Author: Jeff Farrar

09 May Financial Planning – Social Security is still in trouble. What should advisors tell their clients?

By   Nathan Place

The latest numbers are in, and Social Security is still drifting toward insolvency — just slightly less rapidly than it was last year.

On Tuesday, Social Security’s board of trustees released its 2024 report on the program’s finances, and they’re precarious. By 2035 — one year later than projected last year — the trust funds for the Old-Age and Survivors Insurance and Disability Insurance programs are on course to become depleted, and will only be able to pay out 83% of scheduled benefits.

As it did last year, that insolvency date puts Social Security on a collision course with America’s looming “gray tsunami.” By 2030, according to the U.S. Census, all 73 million baby boomers will have reached retirement age, potentially putting enormous strain on the program.

For retirement advisors, all of this raises a question: Can their clients count on getting Social Security when they retire? Somewhat surprisingly, many advisors say the answer is yes.

“I tell my clients, even the youngest, to plan on it being there for them,” said Larry Luxenberg, owner of Lexington Avenue Capital Management in New York City.

Joseph Boughan, owner of Parkmount Financial Partners in Scituate, Massachusetts, is also optimistic.

“I would say for people that are planning to retire and close to it, it is best to assume that they will get the benefits,” Boughan said. “The government is highly unlikely to just default on their obligations.”

Why are advisors so sanguine? Many attribute their confidence not to a deep faith in Congress, but to a simple political calculation: No lawmaker can afford to let Social Security die on their watch.

“At any time, cutting current benefits by 17% will be the last act of any politician who is involved with it,” said Dennis Hunt, a senior financial advisor at Moisand Fitzgerald Tamayo in Melbourne, Florida. “As it turns out, the folks who receive Social Security are also the ones who vote.”

If Congress does someday take action to shore up Social Security’s finances, a number of potential solutions are available to it. On the revenue side, lawmakers could remove the limit — or “scrap the cap” — on the Social Security taxes paid by the ultrawealthy. On the benefit side, Congress could once again raise the full retirement age for future generations, meaning Americans would collect less money over the course of their lifetimes.

But as many advisors pointed out, none of these solutions is likely to be attempted any time soon. Judging by Congress’ recent habit of tiptoeing to the brink of government shutdowns only to pass a stopgap spending bill at the last minute, legislators may not address Social Security until much closer to 2035.

“Congress is highly likely to fix Social Security but equally likely to wait till a true deadline looms before it does so,” Luxenberg said.

In the meantime, some clients do worry about the future of the program and whether they’ll be able to rely on it for part of their retirement income. How should planners address their concerns?

Chris Diodato, founder of WELLth Financial Planning in Palm Beach, Florida, has found that some of his older clients are the most anxious about Social Security. Some, he said, even insisted on collecting benefits at age 62 — the earliest possible age to file, incurring the smallest possible payouts — because they feared the program wouldn’t last much longer.

For such clients, Diodato recommends gaming out some of the worst possible scenarios.

“I encourage clients to run their plans as if they cannot take full benefits before age 70 or early benefits before age 65,” he said. “Increasing income tax rates throughout the plan is also a good way to try and account for future legislative risk.”

Other investors may wish to see a sliding scale of possibilities. Andrew Herzog, a wealth advisor at The Watchman Group in Plano, Texas, lets his clients decide which assumptions to make.

“As the default option, we leave Social Security benefits at 100%,” Herzog said. “However, we ask each client if they feel comfortable with that assumption, or if they would like us to reduce benefits in order to be more conservative in the planning.”

Other planners say their clients simply aren’t worried about the program.

“All in all, clients aren’t stressed about it,” said Jeff Farrar, co-founder of Procyon Partners in Shelton, Connecticut. “It’s not like a wolf at the back door. It’s more like termites in the basement — a longer-term problem that can be solved ‘later.'”

20 Mar USA TODAY – Spring cleaning’ for your finances: 12 money moves to make right now

Spring cleaning can mean tidying up your wallet or pocketbook, as well as your closet.

