The legacy that Steve Jobs left behind last week as he passed away has been truly astounding; an outpouring of emotion and tribute from the world that is rarely seen outside of the death of beloved religious or political figures, as so many were touched by the technology that he created. And at the same time, criticisms have emerged as well - painting Jobs as a relentless micromanager with an obsession for ensuring that everything was exactly as he envisioned it. Yet the outcome of his process seems clear - a melding of incredible vision, and the execution of that vision which created tools we didn't even know we wanted or needed and made them an irreplaceable part of our lives. Perhaps the most amazing part, though, was the sheer simplicity and intuitive nature of the technology; although the design of Apple devices pushed the limits of what we can build and create and were based on incredible complexity, the customer experience was unparalleled in its simplicity. Which leads me to wonder... what would financial planning look like if we were as obsessed about the client experience as Steve Jobs was?Read More...
Weekend Reading for Financial Planners (Oct 8-9)
Enjoy the current installment of "weekend reading for financial planners" - highlights this week include a number of practice management articles, some interesting investment discussions from PIMCO, and the latest Michael Lewis piece from Vanity Fair about the state of municipal finance. Happy reading!Read More...
Managed Futures May Be A Decent Investment, But They Are NOT A New Asset Class!
In the ongoing search for more diversification - and especially, low correlations as a potential for stabilizing returns in a difficult stock environment - advisors have increasingly shifted in recent years towards "alternative" investments. From real estate and REITs to gold and other commodities to more, a recent FPA survey on Alternative Investments found that 91% of advisors are using some form of alternative investments. Sadly, though, the focus on finding investments that have a low correlation - according to FPA's survey, the number one criteria for choosing an alternative investment - has grown to such an obsession, that we're willing to name anything that has a low correlation as "a new asset class." But the reality is that while some alternatives really are investments that truly have their own investment characteristics unique from stocks and bonds as asset classes, others alternatives - like managed futures - simply represent an active manager buying and selling existing asset classes. Which means it's about time for us to start distinguishing between a real alternative asset classes (e.g., commodities or real estate), and the real value of managed futures.
Weekend Reading for Financial Planners (Oct 1-2)
Enjoy the current installment of "weekend reading for financial planners" - highlights this week including news on the regulatory front, a number of practice management articles, a few articles about the current difficult investment environment (and whether we may be tipping, or have already tipped, into a recession) and an interesting piece about how the mere gender of the advisor can impact client responses about risk tolerance. Happy reading!Read More...
Should You Ever Take Out A Loan To Make A 401(k) Contribution?
Borrowing money to invest is a risky thing for individuals to do. While it's a common path for businesses - borrowing money to plow into investments, infrastructure, staff, expansion, etc. - it is done in part because business structures allow for limited liability; in other words, we often borrow in business specifically because the debts cannot track back to business owners the way individual borrowing can. Accordingly, for most individuals, the only major debt that is taken at all is a mortgage to purchase a house, and only because that's a "long term" investment (and because we couldn't afford a house any other way); most other forms of individual debt are considered "bad" debt and only used as a necessity to be paid off quickly (e.g., credit cards or auto loans). As a result of these attitudes about debt, I'm not certain I have ever seen a financial planner tell a client "since you're low on cash flow right now, you should take out a loan so you can have money to buy stocks in your 401(k) this year." Tax deferral on retirement contributions aside, it's just viewed as too risky by most to borrow money just to invest in equities in a typical investment account. There's just one problem... by telling clients to keep their mortgages as long as possible while building their retirement accounts, we're doing the exact the same thing: telling clients to invest in the stock market by borrowing. Read More...
Weekend Reading for Financial Planners (Sep 24-25)
With the never-ending onslaught of information in today's world, I am often asked what I am reading, as someone who consumes perhaps an abnormally large amount of financial planning content. Accordingly, I've decided to start a new column for this blog, called "Weekend Reading" - where I'll share a few of the more interesting articles I've read in the current week. The goal is to keep it to no more than an hour's worth of reading; something you can do in a single sitting when you're taking a rest over the weekend and trying to keep up with the financial planning world. Here I offer up the first week's articles. I hope you find it helpful! Read More...
How’s That Hedging For Your Revenue Working Out?
Market volatility is a stressful time, not only for clients, but often for planners as well. Not only does client activity rise, with more phone calls, meetings, and some hand holding, but at the same time revenues come under pressure, as new (and sometimes existing) clients often become less willing to implement, and firms with revenue is tied to the markets can actually see an outright decline in income. But the latter part, at least, is not something you have to just accept; there are ways to hedge the revenue and profit risk in your practice, and so far, those strategies are doing exactly what they're supposed to!Read More...
Support And Criticism Of The CFP Board’s Proposed Changes To The Experience Requirement
Last month, the CFP Board released proposed changes to the CFP certification experience requirement in order to earn the CFP marks. This weekend the comment period closed; in this blog post, I share the feedback that I submitted. What do you think about the proposed changes?
The Investment Advisor SRO Battle Begins – Round 1
Hanging prominently on the rear wall of the chambers of the Financial Services committee hearing room in the Rayburn House office building is a full-length, tastefully executed portrait of FINRA’s chief lobbyist. That would be Mike Oxley, the former chairman of that committee and a namesake of Sarbanes-Oxley fame during the congressional crackdown on the Enron accounting scandals. Oxley’s job: get his client some sweet new regulatory turf composed of 11,000 of the biggest investment adviser firms in the country before brokerage advice dries up in the marketplace. So far the pay is good -- $125,000 reported in the first half of 2011 -- and more where that came from.
Diversification Should Not Be An Excuse For Blindly Owning Bad Investments
Diversification is a fundamental principle of investing - examples of the concept date back as far as Talmudic texts estimated to have been written over 3,000 years ago, stating "Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve." The diversification principle received a further boost in the recent era when Harry Markowitz's Modern Portfolio Theory supported the notion that the volatility of a portfolio may be less than the volatility of its parts, such that the introduction of even a high-return high-risk asset to the portfolio may improve the portfolio's risk-adjusted return (or even outright reduce its volatility). Yet at the same time, both the rabbis of the Talmud and Markowitz would probably agree that the first step of investing your assets is even more basic: make sure you own stuff that has a reasonable expectation of providing a useful return in the first place. Unfortunately, though, we seem to have lost sight of this rule in recent years!Read More...
