Nerd's Eye View blog

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?

Do Financial Planners Have Something To Learn From Suze Orman and Dave Ramsey?

February 22, 2011 02:00 pm 16 Comments CATEGORY: Planning Profession

Within the financial planning world, there is often little love for popular consumer "personal finance gurus" like Suze Orman, David Bach, and Dave Ramsey. Whether it's because of their entertainment-style deliver of financial advice (in the case of the former), their bombastic platitudes of overgeneralized advice with little client-specific information (in the case of both), or their controversial views about how to address common problems like debt (in the case of the latter), most financial planners don't seem to think highly of their consumer-popular counterparts.

Yet the success of those like Orman, Bach, and Ramsey - who, in the end, touch the lives of hundreds of thousands if not millions, while the "average" financial planner's impact may only be measured by a mere few dozen or hundred clients - makes me wonder: Maybe there is something we as financial planners could - and should - learn from the success of those like Orman and Ramsey?

IRS Re-Affirms Paying IRA Wrap Fees With Outside Dollars

February 17, 2011 02:59 pm 18 Comments CATEGORY: Taxes

Although we often think of the IRA as simply another account, the tax law generally regards it as a quasi-entity that is separate from the individual who owns it. Both the individual and the IRA have their own separate tax rules that apply; intermingling money is not allowed (due to contribution limits), and even paying each others' costs can get a client into some hot water. Accordingly, clients must be very careful when they use their own "outside" dollars to pay any form of expenses that are associated with the IRA itself. Fortunately, in a recent private letter ruling, the IRS did (re-)affirm that an IRA's wrap fee expenses are an acceptable cost to pay on behalf of an IRA with outside dollars, while not running afoul of the IRA rules and limitations.

What Does It Take To Be Called A Tactical Investor?

February 16, 2011 04:39 pm 3 Comments CATEGORY: Investments

As the terms "being tactical" or "tactical asset allocation" become increasingly popular, more and more advisors now must decide whether they, too, are "tactical" or not when describing their investment process and philosophy to current and prospective clients. Traditionally, the dividing line was simply whether one was active or passive, a determination that could be made pretty clearly by looking at the portfolio: were there a bunch of actively traded stocks and bonds, or a series of actively managed mutual funds that did the same thing? With tactical, though, it's no longer sufficient to simply look at whether there are stocks and bonds in the portfolio, or actively managed mutual funds; instead, some tactical investors implement their strategies by selecting only passive index funds, but still utilize them in an active, tactical process. Which begs the question: where exactly do you draw the line on being tactical?Read More...

How Do You Stop Offering A Service Clients Didn’t Need Originally But Now Expect?

February 15, 2011 03:20 pm 2 Comments CATEGORY: Practice Management

Most planning firms pride themselves on providing great service to their clients, which often involves going to great lengths to satisfy client requests. Yet in reality, it seems that a lot of our intensive service efforts are less a function of what our clients asked for, and more about what we thought we should offer them. Perhaps a common example is something like quarterly performance statements; most firms say their clients "want" them, yet in truth most firms started sending them to clients on a quarterly basis before ever asking and surveying their clients about whether it was what they really wanted and needed. Now, of course, clients have an expectation of receiving them regularly, and weening them off of a currently provided service can be difficult. But in the end, did clients really need that service, or do clients only expect because we created that expectation for them, but now will feel like we're taking something away to change it?