13 North Bay wealth managers reveal what to expect with investments

In this report

Thelia Eagan, CPA/PFS, wealth adviser and office director, Buckingham Asset Management

William J. Sullivan, vice president and investment officer, Exchange Bank Trust & Investment Management

Andrew Mathieson, managing member, Fairview Capital

Timothy J. Delaney, CPA/PFS, managing partner, JDH Wealth Management

John Whiting, CFP, AIF, Moss Adams Wealth Advisors

Fred Dopfel, Ph.D., co-chairman of Investment Committee, Private Ocean

Montgomery Taylor, CPA, CFP, wealth manager and author

Gregory S. Onken, managing director, OS Group, J.P. Morgan Securities

Michael Lair, CFA, vice president and portfolio manager, Wealth Management Division, Rabobank N.A.

Tom Hubert, wealth management program director, CFS program manager, Redwood Credit Union

Michael J. Schmitz, CMFC, RFC, CES, vice president of investments and chief operating officer, Schmitz Capital Partners

Ivar J. Bolander, CIMA, CPWA, CWS, family wealth director, senior vice president for wealth management, Sonoma Wealth Management Group, Morgan Stanley

Jeff Schnitz, managing director and president, SVB Wealth Advisory

Bruce Dzieza, CFP, Willow Creek Wealth Management

Alice King, CFP, CEO, Wine Country Wealth Management

For the fifth year, the North Bay Business Journal surveyed wealth management advisers across the North Bay on three questions related to the investment climate today and long term.

Responses are presented alphabetically by firm name. (See the list of the region's largest advisories.)

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Thelia Eagan, CPA/PFS

Wealth Advisor, Office Director

Buckingham Asset Management

3550 Round Barn Blvd., #212, Santa Rosa 95403

buckinghamadvisor.com, 707-542-3600

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

My goal is to help clients tune out market forecasts and fluctuations and to instead focus on things they can control, such as minimizing costs and building a diversified portfolio. As part of a company that uses an evidence-based investment philosophy, I use decades of peer-reviewed academic research to help investors increase their expected returns over the long term. My approach to investment strategies has not changed in the past year - I continue to focus on creating a plan for clients that weathers the ups and downs of the market to help them reach their goals.

What mistakes do you see individual investors making in the current financial climate?

The biggest mistake I think investors make is listening to forecasters who say the market is due for a crash. While it's simple to recommend that investors “stay the course,” it's not always easy for investors to follow that advice if the market isn't performing as expected or if they fear an impending crash. Historical evidence shows that a thoughtfully designed, diversified portfolio of passively managed funds will outperform in the long run.

What trends are you anticipating will most impact investors over the next year?

As online portfolio management platforms continue their effort to replace advisers with algorithms, the discussion surrounding the value of the client-adviser relationships will continue to be a hot topic. As much as we try to automate our lives, some aspects cannot be replaced by a computer. I think an adviser's role is more than crafting an investment portfolio that reflects investors' goals and what is important to them. I believe investors will increasingly recognize the value of having a trusted adviser who not only continually reviews and reallocates their investments but who also designs a personalized plan that blends every aspect of the investors' financial life: tax strategy, wealth transfer goals, risk management and charitable giving.

Is there anything you would like to add?

Long-term planning is the key to making sound investment decisions and to helping investors avoid making emotional decisions. All too often, emotions - such as greed or envy in bull markets, and fear or panic in bear markets - can cause investors to throw out well-developed financial plans. Working with an adviser who creates a portfolio based on evidence (not emotion) and research (not opinion) can help investors safeguard their financial futures and take the fear out of investing.

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William J. Sullivan

Vice President & Investment Officer

Exchange Bank Trust & Investment Management

P.O. Box 208, Santa Rosa 95402

exchangebank.com, 707-522-2376

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

We have not adjusted our approach or philosophy relating to how we construct client portfolios. Our philosophy remains embedded in a consistent approach borne of decades of academic research and a focus on risk and cost control. We constantly review our portfolios in the aggregate as well as the individual components. We seek to maintain the broad diversification that is a hallmark of our process while looking for investments which offer lower cost, better performance or both. We make changes with an abundance of caution to ensure that they reflect positively on client portfolios and market conditions that stimulate any change (i.e. persistent low rates).

What mistakes do you see individual investors making in the current financial climate?

Investors tend to be reactionary to the news of the day. During the past year we've been faced with disruption in the oil patch, the impact of Brexit, terrorism in Europe and the uncertain presidential campaigns. The common thread that runs through these events, which can create mistakes, is that they are seen as negatives by some investors that stimulates the need in them to “do something” to react to the news. The reality is that these events happen consistently throughout history and often, in the end, the impact is nowhere near as damaging as some investors and the press perceives that they will be at the time. This is where we provide tremendous value to our clients as we guide them through the noise and disruption and avoid reacting out of fear.

