Journal of Financial Planning

This last reviewed issue of 2011 actually contains one of the best articles of the year, maybe THE best research report, oddly enough, on the subject of tactical asset allocation and whether it can be done effectively. As you'll see, it takes a very conservative position and defends it, to my mind effectively. As I say in the review, from now on, after this article, the discussion in the profession won't be on whether it is possible to add value through tactical shifts, but whether it can be done under broader, more common circumstances. It's going to be an interesting debate. [Read more »] 

The best of the contributed articles in the November issue of the Journal of Financial Planning starts an important debate around creating that all-important symbiotic relationship between the planning profession and its related academia. There are now hundreds of college programs around the country offering some form of training, including advanced degrees, in financial planning, and on the professional side, what profession doesn't rely heavily on the research provided by the colleges?

The question, of course, is how to make that happen.

I also liked the piece on cloud-based storage by Bill Winterberg. [Read more »] 

All I can say is that the Journal has a lot of work to do to improve the quality of its articles; aside from a very good column by Bonnie Sewell (known to some of you as Bonnie Hughes), there isn't much to like here, and the worst of it is the "research" that the FPA insists on conducting without having any visible idea what they're doing. The folks who promote non-traded REITs--limited partnerships in a new guise--sponsored this recent study, which cheerfully reports (several times) that 64% of advisors are embracing alternative investments and venturing beyond those boring old stocks, bonds, mutual funds and ETFs. However, read the fine print, and "alternative investments" includes REITs, commodities funds and gold, which have all been part of a mainstream diversified portfolio for years. Ah well... [Read more »] 

Something nobody ever seems to notice about the Journal is that it is clearly not advertiser-supported; it relies almost completely on subscription fees to turn a profit. This month is an interesting case-in-point: eight sold advertising pages (the rest are in-house ads inserted by the FPA, which generate no revenue), and one of those pages, from IMCA, is probably a trade-off for an FPA ad in IMCA's publication.

There are two highlights in this issue. The first is Baylor profession Bill Reichenstein's rebuttal of an article that never should have gotten past the Journal's screening process in the first place, and ought now to be retracted. Reichenstein totally debunks the article, but of course that doesn't matter because in sales situations, aggressive insurance agents will direct the prospect's attention to the original article and not bother with the debunking part.

The other highlight is Wade Pfau's introduction of a sustainable savings rate during the accumulation phase of a client's financial life--rather than the usual focus on the sustainable withdrawal rate after the fact. It makes for very interesting reading.
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I'll say it out loud: the cover article for this issue of the Journal of Financial Planning is genuinely embarrassing, and the "research" package is only a little bit less so. We've talked about this before, and other advisors have pointed it out as well, but there's no sign the FPA has any changes in mind.

And maybe it's all for the better; you can skip over those articles, save yourself some time, and turn to Jude Boudreaux's evaluation of the psychological hurdles in succession planning, or the article on comparing dollar-cost averaging with lump sum investing, or the contribution that talks about the fact that as clients get older, they become more dependent on their advisor--yet another argument for the fiduciary standard. [Read more »] 

The highlight of this issue of the Journal, and maybe the highlight for the past several years, is an interesting variation of the Bengen research. The "Save Savings Rates" article by Wade Pfau looks, not at the safety of various distribution rates, but the safety of various savings rates under different economic conditions. Looking at the historical record of returns, and taking into account the benefits of hindsight, it looks at what percent of income you would have had to save each year in whatever return environment you accumulated in, taking into account the return environment you are distributing in. As it turns out, those who save in a difficult return environment tend to get a break in the distribution period--and vice versa.

As I say in the review, this is an article you will probably end up reading at some point in your career; you might as well do it now. It's worth your expenditure of time.

Meanwhile, Dan Moisand has put on the record another great argument for not allowing FINRA to take over as the SRO for RIAs, and he brings up the fact that FINRA sold out of more than half a billion dollars worth of auction-rate securities in its own portfolio before concluding that they were not well-structured and poorly-disclosed. You read this and immediately wonder whether the SEC should launch an insider-trading investigation. If this were any private sector entity, the case would be a no-brainer.

In The Economist, notice the article that wonders whether we have entered another Tech Bubble (with Internet-related companies this time) that was published BEFORE the LinkedIn IPO went into a feeding frenzy. And the demographic analysis is very interesting, including the chart that tells you the ten most populous countries in the world in 2100 (Nigeria and the Congo are high on the list)--plus an article that wonders if China has enough people. [Read more »] 

If you're not much of a fan of incentive trusts and the idea of controlling heirs from the grave, then you might check out the interesting two-part proposal for a different kind of trust document in the April issue of the Journal. Instead of demanding that heirs behave in certain ways, it requires them to learn and apply certain life skills before they can receive their inheritance. This isn't an issue where the parents feel comfortable with the judgment of their kids, but where they don't...

The magazine also presents the idea of a "debt policy statement," similar in concept to the investment policy statement, but outlining parameters and goals for the client's debt management.

