Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an article about the FPA, its declining membership, and prospective organizational changes as the CEO retires in 2014. From there, we look at a number of practice management articles, including an overview of the emerging niche of firms that provide quality lead generation for financial advisors, how to sustain a study group, the importance of e-delivery of documents not only for your firm but for your clients, a new software package to help with investment advisory fee billing, and two marketing articles - both emphasizing the value of being unique and different and having a niche to grow the business effectively. From there, we look at an interesting interview with Jeremy Grantham about investing opportunities, a striking article that suggests the giant pile of cash corporations are sitting on may be a bad sign and not a good sign, an article from the Journal of Financial Planning about a new way to manage tail risk for client portfolios, and coverage of an emerging new product called a "stand-alone living benefit" designed to provide all the lifetime income guarantees contained in today's variable annuities but wrapped around a client's own investment account instead. We wrap up with a slightly more light-hearted list of investing tips and maxims that would probably be a good reminder for almost any planner and his/her clients. Enjoy the reading!
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an editorial from Bob Veres about whether the Financial Services Institute is going to find itself on the wrong side of history, defending the status quo broker-dealer model against the underlying trend towards fiduciary advice. From there, we look at a recent announcement of FPA's new PlannerSearch tool for consumers, a new CRM package for smaller advisory firms, a nice article about how to select the right CRM package for your firm, and some tips about how to run a seminar marketing strategy effectively to grow your practice. We also look at an interesting article about important conversations to have with your clients, that includes a lot of stuff financial planners already know but a few good tips as well, and a nice article by Roy Diliberto pointing out that the best way to get extraordinary results from your firm is to make your employees extraordinary by giving them the opportunity to succeed and making sure you, the business owner, aren't being part of the problem. This week's reading also includes three investment articles: one that suggests the fate of municipal bonds may be more tightly linked with equity returns than we realize; the second providing a nice primer on the European crisis and how we got to where we are; and the last suggesting that Europe's moment of truth may be arriving, and that they will not be able to substantively kick the can further down the road. We wrap up with a nice article from Robert Shiller - a prospective commencement speech for finance graduates that provides a nice reminder of both the challenges that finance must tackle in the coming years, and the underlying social purpose for why the finance sector exists in the first place. Enjoy the reading!
As the baby boomers move inexorably closer to the point where they begin to retire en masse out of the workforce, so too does financial planning move closer to the point where the majority of experienced practitioners and firm owners will begin to exit the business. Industry guru Mark Tibergien estimates that as many as 2/3rds of all financial advisors may look to exit in the next 10 years, requiring more than 200,000 new planners to enter the industry just to keep the total number of practitioners even. Yet the reality is that so far, the industry appears to be woefully behind. As a result of this prospective workforce distortion, financial planning will potentially undergo significant changes in the coming years, and not necessarily for the good. In a "seller's market" for talent, large firms that can compete with both training and resources, and that have the profit margins to absorb higher compensation costs, will survive and grow; on the other hand, smaller firms may find themselves in a plight of being "stuck" small, unable to attract or even afford the young talent necessary to grow. And in the process, the greatest loser may be the majority of the American public, who simply will not be served when a dearth of planners inevitably causes the few practitioners that remain to be attracted to the most lucrative high net worth clients.Read More...
Cash reserve strategies that hold aside several years of spending to avoid liquidations during bear markets are a popular way to manage withdrawals for retirees. In theory, the strategy is presumed to enhance risk-adjusted returns by allowing retirees to spend down their cash during market declines and then replenish it after the recovery. Yet recent research in the Journal of Financial Planning reveals that the strategy actually results in more harm than good; while in some scenarios the cash reserves effectively allow the retiree to "time" the market by avoiding an untimely liquidation, more often the retiree simply ends out with less money due to the ongoing return drag of a significant portfolio position in cash. As a result, the superior strategy for those who want to alter their asset allocation through market volatility (the effective result of spending down cash in declines and replenishing it later) appears to be simply tactically altering asset allocation directly, without the adverse impact of a cash return drag. Nonetheless, this still fails to account for the psychological benefits the client enjoys by having a clearly identifiable cash reserve to manage spending through volatility - even though the reality is that it results in less retirement income, not more. Does that mean cash reserve strategies are still superior for their psychological benefits alone, even if they're not an effective way to time the market? Or do total return strategies simply need to find a better way to communicate their benefits and value?
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an interesting article from the Journal of Financial Planning about how the industry can develop more effective risk tolerance questionnaires, along with a good article reviewing college funding strategies and a review of a new cloud-based software program to analyze all the different possible combinations of Social Security claiming opportunities for couples. From there, we look at a few practice management pieces, from how advisory firms can better build their own brand, to some tips about how to develop trust more quickly in new relationships with prospective clients, to the reasons why clients don't refer (and what to do about it), and the increasing amounts that advisory firms are spending on technology with a focus on ROI. We also look at some articles highlight trends and opportunities in the industry, from the potential fallout in the 401(k) marketplace when the new fee disclosure rules take effect later this year, to the "career arbitrage" that's occurring as one executive after another leaves the custodian, broker-dealer, and investment company environment to take on a position as a principal with an independent RIA. We wrap up with a look at the potential for a "Grexit" - the new term du jour for a potential Greek exit from the Euro - and a striking article from The Economist that asks whether the era of the public corporation is coming to an end, given the resurgence in everything from private equity to state-owned enterprises to partnerships around the globe. Enjoy the reading!
