With news of war in the Middle East this past weekend it’s natural for US investors to wonder, and even worry, about potential harm to our financial markets. Setting aside the human toll of violence and war, which is admittedly hard to do, we shouldn’t worry too much about how these events may impact investment values here at home.

That doesn’t sound right, does it? But it’s true. Investors as a group tend to look through most geopolitical events, violence, and social issues with relative ease after quickly assessing the situation and the actual risk to their bottom line. Stock futures tend to open lower on this sort of news, and prices for commodities like oil and gold rise along with Treasurys. Then market wobbles settle down as investors get their bearings. As one should expect, for investors (again, as a group) it’s all about the money. And that’s exactly how things played out in the markets yesterday before all major indices ended the day higher.

Details are still emerging from the weekend along with horrific stories and pictures. A big question as I write on this Tuesday morning has been to do with spillover, not to global markets per se, but the potential for broader conflict across the region. Something like that could certainly roil global markets, or at least mess with the price of oil.

Here’s a quick summary from my research partners at Bespoke Investment Group along these lines. They sent this out yesterday morning. I’ll italicize any emphasis or details that I’ve added since then.

From Bespoke…

Israel-Palestine: On Friday night, Hamas militants breached the border security separating the Gaza Strip from Israel and conducted widespread raids against both military and civilian targets. Despite the entire weekend processing, details are still sketchy but there were unquestionably atrocities committed in the initial incursions. A large number (likely in the hundreds, but as we said details are extremely sketchy) of Israelis have been taken hostage by Hamas. Subsequent strikes against Hamas have also resulted in both military and civilian casualties.

What is clear is that between the Hamas attacks and reprisals by the IDF [Israel Defense Forces] against Gaza, more than 1,100 are dead and that number continues to rise. Israel has formally declared war against Hamas Some geopolitical conflict is relatively unimportant for markets, usually because the risk to systems of production and consumption from those conflicts are narrow. For example, Islamic groups operating in the Sahel don’t impact US equity market earnings. But this conflict has a genuine (if relatively low probability) possibility of large spillover. Israel’s response within Gaza (as well as potential fighting in Lebanon where the IDF has reportedly fired on Hezbollah targets) is not particularly relevant outside markets like the Israeli shekel. What is more concerning for risk assets is the potential spillover to conflict against Iran. Hamas claimed on Sunday that Iran helped plan the attack on Israel, with the IRGC [Iran’s armed forces] providing a range of material and logistical support. That opens the possibility of broadening in the conflict to an Israeli war with Iran, something that would have a major impact on crude markets globally at the very least.

In the mid-20th century, Israel was deeply isolated within its region by the difference in religion (and ethnicity) between itself and its neighbors. But over the past decade, sectarian schism within the Islamic world has driven a change in attitude. Sunni/Shia divisions that were exacerbated by the chaotic aftermath of the US invasion of have re-oriented the priorities of countries like Saudi Arabia and the UAE towards opposing Iran instead of Israel. Iran is also Israel’s highest perceived foreign policy threat given the rank inadequacy of other local countries’ militaries relative to the IDF. The result is that Israel has steadily moved towards accords and normalized relations with a range of the Muslim countries near it, creating a sort of Israeli/Sunni alliance oriented towards Iran. We are overstating the dynamics somewhat for effect, but this is the general direction of travel and trend in the region and frames the risk for markets.

Under normal circumstances one would expect the attack by Hamas into Israel and responses by the IDF in Gaza to generate sympathy for Palestinians from other Muslim states nearby. But if Iran was intimately involved, and Israel decides to prosecute a war against Iran in response (never mind the logistics; Syria, Turkey, Iraq, Jordan, Kuwait, and Saudi Arabia are physically interposed) then it would be plausible to see other Sunni powers side with Israel rather than Iran and opens up the possibility of a shooting war in the Persian Gulf.

We say all of the above not as a forecast (it has a low probability of taking place), but to establish the risk for markets is a broadening of the conflict into a regional war. Without that broadening, the risk premium reflected by stocks, bonds, the dollar, and most of all oil will quickly retreat as is usually the case in periods of geopolitical instability. That should be the baseline. But expansion of an Israeli response to the east (either hinted at in rhetoric or carried out in practice) would have a much bigger impact, and strictly from a markets perspective, that is what should be watched for this week.