What trends are you anticipating will most impact investors over the next year?

The continued impact of the DOL regulation on the investment process and the lower for longer impact of low interest rates on savers and the economy. The regulation is intended to be investor friendly by having the adviser act in a manner that puts the investor's needs ahead of the adviser. The Exchange Bank is not directly affected by the regulation as we only act in the capacity of a fiduciary for affluent investors.

The potential downside are the unintended consequences that might befall the smaller investor who could be underserved as a result of the changes. The other trend is the persistently low level of interest rates. We've experienced seven years of low rates following the credit crisis induced recession and there appears to be no end in sight. The damage to savers and bond investors is the continued low income they receive from their cash equivalent and bond portfolios. Conservative investors will continue to be challenged to find income in other ways.

Is there anything you would like to add?

The volatility in the markets will continue through the year. With the equity markets trading at or near all-time highs, the markets will continue to experience increased volatility and appear to trade in a directionless manner over the coming months. The combination of market highs, the uncertainty around the presidential election and the see sawing economy will result in a lack of market conviction in terms of direction. Investors should be prepared to deal with volatility in terms of market action in both directions leaving them confused at times as to the overall market direction and questioning the viability of the bull market. We would counsel investors to always take a step back and consider their long term goals and objectives along with their current situations prior to making any emotional decisions during periods of elevated volatility.

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Andrew Mathieson

Managing Member

Fairview Capital

300 Drakes Landing Rd. #250, Greenbrae 94904

fairviewcap.com, 415-464-4640

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

We have not adjusted our investment strategies significantly over the past year, other than to slightly rebalance portfolios back to our client-specific asset-allocation targets. From a business standpoint, we are investing significantly in operating and financial planning software to make sure our clients are fully aware of the long-term investment implications of extraordinarily low or even negative interest rates across the globe.

What mistakes do you see individual investors making in the current financial climate?

Generally individual investors use too short a time horizon to measure returns, and overreact to short-term market movements such as what recently occurred following the Brexit vote. We strongly urge investors to make a long-term savings and investment plan, and stick to it.

What trends are you anticipating will most impact investors over the next year?

Given the dramatically different governing philosophies of the two major party presidential candidates, we expect increased volatility in the markets as we get closer to the November elections. We are adjusting downward the risk in our portfolios accordingly.

Is there anything you would like to add?

Over very long periods of time, it has always paid to be an owner of assets (stocks, real estate) rather than a lender (bonds or cd's). With interest rates still at multi-generational lows, the reward for lending is grossly inadequate for the credit and duration risk involved. Stocks can be more volatile in the short term, but in the long run investors are paid a premium to endure this volatility.

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Timothy J. Delaney, CPA/PFS

Managing Partner

JDH Wealth Management, LLC

181 Concourse Blvd.

Santa Rosa, CA 95403

jdhwealth.com, 707-546-5642

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

Not at all. We only change based on clients changes, not one year so-called current economic trends.

What mistakes do you see individual investors making in the current financial climate?

Not having a written investment policy statement, prepared when things are calm in their life, not when reacting to headlines news.

What trends are you anticipating will most impact investors over the next year?

Trying to read the tea leaves on the presidential outcome. Our suggestion, ignore the presidential news, regardless of party affiliation.

Is there anything you would like to add?

Investors are best served having a written plan and sticking to it, regardless of current economic headlines.

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John Whiting, CFP, AIF

Moss Adams Wealth Advisors LLC

3558 Round Barn Blvd., #300, Santa Rosa 95403

www.mossadamswealthadvisors.com, 707-527-0800

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

A year, in the big scheme of things, is a relatively short window of time. When it comes to our investment philosophy, we base our investment decisions on long-term economic trends and the long-term financial goals of our clients.

By focusing on helping clients define their goals and the level of risk they're comfortable accepting-we get a clear picture of their risk personality. Equipped with this foundation, we develop customized investment plans. In today's climate, the market and its ebbs and flows help us determine where the portfolio is underweighted and where it needs to be trimmed.

There likely are advisers that advocate for moving assets around in response to what they think is going to happen in the market, but in my 20-plus years of experience, I've rarely seen anyone able to do that successfully, and I've never seen anyone who can regularly repeat it on a sustained basis. Instead, we aim to develop investment plans that can function as an all-weather portfolio, performing well in both up and down markets.

What mistakes do you see individual investors making in the current financial climate?

Too often, the prevailing impulse is to time the market when uncertainty is present. This often causes people to make emotional decisions that can lead to financial losses. For example, when the market was off dramatically to start the year, many responded by thinking, “Oh, I need to move.” The S&P 500, the Dow Jones Index, and the Russell Investment index-all of which track domestic equities-were hit hard. But then the market quickly made back the initial losses; and within a short period of time, people lost a lot of money.

During a period of uncertainty many investors without a plan and long-term view make decisions that really hurt them, creating permanent impairment to their portfolios.

