Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an array of industry practice management articles, leading off with a new discussion of "super ensemble" firms - the emerging regionally dominant wealth management firms with $5 billion or more of AUM that are challenging both small local firms and big institutional competitors. We also look at articles about the quickening pace of consolidation, the rising trend of large firms hiring career changers to replace retiring advisors as there aren't enough young people entering the industry, a prediction that flat fees will soon replace AUM as the primary method of advisor compensation, and a look at a new advisor firm offering from a Wharton professor seeking to provide a client-centric platform for new advisors to build their businesses. We finish with a good article from economist Gregory Mankiw in the New York Times about what carried interest really is and why it's so hard to figure out how to tax it, an intriguing look at the risks that western civilization faces from which it must emerge or face a risk of collapse, and a fascinating look at how the popular 60/40 portfolio may actually be far more risky than we commonly believe. Enjoy the reading!Read More...
Notwithstanding some of the successes of the Financial Planning Coalition in pushing forward the fiduciary battle in Washington, requiring all advisors to act in the best interests of their clients is still an uphill fight.
Nonetheless, the fiduciary movement seems to be gaining momentum, from coming regulations from the Department of Labor to reforms in 401(k) plans to the scrutiny of regulators in the aftermath of debacles from Stanford to Madoff. But what happens if the fiduciary fight is won over the next few years? Does that mean the public is now protected? Perhaps not.
After all, it doesn't really help to ensure that advisors act in the interest of their clients, if there's no assurance that advisors have the actual knowledge, skills, and expertise to craft appropriate recommendations and deliver the right solutions to clients in the first place. In other words, protecting the public is not just about fiduciary. To restore the public's trust in advisors, the fight must be about competence, too.Read More...
Over the years financial planners have had a love/hate relationship with marketing. In most of those years, though, it's more of a hate/hate relationship. The traditional methods of outbound marketing - from cold calling to traditional advertising - have had so little benefit for the overwhelming majority of planning firms, that most don't even have a budget for marketing in the first place. To the extent any business development occurs, it's strictly from referrals, and any "marketing" expenses don't extend much further than paying for social events with clients or centers of influence to cultivate more referrals.
But as the digital age reaches financial planning, an entirely new marketing opportunity emerges: inbound marketing. The basic principle: instead of blasting out solicitations hoping you happen to hit a prospective client like finding a needle in a haystack, create content that is useful, relevant, and interesting for your target clients, and let them find you.
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As interest rates remain low, investors - especially retirees - struggle to find yield wherever they can. Unfortunately, though, the necessity of earning a required return to fund financial goals becomes the mother of invention for a wide range of investment strategies, both legitimate and fraudulent.
A recent offering of rising popularity is investing into structured settlement annuity contracts, which often claim to offer "no risk" rates of return in the 4% to 7% range. In general, the opportunity for "high yield" (at least relative to today's interest rates) and "no risk" is a red flag warning. But the reality is that with structured settlement annuity investing, the higher returns can legitimately be lower risk; the appealing return relative to other low-risk fixed income investments is not due to increased risk, but instead due to very poor liquidity. Which means such investment offerings can potentially be a way to generate higher returns, not through a risk premium, but a liquidity premium.
The caveat to structured settlement annuities, however, is that the investments can be so illiquid and the cash flows so irregular, they probably should at best only ever be considered for a very small portion of a client's portfolio anyway!
As financial planners, we have a drive to see our clients succeed, as both a mark of successful financial planning, and because no one wants to be the planner whose clients fail (for both personal fulfillment and legal liability reasons!). As a result, planners often encourage a steady path that may entail some "prudent" risk, but nothing excessive. Yet this often puts planners in a difficult position with very entrepreneurial clients, who often take significant career, business, and financial risks in an effort to build their businesses and significant wealth. Even if the planner is not directly responsible for the entrepreneurial client's business outcome, we don't necessarily want to be there when it all falls apart, either. In fact, if the client has a choice between an entrepreneurial venture or a salaried career, the planner typically recommends the path of lesser risk; it's just prudent, good planning. Yet in the end, does that mean good financial planning actually discourages entrepreneurship and makes it nearly impossible for clients to actually accumulate very significant (e.g., $10M+) wealth?Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an intriguing analysis from Morningstar's new number crunching on investor returns, finding that investors may not actually be chasing hot mutual funds nearly as much as previously believed, along with the latest contribution by Miccolis and Goodman to the Journal of Financial Planning, this time focused on the problems with measuring correlation. From there, we look at a few industry articles, from the possibility that FINRA may open up BrokerCheck data to private vendors to better get information to investors, to Mark Tibergien suggesting how to determine which parts of your firm you should or should not outsource. On the investment side, the focus turns to PIMCO's launch of an actively-managed ETF version of their flagship PIMCO Total Return fund, a primer on how the Euro breakup might go (it's not as bad as the media makes it out to be), and the latest quarterly letter from Grantham. We also look at two interesting recent articles from the New York Times, one by Robert Shiller on how high IQ investors actually invest differently, and another discussing how companies study shopper habits to market more effectively, and conclude with a quick review of the latest US News and World Report "Best Jobs in 2012" ranking which lists Financial Adviser at #23. Enjoy the reading!