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a discussion of the latest shot fired in the SRO debate, as BCG and the Financial Planning Coalition respond to the latest FINRA estimate of SRO costs.
From there, we look at three significant articles on retirement income planning, including: the latest thoughts from Bill Bengen showing that the 4.5% withdrawal rate is still working just fine, even for a 2000 retiree; an article from the Journal of Financial Planning showing how holding several years of the portfolio in a cash reserve INCREASES retirement failure rates; and a discussion from Bob Veres in Financial Planning magazine about whether we need to change our retirement spending assumptions.
Beyond that, we have a number of interesting markets and investment pieces this week, including highlights from James Montier's opening keynote speech from CFA Institute earlier this month, a look at how 'adaptive' asset allocation holds more promise than traditional strategic allocations, a prediction from Mauldin that Germany is waving the white flag and clearing the way for the ECB to print Euros to solve the Eurozone problems, and ongoing worries from Hussman that we may be dancing at the edge of an investing cliff.
We wrap up with three interesting articles: a scathing 'anonymous' insider letter to Mark Zuckerberg shining a light on the investment bank realities of the IPO marketplace; an article by Angie Herbers about how the greatest problem in most advisory practices is the owner (and how to better get out of your own way for your firm's success); and tips for stressed-out advisors to try to (re-)gain a hold of some balance and efficiency in their practices. Enjoy the reading!
Planners have long recommended that clients save and invest, even while they have a mortgage, since the long-term return on equities generally exceeds the interest rate on a mortgage. Yet in reality, investors don't simply choose to invest in equities because the return is higher than a fixed alternative; instead, investors demand an equity risk premium over and above the risk-free rate to make equity investing worthwhile. For the traditional investor, the equity risk premium has represented the excess return of stocks over long-term government bonds. Yet for the mortgage borrower, the available "risk-free return" isn't just a government bond, but to prepay the mortgage and eliminate the interest cost! As a result, while the investor looks for an equity risk premium over government bonds paying 2%, the mortgage borrower actually shouldn't invest in stocks unless there's an expectation to earn an equity risk premium over a mortgage interest rate that might be 4% to 5%! Consequently, clients should prepay their mortgages unless they expect a full 9%-10%+ return on equities in the current environment that sufficiently rewards them for the risk!Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights the big industry news: legislation proposing that all investment advisors be regulated by an SRO, with an implication the SRO would be FINRA, although another new SRO (perhaps SROIIA?) could fill the void instead. Continuing the theme, we also look at an article by Don Trone exploring how we might measure just how much of a fiduciary an advisor really is. From there, we have a brief look at the other 'big' news this week - the release of Google Drive - and why advisors should steer clear, at least with their client and business files, along with a review of the last article from this month's Journal of Financial Planning, building on the idea that the best withdrawal strategies should not just defer pre-tax accounts as long as possible but instead should whittle them down bit by bit over time. Next, we look at three practice management articles: one about how firms are increasingly developing talent in-house because the young advisor shortage is putting upward wage pressure on hiring from the outside; how it's crucial to have compensation conversations upfront to avoid resentment and problems later; and how hiring friends and encourage friendships in the workplace can actually be a good thing, despite the common taboo. We wrap up with three interesting investment articles: the first from Morningstar Advisor about why absolute return funds are failing to deliver; the second about how to change the Sharpe ratio to better account for real world market risk and volatility; and the third by Jeremy Grantham of GMO, highlighting that as money managers try to manage their career risk and avoid getting fired, they create some incredible market volatility and inefficiencies along the way. Enjoy the reading!
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights recently announced changes from the CFP Board regarding the experience requirement and the consequences of a bankruptcy for certificants, and three 'warning' articles to take note of: one about the crowd funding solicitations your clients will likely receive in the coming year(s) as a result of the new JOBS act; a second about problems arising in the ETN/ETF marketplace that suggest more due diligence may be in order; and the third about an annuity agent who was thrown in jail for selling an annuity to a senior who was later deemed incompetent due to dementia, raising serious questions for all advisors about the standard of care for determining whether a client is competent before working with them. From there, we look at three interesting studies hitting the news this week: the first was a research study by NBER that suggested most 'advisors' are not giving advice in the interests of their clients; the second found that "fee-based" is actually a negative term in the minds of most consumers and may be eroding consumer trust; and the third suggesting that a uniform fiduciary standard for brokers may not increase the cost of advice for lower income individuals or shift the industry to focus on the affluent, despite many claims to the contrary. From there, we look at two blog posts: one about how using video on your website may be easier (and cheaper) than most people believe, and another that makes the good point that just because someone offers investment insights in the financial media does not mean they're giving advice - and we need to stop confusing the two. We finish with a striking write-up of a recent study released by the BLS looking at consumer spending over the past century, and exploring the challenging question: if our country has gotten so much richer, why do so many feel poor and struggle these days? Enjoy the reading!
In the nebulous space where financial services firms decide what to call themselves and how to hold themselves out to the public, there's not necessarily a very clear distinction between a "financial planning" firm and a "private wealth management" advisor. Often, the difference is little more than the perceived marketing distinction of the labels to certain target clients.
Nonetheless, there is some evidence to suggest that the services delivered to very high net worth clients can be quite different than those provided to the average American, and accordingly may require a different set of knowledge and skills to deliver effectively.
As a result, there is an effort underway to try to study the real differences between what it takes to be a successful financial planner versus a private wealth management advisor, in order to develop certification that is unique and appropriate to the distinct specialization.Read More...