Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a big announcement from the CFP Board, that the current Chair of the Board of Directors and two members of the Disciplinary and Ethics Commission are resigning amid an ethics probe. There's also another article from the CFP Board explaining their current position on when the fiduciary duty does, and does not, apply to CFP certificants. From there, we have an article on how popular investment bear Gary Shilling is remarkably upbeat and bullish about the financial advising business itself, an article about how young millionaires under age 44 have dramatically higher expectations for digital and social media presence from their advisors, an interview with Behavior Gap artist and author Carl Richards, and an interesting technical article about how to plan for clients' digital assets. We also have a few investment and retirement articles, including an analysis by Wade Pfau of the new "Stand Alone Living Benefit" (SALB) income guarantee for investment accounts, a study by David Blanchett regarding a new metric and approach to measuring the efficacy of various retirement income approaches, and a discussion from Bob Veres about investment advisor Gary Miller and has rather unique and analytical approach to making investment decisions. We wrap up with two very intriguing articles - one a study that finds that the brain is actually physiologically incapable of both empathizing and analyzing at the same time, and the other a discussion about how setting bold, ambitious, unrealistic goals can actually be the best path to success. Enjoy the reading!
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a discussion by compliance consultant Brian Hamburger, suggesting that while the investment adviser world seems to prefer SEC user fees to FINRA as a regulator, it may be better to step back and ask more basic questions about what effective enforcement and the role of regulation should really be in the first place. From there, we look at an array of practice management articles this week, including a discussion of how to protect your firm from fraud, how to better engage clients (and generate more referrals as a result), how to get past the growth wall once you hit it, the problems with micro-managing staff instead of empowering them and getting out of their way, and a look at a new tool to benchmark the compensation of advisors and staff. We also look at a few more technical articles, including a research paper on how to evaluate non-qualified stock option decisions, how to incorporate interior finance issues into your practice and work with clients, and a look and what "endogenous risk" means and how it impacts portfolios. We wrap up with two interesting articles; the first provides a good warning about how advisors can better navigate copyright laws when writing material for their blog or website, and the other is a lighter article on "10 Things Happy People Do Differently" which may not provide any great revelations but may provide some nice reminders for a few of you. Enjoy the reading!
As the public becomes more savvy about protecting themselves from fraud – in part due to the assistance of increasingly sophisticated anti-virus and anti-phishing software – thieves are becoming more and more creative about new ways to steal. A disturbing new trend is that some thieves are beginning to directly target financial advisors and their clients – as famous bank robber Willie Sutton noted, if you want to get rich by stealing, go to where the money is! Accordingly, financial advisors and investment custodians have seen a noticeable increase in attempts at fraudulent wire transfers by "spoofing" – where a request sent “from the client” is actually a spoof from a fake-but-similar email account (or sometimes is even the client’s actual account!), and asks the advisor to process a wire transfer to a third party bank account. By the time anyone realizes the request was fake, the money is already gone, the transfer cannot be unwound, and the wire fraud theft is complete. In response, it’s crucial for advisors to review – and potentially change and improve – their processes and procedures to ensure a wire transfer request is legitimate before acting upon it, especially in scenarios where the transfer is going to a third party. Fortunately, some best practices are emerging about how to avoid these kinds of client disasters!
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an interesting Journal of Financial Planning article suggesting that a uniform fiduciary standard would not, in fact, reduce access of the mass market to financial advice or increases costs. We also look at an article from Bob Veres questioning why it is that more independent broker-dealers and registered representatives don't object to the Financial Services Institute's lobbying for FINRA as an overarching regulator for all advisors. From there, we look at several practice management articles, including one up-and-coming RIA custodian Scottrade Advisor Services, another on succession planning, and a discussion of how client communication supports business growth. We also look at a series of technology-related articles, including how to stay safe when using the cloud, a new secure client vault solution, a new retirement income modeling tool to do simplified/expedited basic retirement projections for clients, and a discussion of the incredible return-on-investment that firms see when adopting rebalancing software. We wrap up with a good discussion from John Mauldin of the current plight in Europe, a nice list of social media timesaver tips for those who are looking to dabble or have become active with social media, and an intriguing article from the Harvard Business Review showing how several companies are beginning to increase their sales and growth activity by eliminating commissions for better results. Enjoy the reading!
