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Beyond the Basics
By Bob Veres
September 21, 2011
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At the FPA Convention ("Experience") in San Diego last week, I mostly sat in on the investment and portfolio drawdown sessions since those were the closest to the nouveau-investment agenda at the national conference that we're creating in October. (Oct. 13-15; you can find the details here: http://www.signupforconference.com/.)
My experience confirmed two things. First, there seems to be a lot of new thinking about investing these days; even the speakers who were buy-and-hold advocates recommended that you tweak the policy portfolio based on current economic conditions, and some -- like Bryce James of Smart Portfolios in Seattle -- touched on investment technologies that I suspect few advisors have ever heard of.
But the second thing the experience confirmed was that the FPA staff appears to have sent mixed messages to the presenters. Over and over again, I was told things like: diversification is really important in an investment portfolio -- and then the speaker would explain diversification. Or: annuities are a way to create certainty in retirement distributions -- and then the speaker would explain annuitization.
In other words, the speakers appear to have believed (were they told?) that the professional advisors in the audience might be unfamiliar with even the most rudimentary aspects of their craft. Somewhere along the way, they got the idea that this was a very VERY unsophisticated audience they were presenting to.
I don't know about you, but every time a presenter has to stop himself and interrupt the really good stuff to provide an explanation of basic concepts like diversification, annuitization and the fact that drawdowns can deplete client portfolios before they die, I find myself gritting my teeth. And, from the look of it, the speakers were also aggravated by what they perceived as the necessity of “dumbing down” their presentations.
At every conference, you hear from advisors who tell you airily that all the sessions were "too basic," and what they are really doing is boasting about their own intelligence and sophistication. But here, I think, we have an ongoing situation where somebody (FPA staff? Conference committee?) seems to believe that every presentation has to be dumbed down to a lowest common denominator that I don't think exists in the profession.
I can envision the speakers running their presentations by somebody on staff, who is not an advisor, and if the non-advisor staff person is confused by such terms as "annuitization" and "diversification," the speaker might be told that it would be a good idea to explain those complicated concepts.
As it turns out, I got some good content from several of the breakout speakers -- which I'll be covering in detail in my newsletter -- including a nice presentation from Russell Investments on how to use valuation and economic data to tweak your policy portfolio (average boost to returns: an amazing 50 basis points a year) and a discussion of currency issues by Axel Merk that suggested (as I've written elsewhere) that there is no longer a risk-free rate of return that you can plug into your formulas.
Merk also talked about the "conversations" between policymakers in Europe and the U.S. and their respective bond markets, which are dictating policy decisions in a way I'd never thought about before.
This good material reflects well on the FPA, but I think they could greatly enhance the attendee experience with one little tweak in their preparations.
They should trust their professional audience, which understands these basic issues even if the staff does not.
Does that make sense? Please tell me what you think.
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Contact Bob Veres at Bob@BobVeres.com. For more information about the Business & Wealth Management Conference (October 13-15), and what may be the best lineup of investment speakers in the profession, go to http://www.signupforconference.com/.
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?
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.
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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