MEDIA REVIEWS – December 16-23, 2018

Before I get to reviewing the articles in this month’s Financial Advisor magazine, I want to point out a review from Nerd’s Eye View, the celebrated blog by Michael Kitces.  Here, he does his own analysis of the FPA’s new OneFPA Network proposal, and comes to similar conclusions that I did in my own scribblings, but from a different angle and with somewhat different information.

Certain chapter leaders are breathlessly rushing to endorse the OneFPA Network proposal before they’ve even had a chance to hold their next chapter meeting and talk about it (see:, but most chapters seem to be taking the time to talk internally about the pros and cons, and Kitces’s analysis will add some data points to the perspectives that they’re gathering.

In this issue of Financial Advisor magazine, I liked the Ross Levin column about empathizing with clients who are nervous about the markets, and Dan Moisand’s guest column at the end, about things that are simply not true about a person’s retirement experience.

Articles that received a “high” relevance rating:

“13 Concerns About FPA’s OneFPA Network Proposal: Does FPA Need ‘The New Chapters’ Or ‘The New National’ Instead?”
by Michael Kitces
Nerd’s Eye View, December 17, 2018
Relevance: high

Most of you know how I feel about the new OneFPA Network proposal: I think the national staff leadership is trying to grab revenues from the association’s only engine of growth and member benefits: the chapters.  WHY the member benefits are all coming from the chapters and not national seems to be a question nobody is asking…

… Except Kitces.  In his famous blog, he offers a thoughtful analysis of the proposal that ought to be read in its entirety (click on the link above), but the gist of it is that:

1) When you dig into the proposal, you discover that the offer to broaden decision-making by including the chapters is somewhat of an illusion.  Every committee that has material decision-making authority over the new chapters will have a chair, appointed by national, who sets the agenda of the committee and casts the tie-breaking vote if the chapters dispute any of national’s decision.  National reserves the right to outright disband any of its committees at any time.  This is “participatory governance?” 

The article notes that the money in chapter reserves would be transferred to national’s treasury, and wonders why.  Then it finds an answer: Since 2008, national’s membership has declined 15%, revenues are down by nearly 35%, sponsorship and event revenue is down 45% and advertising revenue for the Journal of Financial Planning is down an astonishing 90%.  This, while other membership organizations are showing healthy growth.

Kitces raises the question that he calls “the true elephant in the room:” are chapters to blame for the decline in membership and revenue (and, therefore, centralizing their activities through the national staff would bring them in line and make them more efficient), or is the problem actually the FPA’s staff leadership, who have been in place for more than 20 years during the period when the FPA has gradually, and then more rapidly, declined?  Quoting from the article: “Perhaps the FPA National Board needs to take a hard look at whether the best path forward for the FPA is to create The New Chapters, or to revisit whether and how it holds its own staff leadership accountable for failing to align and grow the organization, and whether it’s time for a leadership change to create The New National, instead.”

“Great Expectations (And Wrong Ones)”
by Ross Levin
Financial Advisor, December 2018
Relevance: high

Why (Levin’s clients want to know) are their returns trailing the S&P 500?  He talks of meeting with a client, telling her that he completely understood why she felt this way and said she wasn’t wrong to feel so.  He said that his firm believes in diversification, asset allocation and mean reversion.  He said, every month he reviews the trades to see how the investments he sold did in comparison to the ones he bought.

The client was relieved, didn’t feel crazy or discounted.  Levin expressed confidence ins long-term strategy and affirmed that he gave up returns in the best-performing category (U.S. stocks) in order to create a higher probability that the clients’ goals would be met.

The conclusion: the only way to have authentic client relationships is to be authentic—which means creating an environment where clients can talk about the messy things as well as their satisfaction or dissatisfaction with the work you’re doing.  Be quick to apologize, admit what you don’t know and remember to say thank you.  (p. 36)

“More Myths About Retirement”
by Dan Moisand
Financial Advisor, December 2018
Relevance: high

This column debunks some myths clients may have about retirement.  Number one: in retirement, they can relax and not worry about saving.  In reality, economic, political and financial market gyrations are suddenly a cause of anxiety.  Also there are decisions like: which accounts do they pull from first for living expenses?

