Nerd's Eye View blog

CFP Board Declares Virtually All Ethics Content Not Eligible For Ethics CE… No Joke

April 1, 2011 03:04 pm 6 Comments CATEGORY: Planning Profession

It is a hallmark of an occupation seeking to be recognized as a profession that its services must be rendered ethically. In turn, this means that part of the path to becoming a profession includes developing a Code of Ethics, and defining appropriate rules of conduct that apply the ethics to the particular situations faced by those delivering professional services. And the profession's code of ethics and rules of conduct are ultimately only effective if they are taught to those who deliver professional services - so they can in fact act within the guidance of the prescribed code - and if disciplinary actions are taken to enforce the code against those who violate it.

Notwithstanding the importance of having a Code of Ethics, the rules of conduct that accompany it, and the need to teach professionals delivering services about the code and associated rules so they can act accordingly, the latest rules change from the CFP Board may be going a little too far, though. Because starting in October, the ONLY content that will be eligible for satisfy the Ethics CE requirement for CFP certificants will be teaching the CFP Board's own Rules of Conduct and Practice Standards. The other 99.9% of Ethics knowledge that has been developed over the past two millenia? Don't even bother applying.Read More...

How Do YOU Decide If A Mutual Fund Has Lost Its Mojo?

March 31, 2011 07:47 pm 3 Comments CATEGORY: Investments

Unless you manage to purchase an index fund that produces zero tracking error, at some point the investments you own will deviate from their associated benchmark. Whether it's the tracking error of an index fund, or the relative under- or out-performance of an active fund manager, returns can vary over time. And while most of us don't fret over small deviations from a benchmark - nor do we mind when the deviation is due to outperformance! - but at some point, a fund may underperform its relevant benchmark by enough, and for a long enough period of time, that you have to question whether it's time for a change. But the caveat is... what IS a big enough underperformance deviation, and how long must it persist, before you actually do decide to make a change? What is the best practice for deciding when a fund has lost its Mojo?

Are Advisors Leaving Money On The Table By Undercharging Clients?

March 29, 2011 09:35 pm 5 Comments CATEGORY: Practice Management

It's a general principle of economics that price is related to demand. The more you charge, the fewer will buy (or are interested in, or can afford) your services; the less you charge, the more buyers you can attract. The key, of course, is to price low enough to attract buyers, but high enough that your business is still viable and profitable.

Yet in the case of professional services, comparisons on price alone are often difficult, and other factors weigh into the decision; as a result, it's difficult to easily judge who really has the lowest cost relative to the value they provide. From the business' perspective, it is similarly difficult to judge where you should really set your price in order to keep your business viable and profitable, while not dissuading clients due to cost.

Accordingly, a recent study on fee-based advisors suggests that many may not have the equation quite right, and may in fact be leaving significant money on the table.Read More...

What Is The Essence Of Good Financial Planning?

March 28, 2011 05:25 pm 7 Comments CATEGORY: Planning Profession

As the financial world grows ever more complex - and so too does the financial planning advice delivered to navigate it - it is sometimes difficult to keep a handle on the fundamental guiding principles that are the essence of good financial planning. Yet ultimately, some would make the case that if you can't boil down the value you deliver and the basic tenets of your advice to a very concise statement, you haven't really identified the essence of financial planning. So what would be YOUR basic financial planning advice, if you had to boil it down to only a sentence or two?Read More...

What Can Financial Planners Learn About Habit Formation From Weight Loss Experts?

March 23, 2011 03:25 pm 3 Comments CATEGORY: General Planning

Although we may focus on various steps we can take to get a better return on our investments or a lower cost for our debt, in reality the most foundational base for financial success is having good financial habits.

Yet in practice - as we've all witnessed with clients - not everyone has already learned and embraced good financial habits, and even worse, it can be extremely difficult to change bad financial habits. On the other hand, the weight loss field is in a very similar position; just as the key to financial success is to save more and spend less (than you make), the key to weight loss is to exercise more and eat less.

So if it's once again all about habits, maybe there's something that planners can learn about helping clients with financial habits from weight loss experts who assist with other types of behavior and habit change.

