How an RIA Eases Clients' Worries on Volatility, Inflation, Health Care

Clients continue to have concerns as high inflation and market volatility persist, according to Melissa Weisz, a wealth advisor at RegentAtlantic, an RIA based in Morristown, New Jersey, which also has an office in New York and manages $5 billion in client assets.

“Clients certainly have been worried about volatility,” she told ThinkAdvisor in a phone interview.

“They’re looking to be defensive. And I think if you look at last year, even early this year, the focus was really on how do we hedge inflation risk. And so that was leaning towards cheaper valuations — energy, for example, industrials.”

High inflation and how to “insulate a portfolio” from recession risk are pressing concerns, she noted. “That’s where I think valuations have started to matter where they didn’t matter for so long with sort of the crazy pricing we were seeing, particularly in software and tech.”

Now, she focuses on a value orientation for clients and “layering in more of a quality screen,” she said.

“So it’s looking at dividend payers, sustainable dividends, and I think even just telling a client, ‘Hey, you can get this sustainable dividend ETF and it’s yielding 3, 3½, 4%. That goes a long way.”

Although there is “still going to certainly be volatility, it helps keep people, I think, in their seats and it does help to provide some diversification versus maybe just a pure consumer staples play or a pure utilities play where people have really flocked to in those valuations are not terribly attractive these days,” she explained.

What it comes down to is “trying to provide sort of the peace of mind within the portfolio so that people can maintain that long-term plan,” she added.

Rising Interest Rates

Entering 2022, the Federal Reserve “really telegraphed that they were going to be raising rates,” Weisz pointed out.

“We thought it was going to be more of a gradual taper, a gradual increase” by the Fed, she said. Instead, “it turned out to be this really sort of aggressive rate increase that we’ve had.”

The firm has been educating clients on bonds, she said.

RegentAtlantic advisors were “defensive short duration and now we think rates are likely to still increase through the end of the year,” she said. “But if you look at yields on investment-grade intermediate-term corporate bonds, for example, you’ve got really high quality there.”

However, she says advisors at her firm are explaining to clients that “even if there is some recession risk, the yields are pretty compelling and … in a recessionary environment, locking in those rates at this point could work out very well.”

Rising interest rates are a major issue for clients with debt, she said.

Her recommendations for those clients affected by the Fed’s interest rate hikes include to use their credit card “like a debit card, get your points and pay it off every month.”

While most of her older clients do not carry credit card debt, their children are “not as fortunate” on this front, she said. For this group, “I think it becomes even more important than ever to pay off any variable rate debt that you might have,” she added.

Health Care Worries

Clients’ health care concerns extend to Medicare and Social Security, Weisz said, noting that the Inflation Reduction Act includes the expansion of the 3.8% Medicare surtax to help shore up Medicare.

“I think the inflation on health care is certainly a concern,” she said. “So, where we can, for people who are still accumulating” wealth, she and other RegentAtlantic advisors are “looking at health savings accounts, taking advantage of flexible spending plans, making sure that we’re modeling health expenses sort of separate from other expenses the same way we would college tuition.”

The rise in health care costs is “running at significant premiums to the core inflation” we are experiencing, she said. “Making sure that we’re modeling and really planning for health care” is so important because it is, after all, “such a significant expense and it’s really the only expense that goes up throughout retirement, where our discretionary expenses, we have a lot more control of.”

Recession-Ready

“I think that clients kind of know” already that a recession is likely, Weisz said.

“I actually think that March 2020 was really, really hard on clients,” she said, but added: “I think that they’ve actually [become] a lot more resilient, and sort of staying on plan versus [saying], ‘whoa, this is unprecedented. What do we do?’”

(Pictured: Melissa Weisz, wealth advisor at RIA RegentAtlantic)