Markets continually evolve, and 2019 will be no different

As we turn the page from 2018 to 2019, the economy is expected to slow, but not stall due to fading fiscal stimulus and higher interest rates, experts say.

And even as unemployment falls further, inflation should be relatively contained. Some key factors, such as a healthy labor market, will continue to drive the economy forward in 2019, suburban experts say.

When it comes to wealth management, new players entering the industry, especially large companies, is a hot trend to look for in 2019, leaders at BMO Wealth Management U.S. say.

Another emerging trend in the industry is watching the shift in opportunities between the U.S. and other emerging countries since the global economic landscape has become less synchronized than a year ago, says a senior portfolio manager at MB Financial.

And despite faster pay increases, most economists expect inflation to remain tempered next year. The Federal Reserve predicts its preferred measure of overall annual inflation will rise from November's 1.8 percent to 1.9 percent by the end of 2019. Another reason inflation is expected to remain modest is that oil and gasoline prices have fallen amid rising supplies and cooling global demand.

To get a better look at what to expect in the upcoming year, we asked two suburban experts about everything from wealth management to the stock market and even bitcoin.

Spencer Klein

Senior portfolio manager

MB Financial

Q. What is the most important trend the wealth management industry should be watching?

A. The most important trend the wealth management industry should be watching is shifting opportunities between the U.S. and other developed and emerging countries since the global economic landscape has become less synchronized than compared to 12 months ago.

Q. We have seen an explosion of new risk-profiling applications over the past few years. What are your thoughts on that?

A. Long gone are the days when risk-profiling surveys gauged prospective investors for risk by asking them to respond to a few questions to score their risk numerically.

Nowadays, the best profiling exercises start with attitudes toward risk in a quantitative way, like before, but also run projected hypothetical scenarios for wealth and returns over an investor's lifetime. These new projections are known by many names, though Monte Carlo analysis is the most common.

Q. What is the biggest technology trend in wealth management in 2019?

A. The biggest tech trend is the integration between investment advice and financial planning. For example, wealth management firms can now use technology to access all of a client's investments and savings, not just those at their own firm.

By combining the assets of their client's company-sponsored 401(k), restricted stock, and even privately held businesses with the assets they are managing, advisers can offer a more complete financial picture for their clients all in one place.

Q. What do you see when it comes to millennials and wealth management?

A. Millennials are significantly more grown up than most people realize. Recently, they have been moving out of their parent's basements and into their own apartments, even getting married and starting a family. While the generalization that they have put off families later than their parents and even the next older group, Generation X, they are quickly making the transition into adulthood.

As far as attitudes toward savings and investing go, millennials quickly bifurcate into two groups based upon how much student loan debt they still have. Those without any debt, or a modest amount, seem keen to embrace the markets compared to those still paying off college and graduate school.

Q. What about the general economy in 2019? What can we expect?

A. As I briefly mentioned earlier, because the consensus view from early 2018 of continued synchronized growth fizzled as the year progressed, investors need to be prepared for disappointment. For 2019, many countries may go from growing quickly to more slowly, like the U.S., while other countries may go from decelerating to shrinking economic growth.

This divergence has happened before, typically toward the end of a global expansion, like the one that ran from 2010-2017, things can become overly optimistic that the good times will roll on, when in reality, the business cycle is alive and well.

Q. What about the stock market?

A. After nearly 10 years of uninterrupted gains in stocks, investors were reminded that losses can happen. What actually sparked (last) year's swoon will be debated for years, with rising interest rates and worries about global trade protectionism as prominent scapegoats; (last) year's volatility is alarming. Though the calendar year may not be all that bad, the peak to trough correction is at a 20 percent bear market for many stocks and some major indices.

With the resiliency of the U.S. economy demonstrated by low unemployment, modest wage gains, and gross domestic product (GDP) growth near 3 percent, an argument can be made that weakness in November and December is overblown. Should these trends in economic growth continue, these few months could be viewed as a buying opportunity, rather than the start of something worse.

Q. What is one wealth management tip you can share with our readers?

A. Sound investment advice is to always be appropriately diversified. Being diversified doesn't mean owning a dozen or so highflying tech names. Nor does it necessarily mean owning just an S&P 500 index fund.