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!
"Planners and academics need to work together to develop a profession with evidence-based practices." That is the message given at the FPA Retreat by Dr. Michael Finke, a professor of personal financial planning at Texas Tech University, and a co-author of mine at the Journal of Financial Planning.
Yet while the Journal of Financial Planning is a great resource, and it has been the go-to outlet for research on retirement planning from the perspective of practicing financial planners, especially regarding safe withdrawal rate strategies, the academic research approaches the retirement challenge from a different perspective and focuses on different tools and strategies.
Ultimately, researchers can use their technical skills to investigate optimal retirement strategies, and practitioners can guide these investigations by suggesting real world constraints and ideas for solutions, and even by sharing in the nitty-gritty process of conducting the research. Let’s encourage these interactions to get rigorous analyses which can be applied to real-world problems.Read More...
In planning for retiring clients, it's crucial to get an understanding of what the client's goals are in the first place - so that recommendations can be made about how to financially secure those goals. In the context of setting a spending goal, a popular delineation is to separate retirement spending into "essential" versus "discretionary" expenses - not unlike "needs" versus "wants" for accumulators - with the idea of using guarantees to secure the essential expenses, and less certain growth assets with some risk to fund the discretionary expenses (since they're 'only' discretionary and not essential, by definition).
Yet in reality, even discretionary spending still constitutes an important part of a retiree's overall lifestyle - the loss of which could be very psychologically damaging. As a result, merely securing the essential expenses of retirement and leaving the rest at risk still, in the eyes of most retirees, would constitute a failure of the overall retirement goal. Instead, clients often choose to ensure that all their spending can be sustained - by continuing to work as long as necessary (as health allows) to secure all of their goals. Does that mean the distinction between essential versus discretionary retirement expenses isn't necessarily helpful after all?
As the retirement income research evolves, an increasingly common question is whether the popular safe withdrawal rate approach is better or worse than an annuity-based strategy that provides a guaranteed income floor, with the remaining funds invested for future upside.
Yet the reality is that as it's commonly applied, the safe withdrawal rate strategy is a floor-with-upside approach, too. Unlike the annuity, it doesn't guarantee success with the backing of an insurance company; yet at the same time, the annuity is assured to provide no remaining legacy value at death, while the safe withdrawal rate approach actually has a whopping 96% probability of leaving 100% of the client's principal behind after 30 years!
Which means an annuity is really an alternative floor approach to safe withdrawal rates - one that provides a stronger guarantee while producing a similar amount of income, but results in a dramatic loss of liquidity, upside, and legacy. Does the common client preference towards safe withdrawal rates and away from annuities indicate that in the end, most clients just don't find the guarantee trade-off worthwhile for the certainty it provides?Read More...
Although Social Security benefits are a major part of retirement planning, since the Social Security Administration stopped mailing statements to workers last year, most planners have been limited in their ability to get updated Social Security information for clients - especially new clients who may not have a prior benefits estimate, and/or who may have never previously reviewed their earnings record.
Fortunately, earlier this month the Social Security Administration launched a new online platform allowing anyone to access their own Social Security benefits estimate and earnings record.
In response, many planners are now starting to walk clients through the process of claiming their online Social Security account - which can be done on the spot, in the planner's office, in less than 5 minutes! - and reviewing the benefits estimate and earnings record as a part of their new or existing client meetings!Read More...
As baby boomers continue into their retirement transition, two portfolio-based strategies are increasingly popular to generate retirement income: the systematic withdrawal strategy, and the bucket strategy. While the former is still the most common approach, the latter has become increasingly popular lately, viewed in part as a strategy to help work around difficult and volatile market environments. Yet while the two strategies approach portfolio construction very differently, the reality is that bucket strategies actually produce asset allocations almost exactly the same as systematic withdrawal strategies; their often-purported differences amount to little more than a mirage! Nonetheless, bucket strategies might actually still be a superior strategy, not because of the differences in portfolio construction, but due to the ways that the client psychologically connects with and understands the strategy!Read More...