And then an update from this morning after much back and forth in the news since yesterday about Iran’s potential involvement…

Overnight, Iran’s Supreme Leader Ayatollah Ali Khamenei denied that Iran was “behind” the Hamas attacks in a post on Telegram. While that does not mean Iran could not have been involved, we have now seen Iranian involvement denied by Hamas, Israeli government sources, Iran, and American intelligence officials as well as spokespeople. That makes the likelihood of the conflict spiraling beyond Israel’s borders now extremely low, a clear-cut positive for risk assets (and clear-cut negative for oil) relative to the initial situation. While we will continue to follow developments, we consider the conflict now to have little short-term impact on markets. As we have previously said, our perspective here is from the very limited lens of analyzing market impacts; the violence and strife will be an important story going forward for other reasons, but one that will not enter our area of focus unless there are significant changes to the facts on the ground.

Have questions? Ask us. We can help.

Deciding to take a lump sum instead of ongoing pension payments is challenging. One option gives you a nice big check with all the associated possibilities and the other option promises years of much smaller monthly checks. Which should you choose? Is there one right answer?

Unfortunately, there’s no one-size-fits-all answer to this question. I have my professional biases and I’ll get to those in a moment. But as with most things financial it’s a facts-and-circumstances sort of issue and your “right” answer can absolutely be different from your coworker who was offered roughly similar terms.

During my time as a financial planner I’ve encountered this question hundreds of times. While the circumstances are often different, there are commonalities that help create a rough framework for how to think about these questions for yourself.

Along these lines I’m including portions of a recent WSJ article on this topic. The author gives her perspective after being offered an early pension buyout by her employer. Her approach is probably the most straightforward I’ve read, so that’s why I’m sharing it with you.

But first I’ll add some of my own thoughts.

Much of the decision process associated with this is emotional and that’s okay. Someone is offering you what seems like more today all at once when the alternative is waiting to receive what seems like less over time. Apparently this is why nearly half of people who are offered pension buyouts decide to take them.

The main problem with this is a lack of appreciation for how time value of money and the present value concept works. In finance, present value implies that money received today is worth more than the same amount received in the future. That seems straightforward so maybe that’s where many people stop. However, money received within a pension framework isn’t the same now or later because it gets adjusted for an assumed rate of return, inflation, or perhaps the yield on a government bond benchmark. This adjustment is meant to equalize the difference between now versus later.

The pension program guarantees your income based on how long they think you and other pensioners will live and how much they expect to make on plan assets along the way. It’s easier for them to simply cut you a check because then they’ll no longer be responsible for providing your income. They back out their assumed rate of return, which is higher these days as government bond yields have risen and mail you your check assuming that you’ll take the ball and run with it. Doing so takes a bite from plan assets but saves money in the long-term as the future value of those would-be payments is higher than the present value check you just cashed, assuming the pension managers invest prudently over time. Who benefits from these potentially higher future values? The retirees who opted to keep their pension.

Assuming you take the lump sum buyout, you’ll want to at least replicate the pension program’s assumed rate of return to come out even over time. If not, you've lost money. If you put your lump sum into an IRA, such as the WSJ reporter says she’ll do with hers, you’ll be taking all the responsibility of being able to pay yourself at least as much as the pension program would have. I don’t have any numbers to back this up, but I’ll wager that most people who take the lump sum and manage things on their own don’t accomplish this.

Because of this over the years I’ve recommended that clients choose the lump sum option less than 10% of the time. I know that most people prefer the sense of security that comes from receiving regular income. I also like them to worry a little less about how their investments are doing. And pension plans usually have lots of participants and assets, so risk is spread around versus the retiree going it alone in their IRA. (Obviously I can and do help manage these dollars for clients, but you see my point…)

So, if it’s “extra” money maybe go ahead and put it in your IRA, invest aggressively and grow it for somebody else, such as your kids or other beneficiaries. If that investment risk scares you or if you’re planning, perhaps ironically, to use the money for long-term income, you’re probably better off leaving the risk on the pension plan’s shoulders.

