In the midst of volatile, ambiguous, and uncertain markets, it’s often difficult to know what to do. In such a high stakes environment, we look for any clues that we can find, to figure out whether what we’re doing is “right” or not. Unfortunately, though, this can lead to trouble, as research shows that the methods and tools our brains use to make decisions are not always rational. For instance, sometimes we look to what others around us are doing, to determine whether our own actions are appropriate or not, rather than doing our own due diligence. In many situations, this form of “social proof” can be an effective means to fit into society. In other situations, though, it can potentially lead to herd behavior. Which raises the question – to what extent are our investment decisions as planners influenced by what other planners are doing, instead of our own due diligence?
A common complaint about the use of tactical asset allocation strategies - which vary exposure to bonds, equities, and other asset classes over time - is that they are "risky" to the client's long-term success. What happens if you reduce exposure to equities and you are wrong, and the market goes up further? Are you gambling your client's long-term success?
Yet at the same time, the principles of market valuation are clear: an overvalued market eventually falls in line, and like a rubber band, the worse it's stretched, the more volatile the snapback tends to be. Which means an overvalued market that goes up just generates an even more inferior return thereafter. However, greedy clients may not always be so patient; there's a risk that the planner may get fired before valuation proves the results right.
Which raises the question: is NOT reducing equity exposure in overvalued markets about managing the CLIENT'S risk, or the PLANNER'S?Read More...
Enjoy the current installment of "weekend reading for financial planners" - highlights this week include a few blockbuster articles, from a new call to the profession to adopt a more scientific and evidence-based approach to advancing financial planning, to an incredible new research report on how to develop staff and grow a firm, to a scary warning about the current regulatory winds buffeting financial advisors. We wrap up with three striking-but-bearish articles on the mortgage markets, the stock markets, and the economic situation in Europe and here in the US. Enjoy the reading!Read More...
Every financial planner delivering advice to clients must, at some point, help the client interact with and implement advice with a financial service or product provider at some point. Depending on the planner's business model, the implementation of the advice may or may not directly command a commission, but even a fee-only planner ultimately recommends financial products and services. After all, you can't investment in an IRA without an IRA custodian, you can't buy mutual funds or ETFs inside the account without interacting with mutual fund and ETF product providers, and you can't buy insurance without an insurance company as part of the transaction. In fact, implementation of the advice IS the 5th step of the financial planning process. Which raises the question: given the reliance of financial planning on implementation using financial services and products, why do so many financial planners try so hard to avoid the conference exhibit hall? Are we shirking our professional due diligence obligations, or is there another issue at hand?
From the planner's perspective, the data gathering meeting is a core part of financial planning. As the 6-step financial planning process itself stipulates, you can't begin to analyze a client's situation and formulate recommendations until you have the client's data in the first place. Yet from the client perspective, the data gathering meeting can be an arduous process, and is also easily procrastinated, potentially delaying the entire planning process. It certainly is not something that most clients would describe as a positive or enjoyable experience. So what would it take to re-formulate the entire data gathering interaction, to change it from a planner-centric process into a client-centric positive experience? For starters, it needs lose the name: let the "data gathering" meeting become the "Get Organized!" experience!Read More...
Enjoy the current installment of "weekend reading for financial planners" - highlights this week include an article on the new coming wave of active ETFs, a few practice management pieces, a striking article on insurance companies using social media information for claims and even underwriting, and one of the best pieces I've seen yet on what Occupy Wall Street is really all about. Happy reading!Read More...
