GAME OF DRONES

y amy m. armstrong
Keeping Clients From Unnecessary Risk
Jordan Schlick is keeping his clients
out of the bond market. That
is, at least until he sees what effect
the impending end Federal Reserve’s
current quantitative easing (QE) process
will have on interest rates in 2014.
Schlick anticipates a rise in interest
rates as the Fed reduces its bond purchases.
As he notes, in March 2013,
interest rates rose by three-quarters of
a percentage rate based merely on the
discussion of a potential end to quantitative
easing.
“It was a pretty big shock,” explains
Schlick, chief executive officer of the
Columbia, Maryland-based Compass
Capital Management, LLC – a firm he
first established a decade ago. “Our
perspective is that when the Feds get
the economy healed and once they
take off this stimulus (QE) that has
kept interest rates artificially low, then
interest rates will jump another 0.5% to
1.0% pretty quickly.”
This is not a good thing for purchasers
of long-term government bonds.
When interest rates rise relative to the
time of purchase, the price of the bond
drops. As Schlick points out, interest
rates on government bonds have remained
low due to the Fed’s QA program
– a tool pulled back out of the
government’s economic tool box to use
after the 2007-08 financial collapse. As
reported by “Time” and Forbes” magazines,
the Fed continues to purchase
$85 billion per month in Treasury
bonds and long-term mortgage-backed
securities. When this ends, financial
analysts, including those at the Congressional
Budget Office, expect bond
interest rates to more than double, hitting
5 percent by 2019.
“However, economically, we believe
we are in a pretty good position right
now,” Schlick said. He expects growth
of 3% or higher in 2014, which should
allow the stock market to see further
gains.
Regardless of the markets, he continues
to work with clients to determine
the correct level of risk tolerance
for their portfolios. Risk is different
for each client, which is something
Schlick says he and his partner, Tim
Dull – both chartered financial analysts
(the CFA is composed of 18
hours of exams on investments and
portfolio management) – understand
well. While they determine what and
where to invest, the client’s risk tolerance
level provides key guidance in
that decision-making process.
“We custom-fit the client’s portfolio
to meet that risk,” Schlick said. “We
give them the parameters so they can
understand what could happen in
terms of market decline or market depreciation
and to make sure they are
comfortable with the level of risk.”
Keeping clients assured of the safety
of their investments is also key,
Schlick noted. Advisers such as himself
currently get an assist from the
federal government which has increased
its regulatory oversight. It
means extra paperwork for firms that
are registered investment advisers
(RIAs), but Schlick believes ultimately
that the shift toward greater scrutiny
is beneficial to his business (and to all
investors). His firm utilizes an independent
custodian, TD Ameritrade,
and he likes the fact that his clients
receive statements from both his firm
and from the custodian.
Schlick observed, “Hopefully this
gives our clients a greater sense of security.”
www.compasscapmgt.com
THE SUIT MAGAZINE - AUG / SEPT 2013