2 min read November 2023 — In an interview with Invest:, Richard Bryant, CEO of Capital Investment Companies, discussed the shifting landscape of investments, the impact of interest rates, cybersecurity, generational approaches to financial freedom, and regulatory challenges.
What have been the most significant changes in the investment and wealth management industry over the last 12 months?
The industry has experienced a slowdown in business and opportunities. We’re seeing a shift from the unexpected market surge during COVID-19, which no one anticipated in the face of a global pandemic. The stock market, in particular, responded positively, fueled by significant government monetary support. Interest and demand for relocation to states like North Carolina have kept the market stable, although the frenzy has decreased since two years ago.
What are some key trends influencing the financial services industry and how is your company adapting?
A major trend is the rise in interest rates. We’re seeing a segment of the population that hasn’t benefited from higher savings rates in a long time, so we’re presenting our clients with opportunities, like the higher yields now available with the 10-year Treasury sitting around 5%. Rates have been declining since around 2008, and it’s been a long while since we’ve seen such high-interest rates. When I entered the industry 40 years ago, rates were at 18% due to high inflation, but I don’t expect them to reach those levels under the current circumstances.
As interest rates rise, the stock market may fluctuate, yet companies could see increased earnings as they adjust their prices. We’re advising clients to maintain their stock market investments and not attempt to time the market, which requires making difficult decisions about when to exit and re-enter. We’re also recommending incorporating fixed income into portfolios to take advantage of the 5 to 6% interest rates that haven’t been seen for a considerable time, suggesting a diversified approach.
How is technological advancement impacting the financial sector?
Technology, particularly artificial intelligence, is critical these days. As a mid-sized company, it’s essential to employ the best technology we can access to avoid falling behind. We’ve managed to do this by partnering with larger entities like our clearing operation, Pershing, owned by Bank of New York, which is continually upgrading its technology. This helps level the playing field for intermediate firms like ours. We’re now as technologically equipped, if not more so, than bigger competitors, who may find it harder to pivot quickly.
Vendors now recognize this need and are creating tech stacks suitable for the mid-market, allowing us to compete fairly. The rapid spread of AI is unprecedented, making headlines and integrating into daily life, from writing speeches to completing term papers. Despite this, we know it can’t replace the human element in our industry, which is fundamentally about people and relationships. Technology is a tool, but our business is built on personal interaction, especially when addressing client concerns about the economy and the housing market
What measures is Capital Investment Companies taking to protect client information and assets against cybersecurity risks?
Regulators constantly oversee our operations, prompting us to engage external experts to test our systems and ensure we’re safeguarding effectively. Cybersecurity is a major concern; it’s what keeps me up at night, much more than AI’s evolution. The reality is that threats to security are everywhere and they could potentially undo what took years to build. Our tech partners, including our clearing group Pershing, owned by Bank of New York, must be even more vigilant. Daily threats are frustrating and contribute to a wider sense of unease, compounded by issues like the confusion over cutting cable and the lingering effects of long COVID. People naturally want to trust, but the current climate makes it challenging. It’s a concerning trend, not just here but across the world.
How do you see financial freedom evolving for different generations?
My son, who is a millennial, has managed to pursue his passions while also making a living, proving me wrong since I had told him it wasn’t possible. It seems his generation is learning to combine passion with profitability, which is pivotal for financial freedom. However, recent developments have shifted perspectives. After the last interview, we observed people reluctant to return to work and I wondered how they were managing financially, considering government assistance isn’t enough for financial independence. Now, with unemployment rates dropping, there’s a forced return to some normalcy as layoffs become a reality again. This situation is challenging the notion that one can live freely without stable employment. People are beginning to realize that financial independence might require more traditional work, especially as economic conditions tighten.
Using my son as an example again, he is keen on avoiding debt, which reflects a broader trend where people are trying to adjust their living standards to their income. There’s a pullback towards balancing a connection with one’s job and the desire for financial freedom. It’s a normal cycle—when things get tough, people start paying attention to issues they once ignored. In Raleigh, during the employment boom, we used to recruit through known circles, but recently, we had to resort to internet job markets or recruiters. That was last year. Now, there’s more availability in the job market here, particularly because of layoffs in large numbers. These layoffs are a wake-up call to many new employees, who didn’t expect such a turnaround within just a year or two.
If you were to invest in something new, which industry/sector would it be and why?
Lithium, as the chemical element used in electric vehicle batteries, is looking rather interesting. With the rise of electric cars, there’s a significant demand and race for better and better battery technology, and lithium is something to consider. The scarcity of natural materials needed for these batteries highlights a potential unintended consequence of government mandates. I grew up near a lithium plant in Gastonia, NC, which now seems prescient given the electric vehicle push. My investment approach is usually conservative, like when, with my own investment portfolio, I missed out on early video game stocks or bought into Amazon later than ideal, but thankfully, was still able to make a decent return. Recently, I invested in a health food company in my personal portfolio, which aligned with the trend of healthy eating and it has done well. Similarly, solar energy is another sector to watch, especially with government influence shaping the markets. We have to consider regulations, which can edge out smaller firms in my industry.
What regulations are you monitoring that could impact your business?
Regulation Best Interest (Reg. BI) is one we’re keeping an eye on. It’s meant to ensure we act in the best interest of our clients, which should be a given for anyone handling others’ money. However, the influx of rules targeting dishonest practitioners ends up constraining the whole industry, particularly when serving smaller clients becomes less viable. When I started, the ‘know your customer’ and ‘prudent man’ rules sufficed. Increased documentation and oversight, like monitoring texts and emails, create challenges. There’s also a push to reclassify independent contractors as W-2 employees, which could dramatically affect my industry. Over half of the industry operates independently and this reclassification effort is the closest it’s ever been to becoming a reality. We’ll know more in the next six months.
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