In the spirit of renewal, here are 12 financial moves you should make this spring. Some are annual rituals or should be. Others are tasks we tend to put off, but shouldn’t.

1. Revisit your resolutions

Many of us set New Year’s resolutions for 2024 around spending and saving, borrowing and earning, but fewer of us followed through on them.

“For a lot of people, a top money goal was paying off credit card debt or starting an emergency fund,” said Kimberly Palmer, a personal finance expert at NerdWallet. Spring is “the perfect time to see if you’re making any progress,” she said.

Learn more: Best debt consolidation loans

And what if you’ve made zero progress?

“For those of us who fell off track, there’s something called a reset button,” said Ashley Folkes, a certified financial planner in Birmingham, Alabama. “Spring offers the perfect opportunity to restart where we left off, without dwelling on regrets.”

2. Clean your financial ‘junk drawer’

Spring offers a chance to sort through that drawer – or box, or unused corner of the dining room table – where you stash financial paperwork to deal with on some unspecified future date.

“You know the one I’m talking about, where you toss all your statements and bills, intending to sort them out later,” Folkes said.

Working through the neglected papers is a great way to ease financial stress, he said. Throw some away. File some away. Deal with the rest, one way or another.

3. Start a 2024 tax folder

Speaking of papers: If you haven’t already, consider setting up a folder to stow all your tax documents for 2024: receipts, donation forms, and anything else you need to report or plan to deduct. Better still, set up one real folder, and another on your laptop, says Jeff Farrar, a certified financial planner in Shelton, Connecticut.

4. Watch that withholding

While you’re at it, look at your W-4 form and make sure you are withholding the right amount of your paycheck.

“Since taxes are on our mind, with April 15 coming, why not get better prepared for next year’s taxes?” Farrar said.

Will you get a refund next year, or will you owe? Most of us have a lot more control over that question than we think, said Jeff Jones, CEO of H&R Block. You may want to reap a large tax refund to help your family’s cash flow. You may prefer to limit your withholding so that you hold onto more of your paycheck until tax time. The decision is yours.

“In general, you can actually control the outcome,” he said. “We try to remind people, it’s really a choice you can make.”

Most of us have fairly predictable income. Take a look at your last few tax returns. Study the pattern. Are your earnings trending up, or down? Then, consult a tax professional.

Taxpayers straightforward returns “can be in much more control if they just get some expert help and think about withholding changes on their W-4 at the beginning of each year,” Jones said.

5. Talk to your tax preparer

More broadly, spring is a great time to have a conversation with the person who prepares your taxes.

“Aside from housing, taxes are most people’s largest annual expense, so it deserves more attention than pulling together your W-2 and 1099s” and sending them in, said David Flores Wilson, a certified financial planner in New York.

“Our advice is to have a thoughtful, proactive conversation with an accountant, CPA, or financial planner after the spring tax deadline so that you can strategize what you can do the rest of the year to lower your taxes prior to next spring,” he said. “Perhaps there are deductions or credits you weren’t aware of.”

6. Max out your retirement plan

You can contribute to an IRA up to April 15 and have the money count toward your 2023 savings. The contribution limit for 2023 is $6,500 if you’re under 50, $7,500 if you’re older.

Even better, get an early start on contributing to your IRA for 2024. The longer the money sits in your retirement account, the longer it can accrue interest.

“There is a 15-month window to make IRA contributions for any given year,” said Mary Ryan, a certified financial planner at Vanguard. “The earlier you make it, the more you benefit from the compounding effect,” earning interest both on the money you’ve saved and on the interest it has already reaped.

Spring is also a good time to challenge yourself to contribute to a workplace 401(k), Wilson said.

Those plans have higher contribution limits: $23,000 in 2024, plus an extra $7,500 if you’re 50 or older.

“Maxing out 401(k) contributions can lower your taxes and get you closer to financial independence,” Wilson said. “Our advice is to marginally increase your contributions every couple of months, up to a level that’s uncomfortable, then back off a little.”

