Kaufman Rossin Wealth’s president on how elections, AI impact the industry

Article Excerpt:

…Wealth managers are already poised for phone calls from antsy clients, following the November presidential election.

That’s mainly because election results can ultimately affect government policy, laws and foreign relations– factors that can negatively impact individuals’ and companies’ investments.

It’s no surprise then that various studies illustrate how many investors link their financial well-being, including their investment portfolio’s performance to election results.

Yet, wealth managers – like Jay Pelham, president of Kaufman Rossin Wealth and Kaufman Rossin Insurance Services in South Florida – advise clients not to panic to avoid making hasty decisions.

As of December 31, 2023, the investment advisory firm had $224.8 million in assets under management, of which over 75%, or $170.2 million, were high-net worth individual assets.

The Miami-based company has nearly 400 accounts, with its top three investments coming from securities in the form of mutual funds at 41%; alternative investments at 30% and exchange-trade funds at 17%.

In a conversation with the Business Journal, Pelham shared how he addresses clients’ election concerns, and the way artificial intelligence can help address the complexities that arise in one of the nation’s most regulated business sectors.

The following Q&A has been edited for clarity and brevity.

How much of an impact do you expect the 2024 presidential election to have on investments?

We don’t change our investment philosophy based on whether we think the election will go one way or the other. We’ve had elections for more than 200 years and there continues to be ups and down in the stock market. [Yet] we know there certainly can be changes in tax law under different presidential administrations. Some wealth advisors may be disconnected from their client’s taxes, and so this can create some challenges when there’s changes to things like estate and income tax codes. For firms like us that have those tax or trust and estate specialists, it can make it easier to prepare and tailor our strategies to our client’s wealth goals.

Do clients typically grow concerned about their finances during presidential elections?

We have clients that feel very strongly about one side or the other during the election, and they think that if the other side wins the world will come to an end, which we know is not the case. We have a visual aid that shows a line graph of how the U.S. stock market performed since 1970 to today, along with major political news headlines from throughout the years for that time period. That visual aid shows them the market will continue to have long-term growth despite any political event. We could go as far back as the 1920s and before, and every time people thought the world was going to end because one side won the election, the world continued on and so did the market. So we tell people that nobody can predict the future, and that’s why it’s important to have a well-diversified portfolio and not make moves because of what’s in the media.

Does AI play a role in how you address these concerns?

We use financial planning software to do modeling for retirement planning. It’s a very interactive process where we ask questions about when the client wants to retire and how much money they think they’ll spend in retirement. I can see a program like this evolving, especially in a state like Florida that has an increasing population of retirees. Another thing we have is a psychological metric test for risk. So while some advisors have their clients check off their risk as either conservative, moderate or aggressive in their investment risks, we think that’s a very subjective question to ask. So instead, we ask our clients to take a psycho-metric risk test, and have them answer a 15-minute, 25-question online survey that gives advisors essentially a psychological profile on how the client handles risk. Because everyone says they want to be aggressive with their investments until the market goes bad. So, the profile tells us how this person will behave if the market goes down and allows us to have conversations to strategize their goals around that.

What does AI look like for the future of the wealth management industry?

I think AI is more of a tool or a resource that we use in the wealth management industry, but I don’t think it will take the human advisor’s place. There are some people who don’t want to deal with a human being for whatever service they need, and so they may gravitate to what we refer to as “robo advisors.” But I wouldn’t consider that a true wealth management solution. People who have millions of dollars are probably not going to look to that solution. As an RIA, we’re held to the highest fiduciary standard that puts the clients’ interests first over the firm’s. To maintain compliance, we don’t use proprietary products or receive commissions, but the most important thing is that you have to have a very personal, intimate set of knowledge [about] your client to be able to fulfill that standard. So, we start with very personal discussions and emotional analysis with our clients, and that technology hasn’t evolved to the same level of a human advisor.

Read the full article at South Florida Business Journal.