Basing large investment decisions on near-term market news is generally a bad idea. Those who wait for positive financial news to show up before getting back into the market are typically too late because the market moves much faster than news does.

For example, after the market crashed in 2008-for those few that made a decision to sell and get to the sideline-many waited for good news before they got back into the market. They really hurt themselves because the skies didn't clear, but the market kept ticking up. Three or four weeks after the low point that year, the market was up 21 percentage points, and anybody who hadn't reinvested back into the market at that point was probably out of the market for the next six to eight months. Unemployment was high; and there was concern markets were going to continue to fail, so people permanently lost the ability to rebuild and regain losses to their portfolios.

In contrast, we advised our clients to stay with their allocation. They stuck with it, and within a reasonable period of time they were back to where they were before the drop.

What trends are you anticipating will impact investors most over the next year?

The trend of very low interest rate environment will continue for the next 12 to 24 months. We may see some related increase before that period of time, but it would be a measured increase over time.

Expect fairly low returns from fixed-income portfolios, a trend we've seen for the past several years, to continue for the foreseeable future. Measured interest rate increases will take place over a longer time frame.

Globally, the world is rather uncertain right now between Brexit, challenges within the European Union, and emerging markets. There's always uncertainty of some fashion in the market, and I'm not convinced this time is truly different.

But investors who are super cautious because they assume the market is verging on a correction, and they're pulling out large amounts of money, are making a mistake. Although a downturn could happen, many people's investment-time horizon is much longer-in most cases decades. Having a plan that contemplates this fact and a portfolio that's aligned with your goals and risk personality is key to successfully navigating the challenges of an increasingly uncertain world.

Is there anything you would like to add?

I think long-term investors need to pick their head up and continue to look at what's happening in the long run. The presidential election, Brexit, Chinese market volatility-these things come and go. During some periods of time, markets are more volatile than others, but the key to being a successful investor is to maintain a long-term perspective and manage your investments accordingly.

It's not always easy to refrain from making emotionally-based investment decisions. In today's information age, investors can easily find themselves inundated with negative news that makes reactive investment decisions tempting. Adding to the challenge, today's investors can easily make changes to their investments with a couple of mouse clicks. That's why it's important for investors to establish someone they can lean on as a sounding board to help when market volatility arises.

John Whiting has been in wealth management since 1995. He's a partner with Moss Adams Wealth Advisors and specializes in helping business owners transition from active management of a company to financial independence. He can be reached at 707-535-4167 or john.whiting@mossadams.com.

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Fred Dopfel, Ph.D.

Co-Chairman of Investment Committee

Private Ocean

100 Smith Ranch Rd, # 300, San Rafael 94903

415-526-2900 privateocean.com

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

We continually monitor economic trends and new ideas in investing to ensure that our investment strategies are on the leading edge of financial thinking and are also well matched with investors' objectives. We have a shorter duration within our bond portfolio to protect against rising interest rates in the U.S., and we have incorporated alternative strategies to improve diversification in an environment with high uncertainty about economic growth. During the last year, we incorporated a higher quality and lower cost international equity strategy and also adjusted our real estate allocation for greater global balance. We also enhanced our early warning system and other risk mitigation tools. Overall, the investment strategies have been fairly constant with minor adjustments, as our priorities remain to generate superior long-run returns via globally diversified portfolios with low-cost and tax-efficient implementation.

What mistakes do you see individual investors making in the current financial climate?

Investors are reading the news about political stresses on the European Economic Union (e.g., Brexit, terrorism), pressure on central banks globally to maintain low or even negative interest rates, sluggish improvement in domestic unemployment rates, and political divisions surrounding the upcoming presidential elections. It is hard for individual investors to maintain investment discipline.

Some investors have mistakenly reacted tactically by holding cash on the sidelines or otherwise trying unsuccessfully to time the market. Some business owners are not planning ahead on what to with their money when they eventually sell all or part of their enterprises. Many executives and entrepreneurs are so busy making money that they do not spend enough time thinking about how to manage their wealth and planning for financial security.

What trends are you anticipating will most impact investors over the next year?

Continued slow economic growth has encouraged most central banks across the globe to maintain low interest rates. Set against the gradual normalization of Federal Reserve policy in the U.S., this may cause continued strengthening of the U.S. dollar. This, in turn, impacts the relative competitiveness of globally-integrated U.S.-based companies. Meanwhile, some European economies appear fragile due to political instability, although it would not be surprising to see some catch up in growth as a result of economic stimulus programs.

Turning to China, its economic path was very bumpy and has stabilized somewhat, but there are still significant debt issues. Finally, technological disruption is having real impacts, both in terms of risks and in terms of opportunities it presents for investment growth. These trends are hard to forecast, and therefore it is important for investors to be very diversified across asset classes and geographies.