For many investors, being appropriately diversified means having the right mix of stable and more risky investments. My best advice is to work with an experienced adviser and develop the right mix between stocks, bonds and other lower risk asset classes like absolute return and hedged equity.

Q. What is the one question I forgot to ask?

A. You forgot to ask about bitcoin, which has fallen from roughly $20,000 to $4,000 per unit. Your neglect in bringing up this topic might have been to prevent any of your readers who bought it from feeling embarrassed.

Whether bitcoin is a revolutionary form of payment, genuine new asset class or a Ponzi scheme is not something I know enough about to comment. But cryptocurrencies, blockchain and distributed ledger technologies are all interesting enough developments to at least keep in the back of your mind.

Michael Stritch

Chief investment officer and national head of investments

BMO Wealth Management U.S.

Q. What is the most important trend that the wealth management industry should be watching in 2019?

A. New players entering the industry, specifically large technology companies. Amazon, for example, has been nibbling at the edge of banking for a while, and Microsoft recently announced a new retirement planning partnership.

The increased competition raises the bar for everyone in the industry, thus improving the ultimate client experience.

Q. We have seen an explosion of new risk-profiling applications over the past few years. What are your thoughts on that?

A. Enhancing the ability to gauge individual risk tolerance is a welcome development, so I applaud efforts in this area. I also appreciate new attempts to link risk tolerance assumptions to real time portfolio allocations, but many applications rely on historical results to gauge future risk.

The markets are continually evolving, so we should be careful not to put too much emphasis on past results as they can provide a false sense of precision when looking forward.

Q. What is the biggest technology trend in wealth management in 2019?

A. While end-to-end digital platforms were the talk of the industry earlier this decade, I'm excited to see the focus moving toward applications that help human advisers deliver a more comprehensive experience for clients.

For example, we have been working with a fintech company linking health and financial wellness. The result is a more integrated planning experience that goes beyond just financial figures.

Q. What do you see when it comes to millennials and wealth management?

A. They are a group that is very comfortable operating in a digital environment, but in the end face the same complex planning and investment challenges as everyone else. My view is that wealth management will cater to these preferences by taking on a more digital look and feel going forward, but still be built on human relationships.

Q. What about the general economy in 2019? What can we expect?

A. For 2019, our base case calls for further U.S. economic growth, though at a slower rate than that seen in 2018. We also expect a continuation of slowing growth outside the U.S., and Chinese stimulus measures should lead to an improving trend toward the middle of the year.

It is worth noting that our outlook assumes a continued de-escalation of U.S.-China trade tensions, but we do not expect a final resolution anytime soon.

Q. What about the stock market?

A. Prolonged market declines rarely take place outside of recessions or periods of negative earnings growth, and we see neither on the horizon for 2019.

Valuations have adjusted rapidly to the slowing growth picture, and should provide more support going forward.

That is not to say 2019 is without risks, as the past few weeks have demonstrated, but our view is that the recent sell off will ultimately prove a temporary setback.

Q. What is one wealth management tip you can share with our readers?

A. For individuals seeking wealth management strategies to help meet future financial goals, successful execution is often about trade-offs. How much should I sacrifice in the present to prepare for a more secure future?

Though it can seem daunting, even a small decision now can have big consequences many years out. You have to start somewhere.

Q. How will purely digital wealth management platforms fare in more difficult market environment?

A. The rise of robo solutions has been accompanied by a strong stock market run, and I am interested to see how customers will react during a more challenging return environment. My sense is that individuals will gravitate toward personal, human interaction during times of stress.

Five areas for investors to consider in 2019

1 Expect growth in equity markets, as we estimate emerging market-growth of up to 20 percent.

2 Consider enough bonds, because they may help stabilize portfolios when equities decline.

3 Include international assets, which could be helped by a weaker U.S. dollar and trade progress.

4 Lower allocations to the most rate-sensitive assets, including REITs and most bonds.

5 Strive to manage volatility risk with a portfolio mix of asset classes that spans sizes, geographies and sectors as competition among companies intensifies.

Source: Wells Fargo Investment Institute