In this Media Reviews message, we've also reviewed recent articles in The Economist, which has been asking all the right questions lately. What's the on-the-ground assessment of the impact of the devastation in Japan, and what are the economic implications? (Hint: supply chains have been disrupted everywhere; it seems that a lot of items assembled in China and the U.S. required components made in Japan.) How radical are the winners of the revolutions in North Africa and the Middle East? And do we have a mechanism for measuring these economic impacts and their likely outcomes? (No, but the preliminary evidence will surprise you.)

Finally, the magazine identifies a potentially disruptive new technology that could usher in the era of electric automobiles much more quickly than anticipated.
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First the good news; when you get beyond the first article (and the FPA's still-disappointing attempts at "research"), you find two nicely-written articles about how to encourage client referrals. Rick Adkins offers a nice introduction to an issue that (as he points out) gets very little attention in our conference presentations, Alice Lowenstein of Litman-Gregory and insurance consultant Peter Katt address complex issues that affect at least some of your clients, and there's a darned good contribution at the back of the magazine on how to (carefully) help clients overcome their overspending activities.

The bad news? Take a deep breath and look at the triumphant article on income annuities, showing how they just plain beat the socks off of those risky mutual funds and stocks in the actual real world. So much good in this issue, and I suspect that all anybody will remember a year from now is how the FPA's editorial team got duped again by the product folks. Sigh. [Read more »] 

I think the grief planning column by Amy Florian was the highlight of this issue of the Journal of Financial Planning, although I really liked some of the real world tips in Jon Guyton's column.

Meanwhile, I get the impression that the Journal is having some difficulty attracting high-quality technical articles. Maybe advisors are too busy these days to do independent research. [Read more »] 

Dan Moisand must have been channeling the SEC's report to Congress, which was actually released two months after he wrote a column which essentially describes its tone and conclusions. I have to confess, two months ago, I was far more optimistic (and generally wrong) about what the SEC would come up with.

Harold Evensky continues to be the highlight of the Journal; he captures exactly the spirit of a professional magazine in his efforts to identify the most important articles in the professional literature and identify the most important debates. Too bad this comes out only four times a year as the cycle has it now... [Read more »] 

If you're busy, feel free to skip the first review, where I wonder aloud, and in some detail, whether the FPA's research staff is adding value or, alternatively, is comically uninformed about the basics of financial planning. Maybe they know a lot and are really sophisticated, but if so, they did not put their best foot forward here.

Much better is the contribution by Wade Pfau, who points out that all of our retirement sufficiency analyses have come from analyzing historical returns from one country--the U.S.--and that during a time period when the American economy was growing to dominance and preeminence in the world. Is it possible that this is not the typical case? Performing retirement sufficiency analyses using returns from 17 other developed nations, it appears that we have been using a skewed sample. The problem is: are THOSE also skewed samples--since they include the breakdown of markets or foreign occupation during World War I and World War II? The article raises a lot of interesting questions.

Meanwhile, The Economist looks at aging populations in the developing world, the risks they cause to economies and some possible solutions. And it examines the Irish debt problem--and the much greater risk that the contagion will spread to the much larger economy of Spain. It paints a cautiously optimistic picture, but bond buyers apparently aren't buying it. [Read more »] 

The Journal of Financial Planning now has a technology writer; Bill Winterberg is the Journal's equivalent of Joel Bruckenstein and Dan Skiles, writing here about how to help clients keep track of their budget information and more efficiently provide cash flow management to their household balance sheets. Rick Adkins thinks that the Form ADV Part 2 represents a substantial step, because it offers background information on individual advisors in a larger firm. I don't actually know how relevant the article on charitable issues will be to your firm, but it's interesting to see how the whole field of philanthropy is changing dramatically.

The Economist, this month, offers a quick profile of the next party leader in China, the changing role of NATO, why it may be harmful to the U.S. to have the dollar as the global reserve currency, and whether fiscal austerity is helpful or harmful while a fragile economy is recovering. [Read more »] 

You read through this month's cover article in the Journal of Financial Planning and wonder what the editors were thinking. Feel free to read it yourself; it isn't the worst of the magazine's cover stories, and that, of course, only underlines the problem. Does it tell us anything helpful? Anything we didn't know before? Does it move the profession forward?

Most of you will do better to skip ahead to the article by Jon Guyton, looking at how decision rules worked during the 2008-09 meltdown, and more expansively, how diversification and rebalancing would have produced positive returns during the dismal 2000s. Eleanor Blayney's article on how to engage women clients is good marketing and practice management material.

Meanwhile, the Economist offers a really good summary of the state of half of the global economy: the developed nations, which seem to be stuck in a quagmire of slow growth, with more on the way. It looks at the problems that the U.S., Japan and Western Europe are facing from a variety of angles; you can read through it and feel smarter about the global economy. Another article looks at the biology of careers, income and employment. [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 »]