What Is The Cost Of Waiting For Interest Rates To Rise?

March 21, 2011 04:44 pm 1 Comment CATEGORY: Investments

With the Federal Funds rate as close to "zero" as it can feasibly get, it would seem that interest rates have only one directly to go: up. And given the mathematics of bond investing - as interest rates rise, bond prices fall - many advisors and their clients have decided that the only prudent course is to wait for rates to rise before investing into the bond markets. Yet the truth - as a recent white paper points out - is that there is a cost to waiting, in the form of earning lower returns while waiting for interest rates to rise. Which means to say the least, if you're engaging in a strategy of waiting on bonds for interest rates to rise... you better be right about when and how much they actually do increase!

What Is The Future Of Advice-Givers As Technology Increases Access To Information?

March 18, 2011 04:59 pm 5 Comments CATEGORY: Planning Profession

With the explosion of the internet over the past decade, raw access to data and information has exploded for the average individual, made even easier by the effectiveness of search engines like Google to filter through the volume to find the most relevant content. While most of us enjoy having the opportunity to dig into all of this newfound information, it does paint some potentially troubling implications for many professions, including financial planning, that have historically relied on the delivery of expert information as a core value proposition. If access to information explodes further in the next 10 years the way that it has over the past 10, will this force a change in the core value proposition of financial planners? What does it mean to be a financial planning expert if/when the internet makes all the "expert" information accessible to the average person?Read More...

Why All Professionals Should Eventually Have A Niche…

March 11, 2011 10:03 pm 28 Comments CATEGORY: Marketing

The practice management advice is almost ubiquitous - if you run a financial planning practice, you should eventually carve out a specialized niche for yourself. If you don't already have one, look through your book of clients for similarities, and use that common thread to expand on a niche you might have unwittingly already started. The ultimate goal: to have carved out some unique space for yourself, whether that's financial planning for fly-fisherman, working with public school teachers, or having a specialized skillset for doctors running a medical practice. Yet in reality, many (most?) planners seem to resist this advice; "if I specialize, don't I leave a whole lot of other business on the table?" is the most common objection. But focusing on the clients you won't get by specializing completely misses the point - which is significant increase in referrals you can generate by clearly defining a niche and conveying it to the clients and affiliated professionals who might refer you.

How Do You Take On More Risk In A Portfolio?

March 10, 2011 11:38 pm 5 Comments CATEGORY: Investments

In the standard framework of portfolio management, changing a client's exposure to risk is essentially analogous to changing their overall exposure to risk assets. Want conservative growth? Invest in a portfolio with 40% equities and 60% fixed. Want a more moderate growth portfolio? Increase to 60% equities. More aggressive growth? Allocate your portfolio further towards an equity tilt. At its core, the proposition is pretty straightforward: increase your overall portfolio allocation increasingly towards risk assets to increase the overall risk (and hopefully, return) profile of the portfolio. But what if there was another way to increase overall risk? What if, rather than increasing overall risk by adding a little risk to the whole portfolio, the risk was increased by adding a lot of volatility to a very small portion of the money?

Does the Frequent Disconnect Between Consumers and Financial Planners Mean That Planners Might Be Out Of Touch?

February 25, 2011 03:34 pm 4 Comments CATEGORY: Planning Profession

It is an experience that almost any financial planner has gone through at some point: a prospective client who is totally disconnected from reality. Unreasonable expectations, completely unrealistic goals, and an obsession with the latest get rich quick investing scheme. Sometimes, the prospect can be guided in a more reasonable direction, but often there's just no connection to be made, and we show the prospective client the door, acknowledging that some people we just can't help. We move on to the next prospect, who hopefully won't be such a "bad" future client.

Yet I have to wonder... given the state of financial literacy - or lack thereof - in the United States, many such prospective clients have totally impossible expectations and goals not because they're being irrational, but simply due to financial ignorance. And by excluding such prospective client relationships, are financial planners themselves excluding the majority of Americans as potential clients?

Because if that's the case - that we as financial planners have put ourselves in a position than we can't help the majority of all Americans - then I also have to wonder if maybe it's not the the prospective clients who have the problem... maybe WE are the ones with the problem?