Number two: My kids will be off the payroll.  Ideally, they will be able to support themselves, but not all of them can. 

Number three: You don’t need life insurance so you can drop it.  True, they may no longer need coverage for lost wages if they die, but windows can find their lifestyles hampered when thir retired spouses die, and they experience a decrease in household Social Security income or a reduction in pension payouts.  Instead, consider adjusting existing policies to make the expense less burdensome.

Number four: I must convert to Roth IRAs.  That would reduce required minimum distributions that force people into higher tax brackets, but those tend to be low in the early years.  The Roth conversion requires up-front taxes be paid—sometimes at a higher rate than the person’s rate in retirement.

Number five: If so and so wins the election, we’ll go broke.  Basing your investment decisions on your feelings about politics can lead to mistakes that would be hard to recover from.  (p. 72)

The rest of the articles:

“Saving Taxes While Giving to Charity After Taxes”
by Jeff Stimpson
Financial Advisor, December 2018–after-tax-reform-42048.html?issue=310
Relevance: moderate

The increased standard deduction affects charitable planning, because many people will get no benefit from itemization.  (The limited SALT deduction also reduces itemizers.)  The article recommends bunching deductions into one year, possibly using donor-advised funds.  Clients could also consider qualified charitable distributions form their IRA, basically sending their required minimum distributions to charity and avoiding the taxes (basically getting a tax deduction for the contribution).  Of course, they could also donate appreciated stock and avoid capital gains.  (p. 17)

“Many Hybrid RIAs are Hiding 12(b)-1 Fees”
by Tracey Longo
Financial Advisor, December 2018
Relevance: moderate

An SEC report says that many hybrid advisors are selling expensive mutual funds and failing to disclose their 12(b)-1 compensation.  A voluntary self-reporting deadline has passed.  (Did we not already know this was going on?)  (p. 18)

“Hybrid RIA Channel Increasingly Viewed as Attractive Business Model”
by Jeff Schlegel
Financial Advisor, December 2018
Relevance: low

Cerulli Associates says that the hybrid model is growing faster than other models, when measured in assets under management.    (p. 20)

“Financial Lit 101”
by Karen DeMasters
Financial Advisor, December 2018
Relevance: moderate

Champlain College in Burlington, VT rated the 50 states and the District of Columbia on basic financial education—and Alabama, Missouri, Tennessee, Utah and Virginia received A grades because they require students to pass a 6-month course on personal finance in order to graduate from high school.  (p. 22)

“Books of the Year 2018”
by Nick Murray
Financial Advisor, December 2018
Relevance: moderate

It’s kind of cute; every year, old sales warhorse Nick Murray (“You don’t have to know how a watch works to sell a watch”) gets to fancy himself a thought leader in the financial services space, with very deep book recommendations and a promo picture that never, year to year, ever ages.  He REALLY likes Howard Marks’s “Mastering the Market Cycle,” and also recommends Hans Rosling’s “Factfulness: Ten Reasons We’re Wrong About the World—and Why Things Are Better Than You Think.”  Ken Langone’s “I Love Capitalism!”, “The Authentic Swing” by Steven Pressfield; Chris Nashawaty’s “The Making of a Hollywood Cinderella Story,” John Carreyrou’s “Bad Blood: Secrets and Lies in a Silicon Valley Startup,” Meghan O’Sullivan’s “Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America’s Power,” Robert Kurson’s “Rocket Men: The Daring Odyssey of Opollo 8 and the Astronauts Who Made Man’s First Journey to the Moon” are also recommended.   (p. 29)

“The College Cost Crisis”
by Dorothy Hinchcliff
Financial Advisor, December 2018
Relevance: moderate

Total costs for a college education at 4-year schools ranges from $100,000 to $300,000—so for three or four kids in the family, the amount that would need to be set aside is half a million to $1 million.  This is a big financial planning challenge.  And it addresses another problem: student loans reached $1.52 trillion in September, up 500% over the last ten years.  The article says that many families have no idea whether they can afford to send their child at the time the acceptance letters roll in.  Better to have this conversation when the kids are freshmen or sophomores in high school, and set a budget before they even look at colleges.  A rule of thumb: never take out more in student loans than you think you’re going to make in your first year out of school.   Schools expect parents to pay 20-25% of their adjusted gross income for college expenses, which means most take out loans.   (p. 33)

