Learning about stock options is a staple of investment education; whether it's the investment section of the CFP certification curriculum or the Series 7, virtually all planners learn about the basics of stock options. However, in practice, options are very rarely used for hedging the typical client portfolio, due to a number of reasons. Nonetheless, there is perhaps an even better use of options for hedging - not to protect a client portfolio from the next bear market, but to protect the profit margins of the financial planning practice!Read More...
As safe withdrawal rate research gains in popularity, it is both increasing used - and misused - by financial planners and the press. Although the research does have its limitations - which I discuss frequently in my presentations at various financial planning conferences throughout the year - and is built on many assumptions that deserve to be challenged, a rising number of safe withdrawal rate critics appear to criticize the approach based on inaccurate statements. So let's clear up a few points of confusion about safe withdrawal rate assumptions. Read More...
There is a perception in the financial planning world that the process of acquiring a new client begins at the first meeting - the so-called "approach talk" - and therefore any firm that does a good job at converting prospects into new clients in those early meetings must have an effective business development process. Firms that want to grow more/better/faster are encouraged to refine their process, materials, and techniques used in the approach talk to improve the rate at which prospects convert into clients.
Yet the reality is that from the client's perspective, the process actually starts much earlier; and because the "pre-meeting" parts of the process are so ignored by most planners, the reality is that many (or even most!?) potential clients may be lost before you ever have a chance to meet them!Read More...
Should fiduciary wealth management firms have minimum capital requirements, to ensure they can make good to clients if they do fail in their fiduciary duties? One of the professed strengths of the RIA model is the fact that such firms are held to a fiduciary standard, providing a higher level of legal accountability for firms that fail to put their clients' interests ahead of their own. But strictly speaking, that really only holds as a consumer protection if the firm has the financial wherewithal to actually pay damages, should they arise. Read More...
When hiring new planners for associate planner positions, many firm owners say they want to find someone just like them; in the words of Peter Lynch, they “buy what [they] know.” It is human nature after all – we prefer staying in our comfort zone and don’t operate as well with the unknown. However, in practice this is often exactly what a firm does NOT need; if the firm owner skill set is strategic visionary, relationship manager, and primary rainmaker, then the firm should strive to find candidates with complementary skill sets to fill in gaps. Especially in a small organization, too much overlap will lead to inefficiencies. Nonetheless, some business owners choose to go this route anyway. So if you are going to hire a 'mini-me', what should you be aware of?
If there's one staple of financial planning wisdom that virtually everyone will agree upon, it's stocks for the long run. Sure, we all acknowledge that markets can be volatile in the short term, but we all seem to still agree that in the long run, stocks are still where it's at. So as long as you have a long enough time horizon - whether you're a young person still accumulating, or a retiree looking at a multi-decade spending phase - stocks are still a material portion of the portfolio. But within the past hundred years alone, there was nearly an entire generation - who grew up during the Great Depression - that gave up on stocks for their entire lives. What if that happened again? Has the financial planning profession hitched itself to the stocks-for-the-long-run wagon so tightly that if stocks fall off a cliff, so too will the profession?Read More...