That said, there are a variety of reasons why taking the lump sum might be an option. Maybe you have other savings and investments to rely on. Maybe you have additional income beyond Social Security, such as rental income, royalties, or all that cash coming in from your encore career as an Instagram influencer. Maybe you have reason to be very concerned about the health of the pension program and it’s not insured by the PBGC (https://www.pbgc.gov/about). Or maybe you favor independence (as I do) and have other plans for the money, bearing in mind that it’s likely all taxable as you withdraw it.

From the Wall Street Journal (a link is below if you’d like to read the entire article)…

A few weeks ago, my former employer offered me a check for nearly $44,000. If I take it, I’ll have to give up a monthly pension of $423, scheduled to start at age 65.

Should I grab the $44,000—or keep the pension?

Deciding whether to take the money or keep the pension requires doing some math and weighing competing risks. Taking an upfront payment—as more than 40% of workers typically do—raises the odds you’ll run out of money in old age. But many workers have pension incomes that lack cost-of-living increases, leaving them vulnerable to inflation…

…Despite significant reservations, I’m taking the upfront money this time. That doesn’t mean you should do the same. Here’s what to consider:

Crunch the numbers

The math frequently favors keeping the pension, said Joshua Gotbaum, former director of the U.S. Pension Benefit Guaranty Corp., or PBGC, which insures benefits when companies terminate pension plans and lack the assets to cover promised payments.

To replicate my pension, I asked New York Life how much it would cost me to buy a deferred annuity that will pay me $423 a month, starting at 65. The answer: $55,531, which means my payout falls $11,531 short of what I’d need.

I could instead invest the money.

Assuming I were to earn the S&P 500’s long-term average annual return of 7.4%, my $44,000 would appreciate to $72,500 by the time I turn 65. Using the 4% withdrawal rate that long has been considered a relatively safe level of retirement spending yields an initial monthly withdrawal of $242. With 3% annual inflation adjustments, that wouldn’t grow to $423 until I am about 84. 

Reasons to keep the pension

Longevity is the main reason I kept my pension in 2015. The longer I expect to live, the more valuable my pension’s promise of a lifelong income.

Steve Vernon, a former pension actuary, advises people to keep a pension if they lack enough guaranteed income from other sources, including Social Security, to cover such basic expenses as food and housing.

A pension also makes sense for those who aren’t comfortable managing their money or might have difficulty doing so in their later years, Vernon added.

My pension is small enough that in the unlikely event my former employer falls on hard times and turns its pension over to the PBGC, my payment should be fully covered. (The PBGC currently insures up to $6,750 a month for a 65-year-old.)

Why I took it

I’m going to take the $44,000 and roll it into an IRA, where it can grow tax-deferred until I start taking required annual distributions at 75.

Why the change of heart?

As retirement approaches, I have a better understanding of our future finances, including other guaranteed sources of income.

Inflation also spooked me. My $423 monthly check seemed substantial enough back in 2015. But thanks to rising prices, I’d need $544 to have the same buying power today. Because my pension is frozen at $423 a month, it is going to buy even less when I’m 65, never mind 85. Having a guaranteed income stream that covers an ever-shrinking share of my future budget doesn’t seem that helpful. 

I hate to admit it, but my decision is also an emotional one. When I consider what my 2015 lump-sum would have grown to had I invested it in the stock market, it is hard not to feel regret. Since Jan. 1, 2016, the S&P 500 has earned a 12.25% annualized return.

To find out how much I’d need to earn on the money to match the promised pension income, I called Brian Tegtmeyer, an adviser in Dublin, Ohio. 

He said if I live to 85, I’d need to earn an average of 5.9% a year on my $44,000 to equal the cumulative income from my pension, assuming I invest my monthly checks and earn the same 5.9% return. If I reach 90, my lump-sum would have to earn 6.6% a year to equal the pension. At 95, the break-even return would be nearly 7%.

Because I’d have to take a lot of investing risk to keep up with the pension, Tegtmeyer recommends sticking with the pension.

But I have a high risk tolerance and I figure 6% to 7% isn’t an unrealistic average annual return to expect over several decades. So I’m going to invest the money and hope something remains for my sons, who aren’t eligible to inherit my $423 pension.

Here’s the link I mentioned… WSJ has a paywall so let me know if you hit it and I can send this to you from my own account.

https://www.wsj.com/personal-finance/retirement/pension-lump-sum-monthly-payment-retirement-f94ad69b?mod=Searchresults_pos2&page=1

Have questions? Ask us. We can help.

