MEDIA REVIEWS – September 16-30, 2017

I found Evan Simonoff’s contribution to this month’s Financial Advisor issue to be a bit disturbing, not that I imagine we will somehow escape a bear market in the future, but that there are a number of black swans flying around this time which could cause the downturn to deepen and lengthen.  Meanwhile, Philip Palaveev looks at the magical crossing point from support to lead advisor status, and outlines the characteristics that someone needs to become a trusted advisor to clients.

Articles that received a “high” relevance rating:

“How Folio Forged A ‘Connexion’ Between Advisors and Robos”
by Christopher Robbins
Financial Advisor, September 2017–connexion–between-advisors-and-robos-34057.html
Relevance: high

In 2014, Folio launched its Advisor Connexion digital advice platform.  Now 77 RIA firms use the automated turnkey technology.  Advisors can create their own models, implementing SRI investing, impact investing and other themes into their client models.  You can build your own client questionnaire that will direct them to the appropriate portfolio, and link it to the electronic account onboarding features.  An API interface allows advisors to control their client portals.  (p. 15)

“Master ETF Strategist Outlines Eight Potential Black Swans”
by Evan Simonoff
Financial Advisor, September 2017
Relevance: high

3EDGE president/CIO Steve Cucchiaro says that momentum is the reason why equities keep hitting new highs; the market is drawing cash from the public.  We could see a bubble, and then a black swan correction.

Meanwhile, a record amount of money is shorting the VIX volatility index, which has contributed to lower volatility of the overall market.  If the market turns, a lot of short-covering could turn a minor correction into a major one.

North Korea’s newly-aggressive nuclear ambitions are another potential black swan.

Increasing tensions between Iran and Saudi Arabia could destabilize the Middle East.

Gridlock in Washington could derail Republican initiatives, whose passage have been priced into today’s stock prices.

A major cyber-attack on America’s electrical grid or financial system could wreak havoc on the stock market.

The profits recession of 2015 ended, and corporations are throwing off record amounts of income.  What if suddenly companies start missing aggressive earnings estimates?

Finally, could we experience a bond market meltdown after the 35-year rally?  Interest rates are near historic lows, and Cucchiaro thinks the logical 10-year Treasury rate should be close to 3%.  That would imply a sudden, quick jump in rates across the higher end of the yield curve.  (p. 20)

“Taking Over Client Relationships”
by Philip Palaveev
Financial Advisor, September 2017
Relevance: high

A key milestone in developing next generation (successor) advisors comes when they are able to become a trusted lead advisor to a client, and take over client relationships.  Palaveev estimates that 2/3rds of professionals fail to cross from support to lead advisor status.  He compares it to the difference between doctors and nurses.

There are six characteristics of a lead advisor: he/she has ultimate responsibility for identifying client needs and communicating proposed solutions.  He/she manages the internal service delivery team.  He/she communicates changes to the engagement (like raising or lowering fees).  He/she is accepted as an authority by the client.  He/she enjoys the confidence of the client.  He/she is also the professional who receives client referrals when they happen.

The key ingredient here is trust.   That requires demonstrable professional expertise, which means knowledge plus the ability to apply it to specific client situations.  There should be some level of specialization in a particular client niche, and the ability to give your full attention to clients at meetings.  You also need to be participating with the client at meetings, even if the mentor advisor is at the table.

The final piece of advice: the G2 advisor should be a bit impatient to begin working with clients, and take the lead in taking over primary responsibility for some of the advisors that the firm is servicing with founding partners.  (p. 26)

“Helping Wealthy Clients Achieve Better Outcomes”
by Russ Hill
Financial Advisor, September 2017
Relevance: high

Any model you use to extrapolate into the future will have flaws.  The author recommends a Personal Funded Ratio to estimate whether the client has achieved his/her financial goals.  He prefers it to the more limited Monte Carlo simulations; it discounts all future cash inflows by interest rate curves that reflect the riskiness of the return assumptions, and the expenses are discounted by Treasury curves and mortality assumptions.  Divide resources by claims and you have a PRF that might be below 90% (a lot of work to do) or above 130 (the client is in a very good position).  If you want to get fancy, you can break down future spending into essential spending for basic living necessities and desired spending on future lifestyle. 

