The Standard & Poor’s 500 is down 6.8 percent over the past month, a fair sell-off for a stock market that’s done almost nothing but rise since bottoming out in the spring of 2009.
To get some perspective we checked in with Jim Allen, CEO of Hilliard Lyons, the Louisville-based financial management firm.
We met in Allen’s corner office at 500 West Jefferson St. downtown. As one might imagine for such a firm, Allen’s office is certainly comfortable, with big window views of the city on two of its four walls.
Allen has been Hilliard’s CEO since 2004, and has been with the company since 1981. So he’s seen these kinds of ups and downs before.
First thing to note, when Insider Louisville brought up the falling markets, Allen did a bit of an involuntary sigh of resignation, although he quickly regained focus.
“I think there’s been a tremendous market run,” he said. “I think there’s been some growing uneasiness that the market was fully priced, fully valued, that there wasn’t much room for price appreciation, unless there were some really positive signs (in) corporate earnings, or economic growth.”
He added that domestic markets still are exposed to the wider world, and that Europe’s economic recovery from the financial crisis has lagged our own. “Spirits have been dampened by what’s going on in Europe, and there have been lower growth estimates for the world economy,” he says.
Indeed, the FTSE 100, an index of the 100 largest companies on the London Stock Exchange, is up just 20.8 percent for the past five years, versus 74.1 percent for the S&P 500. The German DAX index has done even worse, up 16.8 percent in that time.
He added other economic indicators also show the markets are not quite all systems go. Recent data showing lower inflation data suggest there’s not enough demand in the economy to push prices up. He said this sets up an excuse for investors to sell, taking some profits.
We asked Allen what he would consider the most important financial advice he believes anyone should follow, especially in light of market uncertainty (and there is always market uncertainty). Not surprisingly, his advice: Be extremely careful to manage your exposure to risk, making sure you’re not overly concentrated in any one financial sector, such as stocks.
“If clients can be thoughtful, use diversification, understand their circumstances, and do financial planning, which will in turn help you avoid making big mistakes,” he said. “It’s pretty simple math. If you take a dollar and you cut it in half, you’ve got to get 100 percent just to get back to where you were.”
Hilliard itself has done a good job of successfully managing its own risk. Five years ago its assets under management were close to $22 billion, today it’s more like $42 billion.
It’s also expanding its trust division, and recently opened a trust office in Cincinnati, its first such office outside of Louisville. Allen said this was due to rising demand in that market, and rising demand for trust management in general. This is because the Baby Boomer generation has trillions of dollars in assets that it has to manage, and is looking for ways to preserve this money and pass it along to the next generation.
At the same time Hilliard, though it’s business is growing, is not immune from getting its employees poached by bigger firms. One such recent poaching was Mary Ellen Becker, a Hilliard financial advisor in Indianapolis who was hired away by Merrill Lynch.
Allen didn’t have too much to say about the move, other than to say Hilliard has great retention of its financial advisors, and that most of Becker’s assets are going to stay with the firm.
Still, it’s not the first time Hilliard has lost a decent size producer or their team. In 2010 Thomas Barnes left that firm to go to Wells Fargo.
One financial industry observer, who requests anonymity, said Hilliard’s a little bit slower to offer beneficial money management platforms to its advisors than other national firms. And due to being a regional firm it can be hard for them to compete financially with bigger national firms. “You’re never moving to Hilliard Lyons for the money, you’re moving for other reasons,” the source said.
We also asked Allen about his take on the financial health of the KFC Yum! Center. Hilliard is the financial advisor to the arena, which saw its debt downgraded, amidst complaints that it isn’t meeting its debt obligations.
In a 2011 interview with the Lane Report Allen said that when it helped secure financing for the arena in 2008 it believed: ” … The investment was sound, we knew the project and had a lot of confidence in it. Hilliard Lyons did a good job on the project for our investors and our community. Everybody was a winner.”
But what does he think about the arena’s performance now? “I’m limited in what I can say because we are the financial advisor to the Arena Authority,” he said. “Other than to say that clearly the economy changed or was changing, post-the offering, and the good news is that things are getting a lot better now. So we feel good about it.”
Wouldn’t more events at the arena put it on more solid financial footing? “The utilization for concerts and other conventions and other events is huge, and we’ve seen a distinct improvement there,” he said. In addition, he said that as the economy improves it should drive tax revenue for the arena.
What about a pro team? Wouldn’t that drive revenues most of all? “I’ve got mixed feelings on a pro team,” he said. “If the city and the fans in this area could support it I’d be all for it. I’m not sure we’ve got the depth to be able to support it at this time.”