Not saving for retirement? Now is a good time to start.

“Even if you can only save a little right now, getting started is very important, because you want to give your retirement savings time to grow,” said Terri Fiedler, president of retirement services at Corebridge Financial, a financial services company in Houston. “Ideally, you’ll be contributing enough to at least maximize what your employer will match. And if you’re not there yet, look for opportunities to increase your contributions over time.”

7. Name your beneficiaries

Most retirement plans and life insurance policies include beneficiaries: The folks who get the money if you die.

Many of us procrastinate in naming them. In the spirit of spring cleaning, why not name them now?

8. Dust off your estate plan

Speaking of beneficiaries: Anyone with an estate plan should review it every year, or at least any year when a major life event plays out, like a job change, marriage, divorce, or arrival of a new child, experts advise.

“An estate plan isn’t something you can set and forget,” Ryan said.

Consider whether you need to update any part of the plan, including your beneficiaries.

9. Book your 2025 vacation in 2024

Setting up vacation plans a year early saves money and gives you more choice of flights and lodgings, experts say. And then there’s the psychological value.

“Studies have shown the anticipation of a vacation is half the psychic value you get out of it,” Farrar said. “So, enjoy this summer’s family vacation, but put next year’s on the calendar, as well.”

While you’re at it, he said, “dig out your passport and check the expiration date. Nothing worse than getting ready for an international vacation and realizing your passport is about to expire.”

10. Review your investment portfolio

“You don’t need to monitor your portfolio on a daily basis,” Farrar said, but spring is an ideal time to review your asset allocation and make sure it suits your needs.

Your mix of stocks, bonds and other investments can drift over time, and your portfolio objectives change.

“Check to see if your allocation of stocks vs. bonds is where you want it to be,” said Maureen Demers, a certified financial planner in North Andover, Massachusetts.

11. Invest in high-yield savings

Yields on savings accounts, certificates of deposit, money market accounts and other savings vehicles have been up for the last year or two, along with interest rates generally.

Yet, many people “are still holding large cash balances in suboptimal, low-yielding vehicles,” Wilson said.

If your savings isn’t earning 5% annual interest, or close to it, consider transferring the balance into a high-yield account.

Growing debt:Our credit card balances threaten to swamp our savings. Here’s how to deal with both

12. Check your credit card

Credit card debt is rising, along with credit card interest rates. Now is a good time to take a good look at your card, especially if you carry a balance from month to month, Palmer said. The key question: “Are you paying more interest than you realize?”

Credit card rates change over time, and lately, they’ve been going up.

If the APR on your card is rising, Palmer said, then it might be a good time to shop around for a new card.

Daniel de Visé covers personal finance for USA TODAY

11 Jan InvetmentNews – Prospecting for clients the ‘old-fashioned way’

Lead generation platforms are ‘worth exploring’ but advisors prefer other approaches.

If you’re looking for new ways to prospect for new clients this year, be prepared to be disappointed.

It seems most advisors prefer to stick with what they’re already comfortable with – networking and referrals.

Even though there are several lead generating platforms that assist advisors with identifying prospective clients, from SmartAsset to Catchlight and FP Alpha’s Prospect Accelerator, several advisors say the platforms aren’t working the way they’re supposed to.

“I have used a couple of different leads services in the past and found that they were not very helpful because they would not segment by gender, and my clients are women,” Liz Windisch, certified financial planner at Aspen Wealth Management, wrote in an email. “I didn’t feel that there was as good of an ROI as I would like since I had to pay for prospects that I was uninterested in. I asked to only have women sent to me, and the were not willing to do that, so I no longer use leads services.”

Some advisors who do use the services, like Jeff Ferrar, chief operating officer and managing director at Procyon Partners, say they provide OK-quality leads.

“I describe it a little bit like fishing with a gill net,” he said. “You can be doing other things, while SmartAsset (or Catchlight) is out there trying to find you leads, and they’ll let you know when there’s a fish in the net or prospect.”

