MEDIA REVIEWS – January 8-20, 2021

I guess Financial Advisor, Financial Planning and Investment Advisor magazines have all skipped their January issues; this month’s magazines are not posted anywhere. 

So I’m reviewing the most recent Advisor Perspectives articles and columns, including Larry Swedroe’s last ‘sure thing’ article.  Swedroe is about the only person on the planet who provides a degree of accountability on the pundits and soothsayers who tell us what the market is going to do next year—though I wish he would name names when he does it.  Anyway, once again the pundits and soothsayers got most of their predictions wrong, and over the last 11 years, they have been far more wrong than right.  The lesson (which you probably knew already): just don’t listen to predictions of the future.

Dan Solin continues his series on things he would like to see more and less of in the coming year from financial planners (and it’s two pretty good lists), while Allan Roth offers insights from behavioral economist Dan Ariely on how to promote happiness in your clients.

Have a great week.

The articles:

“What I’d Like to See More and Less of in 2021 (Part Two)”
by Dan Solin
Advisor Perspectives, January 12, 2021
Relevance: high

Solin would like to see more investors abandon stock picking, market timing and trying to select outperforming actively-managed mutual funds.  He would like to see a reemergence of the value premium after 13 years of growth stocks outperforming value.  And he says that research shows that almost 23% of all U.S. households are experiencing food insecurity—including 13.9 million children. 

“Gary Gensler: Joe Biden’s Joseph P. Kennedy”
by Knut Rostad
Advisor Perspectives, January 14, 2021
Relevance: high

Gary Gensler is Joe Biden’s nominee to become SEC chairperson.  Joseph P. Kennedy was Franklin Roosevelt’s SEC chairman.  Both were from the business; Gensler worked at Goldman Sachs, and was a senior advisor to Senator Paul Sarbanes when he was writing the Sarbanes-Oxley Act, and was Under Secretary of the Treasury for domestic finance and Assistant Secretary of the Treasury during the Clinton Administration.  He also chaired the U.S. Commodity Futures Trading Commission from 2009 to 2014.

The article says that he has real experience taking on Wall Street for real abuses.  Rostad thinks he’ll be a good consumer advocate at the SEC—finally.

“Final Review of 2020 ‘Sure Things’”
by Larry Swedroe
Advisor Perspectives, January 17, 2021
Relevance: high

Every January, Swedroe keeps track of predictions in the financial media and economists, and at the end of the year he gives each of them a score of +1 (if the prediction was right) and -1 (if the prediction was wrong).  He tries to focus on predictions made with a certain guarantee that the outcome is certain.

The forecasters predicted GDP growth of 1.8% in 2020.  When the final numbers come in, it will be closer to -3.5%.  -1

Profit growth will continue to be strong, reaching $178 a share on the S&P 500.  The actual number is going to come in at around $136.  -1

U.S. stocks will deliver high single-digit returns.  The actual return more than doubled the forecast.  -1

Inflation will remain tame, at around 1.8%.  Actual: 1.24%.  +1

The Fed Funds rate will be lower at the end of the year than higher.  Actually, the Fed lowered its rate effectively to zero.  +1

The interest rate environment favors REITs over stocks.  That turned out completely wrong.  -1

Large-cap stocks will continue to outperform small stocks.  It was close: small cap indices returned 19.1% while large caps gained 21.0%.  +1

Gold will post another strong year.  Gold was up almost 24%.  +1

Climate change will lead to another year of significant losses to reinsurers, so investors should avoid the asset class.  The two publicly available reinsurance interval funds both posted positive returns.  -1

Thus there were 5 minuses and four pluses.  Swedroe says this is his final year of reporting on ‘sure things.’  Over the 11 years, there were 23 more sure things that were wrong than were right.

“Dan Ariely on Post-Pandemic Financial Planning”
by Allan Roth
Advisor Perspectives, January 18, 2021
Relevance: high

The overarching theme here is that advisors will thrive in the post-pandemic environment if they focus on the relationship between money and happiness with their clients.  Ariely says that financial planners should try to maximize client happiness through the proper use of money.  There will be more virtual meetings, which will make it harder for a financial planner to get a sense of client values and an understanding of what makes them happy.  When the pandemic ends, advisors should remind their clients that they need to have a rainy day fund for exactly times like what we experienced. 

