Inside Information

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How safe are your bank accounts in this era of record bank failures? [Read more »] 

I have to admit that I'm fascinated by the idea, proposed by Roger Ibbotson and reviewed by Evan Simonoff, that illiquid stocks can be viewed as an asset class and consciously incorporated as a high-return, high-risk component of client portfolios. It was so interesting that I read the full article (it's available here: http://advisor.morningstar.com/articles/article.asp?s=1&docId=16609&pgNo=1), and searched, in vain, for the answer to what seems to be a simple question: is the (presumably large) bid/ask spread when you try to sell thinly-traded stocks taken into account here? In other words, the stock price may go up more for thinly traded stocks than stocks that are more liquid, but is it possible that in the real world, you get hammered when you finally decide to sell? Nothing in the article addresses this issue--that I can find, anyway...

The cover article on Andrew Rudd, of Advisor Software, kind of alarmed me. Without apparent irony, and no visible perspective from the author of the article, we are told that a client couple living on the edge of being able to retire (or not) should dial down exposure to equities to 11% and buy almost all TIPS with the rest of the portfolio. This is so far outside mainstream opinion in the planning space that it would have been nice to see more discussion, or reactions from thought leaders in the investing space.
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Will the new compliance rules cause advisors to leave the profession? [Read more »] 

I think the most interesting article in this issue of Financial Planning magazine is the detailed writeup of FinaMetrica's ongoing study of investor risk tolerance. What is interesting is that the same basic information was made available to all the trade publications, and there were very brief and not very perceptive mentions made of it, but Financial Planning recognized that there might be something important in data which shows that investors' tolerance for investment risk was largely unchanged through the Great Recession and market downturn. What DID change is the perception of risk--people think the markets are riskier when prices fall, which, of course, is the opposite of the truth.

An interesting feature by Dick Vodra, who is one of the original thinkers in the planning world, raises the possibility that our global and/or U.S. economy may not be able to grow in the future--the question is, is there unlimited growth capacity in our economic system, or is there a point when we stop creating, raising and selling more stuff per capita? I don't know the answer, but when you plug very different assumptions into your portfolio design, you get answers that could have implications for your clients.

I've already told you about Margie Carpenter's analysis of the best way to invest in emerging Asian markets; it's available on my web site. In this issue of Financial Planning, Carpenter simply makes the case that investing there is important--and it may offer, by orders of magnitude, the highest potential return in the global opportunity set. HOW to invest is only available in the downloadable report.

As always, thanks for your attention. I just finished writing a column which says that your time and attention are by far the most valuable asset at your advisory firm, and the only meaningful constraint on your own growth. That's another way of saying that I'm grateful that some of it is focused here. [Read more »] 

I have to confess that I didn't read Dave Yeske's contribution to this issue of the Journal of Financial Planning with total objectivity; he had discussed his research plans (this is part of a doctoral dissertation) with me two years ago, and last year I saw him present his model and results twice. I managed to be impressed three times by, first, the fact that virtually all financial planning relationships and service could be broken down into logical categories, and that these different modes of relationship/delivery could be measured, to see which of them were most valued by clients and produced the most enduring client relationships. Interestingly, the different modes can also be categorized according to business model; we have brokers clustered mostly in one mode, while fee-compensated advisors tend to aggregate a couple of modes over on the spectrum. We may eventually see larger corporations and study groups of advisors make business decisions based on this model.

Meanwhile, Harold Evensky's contribution to the Journal has become the "column you don't want to miss," and often contains more good information than I can summarize. In this issue, Bonnie Hughes offers her take on the "do financial planning firms have value?" debate--this time from the perspective of a buyer. [Read more »] 

Alas, the September 24 "fiduciary standard forum" in Washington, D.C., created to raise awareness among lawmakers and regulators, is scheduled in conflict with NAPFA's Practice Management & Technology Conference, which means I'll be introducing speakers and serving on panels while Tamar Frankel and Arthur Laby are delivering academic white paper reports on the superiority of the fiduciary standard.

Meanwhile, this is Investment Advisor's broker-dealer of the year issue, with the annual interview of the CEOs of the winning companies. One takeaway: you might be a little surprised at how naive they seem to be about the fiduciary concept and how it works in the real world. Mark Tibergien is hardly naive when he talks about the most important issues to address if you're thinking of merging with another advisor, and Angie Herbers talks about how to address the six most common problems that advisors run into with employees. Further down, you'll find the most relevant articles from the Economist; the future of the Internet, the philanthropic differences between the wealthy and unwealthy, and surprisingly good news from U.S. auto makers. [Read more »]