The two biggest areas his firm gets leads from, Ferrar says, are good old-fashioned referrals from happy clients and referrals from professional centers of influence.

“Referrals are probably still the No. 1 generator of clients,” said Sean Lovison, financial planner and founder of Purpose Built Financial Services. “If you get a referral from somebody, those leads tend to turn into actual clients at a much higher rate.

“The main way that I’m prospecting for new leads is a combination of tried-and-true networking locally, and leads generated from just seeing my name in the news. Two of the leads that I’ve just talked to within the last two weeks were both generated that way,” he said.

Catherine Valega, financial advisor with Green Bee Advisory, said prospecting is all about taking great care of her current clients.

Valega plans to incorporate tax planning into her practice this year, as a new IRS enrolled agent, which allows her to do tax prep and expand her client service offering, hopefully attracting more clients as well.

At the very least, Chuck Failla, president and CEO of Sovereign Financial Group, says lead generating platforms are worth exploring but he also offers a fair warning. “There’s a valid business proposition to be had by those companies,” Failla says. “Just make sure your expectations going into it are good because you need to give it a good six to 12 months before you start really seeing some results. Don’t expect each lead to turn into a client. Sometimes you have to work a good number of years to get those numbers to come to fruition.”

15 Dec InvestmentNews- Gen Xers will not retire comfortably, Schroders finds

27 Oct InvestmentNews – SMAs outpace mutual funds for wealthier clients, report shows

Affluent investors have been pouring money into separately managed accounts and turning slightly away from mutual funds, a new consumer research report shows.

As of 2022, 22% of U.S. households that invest had SMAs, up from 13% in 2020, according to data published Thursday by Hearts & Wallets. Meanwhile, mutual fund ownership went from 38% to 39% during that time frame.

“I look at the decline of the mutual fund with sadness, but it’s getting replaced by other vehicles that are much more modern and accomplish the same things,” said Laura Varas, CEO of Hearts & Wallets.

“I’m a fan of the mutual fund as a way to get mass access to capital markets,” Varas said. “It initially was quite democratizing, in terms of bringing managed products, the expertise of portfolio managers and knowing someone was watching over your investments, to millions and billions of Americans.”

But SMAs aren’t taking the entire financial advice business by storm — the increase in ownership is rising most among households with $3 million or more to invest. For those investors, use has doubled over two years, going from 22% in 2020 to 41% in 2022, the Hearts & Wallets data show. And those investors are funneling their money into SMAs, allocating 29% of their overall portfolio to them last year, up from 22% in 2020.

“In the past, people said SMAs were sold, not bought,” Varas said. “I’m not sure that’s true anymore.”

Interest among clients has been mixed, several financial advisors said.

“Clients are perfectly happy still being in mutual funds, but I am seeing increasing interest in SMAs” as the latter “are becoming more affordable/lower cost and having lower account minimums,” Carla Adams, founder of Ametrine Wealth, said in an email.

Investors’ use of environmental, social and governance considerations has been a driver of SMAs, Adams said. Since people can disagree about what “socially responsible” is, mutual funds are not always the right fit.

“I have a client who does not want to be invested in ‘junk food companies,’ which is not a screen for ESG mutual funds,” Adams said. An SMA allows the client to choose which companies they are OK with holding, she noted.

The use of SMAs has risen along with the switch to fee-based accounts over the past two decades, said Brian Clarke, owner of Clarke Financial Counsel, who charges clients through an hourly rate. The ongoing charge can also be preferrable to the front-end charge on mutual fund A shares, which can be as high as 5%, he noted.

“An advisor might have decided to change their business model to build up a stream of recurring revenue. The SMA provides this,” Clarke said in an email.

Another advisor, Jeff Farrar, co-founder of Procyon Partners, said that ETFs are winning clients’ interest over mutual funds, while SMAs remain flat.

“But the fees and other deltas between all three investment vehicles are converging,” Farrar said in an email, noting that the firm is “agnostic between the three and use what makes the most sense for each client and their preferences.”

