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BLOGSconVERESations
Difficult Times Demand More Sophistication
By Bob Veres
August 19, 2011
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I delayed writing this ConVERESation because I was watching the down day on Thursday where the indices gave back most of the gains in this up-and-down summer mania. I wanted to find the right thing to say, but it turns out that there's a LOT to say:
-- This is one of those periods when emotions rule asset prices and any effort to invest rationally is doomed from the start.
-- The global political leaders and voters are interfering in the complicated process of cleaning up our European and U.S. debt messes in a way that boosts rather than harms the fragile new shoots of economic growth.
-- Your best work in these markets is not agile trading but keeping your clients from joining the herd, the people who, lurching from panic to panic, will inevitably find ways to buy high and sell low and sabotage their returns by giving in to the emotion of the moment.
I'm reading the economic reports written by economists and astute observers like John Mauldin, Robert Shiller, Mohammed El-Erien and others (you can find most of this on http://www.project-syndicate.org/, which collects economic commentary) and was once again struck by how much more informed and sensible their evaluations are than what the average consumer is getting in the press reports.
And then it hit me. These reports are also orders of magnitude more sophisticated than what we are hearing in our professional conferences.
Why?
I think we're being victimized by another kind of economics. The press and the people who put on our conferences want to attract the broadest possible audience, which leads to a kind of race to the bottom. Who can do the best job of appealing to the (more populous) low-end of the planning profession? Who can dumb the news down so that it's digestible by the person who has trouble spelling (or pronouncing) macroeconomics?
Unfortunately, this affects the quality of our debates. Your clients are exposed to an echo chamber which does little more than convey the current mood of the herd, along with speculation on what is spooking it. Our politicians hear from voters whose understanding of the U.S. economic policy framework has been dumbed down to: "debt is bad," and "maybe we can eliminate government debt by reducing foreign aid."
The race to the bottom at professional conferences can greatly affect the average attendee's conference experience since (my estimate) roughly 70% of the benefits of attending a national meeting lies in the interaction with other advisor attendees.
At a conference that specifically targets the most thoughtful (and difficult to please) upper 10% of the profession, you would get fantastic hallway conversations at every turn. At a conference that tries to convince an insurance salesperson that he's a financial advisor, you get a less satisfying dialogue.
I actually didn't make up that analogy.
An upcoming national conference this fall has apparently hired people to make phone calls to drum up attendees. One of them called me, apparently not realizing that I'm not an advisor.
I decided to have a little fun (and also get him off my back), so I told the earnest young man on the other end of the line that all I did in the financial services world was sell equity-indexed annuities that offered the highest commissions, mostly to older people whose sales resistance was low.
I thought that would make him go away. Not so!
The telephone solicitor reminded me that I was indeed part of a larger community of financial advisors and this meeting would be relevant to me as well. In the course of our conversation, it became abundantly clear that he didn't really care whether the attendees of his conference were real advisors: he (and the organization that bought his services) wanted bodies, preferably warm ones.
Make no mistake. We are going to sail through a lot of these volatile periods over the next five to 10 years and the profession needs to brainstorm better ways to deal with them that won't harm clients and their investment goals. We need to better understand what's going on. And consumers deserve to be told more than just which way the wind is blowing today. Our political debates require more informed voters.
The deeper and better our conversations, the more likely we'll all get out of this difficult economic period undamaged. As a journalist, as a conference presenter, as a manager of an annual conference, I pledge to take up this challenge in the years ahead -- as I think I've tried to do in the past.
While the recent FPA Convention provided some new and very interesting presentations and introduced some pretty high-brow concepts, Financial Planning columnist Bob Veres felt far too many of the presentations were bogged down by speakers who decided -- or were compelled -- to “dumb down” the material to appeal to the lowest common denominator. What did you think?
Ahead of next month’s Business & Wealth Management Forum in Chicago, it’s time to start asking some big-picture questions. For example, how could our profession have a bigger political impact than we do today and if there are better ways to add value than simply tending client portfolios?
I think we all know that the financial planning profession is drowning in paperwork and the problem is only going to get worse. This vexing -- and increasing -- compliance hassle is generating a certain amount of frustration in the profession, and most of the people I talk with don't know where to turn. So who speaks for the planner?
