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Recently, Worth ran a story about the top questions investment advisors were getting asked. That was over a month ago, and according to Bernstein Private Wealth Management’s cohead of investment strategies, Beata Kirr, the questions have already changed. “A month ago, the key client question was, ‘When’s it going to stop? Am I going to be okay? How big is the decline going to be?’”
At the end of April when we spoke to Kirr (pictured left), they’d begun receiving questions such as, ‘What’s with the disconnect in the market going up versus the economic headlines and how I feel?’, ‘What does that mean for the back half of this year? Do we expect the markets to pivot again? Keep it downside? Or are we off to the races?’, ‘How do we fix this?’, ‘Where does this go long-term?’, ‘When’s the vaccine?’ and ‘How do we get out of it?’
Worth caught up with Kirr, who is also the host of Bernstein’s Women Wealth podcast, to discuss not only the top questions their clients are asking, but also how this pandemic is affecting women founders and entrepreneurs financially and how it could affect economic equality.
A: Well, you’re probably not going to be surprised to hear that there is not one answer to that question. I think it’s very dependent on the size of their business, on where the business is in its life cycle and what their household situation looks like. So I’m not sure the answer would be any different for men, frankly. But I think we often find that if the female founder or the female executive or the female business owner in any of those settings has amazing household help and a splitting of duties then I think the path is easier, to probably state the obvious, than otherwise. And I think that the harsh reality is that many female founders do also have working spouses or partners, and it’s tough out there for anybody that’s trying to homeschool and manage a household and have a full-time job.
I think whether you’re a female founder or whether you’re a female professional, everybody’s kind of in the same boat. I think there’s been a lot of conversations about…when you’re on a Zoom call and the kids or pets come, is it viewed differently for women versus men? And I don’t have the answer to that. I would just observe that it happens.
I think I’d come back to that the women are talking about what’s going on with the kids and how difficult it is to manage homeschooling in addition to managing their business. And I don’t as often hear that talk track, perhaps, from men. But I do think everybody is tired, and it’s hard on everybody to be sequestered in their home. So I think that is consistent across gender. But I do think the house management duties, in addition to the children, have historically fallen disproportionately on women. And I think there’s a lot of evidence around that in terms of the caretaking duties. So I think the biggest challenge has been that it’s still falling on women; yet, everybody’s working 24/7 by video at home. So that’s even harder than normal.
Since we work with high net worth clients, much of our client base, in terms of who I’ve interacted with and talking to some of our FAs who they’re most closely interacting with is… it’s the women that have been in a position to have a lot of household help and frankly many of them don’t have spouses that work because they are very senior executives. And so I think that… a lot of the women that we’ve heard from are more fortunate in that chain, if you will. But we certainly also talked to women who are currently founding businesses and start mode, but of course they don’t tend to be our clients because they haven’t had that success yet. So I think we’ve had a disproportionate view into that lens from the women that have household situations where it’s easier. Not in any way saying it’s easy, but that is the lens from which we see it.
I think the blanket statement, “However you are invested is how you should stay invested” is not necessarily true in this setting because if the majority of your cash flow or your life savings is invested in a business that will not be able to survive this because of the lack of cash flow for a period of time and do not get financing, then thinking about your access to personal capital might mean a very different asset allocation than one that you started with before. So I think the advice there is no different than it would be whether you’re a business owner or executive. It’s really about the need for cash flow. Whether you’ve had a change for short-term cash ne. And if you have, that means investing 80 percent equities in the market may not be the right approach.
Now again, for most business owners I would say that they don’t have a lot of cash flows invested in the market because they tend to be investing in their business so substantially and continuously reinvesting. So I think that there’s less of that exposure. So I think it just comes back to testing the cash flow and their wherewithal to make it through what could be two months or what could be six months. I think that’s what made this situation so incredibly challenging for every type of company. That there’s just not that visibility on what the path looks like from here. So base-case, best-case, worst-case scenarios, looking at personal finance and business cash flows is, I think, the way that we’ve had to do it.
Even though that scenario, this market scenario was a really a tail risk event, it was still within our plans for what clients would expect. The market declines were not outside of the bounds of what we would have planned. And I think that’s a very important point of view to come back to because people will say like, “We never could have planned for this” and the reality is in the market decline, we did actually plan for it. Of course, we didn’t plan for a global pandemic with the economy shutting down overnight. But the market results that we so far are well within the plan. And so I think that’s very reassuring for people. So in many cases we have clients that haven’t changed their allocation advice. They, in fact, are now looking for opportunities to redeploy and opportunistic capital.
A month ago the key client question was, “When’s it going to stop? Am I going to be okay? How big is the decline going to be?” And it was very intense. The speed of the market decline was incredibly intense. Again, the magnitude wasn’t so intense, but the speed was.