The new Hearts & Wallets report is based on responses from nearly 6,000 people surveyed last year, and it includes data in the firm’s existing database on consumer buying patterns for more than 70,000 households.

A separate but encouraging finding from the survey is that more people are aware of what they’re invested in, Varas said. Ten years ago, 55% of people said they knew what investment vehicles they owned, and that rate increased to 77% as of last year, she said. “The product awareness gap has almost disappeared.”

Interest in SMAs may also have had an effect on clients’ engagement, Varas said. “I think the rise in engagement with taxable accounts is related to SMAs, because SMAs are the perfect vehicle for taxable accounts.”

But something that may have helped boost SMAs was the pandemic and the need for liquidity, she noted.

“If Covid taught people anything … it’s to be prepared for a big [financial] shock,” Varas said.

25 Sep USA TODAY – Savings account interest rates are best in years, experts say. How to get a high yield.

02 Aug Citywire – The forever game: Why large RIAs are entering the trust business

In July of 2021, Moneta chief executive Eric Kittner hired Matt Harlan to help his firm do something unusual.

Moneta, a $31bn RIA based in St. Louis, Mo., had recently chartered a new trust company in Kansas and needed someone to head up the business unit. Moneta had previously worked with a third-party trust services provider, which ‘was fine, and they did a nice job,’ according to Kittner. ‘But at some point, we needed more control over the service offering. We needed them to work with assets that were illiquid and real estate and more complex situations.’

‘The outsourced solutions just didn’t work the way we really wanted to,’ Kittner said. ‘We effectively started from scratch because that was the best way to really build a service model that we thought was going to work best for our clients.’

Harlan had spent the previous 19 years as the principal of the St. Louis Trust Company, and before that worked as a trust officer with Bank of America and Mark Twain Bank. Kittner tasked him with bringing Moneta’s new trust company, a wholly owned subsidiary, online.

And so he did. Moneta Trust has since gathered several hundreds of millions of dollars in assets, some from existing clients looking to replace their trust administrator and some from new clients looking to work with the firm for the first time.

Moneta’s effort to build a trust company from the ground up makes it something of a standout among its peers, but the firm is not alone in its ambition. Large, national RIAs are increasingly moving to bring trust services in-house, sensing that the line of business is a crucial component of the ‘holistic,’ multi-generational wealth management ecosystem that they aspire to offer.

Many, including Hightower, Mercer, Pathstone and Lido Advisors — all of which are backed by at least one private equity firm — have acquired trust companies to that end. Firms that aren’t quite ready to invest in bringing trust services in-house are bolstering their partnerships. Allworth, Carson Group and Procyon Partners — also all private equity-backed firms — have struck new deals this year with outsourcers and white-labelled trust providers.

‘This move towards trust and adding trust companies or trust services — either in-house or getting better with the outsourcing — is an evolution in how wealth management is done,’ said Carla Wigen, chief operating officer and head of trust at $13bn Seattle-based Laird Norton Wealth Management (LNWM). LNWM reverse engineered the trend, having started in 1967 as a trust company and since evolving into a full RIA. The firm last month opened a new trust office in South Dakota, which has among the most favorable trust-related tax laws in the country.

‘Wealth management is broader than just investing,’ Wigen said. ‘Trust is an integral part of that. If you don’t do that, are you really managing somebody’s wealth?’

Not (necessarily) about the profit

While trust services make sense as a piece of the service puzzle RIAs want to offer, it’s a complicated business model with its own host of regulatory issues, and requires specialized experience that generally falls outside of an RIA’s core competencies. Buying, hiring or developing that talent is a big expense, especially to ramp up a business that applies to a small segment of the average RIA’s clientele and doesn’t make as much money as investment management and financial planning.

This dynamic has led some RIAs to stick with their outsourced solutions — at least for now.