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Montgomery Taylor, CPA, CFP

Wealth Manager and Author

taxwiseadvisor.com, 707-576-8700

Have you adjusted your investment strategies in response to economic trends over the past year?

Yes, the S&P 500 dipped 12% last August and again in January, causing us to reduce our exposure to volatile stocks and minimize losses. I use a dynamic approach to investing with the primary objective of pivoting between wealth accumulation strategies (i.e. offense), or wealth preservation strategies (i.e. defense), in a timely fashion based upon asset class leadership. The methodology used is 100% rules-based, and designed to follow the strongest sector and asset class trends within a broad array of investment options. The strategy is based upon dynamic asset level investing, relative strength-based ranking process for each major asset class (including cash), and the rankings are then used to construct multi-asset class portfolios.

What mistakes do you see individual investors making in the current financial climate?

The current financial climate is tenuous. The stock market doesn't like uncertainty and there is lots to be uncertain about-like the impact of the presidential election. People, especially those nearing retirement, are too complacent and not watching for changing trends in the market. What seems to be most absent from individuals portfolio management is a buy and sell discipline. They need to establish rules to follow, so they can protect their investments.

What trends are you anticipating will most impact investors over the next year?

Historically, if stocks fall between Aug. 1 and Oct. 31, the party that currently controls the White House wins the election 82% of the time. We're close to one-third of the way through that period and the markets are near all-time highs. It feels to me that this particular presidential election will have more significant impacts on the market. I don't know exactly what to expect, but I'm prepared to adjust our portfolios and protect the clients I manage money for.

Is there anything you would like to add?

Yes, our parents and grandparents could buy and hold stock in great companies like Radio Shack, Chevron, Exxon Mobile, Enron, WorldCom, General Motors, collect their dividends and never worry about the principle. In our day and age, that is dangerous. These companies are not too big to fail - and take your wealth with them. You need to monitor your stock, have a sell discipline and make sure it is working hard for you.

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Gregory S. Onken

Managing director, OS Group

J.P. Morgan Securities

560 Mission St. #2400, San Francisco 94105

jpmorgansecurities.com/os-group, 415-772-3123

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

Yes and no: Value is still value, growth is still growth, and income is still always positive but shifting omnipresent geopolitical risks, demographics and the changing role of new technologies effect consumption and capital flow patterns. This in turn, creates new and varying opportunities. The ”flattening” of the correlations embedded in the global economy as reflected in the interconnectivity of the capital markets has also caused us to examine the source of revenues for all of our investments and think beyond traditional boxes of “U.S.”, “International”, “Emerging” or “Global”.

What mistakes do you see individual investors making in the current financial climate?

To our chagrin, investor continue to make the same mistakes over and over: 1) They buy what they wished they had owned, chasing a security, a market or a sector often without regard to price. 2) Investors extrapolate current trends into the future, calculating that the current direction of an investment will continue uninterrupted. 3) Investor frequently fail to ask, “What if I am wrong” which causes a miscalculation of risk - usually manifesting itself in over-optimism or over-pessimism. 4) Investors lack discipline to stick with a solid investment if the near-term price action doesn't offer reward. More importantly, this short-termism leads most investors to do the opposite of what a good investor does which is buy high and sell low. All sound strategies will work over time but not all the time. And price matters! Because price determines the “margin-of –safety”.

What trends are you anticipating will most impact investors over the next year?

Last year we commented that we were anticipating concerns to focus on “rising interest rates and/or a reaction to a natural and normal 15%+ correction in major indexes. Investors have been convinced that indexes are the way to go utilizing “passive” EFTs because of the low costs and potential tax efficiencies. Everything they have been told is true BUT an investor has to have the discipline to stay invested through long-term cycles. It has been awhile since the major indices posted a 15%+ correction and it will be interesting to study investor behavior when it happens. Will they sell and attempt to become market timers or will they adhere to the discipline required. We're betting on emotion.” Since that time nearly half of the constituents in the broad equity indices have corrected 20% or more and the indices corrected more than 10% at the start of the year. As other investors were fleeing certain investments, we utilized the price pull backs and put funds to work.

If one thinks of interest rates as the cost of money and acknowledges that the artificially low price of money has been a contributing factor, if not the fuel, for asset price appreciation (and justifiably so) while also being mindful that low rates haven't been set by the market but by Central Bank policy, then one has to ponder what happens when rates move from the artificial lows. If rates are to begin to rise (specifically in the U.S.) it seemingly will affect asset prices. The question is: how much and how fast? We have an opinion, but that's what our clients pay us for.

Is there anything you would like to add?

Human behavior is constant. Emotional reactions to price changes and the over estimation of current trends is why an experienced, thoughtful adviser is a valuable asset for any investor. Work with a team that demonstrates a thoughtful, patient, goal –based approach and only benchmark against yourself and your family's long-term goals and you will be a successful investor.

