say that a wealthy family hires ABC Bank and Trust Company as their wealth advisor. The bank initially recommends a diversified mix of stock and bond funds to comprise their investment portfolio, from what they believe to be the best managers in the investment universe. But at the next annual portfolio review, the family suddenly notices that a number of new mutual funds have been added to the portfolio, all managed by ABC bank. When a wealth advisor is recommending the addition of funds managed by their own company, they are selling proprietary products.

    What is the issue with proprietary products? Unfortunately, the use of proprietary products creates the potential for non-objective advice. Many advisors are financially incented to add proprietary products to a family’s portfolio. The advisor is likely getting paid more to sell those internal funds.

    When hiring a wealth advisor, a family should expect that their wealth advisor is always on the same side of the table as them. In other words, any advice or investment recommendations from the advisor should be expected to be done in good faith—representing what the advisor believes to be the best investment strategies that are available to the client and not influenced by advisor compensation. But when proprietary products come into play, this expectation of good faith may be compromised. When pushing investment products created by their own firm, an advisor may not be recommending what might be the best investment strategy.

    At Brown and Company, we have always been independent. More than 30 years ago, Mark Brown made the strategic decision to work with an independent Broker Dealer, LPL Financial. Accordingly, we have never offered proprietary products to our clients. Indeed, LPL Financial does not offer proprietary products. When we make investment recommendations to our clients, our choice of investment managers is objective and straightforward.

    If you work with a large financial firm or bank, how many of the individual mutual funds and strategies in your investment portfolio bear the name of your wealth advisor? In some cases, it can be more than half of an investment portfolio. This would be a good reason to re-evaluate your situation and seek a second opinion. High net worth families deserve better. The right kind of advice can be valuable, but independence and objectivity should always be the expectation.

  2. What Business Owners Need to Know to Successfully Transition

    According to a survey from PriceWaterHouseCoopers, 3 out of 4 business owners surveyed said they “profoundly regretted” selling their company. Watch this 2-minute video to learn about how we work with business owners to prepare for transition into retirement. You can also read our case study to get more details on our process.



    Click here to take our Buyout Barometer® assessment. This complementary report will help assess whether there are any possible opportunities for you to reduce taxes, minimize risk, or create sustainable income. Or just provide your contact information below so we can schedule a short initial phone conversation.

  3. U.S. Economy Continues Strong Growth

    The U.S. economy grew by an annualized rate of 3.2% in the first quarter of 2019, according to the Bureau of Economic Analysis in late April.  The growth was surprisingly strong, as the consensus estimate of Dow Jones-polled economists had estimated a Q1 growth rate of 2.5%.  The reading from the first quarter inspired confidence, as many economists and Wall Street pundits have suggested a potential economic slowdown in 2019.  At least with respect to the first quarter of the year, no slowdown is in sight—the Q1 GDP number is the best first quarter number since 2015.

    Behind the strong growth numbers were several factors.  First, U.S. exports increased while imports decreased in the quarter. Second, inventories grew more than expected.  Finally, consumer spending was up slightly more than expected.  With the unemployment rate at 40-year lows and reasonable wage growth, the U.S. consumer is healthy and in a position to spend.  Combining all of the economic growth factors with a low inflation rate at the end of 2018 and real GDP for Q1 surged.

    The report is mostly a reason for optimism and supportive of continued growth in the financial markets.  Ultimately, the U.S. stock market is only as strong as the profits of the underlying public companies that comprise it.  With surprisingly healthy GDP growth comes a better foundation for profit growth across private industry.  While earnings estimates for U.S. companies have been more subdued for 2019, sustained GDP growth of above 2.5% will significantly improve the broad outlook.

    There are some aspects of the Q1 GDP report that do call for caution.  A significant build in inventories, like we witnessed in Q1, can create headwinds for a future quarter’s growth.  We may see more modest activity in Q2 and Q3 as a result of rising inventories—businesses have to work through their existing supplies before ordering more goods.  And while personal spending was healthy in Q1, it remains relatively subdued when comparing historical trends.  Still, the report on balance was more positive than negative.

    The final factor to consider is that these GDP reports are backward-looking.  Much like the reporting of jobs and unemployment data, the GDP growth report is a historical reading of what happened in the economy.  While it is an important consideration in understanding the health of the broad U.S. economy, the report does not forecast what will happen in future quarters.  We look to other economic data and signals, such as the shape of the yield curve and movements in credit spreads, to tell us about the prospects for future economic health in the U.S.

    In sum, we welcome an excellent reading on the health of the U.S. economy and remain diligent in monitoring the situation for the remainder of 2019.