He suggests that you call to congratulate clients who reach financial milestones such as paying down 20% of their mortgage or achieve a certain wealth level.  Advisors should encourage clients to take out a certain amount of money every year and put it in their checking account—and agree that this is the amount of money for them to spend over the year.  Anything left over goes to charity.  That will make the client freer to spend that amount of money on things that will bring more happiness.

Finally, Ariely is not a fan of risk profile questionnaires.  Instead, he recommends asking about the tangible consequences of a loss.  If the portfolio loses value, then the kids would have to go to a state school instead of a prestigious private university.  Help clients understand what market losses mean in a consumption context.

“The Good, the Bad and the Ugly of Federal Reserve Rescues”
by Ron Surz
Advisor Perspectives, January 18, 2021
Relevance: high

Surz believes that the Fed’s printing money will lead to inflation—and that this will trigger a chain of events that could lead to a dramatic fall in stock prices.  The low short-term rates seem to be correlated with higher PE ratios (there’s a graph that seems to show a pretty tight correlation)—and that, says Surz, is where all the inflationary pressures have gone, rather than in consumer prices.  Warren Buffett’s bubble indicator is at 275% of normal, an all-time high.  The conclusion is that the Fed may discover that it can’t suppress interest rates forever, particularly at the long end.  If long rates go up, stock prices plunge because future earnings are discounted at higher rates.  Interest rates on the debt take away from other government programs, and consumer inflation is likely.

“Why the B Corp. Certification Matters”
by Diane Bourdo
Advisor Perspectives, January 18, 2021
Relevance: high

This column starts with an interesting observation: the author has done a financial business valuation of her planning firm several times, and then looked at the spreadsheets and felt that the true value of her firm was not completely represented there.  What about the team?  Or the quality and care they brought to their work?  What about the financial outcomes of the clients?

She took her firm through the process to become a certified B corporation last August, joining 3,500 other companies in 150 industries and 74 countries.  That means she is legally required to consider the impact of the firm’s decisions on all stakeholders, including the product offering, employee benefits and financial management, plus the company’s involvement in the community, corporate governance and environmental impact. 

She says that the firm is now assessing a number of issues, including how well they are serving their clients, how much of the managed asset base is devoted to impact investments, the fairness of fees and whether the advice is given in the clients’ best interests.  HR issues include monitoring the difference between the salaries of the highest paid vs. lowest paid employee, and benefits including retirement account funding and paid time off.  Also: the firm’s environmental footprint, down to the hand soap and paper products they use.  The firm closes its offices 3-4 days a year to do community service as a group.

She says that becoming a B corp. formalizes what the firm already does and its commitment to it—and inspires and motivates everybody to do better.

“No Free Lunch, No Free Investing”
by Rick Kahler
Advisor Perspectives, January 2021
Relevance: high

This is a very skeptical article about Robinhood, which lets small and younger investors buy and sell stocks, options and cryptocurrency by eliminating minimum purchases—and trading fees.  It uses gaming-type experiences that encourage customers to trade more frequently and invest in higher-risk investments.  But the free part of this is an illusion; Robinhood auctions off its customers’ trading orders to whomever will pay the most money, so that customers pay the highest possible prices for the shares they purchased, and the lowest price for those they sold.  The SEC determined that Robinhood’s customers paid over $34 million more than they would have paid with other brokerage firms that charged fees.  The company paid $65 million in fines to settle the charges.  The author says you would be better off paying a fully transparent and disclosed fee; there is no free lunch in investing.

“More and Less in 2021 (Part Three)”
by Dan Solin
Advisor Perspectives, January 20, 2021
Relevance: high

Solin says that there should be more focus on the client and less on the advisor; the website shouldn’t talk about you, it should talk about how you can address the prospect’s issues.  He recommends a really good line: “At our initial meeting, we’ll explore your goals and obtain an understanding of how a relationship with us might benefit you.  If there’s a fit, we’ll customize a plan that suits your unique requirements, agree on a fee and get started.”  The language is about the prospect, not about your process.

Second: Fewer advisors assuming that advisors want to know about their credentials and their investment philosophy.  Instead of lecturing, ask for information from the client.  Instead of being the most interesting person in the room, become the most interested.  Instead of making declarative sentences, say: “I’m curious about…”

The conclusion: focus on others, and you’ll see an immediate, profound change.