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Wednesday February 5, 2020

Get to Know Paul Dietrich, Chief Investment Strategist, B. Riley Wealth Management

Paul Dietrich, B. Riley Wealth Management Chief Investment Strategist, holds a distinctive viewpoint on the financial industry that has taken shape through his work as an elected state official, Washington,
D. C. attorney, author, and advisor to the World Bank and several Eastern European governments on privatization and economic development issues during the early 1990s.

As Chief Investment Strategist at B. Riley Wealth Management, Dietrich is focused on managing investments for private investors, retirement funds and private institutions. He also oversees B. Riley Wealth Management’s proprietary WISDM Model Portfolio. WISDM is a highly vetted approach built to help financial advisors efficiently manage clients’ assets through a fee-based, discretionary arrangement. Broad support across the B. Riley Wealth Management team has grown the WISDM program to more than $400 million in assets under management since its inception only two years ago, and Dietrich has plans to expand it further.

Notable Background and Distinctive Viewpoint

After graduating from college, Dietrich enrolled in law school at the University of Missouri, ran for the Missouri State Legislature, and served for four years. He earned his law degree while simultaneously working in public service.

Early in his career, as an attorney for Jones Day and Squire Sanders & Dempsey, Dietrich spent time in Eastern Europe assisting the World Bank in creating economic indicators for several countries. These Leading Economic Indicators, modeled after the U.S. economic indicators used by the U.S. Federal Reserve, helped countries and their central banks determine whether they were headed in or out of economic recessions. Dietrich also played a role in the formation of uniform commercial codes that supported Eastern European countries both in the creation of their central banks and in the governance of contracts to regulate international business.

“All of the work that I did in the early 1990s in Eastern Europe really helped me as an investment manager. Leading Economic Indicators have an almost perfect record of signaling a recession anywhere from 8 months to 12 months before a recession starts. I don’t believe anyone can successfully time the stock market, but with these Leading Economic Indicators, you can get advance warning of an upcoming recession and take appropriate action to reposition client portfolios,” Dietrich says.

In general, these early warning systems will turn down 8-12 months prior to an economic recession, and people can prepare themselves. “While the stock market can react irrationally to political, foreign policy issues and other news in the short run, almost all economists believe that over any five-year period, the stock market tracks the directional trend of the underlying economy. The best strategy, then, is to think long-term and focus on the direction of the core economy and the Leading Economic Indicators that give us early warnings of a business cycle change like a recession or a recovery from a recession,” Dietrich says.

Leading Indicators like inventory can show when manufacturers start ordering less product in anticipation of a future downturn. The lower inventory comes first, and then sales will lessen six to nine months later. Only once earnings are announced some months later will the rest of the world get the bad news. However, inventory gives us an early warning signal months in advance of an earnings decline. Other indicators, like Average Weekly Hours in Manufacturing (AWHMAN), Building Permits (PERMIT), the S&P 500, the Leading Credit Index, the Interest Rate Spread, are all examples of the Leading Economic Indicators that make up the Conference Board Composite of Leading Economic Indicators.

WISDM: B. Riley Wealth Management’s Smarter Approach to Investing

Dietrich oversees WISDM, B. Riley Wealth Management’s proprietary model portfolio program. The program centers around assessment of a client’s risk tolerance, which can then be applied to one of several models; some are mutual funds, some are ETFs and some have alternative investments. Together with their financial advisor, clients can determine which model best fits their risk profile.

Dietrich sees WISDM as a standout, because while other firms have somewhat standard “buy and hold” asset allocation models, B. Riley Wealth Management has an active management component which aims to help get people out of the market during a recession – the Capital Preservation Indicator, or CPI. “That CPI is what distinguishes us from other firms out there,” Dietrich says.