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Michael Lair, CFA

Vice president and portfolio manager

Rabobank N.A. Wealth Management Division

700 Trancas St., Napa 94558

www.rabobank.com, 209-401-2245

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

We have made modest changes to our investment strategy slightly increasing our risk profile by reducing cash and adding to equity assets that have a risk profile a little more aggressive than the Standard and Poor 500. Our belief is and has been as the U.S. and world economies stabilize that large investors that drive the direction of the markets will be willing to take more risk than they have in the prior two or three years.

What mistakes do you see individual investors making in the current financial climate?

First, being nervous about the market and going to cash. Often going to cash is an easy decision but getting back in the market is the difficult decision. I still have clients who got out of the stock market in 2008 and never got back in.

Second, in this low interest rate environment investing in risky assets seeking a higher yield. There is nothing inherently wrong with getting a higher yield. But clients must understand with higher yields come higher risks such as loss of principal, lack of liquidity and large fees or penalties to liquidate the asset.

What trends are you anticipating will most impact investors over the next year?

Probably the most important long term trend impacting investors will be the United States and world economy. There is still a lot of concern that the broad international economy will go into a recession due to a number of factors. If we see the slow growth we have had continue and start showing signs of improvement worldwide equity markets would react favorably.

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Tom Hubert

Wealth Management Program director, CFS program manager

Redwood Credit Union

3033 Cleveland Ave., #100, Santa Rosa 95403

redwoodcu.org, 707-576-5274

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

Our philosophy centers around listening to each member's needs and goals, and helping create options, solutions and a customized plan that works for their unique situation. That said, we track and monitor economic and market trends and activity daily, to ensure we're offering advice and solutions that our members can take advantage of.

What mistakes do you see individual investors making in the current financial climate?

The earlier people take control of their financial future - even if you start small - the better off you will likely be long term. So we encourage people to not procrastinate when it comes to investing, and also avoid making investment decisions based on emotions. Taking time to create a plan, regardless of your financial position or situation today, is an important first step. Working with qualified financial advisers who can assist you in creating a plan that meets your needs and goals is crucial to long-term financial success and well-being. And, ensuring you work with your adviser to make decisions based on sound data and information vs. emotions or fears will better enhance your ability to achieve your financial goals.

What trends are you anticipating will most impact investors over the next year?

There are several areas that could affect investors. Regulatory changes, the political environment, and continued technological advancements are at the forefront in our opinion. The recent regulatory updates, such as the adoption of the fiduciary standard for retirement accounts, will mean everyone will have to educate themselves on the impact this could have in the marketplace and make any necessary adjustments. Our goal is to be proactive and to be on the front end of these types of developments so we can provide the best solutions and the highest service levels for our members.

Is there anything else you would like to add?

It can never be said enough - you work hard for your money, so working with someone you can trust to aid you in building a solid investment plan is crucial. Do your homework and even interview potential financial advisers from reputable organizations before proceeding. But the old adage, “always do business with those you can trust” is simply a good rule to live by.

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Michael J. Schmitz, CMFC, RFC, CES

Vice president of investments, chief operating officer

Schmitz Capital Partners, LLC

655 Redwood Highway, Suite 109, Mill Valley 94941

www.schmitzcapital.com, 415.381.9076

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

Yes. Our investment strategy has been slightly adjusted to reflect a steadying global economy, but with a watchful eye on several areas of concern. U.S. recession risk is low and economic growth in the U.S. remains relatively healthy (although recent data has been mixed and Q2 2016 was revised to an annualized 1.2% - less than half of the previous estimate of 2.6%), but there are continued geopolitical concerns. There has been a Cold War revival in the Baltic States, there is rising instability in the Middle East (Turkish Coup, Syria, Iraq), and there are Brexit concerns (potential drag on growth, U.K. loses its status as Europe's financial center, and other countries are emboldened to exit the EU). There are still several mainland European concerns - Syrian refugee crisis, Greek debt concerns (Greece's debt problems have driven the country to the brink of a Eurozone exit), and several concerns in Asia.

After China's major financial market correction in 2015 the economy seems to have stabilized on the back of stimuli, but it has become such a major piece of the global engine it represents a real systemic risk. Growth in Japan has also stagnated, but they have detailed another stimulus package designed to help rekindle economic growth. The Fed is inevitably heading toward a rate hike, but in the face of a weaker-than-expected GDP report, prospects for a rate hike in Sept. 2016 looks small, while a hike in Dec. 2016 or sometime in 2017 looks more probable. Any rate hike could cause some equity market volatility and increase the likelihood for longer term interest rates to gradually trend higher as they begin to normalize from historically low levels.

As a result, our investment strategy adjustments have been threefold:

(1) Our overall fixed income strategy has involved the migration to strategic/unconstrained income funds that have a more flexible mandate to actively hedge duration risk; a gradual shift away from high yield securities and government issued fixed income securities into shorter maturity fixed income securities to help reduce interest rate risk; and continued allocation to floating rate note funds (interest paid on the loans adjust periodically which can provide some protection from interest rate risk).