How do you talk to your clients about the debt ceiling and budget battles when so many people are strongly -- perhaps not always rationally -- on one side or the other of the political divide? Suddenly, loss of confidence in our country's legislative and executive leadership is driving loss of confidence in the markets and it seems the two are now linked in ways that we may never have seen before.
I think we as advisors are going about our lobbying effort all wrong. More to the point: does it make sense for us to keep lobbying on behalf of the consumer or should we act like everybody else in the universe and lobby for things that would better serve our own interests?
Lately, I've seen more and better thinking about asset management than you could find in the previous 20 years in the profession and I think it may be time to give modern portfolio theory a makeover. In fact, I think this fits a long-standing historical pattern.
I may be opening up an old wound here, and if I am, I hope you'll forgive me. But I find myself wondering about all the ways that the interests of a broker-dealer differ from the interests of its affiliated advisors. I've never seen this explored anywhere.
I have a lot of pet peeves but one of my biggest is how we, as a profession, tend to define other professionals by one number: their assets under management.
To me, the most interesting event of the year, so far in the financial planning space, is the Schwab organization's new Independent Branch Services initiative. The gist of it is that Schwab's retail division is looking for experienced advisors to come in and transform their practices into Schwab branch offices on a franchise basis.
I've put on my annual to-do list that sometime this year I'll create a Facebook page, and Lord help me, I may even start twittering before long. This means I'm about to stick my toe into the dreaded Social Media world.
The time and energy that the advisor focuses on the client produces far more terminal wealth for that client than anything you can get from the traditional investment management services.
The royal wedding, eliminating the notorious mastermind of the Sept. 11 attacks--this is going to be a week to remember forever. But I also wonder whether it might represent another milestone.
I have a very simple question to ask all of you. Suppose, by some miracle, that you were given an extra two hours a week to spend in your office. How would you spend that time?
Some advisors are averse to even DISCUSSING the value of portfolio management, possibly believing that we all spend too much time talking as if financial planning and portfolio management are the same service--which they clearly are not.
What portfolio management activities provide the MOST value for your time/money/energy/attention, and which activities provide the LEAST value for your time etc.?
One of the most interesting things to come out of this conversational thread about the regulators is the amount of fear advisors are expressing about speaking openly.
The current SEC inspection and audit process is kind of silly, at best, and a waste of resources, at worst. FINRA's process, from what I've been told, makes even less sense. But what can we do to improve things?
I see a lot of advisors who get very little interaction with the sponsors, and there is little in the design of today's exhibit halls that encourages that interaction--and THAT was my point.
One of the biggest wastes of time and talent that I see in the financial services industry is something you probably take for granted: the conference exhibit hall.
The more you hear about the SEC examination process, the more you realize that the examiners can't quickly recognize the honest advisors from the crooks, and are generally more interested in finding fault with the honest advisors than identifying the crooks.
It seems we have reached the absolute bottom of the barrel in terms of regulatory efficiency. If the SEC is spending weeks on trivial issues and completely missing Bernie Madoff then it is clear that something is seriously broken.
Having attended hundreds of practice management and motivational sessions at various conferences over the years, it has become clear to me that most of our roadblocks to business and personal success are (get ready to wince) self-created.
There seems to be a lot of "energy" (and sometimes anger) around the idea that some people provide full-service financial planning and some people call themselves planners while actually selling products or managing assets for a living.
We call this the "financial planning profession," right? So here's a topic for discussion: how is it that many people calling themselves a financial planner don't actually do financial planning work for their clients?
The community really needs to know if you are (or are not) satisfied with the service you're receiving, and how it has (or has not) helped you focus on your direct client services.
One of the postings after a recent chat has started us all on a discussion of another possible way to handle this macroeconomic chore: Actually do your own evaluation of the markets and decide whether to be in or out.
Ever since September 2008, clients are asking for more than you can possibly deliver: to keep track of the macro-economic big picture and help them get out of the market as soon as we start moving into another meltdown period. So the question is: How can we possibly respond to these lofty expectations?
The financial planning community has a lot of knowledge and wisdom – way more than any individual writer or commentator. But how do we tap the deep wisdom of the crowd to help us resolve important, complicated issues? Bob Veres, a columnist for Financial Planning magazine, is here to trigger conversations on important topics for advisors on issues and subjects facing the industry. First up: The regualtory standard.
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