To impact the PRF, clients can work longer, save more, spend less or accept more portfolio risk.  (p. 36)

“Leaps and Bounds”
by Carol Clouse
Financial Advisor, September 2017
Relevance: high

Sustainable, Responsible and Impact (SRI) investment has expanded and improved.  In addition, funds analyzing companies through an SRI lens are often outperforming their less selective peers.  The article mentions the Forum for Sustainable and Responsible Investment; Morningstar’s sustainability ratings; and the Global Impact Investing Network.  (p. 97)

“Disco, Sex and the Cybersecurity Nightmare”
by Mark Hurley
Financial Advisor, September 2017–sex-and-the-cybersecurity-nightmare-34320.html?issue=288
Relevance: high

The WannaCry ransomware attack shut down millions of computers around the world, and there are hackers everywhere.  Hurley likens access to the Internet to unprotected sex.  Few wealth managers realize the magnitude of the threat.  Wealth managers will need to hire sophisticated security professionals, and there is a shortage of them right now.  Advisors will also need to audit their vendors’ information security policies and procedures.  (p. 112)

The rest of the articles:

“Thinking Outside the Medicare Check Box”
by Ted Knutson
Financial Advisor, September 2017
Relevance: moderate

Advisors can help clients shop for their Medigap plans, and by encouraging them to inform Social Security when their income drops precipitously through retirement or a job loss.  Premiums for Part A (hospitalization) can range from $134/month to $428.60 per month, depending on income.  Also: missing the initial enrollment deadline can raise premiums by 10% for every 12 months past the due date.  (p. 16)

“DOL wants to Delay Fiduciary Rule”
by Elizabeth Dexheimer
Financial Advisor, September 2017–labor-department-delays-fiduciary-rule-implementation-date-34089.html
Relevance: low

DOL submitted a proposal to the Office of Management and Budget to delay parts of the fiduciary rule for 18 months.  Wall Street firms would have until July 2019 to make adjustments.  (p. 18)

“The Terms of Aging”
by Mitch Anthony
Financial Advisor, September 2017
Relevance: low

Seniors in retirement currently account for 13% of our population, but they’ll make up 20% by 2060.  So?  19% of seniors or retirees age 65 or older are working full- or part-time, and the number is rising.  Anthony says we need to come up with a new name for active people past retirement age, who are still working.  He proposes some names (Encorists or Encorers, OWLS or people in middle-escence) but none of them resonate.  (p. 31)

“Impact Advising”
by Bill Bachrach
Financial Advisor, September 2017
Relevance: moderate

In contrast to impact investing, impact advising aims to generate deep psychological emotional fulfillment for clients.  He says instead of overexplaining how they manage money, advisors should shift to focusing on client outcomes.  You should deploy more effective communication strategies about outcomes, rather than simply guessing what people want.  Offer benefits that clients will appreciate.  The underlying subtext here is: stop selling, and help people achieve their goals.  (p. 33)

“DOL Rule Driving Consolidation and Disruption”
by Staff
Financial Advisor, September 2017
Relevance: low

The article says that many BDs are considering the sale of their firms, but no evidence is given for this except for two recent deals: Kestra buying H. Beck from Securian Financial Group and LPL Financial buying the National Planning Holdings network of four independent BDs from Jackson National.  The forced sales are said to be the result of the DOL Rule, which is creating razor-thin margins as 12b-1 fees disappear.  Brokers are becoming advisors, which is shifting the BD revenue model from commissions to ongoing fees.  (p. 41)

“A Talent for Finding Pearls in Stone”
by Eric Rasmussen
Financial Advisor, September 2017
Relevance: moderate

Gary Furukawa, founder of Freestone Capital in Seattle, was a real estate and venture capital investor before his planning career.  He had also worked at E.F. Hutton and Smith Barney.  His firm now has $3.8 billion in assets, 1,800 client households and 63 employees.  He was an early investor in Expedia and a founding investor of   The firm receives referrals from CPAs, and are paid a part of the management fee.  Investments are special opportunities, with funds and ETFs being ancillary.  Some include distressed properties after the housing crisis and a convertible bond arbitrage hedge fund.  The firm is now majority owned by the Sienna Group of private equity investors.  (p. 44)

“Time to Plot a New Course”
by David Sterman
Financial Advisor, September 2017
Relevance: moderate

The author warns of trouble ahead.  When the U.S. and European central banks migrate from an extended period of accommodative monetary policy, bonds and income-producing equities could suffer.  Yields have already moved up from all-time lows.  Look to Asian and emerging markets bonds to provide yield and returns going forward—and notice that the default rate on high-yield bonds is just 3%, due to a robust regional economy.  The article also says that energy MLPs offer robust yields if you believe oil prices will remain stable.  (p. 53)

“Tapping Asia’s Dividend Growth”
by Marla Brill
Financial Advisor, September 2017
Relevance: low

A profile of the Matthews Asia Dividend Fund.  (p. 58)

“Head of the Class”
by Jerilyn Klein Bier
Financial Advisor, September 2017|
Relevance: moderate

A few advisory firms are specializing in college planning.  This article tells their stories, but basically all of them were responding to client demand and a lack of information readily available to consumers.  They will subcontract out filling out the aid applications and helping students figure out which colleges and which majors to pursue.    (p. 101)