(2) Despite difficulties in emerging markets (EMs) due to a supply glut of oil prices and slowing growth in China, we are now increasing allocations to EMs. Though increasingly hard hit more recently by the freefall in oil prices coupled with a slowdown in China, the steepest part of the downturn may be over.

(3) As global economic activity has been impacted by troubles overseas we believe in maintaining allocations to developed market equities, especially the U.S. Given the potential for future volatility, we've added long/short strategies (both domestically and globally) where active managers may provide some ability to mitigate downside risk. In a moderate-return equity environment with more disjointed opportunities, a higher Sharpe Ratio (a measure of risk-adjusted returns) for long/short strategies might be achievable in the near-term.

What mistakes do you see individual investors making in the current financial climate?

Theoretically, investors should be realistic about their appetite for risk and implement portfolio strategies within that risk tolerance in order to meet their long-term goals. However, since risk carries a “recency effect” (e.g. investors' most recent investment experiences are often what they expect to happen in the future), the market's record-breaking spree has certainly induced envy and the fear of missing out on the potential for generating larger returns. To make matters more difficult, often times investors are not accurate in describing their risk tolerance thresholds and make costly decisions based on emotion. In the current financial climate, one of the most easily identifiable problems are the rapid changes in investor sentiment and a corresponding willingness to immediately accept more risk, or remain in an unproductive, defensive investment posture worrying about an impending Armageddon that may never materialize. This bifurcation in “stated” and “psychological” risk tolerances can pose some unique problems.

Exposing oneself to greater risk can prove particularly painful in the event of a correction, especially when one's risk tolerance and circumstances have not substantially changed. However, extreme risk aversion and underexposure to an appropriate amount of risk can cause an inadvertent reduction in wealth.

Risk tolerance is often heavily influenced by outside, disinterested parties (e.g. friends, family, media) and traditional behavioral finance shows that investors usually have an asymmetric view of risk - they are more scared of sustaining losses than they are of missing the opportunity to generate returns. While changing investor appetite for risk is not a mistake by itself, not understanding the potential underlying implications for making a change is often a mistake.

In general, investors appear to be taking on more risk as the domestic markets have generally charged higher. They also seem to be incredibly sensitive to any pullbacks and very fearful of any prolonged decline. Additionally, investors seem generally concerned about bond performance and the possibility that rising interest rates could lead to losses in their fixed income holdings.

Therefore, some individuals are reducing their fixed income holdings in anticipation of rising interest rates and blindly rotating into equity-oriented investments, some of which are trading elevated levels. This may be an ill-advised strategy. Equities often demand significant patience and continued participation in the market to compensate for periods of under performance and increased volatility, therefore the potential for a rising interest environment should not necessarily send a message to reallocate to equities. It should serve as an opportunity to evaluate appetite for equity risk in the context of a correction, stepping down the fixed income ladder toward shorter maturity fixed income securities to help reduce interest rate risk, and the potential migration up and to the left along the yield curve to things like strategic/unconstrained income funds that have a more flexible mandate to actively hedge duration risk.

What trends are you anticipating will most impact investors over the next year?

We believe that there will be monetary policy divergence in the future as the Fed continues to stare down the barrel of an interest rate hike (we now think 2017 is most likely - although Dec. 2016 also seems reasonable). Currently, the Bank of Japan (BOJ) the European Central Bank (ECB) and People's Bank of China (PBC) are pursuing expansionary monetary policies. China is slowly stabilizing after strengthening its fiscal stimulus by injecting significant liquidity into the markets (back in June 2015 they enacted historic easing through a combination of cutting interest rates and simultaneously lowering the reserve requirement ratio for specific banks) and the BOJ will continue their Herculean efforts to jump start the world's 3rd largest economy.

The Brexit and difficulties in Eurozone countries like Greece, Spain, Italy and France should reinforce easy monetary policy in Europe. These disparate global growth results, and divergent monetary policy responses, has the potential to create bouts of sharp volatility at times, particularly in equities. We also think a surprise rate hike by the Fed may be another potential source of volatility because the timing and pace of rate hiking continue to remain uncertain.

The financial markets will likely face a more challenging environment toward the end of 2016, especially due to a highly contentious U.S. presidential election. Increasing focus on the timing of the Fed's decision to raise rates, negative surprises in headline economic data, or sensational headlines out of Europe, the Middle East and Asia, could lead to increased volatility in the global markets and impact the improving, but still fragile, U.S. economy.

We would expect to see:

Elevated volatility in global financial markets.

Moderate domestic growth and relatively low inflation.

Monetary policy tightening domestically (interest rate hikes in the U.S.) and expansionary monetary policy in many major economies overseas.

Potential allocation shifts back to emerging markets, which have lagged, but have favorable demographics, valuations and growth outlooks.

