The long-term impact of inflation is a fundamental risk for retirees; a 60-year-old retired couple loses 50% of their purchasing power by age 85 at a mere 3% inflation rate. To plan for this, retirement projections typically assume an annual inflation adjustment, as does the research on safe withdrawal rates and sustainable retirement income. Yet many planners are quick to point out that no clients called the office on January 1st, 2012 to request their monthly distributions be adjusted from $3,000/month to $3,090/month to reflect the 3.0% increase in CPI in 2012. In fact, most clients rarely request to adjust their ongoing portfolio distributions more than once every several years. Does that mean retired clients don't really experience ongoing annual inflation? Or is the reality that they just handle it some other way?Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an interesting discussion by Morningstar about the challenges of evaluating tactical investment managers, an article by Bob Veres with tips on resources when starting a practice and outsourcing solutions, and an article by Joel Bruckenstein about a new integrated cloud solution for advisory firms. We also highlight some compliance-related articles for RIAs tying to the slew of new rules and regulations impacting investment advisors this year thanks to Dodd-Frank, a summary of the Rydex|SGI AdvisorBenchmarking study, and some tips to deal with the tax treatment of client investments in gold. We wrap up with Mauldin's weekly investment article - this week continuing his discussion of the decisions facing the US and how much impact the president and elections do or don't have on the outcome, an intriguing look from Oaktree Capital chairman Howard Marks at the challenging realities of assessing performance records, and a piece by Moshe Milevsky about "Gompertz' Law" and the mathematics of mortality assumptions. Enjoy the reading!
Once upon a time, the purpose of a client vault was to use it like a vault. It would store important client documents to be accessible if/when needed. It was designed to be the digital equivalent of a safety deposit box in your local bank's vault. But at some point over the past several years, we began to shift, and the client vault became not only the place we store the files we access rarely, but the ones we access regularly. Advisors increasingly made it the centerpiece of their efforts to securely share files and collaborate with clients. Yet in reality, this is quite impractical. Just as you don't regularly go to your local bank vault to constantly move things in-and-out of your safety deposit box, so too do we need to stop using our digital data vault like a collaborate file sharing tool. Just as going regularly to your bank every time you need to check on something would be a huge hassle and a negative experience, so too is using the data vault as a collaboration tool a negative client experience. It's time for a better alternative.
In an ideal world, everyone in your office would selflessly collaborate together in pursuit of the common goal to serve clients and ensure the success of the firm. In reality, though, your staff and co-workers probably run the gamut, from people who are really focused on the team and the good of the firm, to those focused just on themselves, to those who don't seem particularly motivated to do much of anything at all. The latter, in particular, can be the most frustrating when mixed in with an otherwise proactive and motivated team. But new research suggests that surprisingly, if you want to upgrade the demotivated team members and make your office "tribe" more collaborative, the key first step is actually to try to make those individuals more interested in just selfishly helping themselves!Read More...
On January 18, the CFP Board issued proposed changes to its process for addressing bankruptcies of CFP professionals and candidates for certification. Under the current rules, CFP certificants and candidates who experience a single bankruptcy are subject to a hearing by the Disciplinary and Ethics Commission, which may result in disciplinary action including a private letter of censure, suspension, or revocation of the marks. Under the proposed rules, the disciplinary process would be eliminated, and replaced with a disclosure process that would require CFP certificants who experience a single bankruptcy to have such bankruptcy publicly disclosed on the CFP Board's website for a period of 10 years, but no longer otherwise be subject to discipline or restrictions regarding the CFP marks. The comment period for the proposed changes ends on Friday, February 17th, and in today's blog post I share my own comment letter feedback to the rule.Read More...
One of the most common criticisms to the use of Monte Carlo in financial planning is its typical assumption that investment returns are normally distributed, when in reality the market appears to go through environments that may be more volatile than a normal distribution would predict, as highlighted by the events of the financial crisis. In the last four months of 2008 alone, the market experienced 20 high-volatility trading days with a standard deviation varying from 3.5 to almost 10... each of which should not have occurred more frequently than once per millenia to once per several billion years. Yet when we look at those returns on an annual basis, we see a very different picture - the one-year decline to the bottom in March of 2009 was a "mere" 2.5 standard deviation event, which is uncommon but entirely probable under a normal distribution. Which raises the question - are "black swans" just a short-term phenomenon that average out by the end of the year, and are we focusing too much on impossibly rare black swans instead of the rare-but-entirely-probable 2 standard deviation decline?Read More...