I would also say that the most frequently asked question a month ago was truly around the bond markets because while the equity market decline was well within norms, what happened to the bond market was far less expected. So even very high-quality municipal bonds saw declines that were pretty shocking to people. So I think the believing that that was going to restore to normalcy was really important. And of course the Fed action has been very helpful in that regard.
So I would say the key questions now are interesting. “Why is the market up so much?” Probably question one. In the sense of, “What does the market see that I don’t?” Mixed in with, “How do we get the economy back given where we are in jobless claims?” And again, our lens is speaking to people that for the very most part are very fortunate, financially, in this setting. We’re not speaking to people who are filing for unemployment claims right now, or at least I’m not aware of that. So the lens is very different, and I want to be sensitive in my response, that we recognize 20 percent of America right now is not working.
But the client questions that we’re getting are, “What’s with the disconnect in the market going up versus the economic headlines and how I feel?” And then, “What does that mean for the back half of this year? Do we expect the markets to pivot again? Keep it downside? Or are we off to the races?” And then, “How do we fix this?”, “Where does this go long-term?”, “When’s the vaccine?” and “How do we get out of it?”
Investing has always been about probabilities and forecasting in that best-case/base-case scenario along with worst-days is really ultimately more from which we’ve assessed those questions. And we assess those questions on individual companies as we do on the macro front and also as we do on the individual plan. So I think we start to go back to a framework from which we can understand that each question is different, but there is a case to be made that the market rally that we’ve seen is supported by the market looking past the health crisis and looking toward earnings. Not even this year, but in 2021. That’s the case that you would make to support the rally.
And of course the opposing case to that is that the back-to-work cycle will not look as even as people hope and that the virus could surge again in that return to open and we could have another national shutdown or something like that in mid-summer, late summer, and the fall. And that means a much choppier path. And so I think our current point of view is we’re a little bit underweight global equities. But as the market has continued to go up, we’ve taken some risk off. And then in terms of individual stock selection, we continue to look for companies that we think have balance sheets and cash flow and revenue patterns that are sustainable.because of my focus on women in wealth. And effectively the article’s data that, I guess they had looked at how much women had been publishing versus men in this time. And the answer was less. And I think weighted for the difference in numbers by gender. And I think the conclusion was for right or for wrong, whether it was anecdotal, was the exact same issue that I identified at the outset, that continues to be an issue, that it is harder to shift to managing a household and the kids without your normal infrastructure in place for childcare and becoming a homeschooling teacher while at the same time being all in for work.
And so that one article did catch my eye and I thought that was interesting. I don’t know that you can extrapolate, but I do think he second lens through which I view this is I’m on the board of a nonprofit called Women Employed. It’s not affiliated with Bernstein, so I just want to caveat all of that. But that organization is focused on equality for women in the workplace and policies around paid sick leave and minimum wage and otherwise supporting equality across minorities, in particular, women.
And I think their experience in terms of hearing from women on the front lines is of course hourly workers and workers in retail and in the restaurant business have really been disproportionately affected. And much of that population is women. The latest jobless claims numbers confirmed my suspicions, with the unemployment rate for women rising to 16 percent, compared to 13.5 percent for men, according to Labor Department data as of late April. Job losses in April were particularly steep among industries in which women account for more than half of all workers. So I think there may be the case that, again, if people are being furloughed and their paychecks are being replaced today, that works for now. It’s just what happens when they come back? Will those jobs be replaced? And then again, if you’re an hourly worker, what does that look like for you today compared to in the future? And I think there’s potential for that gap to just widen.
Bernstein’s slogan is “make money meaningful.” Our slogan here at Worth is “worth beyond wealth,” which is interesting because I think those two hit similar points. So I’d love to know how does one truly make money meaningful and, in particular, how can founders and entrepreneurs and business owners make money meaningful so as to achieve worth beyond wealth?
We’ve found, and I would say personally I found in particular with the women clients that I engage with, but this is really universal across gender, but a lot of times we’ve just found when people are saying in annual reviews, very large assets, they’re saying, “What’s it all for?” and “What am I going to do with this?” And the relative 1 percent plus or minus versus the benchmark is not that meaningful to them in comparison to seeing that money be put to use in a way that truly fulfills.
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And so we really work with families on exercises around value and mission statement and engagement across generations where we say, “What would it take? How would you define success?” before you start setting up a benchmark comparison for a portfolio or even a plan. I think sometimes it catches people off guard when we say, “How would you define success?” Because their answer starts sometimes with the financial metrics, but then ultimately evolves to, “Look, I just want to see my kids grow up to be good humans with good values.” And then we say, “Well, what are those values?” And then sometimes there’s really an exercise around that value creation. And we found in some families that’s very distinct and they already know what those values are. And in other situations we’re really partnering with those families to help them uncover their values. And that’s incredibly fulfilling because then it’s the much bigger picture advice around very often it’s about business transition questions, it’s about intergenerational questions and it’s about charitable intent. And so that’s what we’ve found has really been that translation for making money meaningful.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of AllianceBernstein L.P. and are subject to revision over time.
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