‘Right now, we just can’t make the business case to specifically be in the trust business,’ Captrust head of wealth management Eddie Welch recently told Citywire. ‘Can we be profitable at it? Are the margins right for us? Can we really be good at it? … We have outside partners who serve clients really, really well, and that’s all they do.’

RIA executives that have invested to bring trust services in-house assure that it’s not about opening up a new revenue line.

‘If it’s about retaining clients and growing the business and adding new, I don’t really care if the trust company generates a profit,’ Kittner said. ‘It’s not about that. It’s about enhancing the client experience and being in a position where we can continue to serve the clients the way they need.’

Lido Advisors president Ken Stern, whose Los Angeles RIA acquired $800m Enterprise Trust & Investment Company in August 2022, said that the value of an in-house trust business is that it helps boost client retention across generations and exposes the firm to a new pool of clients.

‘As far as the margin, you’re able to work with that client for a much longer period, and you have a deeper relationship with the family,’ Stern said. ‘Just take your numbers out a couple more years, and the business case, the value add, is very apparent.’

Matt Fleissig, chief executive of $100bn Englewood, N.J.-based multi-family office Pathstone, said an in-house trust business is a necessary feature of a truly enterprise-level wealth management firm. With that goal in his sights, Pathstone acquired $35bn Wyoming trust company Willow Street in December 2022.

‘You’re starting to find that these clients are looking at these firms and saying, “I don’t want to join a practice. I want to join something that can be multi-generational,”’ Fleissig said.

Laird Norton’s Wigen added that the opportunity cost for late movers could be severe: ‘If you spoke with some RIAs and they were honest with you, they would say that they have lost business because they did not have trust services or they didn’t have an integrated offering that included trust services.’

New conflicts

The addition of a trust business isn’t without risk for RIAs. The business brings new conflicts of interest that must be mitigated for RIAs — and trust administrators — to adhere to their strict fiduciary regulations.

One such conflict stems from the potential conflation of the trustee role with the manager role: In the financial services industry of yesteryear, the Wells Fargos and JP Morgans of the world would act as both administrative trustee and investment manager to a client’s trust assets, creating a conflict of interest where firms had a financial incentive to use their own, often expensive, investment products. In the RIA space, a joint trustee-manager would mean the trustee couldn’t fire the manager for poor performance or other reasons — or, they could, but only at the expense of their business.

‘We knew we needed to have a solution that clients felt close to, but at the same time had the right firewalls and protections between the companies,’ Fleissig said. ‘We felt the best way to manage these conflicts was to form a sister company … very importantly not a subsidiary but an independent, separate company from the family office that is still owned by the same parent company.’

Kittner concurred: ‘There has to be a bifurcation.’

Another important decision must be made around fees, particularly whether to include trust services as part of the advisory fee or to charge clients a separate asset-based fee or flat retainer.

Pathstone, for its part, has opted for the latter of the three options.

‘We’ve been very against bundled fees since we started the business,’ Fleissig said, noting that Pathstone also charges retainer-based fees for tax, accounting and property and casualty insurance services. ‘You pay for what you want to use versus someone charging basis points and then you hope that they don’t call you to use your additional services because then you have margin compression.’

Moneta also charges a separate fee, but how much the client pays depends on their AUM.

‘It is an additional cost,’ Kittner said, ‘typically a graded schedule based on AUM. It’s obviously a smaller fee relative to a typical RIA fee.’

Who’s it for?

While trusts have traditionally made sense only for ultra-high-net-worth investors, say, those with $20m or more in investable assets, some RIAs have expressed interest in offering trust administration to clients closer to the mass affluent level.

Fleissig, voicing a perhaps contrarian view, said he is skeptical of retail-focused RIAs getting into the trust business and believes that clients with $10m or less who are looking for a third party to take discretionary power over their trust should find a family member or individual service provider rather than hire a professional corporate trustee.

‘Especially in the $5m and under, the math I just don’t think works from an economic standpoint. I’m not sure if you should be paying the dollars it costs to have a corporate trustee to do that,’ he said. ‘When I see a lot of firms acquiring trust companies with smaller client sizes, I actually scratch my head. I think there’s a fad to buy trust companies, and I think people … are potentially using them not for the right reasons.’

