Determining whether an active manager is having a positive impact is a difficult thing to measure, without a doubt. Yet before one can even begin to determine if a manager is delivering value, you must first consider what it takes to constitute "value" in the first place. How much does an active manager need to outperform, in order to be delivering value to the client, to be worth the fee that is paid to the manager? Yet for some reason, we scale we use to measure the cost is very different than how we measure (out)performance. Is there a double-standard here?
If All "Market Timing" Is Bad, Maybe It’s Time For A New Definition
Once again the charge of being a “market timer” is being hurled at active portfolio managers in a recent discussion thread initiated by Bob Veres on Financial-Planning.com. The term itself seems to get planners into such a tizzy, though, while the actual definition of what constitutes “market timing” is unclear at best; perhaps a new definition of market timing is in order. To say the least, the most common definition of market timing, the one that implies that market timers are similar to “retail” day-traders willing to take their portfolios to extreme asset allocations based on their very short-term predictions of future market behavior, is badly in need of an upgrade.
Is It Time To Bypass The Bypass Trust? Estate Planning in 2011…
Planning around estate taxes by using a Bypass Trust is a "basic" strategy that has been around for decades. In fact, for many clients, it was a major impetus to get their estate planning done in the first place - if your estate was above a certain threshold and you didn't get estate documents that would put a proper Bypass Trust in place, it could cost your beneficiaries hundreds of thousands of dollars.
Yet with the new provisions of the tax legislation signed into law last week by President Obama, Bypass Trusts will no longer be necessary for many clients to maximize the use of a couple's estate tax exemptions - which means it may be time to bypass the Bypass Trust planning strategy.
Setting a Price on the Value of Financial Planning… Compared to What?
As with many labor-intensive professional services, financial planning is not inexpensive to provide for clients. There are overhead costs, potential staffing costs, regulatory and compliance costs, in addition to the costs for software and services to support how professionals deliver their value. Accordingly, all of this is wrapped into the price that financial planners must charge their clients to earn a reasonable living and an adequate business profit. Yet often clients balk at the cost of financial planning. Which begs the question - if your clients think financial planning is expensive... to what are they comparing that cost?
Retirement Income Guarantees: Must It Be All Or None? Should It Be?
For many years, the use of annuities for retirement income guarantees often fell along all-or-none lines - either you annuitized the entire amount of income the client needed, or you didn't. In more recent years, this view has shifted, whether it means just annuitizing a portion of the client's assets to satisfy some of the income needs, or using a variable annuity with income/withdrawal guarantees to insure at least a portion of the income goals.
Although these strategies are viewed by many as a more balanced and "diversified" way to distribute income needs amongst various products and risks - for instance, insuring 50% of the income goal and investing towards the other 50% - it begs a fundamental question: what exactly does it mean to insure half of a client's retirement income goal?Read More...
Social Security Shuts Down Withdraw-And-Reapply Strategy – For The 0.0003% Who Care
The proverbial writing has been on the wall for a while, but now it's official: the Social Security withdraw-and-reapply strategy will no longer be available, except under relatively limited circumstances. On the plus side, though, it appears that the strategy has been far more hype than actual value, and the number of people directly affected should be very minimal.
Do You REALLY Have A PLAN For Dealing With A Decline In The Markets?
One of the often-professed virtues of financial planning is that while we cannot necessarily completely prevent market declines from impacting client portfolios, at least when they do happen, “we have a plan.” Yet for too many financial planners, the reality is that the “plan” is nothing more than “we’ll keep doing exactly what we have been doing, and wait and hope for things to get better.” Well, if your only plan for dealing with a market decline is waiting it out in the hopes that things will recover in a timely manner, you don’t really have a plan; you just have a hope. A real plan takes more.
Good (Career) Wellbeing Promotes Good Financial Health – And It Just Makes You Happier, Too!
In the research on Wellbeing, nothing is more important than being able to wake up every morning with something to look forward to doing that day. The impact of having high Career Wellbeing on happiness exceeds even the benefits of having good financial health.
On the other hand, part of the value of having a positive career is its ability to propel your financial wellbeing forward as well! Yet the research is also clear that while career wellbeing promotes financial health, it's not about how much money you make!
Does the Probability of Success Drive Your Retirement Plan?
As Monte Carlo analysis becomes increasingly popular in retirement plans, financial planners are talking more and more about the probabilities of a client's success or failure. Yet in the end, most planners evaluate client goals, look at the probability of success (defined usually as not running out of money), and the client makes a decision about whether they like the result or not. Oddly enough, planners rarely take the next logical step: ask the client what probabilities they would like to see, and use that risk/success metric to determine what the other answers - such as retirement spending or the retirement year - could be.
Starting A Financial Planning Career – Think It’s Been Hard In The Past? You Ain’t Seen Nothing Yet!
Most young planners have heard the stories about how difficult it was in the past to start a financial planning firm. The business was all about products, and sales. It was an "eat what you kill" world - and if you couldn't hunt effectively for business, you didn't survive long. Yet the reality is that as the financial planning world changes and evolves, it is actually getting even harder to start a firm now than it was in the past. Because while it may have been difficult to sell products as a 20-something-year-old "kid" in order to survive a decade or two ago, that's nothing compared to the challenge of trying to be a 20-something-year-old comprehensive financial planning expert who can build a deep advisory relationship with a stranger!
