Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a recent development on the regulatory front regarding the SEC's implementation of a fiduciary standard for brokers, and some sharp criticism of FINRA and whether it should even exist from the Journal of Financial Planning. We also look at a few technology pieces, on the rise of Salesforce for CRM, and the emerging use of online scheduling programs to set up client meetings. There's also a great piece from the Journal of Financial Planning on the next generation of Modern Portfolio Theory and portfolio design, and two good investment pieces by John and John (Hussman and Mauldin). We wrap up with an interesting article from Advisor Perspectives on how much of the financial press is misinterpreting and misapplying the Reinhart and Rogoff research about the implications of high debt-to-GDP levels. Enjoy the reading!
Adjusting Portfolios Based On Valuation – Are We Expecting Too Much?
As the popularity of tactical asset allocation and using market valuation to inform investment decisions rises, so too do the criticisms to such methodologies. In the long run, this is part of a healthy dialogue that shapes the ongoing evolution of how we invest. But much of the recent criticism to being tactical in particular seems to suggest that if we can't get the timing exactly right, or calculate a valuation that works precisely to predict returns in all environments, that it should be rejected. In reality, though, even just participating in a few booms, or avoiding a handle of extreme busts, can still create significant long-term benefits for achieving client goals. Which raises the question - if we're really focused on the long term for clients, are we expecting too much from market valuation in the short term?Read More...
Financial Planning Leaders Suggest The One Skill That Has The Biggest Impact On Success (Guest Post)
What one skill (above all others), if you developed and did it in an excellent fashion, would have the biggest impact on you as a financial planner?
This is the question that was posed to the leaders in the financial planning profession. Initially, the plan was to elicit feedback as to where to focus energy in the new year to become a better advisor, but after receiving so many excellent responses I wanted to share the common themes. What is the most important skill? There is always a big focus on the technical side of planning (which is obviously very important), but is it that the most important? Or is it empathy, communication, or relationship building?
The answers varied by the leaders that responded, but the common theme was clearly that in the end, the interpersonal trumps the technical.Read More...
Where Is The Voice Of Financial Planning In The Public Policy Discussions?
While financial planning has been increasingly engaged in public policy discussions through the Financial Planning Coalition, those interactions have still been largely "selfish" - i.e., pertaining to the regulation of financial planning and financial planners - and have not been regarding broader public policy issues, such as the general fiscal health of the country. On the one hand, it can be difficult for membership associations to take part in difficult public policy conversations when the common bond of membership is professional, and not political; in other words, there are both Republicans and Democrats amongst financial planners, and even if we all agree on the nature of the problem, we may strongly disagree about the appropriate solution, and advocating one path over another can alienate members. Nonetheless, it still seems to me that we could play a more active role, especially in today's environment, by utilizing the unique perspective of financial planning to help make major issues relevant at the personal level. Read More...
Weekend Reading for Financial Planners (Jan 7 -Jan 8)
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!Read More...
Deduct Them Or Not, But Don’t Capitalize Investment Management Fees
While the tax code offers a deduction for investment management fees paid by an investor, it is a less than ideal tax deduction. Characterized as a miscellaneous itemized deduction subject to the 2%-of-AGI floor, in practice it is not deductible unless the taxpayer both itemizes deductions in the first place, and has enough miscellaneous itemized deductions in total to exceed the required threshold. In addition, all such miscellaneous itemized deductions are disallowed for AMT purposes - especially problematic since the AMT is somewhat more likely to affect those with sufficient income and assets to be paying such fees in the first place.
To avoid this tax result, some clients and their accountants have been going an alternate route: capitalizing the investment management fee into the cost basis of the assets being managed, which at least provides some tax benefit, by increasing the cost basis and reducing future capital gains (or increasing the losses). Unfortunately, though, the IRS has already responded to the strategy: Just Don't Do It.Read More...
The Public Deserves A Choice, But It’s Advice Vs Sales, Not Fiduciary Vs Suitability!
In the ongoing debate for the fiduciary standard, supporters of fiduciary have suggested that everyone in financial services should be subject to the standard, while those opposing have responded that consumers deserve a choice between fiduciary and suitability; in essence, they simply suggest that we should let consumers choose whatever method of financial services they prefer, and may be the best model win.
But to me, the choice presented is a false one: the real choice is not between fiduciary advice and suitable advice, the difference is between fiduciary advice from an advisor and suitable product sales from a broker. In other words, the real choice we should present to consumers is between advice and product sales, and the real goal of the planning profession should be to focus on who is and is not qualified to deliver advice, and really call themselves an advisor in the first place!Read More...
Is Social Media An Effective Tool To Grow A Planning Practice?
Most planners struggle to grow their businesses and bring in as many clients as they wish. With the surge of social media in recent years, from Facebook to Twitter to LinkedIn, an increasing number of consultants have hailed social media as the great marketing equalizer, capable of allowing even small planning practices to establish a marketing presence. Nonetheless, most planners are thus far reporting limited success with their social media efforts; a recent study suggests interest may already be waning. Yet at the same time, most planners have had little success with any form of targeted marketing efforts, relying instead of the slow flow of referrals from existing clients as a primary source of new business. Which raises the question: is it that social media in really ineffective for growing a practice, or is it just that our woes with social media are representative of our ongoing difficulties in clearly defining the value we provide and the target clientele we wish to reach, leaving referrals as the only option left?
Weekend Reading for Financial Planners (Dec 31-Jan 1)
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a few articles on advisor use of social media, an interesting look at whether promoting financial literacy is a red herring for real consumer protection in financial services, and a good technical article on planning issues for unmarried couples. Also included is a controversial discussion of how TIPS may not be quite as "safe" as we make them out to be, and a look at a new series of mutual funds that may attract increasing client attention in the coming years. We finish with a quick look at a Forbes article discussing the decision by a major firm with 80,000 employees to completely phase out email over the next 18 months in lieu of meetings, telephone calls, text messaging, and social media for communication; will this be a failed experiment, or a glimpse into the future of business communication? Enjoy the reading!
The One Skill That Has The Biggest Impact On Being A Successful Financial Planner
Developing your skillset as a financial planner is complex. From learning the financial planning body of knowledge itself, to the analytical skills to apply it to specific client situations, to the written and verbal skills necessary to communicate recommendations to clients, to the interpersonal skills required to actually motivate and support clients on implementing those action items, there's a lot to learn. Not to mention the skillset necessary to find and attract new prospects to become clients in the first place.
But if there is one skill that seems to have a bigger impact above all else for the success of a financial planner, it's the ability to listen. To REALLY listen.Read More...
