With valuations and spreads having swiftly recovered from the dislocations of the "Liberation Day" tariff announcements, risk perception in the equity and bond markets appears to reflect an economy in equilibrium—or what John Williams, president of the New York Fed, has described as “equipoise.”¹  For a central banker, this state suggests a balanced labor market and target-level inflation. And while there is evidence of equipoise in the current environment, investing by this narrative disregards the high levels of risk—inflation risk, in particular—that we believe persists. 

In our view, the labor market is the epicenter of inflation risk due to a looming supply shock. While the rate of natural increase in the US population (that is, the difference between births and deaths) has been in decline for much of the twenty-first century, this trend has been more than partially offset by net immigration. Assuming the Trump administration maintains its aggressive approach to immigration—and this seems like a safe assumption given the significant increase in US Immigration and Customs Enforcement funding baked into the recent tax and spending bill—this source of labor is likely to contract dramatically.²  

Moreover, the labor market’s current equilibrium level is a tight one compared to past cycles. With financial conditions again accommodative and the accumulation of public debt unrelenting, corporate profits and profit margins have been biased higher, and historical data suggest that job openings are likely to follow suit. The introduction of more jobs into a stagnant labor pool is a potential spark for wage inflation.³ 

As demands on financial advisors become increasingly more complex, there continues to be rapid growth in financial advisors choosing to work as teams or even in some cases mega teams. In our experience, teaming often allows advisors to bring more expertise to the table for clients, oftentimes creating specialist roles. These specializations may help them be better equipped to offer comprehensive services such as investment management, tax planning, estate planning, insurance, and even concierge-type experiences. 

While clients tend to receive a more holistic-based approach working with advisory teams, we also have seen the benefits of teaming when looking at the bottom line for the advisors themselves. According to a recent study, the median AUM for a team-based practice is $250 million versus $80 million for a sole practitioner. It’s not surprising; one would expect a team AUM of multiple individuals to have a higher AUM but looking at the results on a per advisor basis, the median AUM is $72 million per advisor in a sole practitioner practice vs. $100 million per advisor in a team-based practice. If we also review the average client size, solo practitioners average client AUM is 1.0 million vs. $1.6 million for team-based practices.¹

First Eagle Academy offers an Elite Teams 2.0 program and consulting services designed to help advisors at each stage of team construction, management, and leadership. Please reach out to your First Eagle representative to learn more about how we can tailor our offerings to meet your needs.