Good morning. Last week I said I’d be buying back some time by taking a couple of weeks off from posting these blogs. I’m sort of still doing that but wanted to share a few things with you anyway.

First, the Schwab “integration” is off to a good start. I can see everything, can do transactions and so forth, and you should have access available too if you’re interested in logging in directly to the Schwab site (assuming, of course, that I’m managing your investments and/or your accounts were at TD). Let me know of any questions.

Second and unrelated, I’m posting some snippets below from my research partners at Bespoke Investment Group about mortgage rates and the real estate market. This gets to the suggestion that the Fed has “killed” the housing market with higher interest rates. They haven’t killed it because there are lots of reasons why people move, but the squeeze is on.

Third and completely unrelated, I’m taking a moment to comment on the death of Jimmy Buffett last week. I found his “Gulf and Western” style later in life and memorized every word and note on Songs You Know by Heart. I didn’t grow up on it, but my kids did and suffered through me murdering the songs on accoustic guitar. And I wore out my digital copies of his 2020 albums, Songs You Don’t Know by Heart and Life on the Flip Side. Say what you will about his “island escapism” style or his… whatever, but I think those last two albums were just about perfect. Anyway, here’s a Tuesday morning toast to JB. He's most certainly resting in peace.

Snippets from Bespoke…

- The national average of a 30-year fixed rate mortgage is at the highest level in over 20 years.

- Rates for new mortgages are especially elevated relative to rates on already outstanding mortgages, and that creates no incentive for existing homeowners to enter the housing market or put their home up for sale.

[Last week] the Bureau of Economic Analysis revised data on the effective mortgage rate on outstanding mortgage debt through the second quarter. Whereas the aforementioned 7.23% mortgage rate is for anyone looking to enter into a new 30-year mortgage today, this effective rate can be thought of as the average rate being paid by existing borrowers.

While current mortgage rates are higher than any point of the past two decades, they are even more elevated relative to the effective rate on outstanding mortgages. As shown below, the spread between the current national average and this effective rate on outstanding mortgage debt is slightly off the highs from late last year, however, that spread remains at some of the widest levels since the late 1970s/early 1980s. Admittedly, the two rates are not perfect comparisons given that outstanding debt likely looks very different (with regards to borrower profiles, terms, etc.) from that of a new 30-year fixed rate mortgage, but the general point is the same: for the bulk of those who already have a mortgage, a new mortgage at current rates would incur significantly higher costs. That gives them little reason to enter the housing market, and thus, is part of the reason for the dearth in housing inventories.

[Comparing new mortgage payments to existing mortgages…] the spread is even more blown out and has far surpassed readings from the late 1970s/early 1980s, and the incentive for an existing home/mortgage owner to move looks even worse. Based on the current median price of an existing home and the current average 30 year fixed mortgage rate, the typical payment comes up to a little over $2,000 per month. Substituting that current 30 year rate with the effective rate on outstanding mortgage debt, the payment would be much lower at just $1,421 per month!

Have questions? Ask us. We can help.

The third quarter (Q3) of 2023 was negative for the markets and, with the exception of returns through July, there were few bright spots. Core inflation continued to decline during the quarter while the economy remained resilient. The combination of the latter two items led the Federal Reserve to pause raising interest rates during the quarter while signaling to markets that rates could remain higher for longer than anticipated. This theme was prevalent during the quarter and helped push down market sentiment.

Here’s a roundup of how major markets performed during the quarter and year-to-date, respectively:

• US Large Cap Stocks: down 2%, up 13%
• US Small Cap Stocks: down 4.7%, up 2.5%
• US Core Bonds: down 3%, down 1.2%
• Developed Foreign Markets: down 3.8%, up 7.6%
• Emerging Markets: down 3.3%, up 2.2%

The AI stock boom that began the year wasn’t strong enough to propel markets through Q3. Ironically, that boom contributed to the selloff in stocks over August and September as investors hit sectors like Technology, down 4% for the quarter, harder than Financials which was down 1.2%, or Communication Services, which was actually up 1%. That sector and Energy were the only sectors positive for the entire quarter. And September saw every sector but Energy down for the month. Even though performance wasn’t that bad compared to history, merely down low single digits, all major indices ended Q3 in “Extreme Oversold” territory, according to my research partners at Bespoke Investment Group. So the tone was decidedly negative regardless of what the final numbers looked like.

