By now, you have most likely seen multiple press releases and commentary from various news channels on the government’s takeover of SVB. Bank depositors will be made whole through FDIC insurance. In contrast, investors in SVB stock will most likely lose all their invested capital, and SVB bond owners will see a drop in the market value of their SVB bonds. The cause of the bank’s closure appears to be a combination of high quality, long duration assets (Treasuries, Mortgage Backed Securities, Collateralized Mortgage Obligations) that was negatively impacted by rising rates and a run bank’s deposit base due to tech, Venture Capital companies having substantial deposits above and beyond the FDIC limits, deciding to withdraw en masse.  A liquidity mismatch led to insolvency.

Given the news regarding Silicon Valley Bank and the uncertainty surrounding the broader banking industry, we wanted to share our potential risk exposures. In terms of the portfolios, we have non-existent direct exposure to SVB. As a member of the S&P 500 and other U.S. stock market indexes, Silicon Valley Bank was an extremely small position in a few ETF's. For example, in the case of the S&P 500, Silicon Valley Bank comprised just 0.04% of the index at the start of the year. The exposure to Silicon Valley Bank or Signature Bank from actively managed funds is similarly negligible based on a review of manager holdings. 

As advisors, we recognize there are always surprises occurring in the world of investing and financial planning. Whether it was Black Monday in October of `1987, the Savings and Loan Crisis from 1989 to 1995, the Y2K Tech Bubble, the Great Recession of 2008 to 2009, and most recently, the COVID shutdown of 2020…… All these events had a significant impact on investor assets.

It is difficult to foresee these types of events. However, good firms and good advisors on a regular basis assess the risk in their client portfolios. We have a pragmatic process for assessing risk in all three of our offerings: DRAAMS, Enhanced ETF, and High Income.

Here are a few of our firm’s ways of managing risk:

-  Strong Institutional Research: We partner with Ned Davis Research, Morningstar Institutional Direct, Charles Schwab Research, and research from the concentrated list of managers we utilize in our portfolios.

-  A Finite Set of Money Managers/Investments To Oversee: Our three offerings are built using a concentrated but diversified list of investments, which, we believe, allows for better oversight and ongoing due diligence. In layman’s terms, we have fewer investments to follow, which leads to a deeper understanding and oversight of the investments we utilize with clients.

-  A Scalable Investment Management Platform: GFP has partnered with Orion Advisor Technology to provide a global approach towards asset management. We can easily remove or add an investment to portfolios in 48 hours. Many firms of our size do not have this global approach toward investing. We believe it is essential to our clients' well-being.

-  Regular Scheduled Offering Reviews: We review and discuss our offerings on a quarterly basis. We review the performance of our funds on a weekly basis. We talk regularly during each quarter with the managers of our investments.

-  GFP Is A Fully Discretionary Fee-Only Firm: Portfolio adjustments to our offerings do not need client approval. We do not get paid to transact. We get paid to manage assets with each client’s needs at the center of how we manage client assets as fiduciaries.

Although this approach seems easy to execute, it has been our experience that many independent RIA’s do not have this structure in place as part of their firm’s DNA. Process does not allow a firm to foresee unforeseen events before they occur, but we believe process and a reputable global asset management platform (Schwab and Orion) can help us more efficiently navigate these events when they “do” occur.

Charles Schwab is one of the largest custodians of client assets, with more than $7.04 Trillion in customer assets. We selected them as our/your custodian due to their strength and reputation. On Monday, they provided the following response to the SVB announcement.

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As always, we appreciate the trust you have in us as founding partners of GFP, LLC.