Cost alone, Fleissig said, should be prohibitive for clients below a certain wealth threshold. He cited banks and institutional broker-dealers which charge in the 60 to 70 basis point range for trust administration, and even sometimes up to 1% on top of investment management fees.

‘That’s where I struggle to think about the need,’ he said.

Stern holds a different view, and instead sees trust services as a means of helping young people all along the wealth spectrum make smart, safe and fair money management choices, especially during precarious asset transitions where a regular will just won’t do.

‘Who’s going to be in charge if, God forbid, something happens to you?’ he said. ‘It’s not a net worth question at all at that point.’

Kittner acknowledged that the need for a corporate trustee rises with a client’s wealth level but countered that ‘there are scenarios in probably all levels of wealth where a corporate trustee could be pertinent,’ referring to a theoretical $10m client that believes her two children should not be the trustee of their money.

Put simply, he said it’s essential for an RIA with multi-generational aspirations to be able to support multi-generational client assets, whatever the size and whatever the specific need.

‘We talk about playing a game that is kind of the forever game, right?’ he said. ‘Our goal is to continue to transition the firm from generation to generation.’

02 Aug Investment News – Advisors take US debt downgrade in stride: ‘More to do with politics than economic stability’

Financial advisors weren’t expecting a credit rating agency to downgrade U.S. debt two months after the country avoided a default, but they’re taking the move in stride.

The last point relates to Congress and the White House agreeing at the last moment to raise the debt ceiling earlier this summer. Advisors weren’t worried then that the country would spurn its debt. Nor were they shaken up by Fitch’s decision, which came weeks after a potentially catastrophic default was averted.

“The timing is surprising, but it’s not totally unexpected,” Francisco Ayala, an advisor at The Coleridge Group, said of the downgrade. He noted that Fitch has had a negative rating watch on the United States for a while.

“This has more to do with politics than the economic stability of the U.S.,” Ayala added.

Lisa Kirchenbauer, founding partner and senior advisor at Omega Wealth Management, also was caught off guard by the Fitch announcement.

“My initial reaction last night was, ‘Wow, this is a little late,” Kirchenbauer said. “I don’t think it’s worth panicking about.”

Jeff Farrar, founding partner at Procyon Partners, also was sanguine, noting that Fitch is the second credit agency to downgrade U.S. debt.

“S&P did it 10 years ago, and we’re still stumbling on. Nothing’s gotten better,” Farrar said. “It’s not great, but it doesn’t mean the world is going to end tomorrow.”

The problems that Fitch cited regarding the brittle politics in Washington were hardly a revelation, advisors said.

“It’s not telling us anything we don’t already know about our government,” said Steve Ankerstar, CEO of Ankerstar Wealth. “If the U.S. was any other country — or company — they would have already downgraded.”

The relatively muted market reaction – with the Dow falling about three-quarters of a percentage point as of early afternoon Wednesday — was a good sign.

“The overall strength of the economy is why [the sell-off] is not worse,” Ankerstar said. “But [Fitch does] make valid points about the long-term fiscal deterioration of the U.S. government.”

The downgrade is not causing advisors to reevaluate client portfolios.

“There has been corporate news that has impacted the Dow more than this downgrade,” Ayala said. “Investors are just looking past the noise.”

Kirchenbauer is focused on the Federal Reserve’s next move on interest rates, corporate earnings and the ever-looming potential recession. “The fact that markets are up this much always makes me incredibly nervous,” she said.

Assessing the chance of a second-half economic slowdown is a higher priority than the downgrade.

“If the economy stays strong, we’re going to remain long,” Ankerstar said.

But there was one reaction to the downgrade that has investment implications for Ayala’s clients. Yields on 10-year Treasury bonds increased to about 4%.

“We’re taking this as an opportunity to go farther out on the yield curve to capture safe and high yield,” Ayala said.

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