Choosing a financial advisor is difficult, and as a result it's helpful to provide the public with guidance about how to select one. Unfortunately, though, in recent years recommendations to the public from many organizations have increasingly focused on whether the advisor is a fiduciary, without any acknowledgement of whether the advisor has the training, education, and experience to provide effective financial advice. Consequently, the public increasingly runs the risk of being poorly served by a well-intentioned advisor whose advice is totally incompetent. Ultimately, protecting the public will require setting forth a standard that meets fiduciary and competency requirements. And as it standards right now, the clearest choice for a professional minimum standard appears to be the CFP certification. While the CFP marks - as with any standard - don't unequivocally mean someone will get the best and most optimal advice because the advisor has the CFP, that's not the point; in the end, the purpose of such a standard is not to define a best practice, but instead the minimum acceptable standard to ensure the fundamental protection of the public.Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an interesting Journal of Financial Planning article suggesting that a uniform fiduciary standard would not, in fact, reduce access of the mass market to financial advice or increases costs. We also look at an article from Bob Veres questioning why it is that more independent broker-dealers and registered representatives don't object to the Financial Services Institute's lobbying for FINRA as an overarching regulator for all advisors. From there, we look at several practice management articles, including one up-and-coming RIA custodian Scottrade Advisor Services, another on succession planning, and a discussion of how client communication supports business growth. We also look at a series of technology-related articles, including how to stay safe when using the cloud, a new secure client vault solution, a new retirement income modeling tool to do simplified/expedited basic retirement projections for clients, and a discussion of the incredible return-on-investment that firms see when adopting rebalancing software. We wrap up with a good discussion from John Mauldin of the current plight in Europe, a nice list of social media timesaver tips for those who are looking to dabble or have become active with social media, and an intriguing article from the Harvard Business Review showing how several companies are beginning to increase their sales and growth activity by eliminating commissions for better results. Enjoy the reading!
As the so-called "fiscal cliff" looms, and the debate continues about whether to solve the country's fiscal woes with tax increases and/or spending cuts, a third option to help the situation is also emerging: do a better job collecting the taxes already due under the laws as they're written now. In the latest such shift, the word is out that the IRS is becoming less and less lenient regarding IRA mistakes, given the significant potential penalties involved - for instance, failing to take a required minimum distribution results in a penalty that is a whopping 50% of the RMD itself, and the penalty for an improper IRA contribution is 6%, per year, potentially accumulating for years on end. And there is potential that the IRS' efforts could extend further, leading to a crackdown on perceived abusive IRA strategies. As a result, clients should be more cautious than ever to comply properly with all IRA rules, including the timely distribution of RMDs, and proper compliance with all IRA contribution and rollover limits, and be wary of aggressive IRA strategies. From the planner's perspective, it's more important than ever to not only help clients comply properly with the rules, but to be cautious about giving accurate IRA advice, or run the risk that if the client ends out with IRS penalties, that the advisor - or his/her E&O insurance - may end out sharing in the high penalty cost to fix the mistake.Read More...
While we often focus on the long-term return of stocks, the reality is that market growth is very uneven, not just due to volatility, but as markets go through long-term cycles called secular bull and bear markets. In the midst of a secular bull market - such as the one that exploded stock prices upwards from 1982 to 2000 - the optimal investment strategy is fairly straightforward - buy-and-hold, buy more on the dips, and dial up the leverage and risk exposure. In the midst of a secular bear market, though, buy-and-hold tends to merely produce the flat returns associated with the overall markets, and instead concentrated stock-picker portfolios, sector rotation, alternative investments, and tactical asset allocation become more effective. Using the wrong strategies in the wrong investment environment can produce poor results - just as many styles of active management generated little to no value and just became a cost drag in the 80s and 90s, so too does buy-and-hold now generate benchmark returns that may do little to achieve client goals. The ultimate key is to match the investment strategy to the market environment, given that such cycles can persist for 1-2 decades at a time. And notwithstanding the fact that a secular bear market has been underway for 12 years, it appears that the secular bear market still has a ways to go - which means its dominant investment strategies still have many more years to shine.Read More...
The long-term care insurance marketplace has struggled tremendously over the past decade, as premiums have risen on both existing and new policies, and companies have become increasingly more stringent in their underwriting process. Over the past two years, however, the pace of change has accelerated, as major players like Prudential and MetLife have stopped offering long-term care insurance entirely.
And with the low interest rate environment continuing to persist, a new round of changes is underway, with industry leader Genworth announcing the elimination of both so-called "limited pay" options (10-pay and pay-to-65 policies), and also declaring that it will no longer offer unlimited (i.e., "lifetime") benefits on policies anymore. In point of fact, while Genworth has not been the first or only company to make these changes, it's notable when even the top carrier feels the need to cut back on its exposure to long-term care insurance policies. Ultimately, this is probably not the beginning of the end for long-term care insurance, but it's also not clear if or when clients in the future will ever be able to get policies as "generous" as those offered in the past.Read More...
As the world moves inexorably forward into the digital age, technology increasingly takes on a role in both augmenting and competing against traditional businesses. The world of financial services is no exception; in recent years, technology has taken leaps and bounds to augment and enhance what financial planners do, but now a new breed of technology firms threatens to challenge advisors as well. The rise of the so-called "robo advisor" - online startup firms that aiming to replace traditional advisors, as TurboTax did to tax preparers - has begun.
But so far, it's unclear whether the current breed of robo advisors will really make a dent in what real advisors do; in fact, the scope of most robo advisors is so narrowly focused on delivering passive, strategic, low-cost index portfolios, that arguably their greatest competition is not from comprehensive financial planners but instead from do-it-yourselfer alternatives like Vanguard and Charles Schwab!
The real test for the robo advisors, though, is the one they have not yet faced - will clients really be willing to stay the course through turbulent markets and change their behavior for the better because a computer told them to do so?Read More...
