We’re living in volatile times. On Monday, February 5, the S&P 500 dropped 4.1 percent, the biggest one-day decline since 2011. The Dow also spun wildly, falling nearly 1,600 points before closing down 1,175 for the day. But the extreme drop was not a one-day occurrence. Over a two-week period, the S&P 500 lost nearly $2.5 trillion in value, with nearly half its sectors down more than 10 percent.
Two of the sectors-energy (-14.04%) and healthcare (-11.69%)-moved well into correction territory while others teetered right on the edge. All this whipsaw activity generated some panic within financial circles, causing many advisors to question the best way they should manage their accounts.
Flexibility & Control
At Beacon, we help eliminate the uncertainty of this extreme market volatility by offering our advisors a unique investment platform designed specifically for today’s market conditions, including:
1) Mechanical, stop-loss protection Don’t let recent market volatility make you or your clients forget our guiding principles! Each of our Vantage portfolios offers a mechanical stop-loss protection that removes emotion from the equation and provides a scientific, research-based approach to limit losses before they become destructive. This includes an automatic stop-loss trigger to move equities to fixed income when our internal Vantage Benchmark Index drops 10 percent from its high. For more resources on how we are redefining risk by maximizing diversification, minimizing losses and maintaining discipline, view and share our videos on these topics available on our website with your clients and prospects.
2) Blended portfolio design Through our series of Vantage portfolios, we offer a range of flexibility for you to design your portfolios, including sector-only stop loss, total equity stop-loss or a mix of the two in a range of risk profiles. Each of our models works to complement the others so they can be layered together to suit your management preferences and needs.
3) Override flexibility As described above, Beacon portfolios are designed to help remove the questions of when to buy and when to sell guided purely by research and predetermined parameters. However, we also respect your need to make updates to your portfolios as you see fit for your individual clients. Whether you view recent volatility to be a temporary response to interest rate movements or the beginning of a correction, you are able to make updates to your holdings at any time, as long as you have the proper documentation in place.
Documenting in the Client’s Best Interest
Although the Department of Labor’s Fiduciary Rule went into effect on June 9 of last year, an additional eighteen-month delay in its enforcement went into effect on January 1, 2018. One thing advisors still do need to adhere to, even during the eighteen-month transition period, is the impartial conduct standards portion of the best interest contract.
The key piece to keep in mind here is that advisors need to justify and document any changes they make in a client’s portfolio. For example, take into account the following scenario: What if we encounter another volatile slide in the market? And, what if the slide dips below the 10 percent trigger point? If an advisor chooses not to make that change into fixed income, as had been previously agreed upon, then the advisor will have to document why that recommendation-from model A to model B-was in the best interest of the client.
It’s in the advisors’ best interest, and for their own protection, to document why these changes were made to a client’s account. According to the DOL ruling, although the BIC is not being enforced at this point, there’s the potential for cases to be reviewed retroactively.
To learn more about compliance and best practices amid volatile markets, contact your wholesaler today!