Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights two good technical articles; the first is from the Journal of Financial Planning on how the decision to delay Social Security isn't just about increasing benefits, but extending the overall longevity of the client portfolio as well; and the second is from Morningstar Advisor about the continued growth of alternative investments in portfolios. From there, we look at an interview with the CFP Board's new Director of Investigations as it steps up enforcement, and a review of the highlights from this week's Tiburon CEO Summit. We also look at three articles focused on the current state of practices, from the plight of the solo advisor, the changing focus of RIAs, and how to enhance the long-term value of your practice. We wrap up with a great article about how to craft an effective blog for your firm, an interesting perspective on the evolution of the variable annuity business, and a striking article from the Harvard Business Review blog that makes the point that ultimately, the best businesses are defined not by the products or services they sell, but the beliefs that guide the firm, its culture, what it delivers, and how it delivers it. Enjoy the reading! 752NXY7TM54P
Long-term care can be extremely expensive for many clients, with costs that are potentially catastrophic to their financial well being. Accordingly, planners commonly recommend long-term care insurance to help manage the risk.
Yet as long-term care insurance costs continue to rise, the insurance itself becomes increasingly difficult to afford, forcing clients to make trade-off decisions about which policy options to select, such as whether to buy a long-thin policy (long benefit duration with small daily benefits) or a short-fat policy (short benefit duration with larger daily benefits).
Historically, clients who could afford to do so have leaned in the direction of long-thin policies with lifetime benefits, to address the ever-present fear of an extremely long duration health care event, even though the reality is that most claims only last a few years. More recently, though, the direction has shifted, due to everything from the rise of state partnership programs to the increasingly expensive cost of lifetime benefits. Are short-fat policies now the way to go for long-term care?
For retirees who fear the impact of a market downturn on their spending, an increasingly popular strategy is just to hold several years of cash in a reserve account to accomplish near-term spending goals. As the logic goes, if there are years of spending money already available, the portfolio can avoid selling equities in a down market to raise the required cash, and clients don't have to sweat where their retirement income distributions will come from while waiting for the markets to recover.
Yet the mathematics of rebalancing reveals in the truth, even clients following a standard rebalancing strategy don't sell equities in down markets, rendering the cash reserve strategy potentially moot. On the other hand, some benefits still remain - although aside from an indirect short-term tactical bet, the most significant impact of a cash reserve strategy may be more mental than real.
Nonetheless, is the cash reserve bucket strategy still a viable option for retirees? Or is it just another bucket strategy mirage?Read More...
The importance of making a good first impression has long been recognized - often influencing advisors regarding how they look, how they dress, and how they design their offices and conference rooms. Yet in an increasingly digital world, the reality is that by the time a prospective client actually shows up in your office to see it and meet you for the first time, the true first impression has long since been formed... by your website. And recent research shows it takes just seconds for clients viewing your website to form a first impression - one that may impact your relationship with your client, or worse, turn a prospective client away for appearing unprofessional. Yet advisors have generally spent little time and focus on the quality, look, and appeal of their website, and what time is spent is generally spent on the written content, which matters, but only if the website is already visually appealing enough to make a good impression! As a result, it may be time for many advisors to consider a website makeover, in recognition of the fact that looks do matter for first impressions, yet you as the advisor are rarely your client's first impression, anymore.Read More...
One of the most common ways that financial advisors demonstrate a value proposition to clients is to help clients manage their own behavioral biases and misconceptions; simply put, we help to keep clients from hurting themselves through impulsive, emotionally driven investment decisions. Of course, hopefully most financial planners do more than "just" keep their clients from making bad investment decisions, but it is nonetheless an important starting point. Accordingly, a recent NBER study tried to test this, in what has been characterized as an "advisor sting" study - where the researchers actually went undercover to the offices of advisors, to see what kind of advice would be provided in various scenarios, and unfortunately the results were not terribly favorable to advisors.
However, a look under the hood reveals a significant methodological flaw with the NBER study - simply put, they failed to control for whether the people they sought out for advice actually had the training, education, experience, and regulatory standards to even be deemed advisors in the first place, and in fact appear to have sampled extensively from a pool of salespeople with little or no advisory training or focus.
As a result, the study might have been better classified as a "salesperson sting" study simply showing that non-advisory salespeople don't give good advice, regardless of the title they put on their business card. Is that really news to anyone, though?Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a scary new trend for advisors to be aware of: thieves who impersonate clients and/or hack into their accounts to try to get you to wire money out to the thief's account. From there, we look at a mixture of articles, from a review of the recent upgrades to wealth management software eMoney Advisor, to a call by Bob Veres for new 21st century regulation (and what it might look like), to some good practical tips on how to get more value from networking events with the right questions to ask, and how advisors can start using Pinterest (the latest social media site that is exploding in popularity). We also look at some technical articles on the resurgence of reverse mortgages, and the latest from Wade Pfau in the Journal of Financial Planning on how valuation-based tactical asset allocation can increase safe withdrawal rates and reduce required savings by accumulators. We finish with a review by John Mauldin of the latest jobs report, an interesting blog from the Harvard Business Review about how you should focus on your accomplishments and not your affiliations, and an interview with yours-truly in the Journal of Financial Planning on a wide range of financial planning and professional topics. Enjoy the reading!