Bonds continued their poor performance during Q3. Even though the Fed pressed the pause button on raising short-term interest rates, investors raised them anyway by selling bonds across the maturity spectrum. Long-term bonds were hit hardest, with the typical government bond index down around 13%. Short-term government bonds eked out a positive return of about 0.6%, but the tone grew more negative as we closed out the quarter.

A big part of the negative performance we saw in Q3 was shifting opinions about if or when our economy will go into a recession, how bad it might be, and how high interest rates might rise along the way. This debate has been going on for many months now. Making this hard to pinpoint is that our economy continues to chug along due to a generally healthy consumer, a strong job market, and good momentum in the manufacturing and construction sectors. This, while the Conference Board’s Leading Economic Indicators index has been falling for nearly a year and a half. And the yield curve, a popular and near perfect recession indicator, has been inverted for almost a year without a recession occurring. Maybe higher interest rates haven’t hit home yet and it’s only a matter of time. Or perhaps we’re seeing see the fabled “soft landing” where the Fed raises rates quickly and slows the economy down without crashing it. Not much of this is typical and the general uncertainty amid otherwise favorable conditions is hard for many to reconcile.

And to top it off, investors also contended with another potential government shutdown as we closed out the quarter. Ultimately, Congress was able to craft an 11^th hour bipartisan-ish deal to keep the lights on for 45 more days while somehow also generating more animosity and disfunction in its ranks. Unbelievable and believable at the same time, and a sad commentary on the state of our government.

Some good news coming out of all this is that yields on cash are higher than they’ve been in a long time. This has been playing out for many months as well, but deposit rates continued to climb during Q3. As I write, FDIC-insured CDs are paying around 5.5% for a year and this matches up closely with Treasury securities of similar maturity. Now there are viable alternatives to bonds for short-term money, and perhaps also for medium-term money you would like to keep “safe” or otherwise earmarked for specific expenses. Contrast these yields with the roughly 1.6% dividend yield offered by the S&P 500, for example, and we can see where at least part of the pressure on stocks is coming from.

Keep in mind, however, that short-term yields are higher than long-term (that’s the inverted yield curve) so it’s hard to lock in 5+% for more than a couple years without taking on additional risk or other nuisance issues. Additionally, nobody knows where interest will be over any timeframe, so the ability to respond to shifting market conditions is important. Given that, I think there’s absolutely still a place for medium-term bond funds in your portfolio since they should outperform cash if given enough time. Additionally, be wary of moving too much money from stocks into cash for this same reason – we know from history that holding cash in lieu of stocks is a losing bet over the longer-term.

Fortunately for investors we are entering what has historically been the best quarter of the year for stocks, again according to Bespoke. I think odds are good for a decent quarter this time round given the steady selling we’ve seen lately, but the negative tone and rising bond yields from Q3 are still impacting prices as I write. Whatever awaits in the fourth quarter, a little help from the stock market (and from the bond market too!) would indeed be welcome as we close out the year.

Have questions? Ask us. We can help. 

It seems as if a recession has been right around the corner for many months now, if not a year or so. First a recession was inevitable given the run-up in inflation we saw last year. Then it was imminent due to the Fed raising interest rates so much so quickly to fight inflation. And then bank failures earlier this year were supposed to cause banks to stop lending and consumers to stop spending, crashing our economy.

Well, so far an outright recession continues to only loom on the horizon. According to experts, recession chances for the rest of this year have fallen to 33% and 59% by next summer.

Maybe this is what a soft landing looks like. The term originated in this context during the Nixon-era economy and following the 1969 moon landing, according to the Wall Street Journal. A soft landing is the elusive state where a too-hot economy is cooled down by higher interest rates while still avoiding a recession. Historically, the Fed has rarely been able to engineer this outcome because it usually raises rates too quickly and shocks the system. But maybe a soft landing is more possible in the post-Covid world, whatever that means. Fed Chair Jerome Powell has himself recently acknowledged the Fed “is navigating by the stars under cloudy skies”, so uncertainty around all this is high. (And at least he’s honest about what he doesn’t know, which is a good sign.)

