Welcome to Financial Advisor IQ


Russell’s Noonan Weighs In on Alternatives, Bonds

By Crucial Clips     April 9, 2014
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ , Apr. 9, 2014 

CHRIS LATHAM, REPORTER, FINANCIAL ADVISOR IQ: This is Chris Latham with Financial Advisor IQ. I’m here with Tim Noonan, Managing Director of Capital Market Insights at Russell Investments. Tim, I’ve actually heard people say that alts are the new bonds, meaning that fixed-income investments don’t provide enough risk mitigation to equities. So investors are going to have to look elsewhere for diversification. What’s your reaction to that?

TIM NOONAN, MANAGING DIRECTOR, CAPITAL MARKET INSIGHTS, RUSSELL INVESTMENTS: Well, when people say that alts are the new bonds it’s a little bit like saying that orange is the new black. At the end of the day, one is still orange and one is still black. I don’t think that alts are the new bonds, in particular. I would encourage advisors to think more along the lines of alts and bonds rather than alts or bonds.

CHRIS LATHAM: So would it be safe to say that things like private equity and long/short funds aren’t necessarily going to replace AAA corporate bonds?

TIM NOONAN: Absolutely. And those are strategies that have a role in a broadly diversified portfolio. But they are not in and of themselves a specific replacement for bonds.

There’s a tremendous amount of misinformation about whether or not investors should hold bonds in a rising-rate environment. Many investors believe, mistakenly, that bonds won’t be a good investment in a rising-rate environment. That’s not, strictly speaking, true. Especially for those investors who are in actively managed bond portfolios.

CHRIS LATHAM: All right. Now, it’s tax season. For many investors, that’s the first time that in black and white they see how taxes affect their investment strategies. Are the weeks after April 15 the best time for advisors to talk to clients about tax-efficient investment strategies?

TIM NOONAN: The sooner the better. If the first time that an advisor is going to talk to their client about this happens to correspond with the weeks ahead, I would encourage them to do that. But there is no question, taxes are going to increase. This is an area, this is an incredible opportunity for advisors to add economic value to their client relationships by thinking about how to manage the tax burden more effectively.

The advisor’s ability to do tax-smart investing on behalf of their client is not only an excellent way to increase the retained wealth in their client portfolios, but to prove to their clients that they are actually an agent on their behalf. The successful advisors who really bear down on this tax question are going to be the winners.

CHRIS LATHAM: Wouldn’t you say that investors are still traumatized from the crash of 2008 to 2009?

TIM NOONAN: Well, they’re a lot less traumatized being able to open their statements and see 30% plus type returns in the U.S. equity market last year and even continuing into this year. So there probably are many, many investors who are for the first time in many years happy to open their statements. Whether or not that means that they have regained trust in the financial system, in the markets, in their advisors, in the government, that’s a broader question.

CHRIS LATHAM: Now for those clients who might still be a little uncomfortable with the investment markets, what can financial advisors do to help clients get back in the game and prepare for their financial futures?

TIM NOONAN: Be the best listener that their clients have ever known. That’s the thing to do — is to ask the questions. Ask questions about taxes; ask questions about spending; ask questions about estate planning. Ask, ask, ask.

Clients today and investors today need to be known, not simply to feel known, but to be known, and to have the answers to those questions actually connected to the advice they receive from their advisors so that they understand why it is that they hold the products that they hold in their portfolios.

CHRIS LATHAM: Thank you, Tim.

TIM NOONAN: My pleasure. Nice to see you.