WISDM has grown from $0-$420 million in assets under management in just two years, and we think one of the reasons it is successful is that people know we can provide the kind of active money management that will reposition and help protect their assets in declining markets. Dietrich says that in his experience, most people are very happy with a good market return; they’re not greedy; but every poll shows that investors don’t want to lose everything they have gained during a bull market when the economy goes into a recession. He adds, “Watching your money that you’ve worked all your life to save go down 57%, like it did during the 2008-2009 reccesion is devastating. What clients really want to know is, “If or when we go into the next recession, is there something that can help me guard my assets?”

A Voice on What’s Trending in the Industry

Dietrich is a frequent on-air television commentator focused on lending his voice to the financial services industry’s mega-trends—one of which is consolidation. “The SEC and FINRA are leaning in opposition to smaller broker-dealers and RIAs, which has led to a lot of consolidation, and that has made it difficult for independents doing it on their own,” Dietrich says.

Competition against online robo-advisors is of course another trend, but Dietrich thinks advisors have the edge, because while robo-advisors suit people like millennials who are only starting to learn about investing, people with money who are near retirement age need to work with human beings. As they start dealing with issues above and beyond pure money management, like tax consequences, trust issues, and succession planning, an advisor who can give specialized and nuanced advice is imperative.

Dietrich has also noticed that advisors are retiring or otherwise leaving the industry quicker than they can be replaced. “Therefore, it’s crucial that we constantly offer solid advice to our clients, and as the Chief Investment Strategist, identifying economic cycle changes, recessions and major industry shifts and trends are where I can really help,” he says. “Advisors know their products well, but clients have questions about how larger economic and political issues affect their investments, like impeachment, the next presidential election, the recent run-up of stocks at the end of last year, coronavirus, and the possibility of a market correction or a recession. I hope to provide advisors with talking points that are nuanced and are based on historical facts of how these issues have impacted the stock market in the past,” Dietrich says.

Dietrich will also be discussing these larger trends in smaller settings, holding educational economic summits a few times yearly. In discussing macroeconomic issues like the ones he often speaks about on CNBC and Fox Business Network every few weeks in a more private setting, Dietrich hopes financial advisors will benefit from their clients’ interaction with a visible person representing B. Riley Wealth Management.

Advice for Financial Advisors

Dramatic technological changes have made some of the trading grunt work easier and led to the advent of robo-advising, but there is no replacement for human interaction when it comes to advice and personal service, Dietrich says.

“The most successful financial advisors are the ones who provide truly personalized, top-notch service and advice to their clients. While most know the products they are selling and the ramifications of advice they give on investment strategy, it also helps to be knowledgeable about larger mega-trend economic and stock market questions that people have read about in the newpapers and heard on the news. I intend to help all of our B. Riley Wealth Management advisors with material that can be provided to clients,” he adds.

Advisors who communicate about newsworthy issues with their clients unprompted usually achieve success, as people appreciate getting answers to their questions and fears about the economy and the stock market. Personalized attention and targeted educational communications when appropriate go a long way, and it’s always good to remind your clients you’re available, thinking about them, and not just attempting to sell them a product.

In conclusion, Dietrich says he loves the investment management part of his job. People work their entire lives to save money, he says, and as they near retirement, financial advisors are the ones who manage their retirement savings. He takes that “enormous responsibility” seriously, adding that financial advisors are one of the most important people in retirees’ lives as they age, because much of their success in retirement is based on how well advisors manage their money. “That, to me, is a sacred duty that gets me up in the morning, and it’s also why I believe in active investment management,” he adds. “We are caring for people’s life savings, and it’s a huge responsibility.”

Paul Dietrich currently serves as B. Riley Wealth Management’s Chief Investment Strategist. Dietrich has over 30 years of investment management experience and can also be seen as a frequent on-air commentator and contributor of market analysis to business and financial media including CNBC, Fox Business, Bloomberg TV, CNN, The Wall Street Journal, Yahoo! Finance, Reuters and The Washington Post.

Click here to learn more about the B. Riley Management WISDM program.