Technically, the Business Cycle Dating Committee within the National Bureau of Economic Research is the government office that “calls” recessions and doesn’t do so until well after the fact. However, the various data they tend to watch seem to be trending fine. GDP growth appears stable. Unemployment is very low. Inflation has been reducing the purchasing power of wages, but CPI, the typical inflation measure, has been trending lower for months. NBER looks at other indicators too but tries to pinpoint when the economy has peaked before suffering a meaningful decline in activity lasting at least several months, which bottoms out before improving. Their analysis requires a lot of data that’s only available in hindsight, so we often find out we’ve been in a recession after it’s already over.

How helpful is that? I contend that whether our economy falls into recession or not is largely academic. It’s important to know but not especially relevant for most Americans. The stock and bond markets work well ahead of the economists at NBER and households, all of us, live it day to day anyway. We have to deal with the impact of inflation and higher interests rates in real time, so economists can call it whatever and whenever they like. And parts of the economy can do fine during a recession while others get their teeth kicked in; the impact isn’t felt uniformly. Various surveys of regular Americans show that anxiety about the economy and inflation is already high and disproportionately felt by those at the lower end of the income spectrum. People say they’re planning to spend less but not yet. It’s sort of a variation on the acronym NIMBY… my backyard is fine, but everyone else’s looks horrible. This dynamic has to be part of the reason why the economy is still doing well.

My point isn’t to diminish the work of NBER and other economists, but to suggest that our own household trends often trump those of the broader economy. The takeaway is that regardless of the macro environment we should frequently assess the risks we face at the micro level in our own households should the economy slow.

Here's a handful of categories to consider whenever experts wring their hands about recession risk.

What’s my liquidity position?

If my sector and industry or yours, whether it be construction, retail, and so forth, gets hit especially hard during a recession, do I have enough cash to get by for how long… six months, a year? Is this cash-cash, as I call it, that’s available in a bank or brokerage account, or is it stashed in my 401(k) and accessing it would come with taxes and maybe a penalty? Conduct a mental fire drill to determine how much cash you can get ahold of in what timeframe and with what, if any, sort of penalty. Is it enough for whatever doomsday scenario you have in mind?

What’s my debt situation?

Rates have already gone up, of course, so any adjustable-rate debt is likely resetting and getting more expensive in a process limited only by annual caps. If I had any adjustable-rate debt, I’d evaluate refinancing into something fixed while the economy, and presumably my little corner of it, is still strong. The Fed is in pause mode with rates and that’s expected to continue when they meet again this week, so I could hold out to refi based on a guess about when rates go down. But then I remind myself that rates would likely only be lower if we’re in a recession and my access to credit might have changed.

What’s my work situation?

Being self-employed has it’s benefits but when business conditions suffer I can’t simply rely on someone else to pay me. I also can’t lay myself off to save the business some money. Regardless, gauging the solidity of our prospects is a moving target, at least to some degree, and gets back to considering our liquidity and debt positions mentioned above. Having readily accessible savings coupled with a manageable and sustainable debt load should take the edge off of getting fewer hours at work or even having to look for a new job.

How are my investments situated?

Do I have more than 5-10% of my long-term savings invested in one company? Am I loaded up too much in one sector of the economy that could suffer during a recession, such as Technology or Consumer Discretionary? Are there other parts of my portfolio that are too risky? Try to shore up what appears shaky but be wary of making wholesale changes without good reason. While it’s valuable to review how our investments are situated we should avoid being overly reactionary.

If you have good answers to these sorts of questions you’ll be able to weather most of what the economy throws at you. If not, as is the case with many of us, you’ll have more time to put your house in order if you start now.

Have questions? Ask us. We can help.

You’re likely aware that this week is the last for TD Ameritrade. The final push for getting everything, all client information, investments, and a host of other data, into the Schwab system will happen this coming weekend. This change is sure to have created lingering questions, so I’m hoping to address some of them here.

First, and perhaps most importantly, please know that your personal and investment data is secure. I have all the necessary access to work on your behalf until the end of the day on Friday. I’m already established on Schwab’s system so I can hit the ground running come Tuesday morning. (I’ll be monitoring everything over the weekend as well…)

I’m planning on needing extra time over the next couple of weeks so this will be my last post until about mid-September. But know that I’m definitely still working and will be available for any questions.