Potential allocation shifts back into commodities after the steep downturn.

Allocation shifts to long/short strategies in the hopes of minimizing volatility and capturing a higher Sharpe Ratio (a measure of risk-adjusted returns).

Allocation shifts in fixed income portfolios in an effort to reduce interest rate risk and overall duration.

The need for active management to make tactical adjustments in order to mitigate potential losses.

Is there anything you would like to add?

There is no doubt that “irregularly occurring and complex series of economic, political and financial market changes” have roiled the global economy since Q3 2015.

Besides these events, the combination of recovering domestic growth, low inflation and ultra-accommodative monetary policy have generally benefited equities. However, it has also created substantial debate and a fair amount of future uncertainty. On the one hand you have a relatively stable economic environment of growth, low inflation and artificially low rates. On the other hand, equity markets seem to be elevated once again, and may have already priced-in continued recovery and improving growth. Although overreaction to corrections, and continued insistence on waiting for the “next” pullback has proved costly for those who have waited to allocate, lower growth potential can mean less capacity to absorb negative shocks and sudden bouts of volatility. Markets can move away from fundamentals, and move away for prolonged periods of time, so a rotation away from equities and into fixed income is not necessarily the answer.

Unfortunately, the bond market is no safe haven for diversifying away from market risk. It is incredibly delicate, primarily because of interest rate risk. The fear of rising interest rates and the impact on bond prices loom, but how far out and how aggressively the interest rate adjustments happen remain up for debate. The uncertainly about how quickly and how high interest rates will rise makes prematurely rotating out of fixed income into a potentially more volatile equity market a risky strategy.

Overall, we see several key downside risks which could derail any strategy - weaker-than expected global growth, another correction or slower-than-expected growth in China, a reversion back to crises in Europe due to the Brexit, geopolitical challenges from the Middle East and/or Russia, a market sell-off in credit due to unexpected interest rate hikes, or further carnage in emerging markets driven by risk aversion, plummeting oil prices, or a rising U.S. dollar.

We believe that successful investing will be predicated upon a thorough investment process, a carefully crafted investment plan. We believe that in order to achieve investment objectives, in this climate, investors must create an investment policy that addresses their unique investment goals, time horizon, timing of net portfolio additions or withdrawals, and, most importantly, their risk tolerance (understanding of the relationship and tradeoffs between risk and return and their own ability, willingness and need to accept market risk).

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Ivar J. Bolander, CIMA, CPWA, CWS

Family wealth director, senior vice president for wealth management

Sonoma Wealth Management Group, Morgan Stanley

3562 Round Barn Cir., 1st Fl., Santa Rosa 95403

morganstanleyfa.com/sonomawealthmanagementgroup 707-524-1068

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

We have continued to emphasize global rebalancing. We define this as a rebalancing of growth from the U.S. to other parts of the world, a rebalancing of power from oil producers to oil consumers and a rebalancing of wealth to the middle class spurred by a stronger U.S. dollar, lower commodity prices and more accommodative monetary policies outside the country. While this was based on the sharp selloff at the beginning of the year, we remain firm with our recommendations to favor equities over fixed income depending on each investor's objectives and risk tolerances.

While our global rebalancing strategy remains on track, we have adjusted our suggested asset allocations on a regional and capitalization basis accordingly. We have reduced our recommended exposures to European and Japanese equities by 2% each and increased our exposure to U.S. small- and mid-cap stocks and emerging market equities each by 2%.2 We continue to recommend an overweight to global equities and favor U.S.-only positioning within fixed income. Maintain some exposure to high yield bonds as inflation expectations could recover with a weaker dollar, a stabilization of oil prices and a tighter labor market.

What mistakes do you see individual investors making in the current financial climate?

Many investors may feel the need to abandon diversification and the financial plans they created with their advisers in order to chase returns. The biggest risk lies in the tremendous amount of money that investors have poured into bonds and bond funds in search of current income. If and when interest rates begin to normalize and increase again, this may result in a negative impact on the current market value of their holdings. Remember to look at the whole picture when assessing your next financial move. Don't be distracted by one or two economic barometers.

What trends are you anticipating will most impact investors over the next year?

I expect the remainder of the year will be dominated by the noise surrounding the U.S. presidential election, geo political events (i.e. Brexit, the Italian referendum, terrorism) and other headline grabbing issues that populate the 24/7 news cycle. Volatility around any of these events should be an opportunity for investors.

Is there anything you would like to add?

It is imperative for investors to have a plan and a process that creates an investment portfolio that is focused on and measured against the probability of achieving their own unique goals.

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Jeff Schnitz

Managing director and president

SVB Wealth Advisory

555 Mission St., 9th Floor

San Francisco 94105

415.764.3178

Have you adjusted your investment strategies in response to economic trends over the past year?

We have only slightly adjusted focus because we are long-term investors worried about the key themes which have impacted the markets in the past year.

