As I reflect on 2022, the most significant change affecting wealth management was interest rates. To battle inflation, during 2022 we saw a historic increase in rates, with the federal funds rate increasing from 0.00-0.25% to 4.25-4.50%! The interest rate increases wreaked havoc on personal investments – last year the US Total Stock Market Index declined 19.5%, and the US Aggregate Bond Index declined 13.0%. A diversified portfolio had nowhere to hide. For companies that base fees on a percentage of assets under management, like us, 2022 was not a good year because we earn more when our clients’ investments increase, and our fees are reduced when clients’ investment decline.

 

The change in interest rates will impact estate planning:

Another interesting development related to interest rates is the divergence between bank interest rates and investment money market rates. When interest rates were very low, the interest paid on cash deposits was similar. Throughout 2022 bank interest rates remained low while investment interest rates grew in reaction to the federal fund rate increases. Today, we see almost a 4% interest spread between bank rates and cash investment rates. Our private banking customers are taking advantage of this spread by opening investment accounts to hold cash investments. Your clients who hold cash may benefit from a discussion on cash investment alternatives.

 

We continued to receive significant new business referrals in 2022. Thank you for your trust and confidence in recommending our services. We appreciate any opportunity that you would like to discuss to see if we can help you and your clients. If you know of someone who would like to learn more about our trust and investment management services, please contact our Director of Fiduciary Sales, Terry Doyle, at (262) 953-2435 or tdoyle@prairietrust.com, or if you have an opportunity in the Madison or Rockford areas, contact our Madison Market Director, Jasper Vaccaro at (608) 535-3041 or jvaccaro@prairietrust.com.