Weekend Reading for Financial Planners (Nov 12-13)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

Weekend reading for November 12th/13th:

How a Financial Pro Lost His House: This article by financial planner (and artist) Carl Richards of BehaviorGap in the New York Times discusses his own experience as someone who lost a house in a short sale, caught up in the housing mania in Las Vegas during the peak of the bubble, with the attendant borrowing and negative amortization loans that eventually were unsustainable. The article has stirred a bit of controversy; on the one hand, it shows how even advisors can make mistakes (and learn from them), but some have suggested that it undermines the credibility of professional advisors to share such "extreme" stories. Give it a read and see what you think.

Is Domestic Asset Protection Still Viable After Mortensen? - This article by attorneys William Byrnes and Robert Bloink on AdvisorOne discusses the recent court case of Battley v. Mortensen, where the court held that assets in a domestic asset protection trust were fair game for creditors on the grounds that the trust had been created in the last 10 years with the specific purpose of asset protection from creditors, and therefore should be invalidated under associated provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The authors' conclusion is that this may not completely kill domestic asset protection trusts - in part because bankruptcy law interpretations varies by jurisdiction and this was "just" in one jurisdiction - but it may be much more difficult to handle trusts that were created within 10 years of bankruptcy and/or fail to be protected under other parts of Section 548 of BAPCPA.

Financial Planning Association Social Networking Site Powers Up - This article from Financial Planning magazine's website discusses the FPA's launch of FPA Connect, which is a "sort-of LinkedIn for planners" intended to provide a peer-to-peer social networking environment for members. Since the system will be peer-to-peer only - behind the member firewall, and without clients - the FPA hopes members will be more willing to participate without the typical compliance concerns. Some early activity on the site is already underway, and the FPA expects it will grow organically over time. Whether it will gain enough traction to overcome planners who already participate on other major social networking platforms, like Twitter, LinkedIn, Facebook, and Google+, remains to be seen.

The True Past, Present, and Future of the FPA - This article by FPA National Board president Marty Kurtz and CEO Marv Tuttle for AdvisorOne gives some perspective from the FPA leadership about where the organization currently stands, and where it is going. The article acknowledges much of the recent criticism the organization faces, disparaging much of it as being "one-sided accounts without a single fact check or interview with the organizations involved" (not clear what's being referenced, though!), and suggests that it comes with the territory of FPA's willingness to be controversial in the face of its principles. The article also discusses the spin-off of the FPA's Broker-Dealer division into the Financial Services Institute, and its focus on being a community which "goes beyond a title, or mark, or compensation model." Some will view this as an FPA rallying cry; otherwise think it comes across as being very defensive. Give a read and see what do you think.

NAPFA, Forbes Unveil Plans for Digital Conference - In addition to the aforementioned FPA articles, NAPFA too had a notable announcement recently: they will co-host a "virtual" conference in 2012, called the 2012 Forbes-NAPFA iConference: Core Elements of Financial Planning. The 1.5 day virtual conference in August of 2012 will cost only $99 for NAPFA members ($199 for everyone else), for up to 15 continuing education credit hours of content. An entire 1.5 day conference completed virtually, with a virtual exhibit hall to go along with it? Will this be a flop, or the start of a new real trend in conferences? Would you attend a virtual conference of this nature?

Are Safe Withdrawal Rates Really Safe? - This article by Financial Advisor and Coach Todd Tresidder on his website provides a strong overview of the history of safe withdrawal rates, through its various iterations from the work of Bengen to recent work by Pfau. Overall, it provides a pretty strong summary of the research, and some of its valid criticisms and concerns. 

The Long View - Building the 3-D Shelter - This is the 3rd quarter newsletter issue from Rob Arnott of Research Affiliates, discusses the recent struggles of diversified portfolios in Q3 of 2011 (Arnott's shows a hypothetical 16-asset-class diversified portfolio underperformed a traditional 60/40 US stocks/bonds portfolio), and in particular the fact that traditional inflation hedges declined significantly. In the fact of the coming "three Ds" economic hurricane - deficits, debts, and demographics - Arnott believes that inflation protection will still be crucial in the coming 10-20 years. Accordingly, he advocates beginning to build positions now to protect against coming inflation in the future - and funding those positions by selling developed world sovereign debt.

Reduce Risk - This article from John Hussman of Hussman Funds points out that their models are now pointing to a near-100% probability of an oncoming recession - a model that has successfully anticipated every recession of the past 50 years. As the article notes, "Maybe this time is different? We hope so, but we certainly wouldn't invest on that hope." Accordingly, Hussman strongly advocates for reducing risk exposure in this environment, as 1-year Greek yields soar over 212% (which implies a write-down much larger than the "official" 50% agreement), and the domestic economic situation declines (and Hussman wrote this before the Italy debt volatility that occurred mid-week!).

I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column!