What mistakes do you see individual investors making in the current financial climate?

Mistakes are often short term and not goal-focused. And, not personalized to the individual family's needs.

What trends are you anticipating will most impact investors over the next year?

Liquidity and time frame adjustments as portfolios continue to have generally lesser performance than in the past three to five years.

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Bruce Dzieza, CFP

Willow Creek Wealth Management

825 Gravenstein Hwy. N. #5, Sebastopol 95472

willowcreekwealth.com, 800-696-8096

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

We don't rely on “trends” in developing our investment philosophy. Our firm's strategy is based on academic research and evidence. If we did rely on trends and predictions we would have been out of bonds at the beginning of the year, since almost all economists expected a rising interest rate environment. Instead rates dropped and intermediate term bonds rose over 7%.

What mistakes do you see individual investors making in the current financial climate?

Relying on their emotions. Headline news brings out the fear in people, subconsciously encouraging them to make investment related changes that are not in their best interest. Regardless of the current “trends”, investors tend to get greedy when markets are rising and overly anxious and fearful when the decline. This is contrary to the discipline required to be a successful long term investor.

What trends are you anticipating will most impact investors over the next year?

The Presidential election and Brexit will keep investors nervous. Volatility will remain high for the balance of the 2016. Investors need to keep cool, remember that politics has little to do with long term corporate profits. Interest rates may or may not rise much this year and trying to “time” your bond investing has proven to be a fools game.

Is there anything you would like to add?

There is a “wealth gap” in the North Bay. Though our unemployment rate is very low, tighter mortgage requirements make home ownership difficult to obtain. With our very limited supply of rental housing finding affordable housing has been challenging.

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Alice King, CFP

CEO

Wine Country Wealth Management

755 Baywood Dr., 2nd Fl., Petaluma 94954

winecountrywealthmanagement.com, 707-933-1549

Have you adjusted your investment strategies in response to economic trends over the past year? Why, or why not?

Our approach to investing combines more than eight decades of market data, Nobel Prize-winning academic research and the latest discoveries in behavioral finance. The main objective is reducing investment risk through diversification, which we call asset allocation. Diversification is intended to reduce the volatility (fluctuations in value) of the investment portfolio. In addition, we exercise care to minimize income taxes and investments' expenses by utilizing institutional mutual funds that have less overhead expense and turnover than their retail counterparts. Furthermore, we manage the behavioral risk of investors (our clients) guided by the latest insights of behavioral finance – to make sure emotions don't get in the way of sound financial decisions. Because our approach is comprehensive and consistent throughout the markets' ups and downs, no, we do not change course in response to specific events.

What mistakes do you see individual investors making in the current financial climate?

Some investors have a tendency to become paralyzed and hesitant to make decisions, because the continuing volatility in the stock markets at home and abroad has them second-guessing themselves. Others can become overly reactive to every up and down and fail to adhere to a long term investing plan. We see our role as being their objective “sounding boards.”

What trends are you anticipating will most impact investors over the next year?

We continue to keep a close eye on all the many factors that affect our clients' abilities to reach their financial goals, especially their lifestyle in retirement. Of course, this goes beyond how their portfolios are invested, as there are many other variable to consider such as future income tax rates' likelihood to increase, rising costs of uninsured medical expenses in retirement and options for funding long term care expenses (with fewer insurance companies staying in this business).

Is there anything you would like to add?

Our firm's investment approach is based on our belief that an effective investment strategy can only be designed as a component part of the financial planning process. This enables an investment strategy to be personalized and integrated with a client's specific goals and objectives.

In this report

Thelia Eagan, CPA/PFS, wealth adviser and office director, Buckingham Asset Management

William J. Sullivan, vice president and investment officer, Exchange Bank Trust & Investment Management

Andrew Mathieson, managing member, Fairview Capital

Timothy J. Delaney, CPA/PFS, managing partner, JDH Wealth Management

John Whiting, CFP, AIF, Moss Adams Wealth Advisors

Fred Dopfel, Ph.D., co-chairman of Investment Committee, Private Ocean

Montgomery Taylor, CPA, CFP, wealth manager and author

Gregory S. Onken, managing director, OS Group, J.P. Morgan Securities

Michael Lair, CFA, vice president and portfolio manager, Wealth Management Division, Rabobank N.A.

Tom Hubert, wealth management program director, CFS program manager, Redwood Credit Union

Michael J. Schmitz, CMFC, RFC, CES, vice president of investments and chief operating officer, Schmitz Capital Partners

Ivar J. Bolander, CIMA, CPWA, CWS, family wealth director, senior vice president for wealth management, Sonoma Wealth Management Group, Morgan Stanley

Jeff Schnitz, managing director and president, SVB Wealth Advisory

Bruce Dzieza, CFP, Willow Creek Wealth Management

Alice King, CFP, CEO, Wine Country Wealth Management

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