Executive Summary
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a nice technology article for the new year, a great summary of recent retirement research, two notable regulatory actions this week, and some interesting investment and economic discussions for the coming year. We finish with a striking blog post that puts a good perspective on what the Occupy Wall Street movement is about - not resenting the wealthy and successful, but "just" those who profit at the expense of others. Enjoy the reading!
Weekend reading for January 7th/8th:
Maximize Your Technology Spending in 2012 - This Bill Winterberg column in the Journal of Financial Planning offers practical suggestions about how to spend some of your new technology budget in 2012, separated into price points depending on your budget. For $100, consider a Flip video camera or productivity tracking tool RescueTime. At the $500 price point, an iPad2 or a Fujitsu scanner. At $1,000, consider an 11-inch MacBook air, or the Redtail CRM platform for up to 15 users; another option would be a website overhaul from Advisor Websites. Willing to go even bigger? At the $5,000 budget level, suggestions include a number of document management software providers including Cabinet NG and Laserfiche, or a subscription to the Morningstar Office platform.
Why Advisors, Clients Must Battle To Keep Retirement Savings On Track - This Dan Moisand column from Financial Advisor magazine tackles the issue of how uncertain a target retirement date (or target retirement account balance) can actually be. Highlighting both a prior post on this blog regarding how many planners unwittingly are giving their clients a plan to "Save For Decades, Then Quickly Double Your Money And Retire" and an October 2011 article in the Journal of Financial Planning by Wade Pfau that similarly highlighted how two very similar retirement savings plans can deviate radically in just the last few years before retirement. Moisand walks through much of Pfau's recent research, leading to Pfau's concept of a "safe retirement AGE" - the age by which the retiree would likely retire, given uncertain returns; the more stable and certain the portfolio returns, the more stable and certain the expected retirement age. Overall, Moisand's article provides a nice overview of some of Pfau's recent research.
A Reported Delay In Enactment Of DOL's Fee Disclosure Rule Sparks Apprehension - This article from RIABiz highlights a recent "rumor" from anonymous sources at the Department of Labor that the DOL regulation 408(b)(2) - which will require advisors to 401(k) plans to present clients with a written agreement of services, fees, compensation, any conflicts of interest, and whether the advisor serves as a fiduciary - may be getting pushed back from its original April 1 effective date. Some believe that the Department of Labor is putting unfair pressure on providers to craft the required disclosures more quickly than is feasible since the rules were just released last July, and that providers simply aren't ready for the rules to take effect yet. Yet others suggest that 401(k) providers are just dragging their feet because full and clear disclosure of 401(k) fees may spark outrage from some plan participants, quickly putting providers under dramatic downward pricing pressure.
SEC Issues Long Awaited Social Media Guidelines - This article in Registered Rep magazine discusses this week's release of social media guidance by the SEC, which came in conjunction with an enforcement action against an Illinois advisor who allegedly used social media sites to promote fictitious securities. Of course, offering fake securities is illegal regardless of the medium used to offer them, but the SEC took advantage of the opportunity to issue further social media guidance as well, most notably in their Investment Adviser Use of Social Media alert (highly recommended 7-page reading for any RIA). The alert provides valuable guidance in many areas, but also appears to be more strict than some had hoped. Expect to hear more about how the SEC's new social media guidance is being implemented in firms and utilized by compliance consultants in the coming weeks and months.
True Cost of Tactical Management - This article by Bob Veres in Financial Planning magazine discusses recent research that Veres is working on regarding how advisors are rethinking the way they build portfolios since the 2008 financial crisis. Veres highlights several trends, including a shift towards more qualitative questions advisors are beginning to ask, but most notably that the activities once labeled "market timing" are now mainstream; not that advisors are whipping clients in and out of markets, but a whopping 83% of advisors did suggest they planned to make at least one tactical adjustment amongst their various investment asset classes over the next three months. Yet Veres notes that advisors generally aren't trained to make such tactical shifts, and it's not clear how good most advisors are at processing economic data and taking appropriate action. Although Veres doesn't necessarily believe that most advisors will stray far, he does highlight several outliers in his research data that may be making some remarkably extreme tactical shifts - in both directions - which virtually guarantees that at least a few clients are going to have disastrously bad results. Overall, Veres suggests that the shift towards tactical is good for the profession, and most appear to be approaching tactical in a responsible manner; nonetheless, there is concern that a few bad apples with spectacularly bad results could blemish the investment approach, and the profession at large.
The Right Kind of Hope - This week's article by John Hussman, posted to Advisor Perspectives, shares Hussman's hopes for the coming year... most notably, wishing that 2012 be the year markets finally "clear" by writing down and restructuring global debt, taking the losses necessary to fix the system, and driving down valuations to the point where investors are once again compensated for the risks they take, allowing them to generate returns that leads to an effective allocation of capital in the economy. Hussman notes that the current array of prospective returns is remarkably poor across the board, with 10-year Treasuries below 2%, 30-year yields below 3%, corporate bonds yielding less than 4%, and Hussman's projected return for the S&P 500 under 5% for the next decade. Hussman also shares some thoughts on the ongoing distressed economic and market environment in Europe.
Collateral Damage - This week's column from John Mauldin, reproduced on Advisor Perspectives, actually presents an interesting private research letter from Boston Consulting Group (BCG), which provides a fascinating look at the potential economic scenarios that lie ahead. The article highlights the four approaches for countries dealing with too much debt - saving and paying back, growing faster, debt restructuring and write-offs, and creating inflation - and then explores the feasibility and implications of each. Ultimately, the BCG analysis concludes that some form of inflation is the most feasible outcome, with the clear risk that once the inflation genie is out of the bottle, it's hard to put back in again. The analysis also highlights the necessary steps for European reform, emphasizing that the actions of European leaders thus far have still not gone far enough. The discussion on Advisor Perspectives finishes with BCG's analysis of the problems; a complimentary copy of their report on Mauldin's website allows you to see more of their predictions and scenarios for the year(s) ahead.
Dear Jamie Dimon... - This post by blogger Josh Brown ("the Reformed Broker") shares an open letter to JPMorgan Chase CEO Jamie Dimon, in response to his recent quotes in Bloomberg defending the wealthy and successful against the Occupy Wall Street movement. Brown suggests that Dimon's viewpoint is misguided, though, and suggests that the backlash of the Occupy Wall Street movement is not about punishing the wealthy, the successful, and celebrities, but is about an uneven playing field and the perception that some of Wall Street has not just been successful, but been so at the cost of everyone else. As Brown notes, celebrating the wealthy and successful is almost an American national pastime itself, from our television shows to our obsession with sports icons like Derek Jeter or CEOs of companies that revolutionize American like Steve Jobs. In other words, Brown suggests that America doesn't resent the right of Wall Street to make money; "they hate how you [Jamie Dimon] and certain others have made it."
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! And click here to sign up for a delivery of all blog posts from Nerd's Eye View - including Weekend Reading - directly to your email!
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