Journal of Financial Planning

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 »] 

This month's issue of the Journal of Financial Planning includes a couple of nice columns, one on the protocol for your relations with people who have recently lost a loved one, another on how to hire younger advisor employees. But the real fireworks this month is a blockbuster expose by Rolling Stone's Matt Taibbi on how Congress chewed up the financial reform bill, and how it's far less protective of the public than it was originally intended to be. Both Republicans and Democrats participated in the watering-down of the measure, and although there is no mention of fiduciary, you get a glimpse of how hard it is to get meaningful consumer protections through Congress in this environment.

It makes for depressing, and very enlightening, reading. [Read more »] 

This issue of the Journal of Financial Planning features three articles which reinforce, in interesting ways, things you probably already know but may not be giving enough attention: the messiness of financial planning, and how you can turn that to your advantage in client relationships: the messiness of client thinking about investments and how you can protect your client relationship from it; and Vern Hayden talks about the essential core of your business and invites you to put more attention there, rather than on a lot of inessentials which probably take up most of your day.

I thought the article on using options to hedge client portfolios was interesting for two reasons: first, it found that hedging (buying options) all the time is prohibitively expensive; when markets are volatile, the cost exceeds the benefits. And second: it found that if you hedge in a disciplined way, only when the costs are low, you might be able to add risk-adjusted return to client portfolios.

The Economist articles warn us to brace for two major transitions in the Middle East; the leaders of both Egypt and Saudi Arabia are ailing, and there is no clear succession plan. And it tells us that the most recent bond auction selling Greek (and Spanish) debt went off without a visible hitch, which may mean the worst of the crisis in Euroland is over.
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I find myself wondering what the staff meeting must have sounded like where it was concluded that the FPA adds value to your life and practice by polling Journal readers and asking questions like: "Are you confident in the investments you are recommending to your clients?" or: "Are you reevaluating your asset allocation mix?" But I may have been a bit cranky when I picked up this issue of the Journal of Financial Planning, because once again the cover art reflects a cartoonish understanding of the financial planning world. FPA members deserve so much better than they're getting from their professional publication...

But the magazine still has its useful moments, thanks to the generosity of a handful of practitioners. In this issue, Jon Guyton has contributed an excellent column proposing a withdrawal policy statement for retiree clients, and there's a pretty good evaluation of a complex little corner of the rules governing Social Security payments.

The Economist, meanwhile, gives us a bit of an insider's look at the resignation of the Japanese prime minister, the new coalition government in Britain, venture capital in Europe, the new labor issues in China, and whether it's a good thing (or not) that unemployment benefits have not been extended here in the U.S.
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Harold Evensky is about to turn his quarterly column over to the academics, which might not be a good thing, since he has been such an effective filter of the noise (and there is SO much of it) in the academic journals. In this issue of the Journal, he summarizes articles which say something similar to what Mohamed El-Erian has said: that we are slouching toward a "new normal" economic and investment world. It would be nice if he'd tell us exactly what returns will be in various asset classes.

Meanwhile, tech consultant Bill Winterberg does a nice job of teaching us about the unfamiliar world of social media, and a former director of risk analytics at Merrill Lynch walks us through the unfamiliar universe of puts and calls, options and futures, trying to help us make sense of it all. (Hint: reduced volatility and equally-reduced long-term returns. The options markets seem to be highly-efficient.)

I was disappointed in the focus of the cover article (are ETFs alternative investments?), but in execution, it is far better than what we've grown used to from the Journal's cover articles. Let's celebrate progress where we can... [Read more »] 

Ross Levin and Jon Gallo offer interesting comments on, respectively, the idea of moving on instead of trying to change the past and defining how investment responsibility should be handed out to trustees. But the real action in this review is in the Economist articles. The first offers an outside-the-country view of the recent health care reform package, and the conclusion is cautiously optimistic--although, as you'll see from reading the review, the impact of some of the most important provisions won't be known for a decade. Meanwhile, there is evidence that America's economy is completely remaking itself into a less consumer-driven, higher exporting, more energy-independent, and generally more urban society. Britain, meanwhile, faces years of recovery. And the final article offers a glimpse of the politics of the future, and some of the issues that we may all be debating as more voters get older.

I hope your tax season is winding down, and that it generally went smoothly, and that you were able to get your quarterly reports out on time. For the planning profession generally, this may be the most stressful time of the year--but, as you know, much of the stress will soon be over.
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Vern Hayden is surely right when he says that your subjective and qualitative services are less likely to be commoditized than the calculations and numbers side of things, and he offers us a model for deciding where to store your value as advisors. There are two very interesting academic contributions here as well: the first looks at target date funds from a new perspective, arguing that they provide undisclosed risks to their investors, and suggesting a model for measuring that risk and helping investors think through their choices. The other looks at a whole lot of options for taking Social Security benefits, and then does what few other Journal articles do: tells us, after a lot of analysis, what the best solution is, and how to add value when you advise clients.

Already my picks in the NCAA tournament are in trouble. Who knew that a Monarch (Old Dominion) would beat a Fighting Irish (Notre Dame) in a fair scuffle? [Read more »]