Viewing your accounts –

You can continue using your portal since that’s coming from a third party, called Orion, that I contract with. Orion gets data from TD and Schwab each night, reconciles it, and presents it on the portal, so that part of all this seems pretty straightforward. Your current login credentials will continue to work, and the site won’t look any different.

If you’ve been logging into TD’s website, www.advisorclient.com, that will switch to www.SchwabAlliance.com. As with TD, this is Schwab’s “institutional” website and is different from schwab.com, their retail site. Your TD credentials are supposed to carry over to the new Schwab site. So far so good but let me know of any issues. It will be important to log into the Schwab system at least once to continue receiving documents electronically.

Other information –

Links to your bank or credit union will also carry over except in a few special circumstances. We will still use DocuSign to refresh existing bank instructions, or to establish new ones, as needed.

Since we’ll be using two separate custodians this year you will receive two sets of tax forms next Spring. These will be available in your portal and on the Schwab site, or I can always get them for you.

You may have seen disclosures from Schwab mentioning a bunch of fees for various services. Most of that doesn’t apply to us and, for those that do, part of my job is making sure your portfolio costs are as low as possible.

There are bound to be wrinkles with such a big transition but, beyond that, from your perspective it should mostly be business as usual. Like I mentioned some weeks ago when talking about custodians, their core functionality is pretty much the same and is becoming more commoditized in the marketplace. Trading is trading and paperwork is paperwork, and so forth.

But an unfortunate postscript… phishing and other fraudulent activity is piggybacking on this transition. What follows is from Schwab outlining how recent schemes have played out and some things to remember. I’m bolding a few lines for added emphasis.

Often, scams targeting advisors and their clients start with an email, text, or encrypted message that falsely claims to be from a financial institution, government, regulatory agency, or a prominent technology company (PayPal, Apple, Microsoft, etc.). From that point, recent schemes have tended to follow this pattern:

• The message the client receives contains malicious software—when the client clicks a link embedded in the message, this software installs automatically.
• The next time the client visits a legitimate financial site, the software acts, redirecting to a malicious website designed to look like the legitimate version, or popping up a message that causes the client to redirect to a malicious site.
• The malicious website may ask a client to enter personal information such as a SSN, Login ID, password, date of birth, etc. Or the popup message may ask the client to call a phone number that appears to be a legitimate Schwab or TDA assistance line. Recent reports have indicated that fraudsters are posing as Schwab Platform Support, Schwab/TD Fraud Team, TD Security, Schwab/TD Tech Support in their attempts to scam clients.
• Clients may be asked to download software such as TeamViewer, AnyDesk, SOHO or Help123 to allow the fraudster to remotely access their device. Schwab/TDA will never ask clients to do this.
• Often, fraudsters will tell a story where they need to remotely access the victim’s device to “check the accounts”, ensuring there were no fraudulent transactions, or claiming to “fix” an existing virus or malware infection. Once they have access, of course, they will steal information, or install malicious software. Using this information and access, they will then attempt to place trades or initiate disbursements fraudulently.
• When dealing with suspicious emails, always check to see if the email address has been altered.
• Show clients how they can “hover” over links to ensure the URL of the website they’re being asked to access is legitimate--for example, www.Schwab.com versus schcwabb.log.ru.
• Be careful when providing personal information. Never provide your credentials to a third-party. Verify the validity of anyone calling to say they’re from Schwab. If something seems “off”, do not be afraid to disconnect a call and contact Schwab using a known number.
• Remind your clients that Schwab will never ask them to install software like TeamViewer, AnyDesk, SOHO, or Help123 to remotely access their computers. If someone pretending to be a Schwab representative does this, they should hang up and call your firm or a known Schwab phone number.
• Avoid visiting unsecure websites. Look at the uniform resource locator (URL) of the website. A secure URL begin with “https” rather than “htttp”. The “s” in “https” stands for secure which indicates that the site is using a Secure Sockets Layer (SSL).
• Keep your computer virus software updated to scan for the most recent malware—if a scan detects malware, remove it immediately, and then rest your passwords and contact your financial institutions immediately.

Have questions? Ask us. We can help.