“Three Ways to Get Referrals”
by Russ Alan Prince and Brett Van Bortel
Financial Advisor, December 2018
Relevance: low

The article says the best sources of referrals is centers of influence.  Decide which professionals to associate with, understand their business model and help them grow their practices.  Meet with these other professionals at least once a month, and provide “thought leadership.”  The article says that you want to source clients worth millions or worth billions.  (p. 39)

“Ignore Generation X Clients at Your Own Peril”
by Gail Graham
Financial Advisor, December 2018
Relevance: moderate

The author says that in your zeal to serve baby boomers, you’re ignoring Generation Xers—people aged 37-55, who need help right now.  Get ready for generalizations: they have high debt loads, higher projected living expenses in retirement, are highly entrepreneurial and most of them don’t use a financial advisor.  They have low savings rates. 

To serve these people, start with a cash flow analysis, and skip the retirement and savings assumptions.  You want to help them automate savings and make paying the bills simple.  Charge hourly or retainer fees rather than AUM, because many of these clients don’t have large portfolios.  (p. 41)

“Capitalizing Beyond 401(k)s”
by Eric Rasmussen
Financial Advisor, December 2018
Relevance: low

Captrust, in Raleigh, NC, is acquiring wealth management firms who will bring in 401(k) assets.  Founder J. Fielding Miller has come a long way from his cold-calling days at Interstate/Johnson Lane, and traveling all over the state, Music Man style, signing up customers on the backs of trucks.  The firm charges fixed fees, maybe $60,000 a year to administer a $5 million plan.  There are some million-dollar relationships, and the participants can choose from between 15 and 18 different funds from a record-keeper like Fidelity.   The article complains about all the compliance issues—you have to document everything in case you’re dragged into court.

The firm bought seven advisory firms in 2017, three more in 2018 and there are letters of intent for two more.  The goal is to buy additional firms in the same cities and to pair them up.  The advisors who agree to be acquired are looking for “vision and scale.”  (p. 44)

“Fishing for Value Overseas”
by Jerilyn Klein Bier
Financial Advisor, December 2018
Relevance: low

International value managers are trailing the U.S. market returns, but they think the cycle may be turning.  The article mentions the Causeway International Value Fund, the IVA International Fund and IVA Worldwide fund, First Eagle Overseas fund, and the Buffalo International Fund.  (p. 50)

“Putting on the Calls”
by Christopher Robbins
Financial Advisor, December 2018
Relevance: low

This is about using options and products that use options in client portfolios.  SpiderRock is a Chicago-based tech-driven asset management offering customized options strategies to advisors and institutions.  Eric Cott, of the Options Industry Council, says that advisors and retail investors are turned off by the strategies, but in an era where most investment management can be easily replicated, advisors can get a leg up by introducing these complicated strategies.  And isn’t the market becoming more volatile lately?

The article says that many clients are over concentrated in U.S. equities, and if we get an inverted yield curve, it could negatively impact the markets.  One option is collaring, “the best of both worlds,” we are told, where you can participate in the upside but protect on the downside.  There are put-writing ETFs, but readers are urged to run options strategies that are customized to each client, so you can manage the tax consequences.  (p. 52)

“Waiting for Better Values”
by Marla Brill
Financial Advisor, December 2018
Relevance: low

A profile of the Berwyn Income Fund.  (p. 56)

“Universal Life insurance: Past its Prime?”
by Ben Mattlin
Financial Advisor, December 2018
Relevance: low

UL policies sold in the high interest rate environment of the 1980s have disappointed, and UL is not the best option for most clients today.  The returns are linked to interest rates, which has been painful for universal life policyholders.  Carriers were forced to raise premiums, on top of the rise as the policyholders aged.  Because of the flexible premium options, many policies were underfunded.  Policies, once sold, should be monitored with some expertise—but the agents who sold the policies are long gone.  The article talks about guaranteed universal life, variable universal life and variable policies with secondary guarantees.  Indexed universal life function like index annuities.  We are told that this is an “underutilized solution” for clients.  (p. 59)

Leave a Comment