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Financial adviser

Proper Expectations!!

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There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.

Who will win the presidential election?

How will the crisis in…well you name it affect the equity markets?

Will inflation take hold?

Will interest rates rise?

And the list goes on and on…

The talking heads on television need these predictions to keep viewers watching, which in turn increases advertising revenues.

Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions.  These decisions will in most cases result in very disappointing performance.

If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.

By developing a prudent investment process and sticking to it. You will realize a successful investment experience. This means at times not performing well compared to others.

As an example in the mid-1990s the U.S. Large cap growth stocks, especially tech stocks, were posting outstanding returns year after year. Investors were pouring money into the ‘can’t miss’ tech stocks. Warren Buffet, on the other hand was sticking to his process. His returns fell far behind the tech stocks.

In 1999 many growth mutual funds were showing stellar performance of 80% 90% and even 200%. Mr. Buffet on the other hand showed a negative 15%, yes a loss. It was said his time was over. He had lost his touch with reality. Time had passed him by. The tech industry was the new paradigm.

Then the tech bubble burst devastating investors. These investors had concentrated their money into one hot asset class, tech stocks. They lacked diversification. They were looking for the next ‘killing’ and lost.

Mr. Buffet on the other hand flourished. His time was not over. Because he had a process he believed in and he remained disciplined, he succeeded, long term.

Before you say ‘why not just invest with Warren Buffet? On its own, his fund is very volatile. More volatile than most investors can stand.

The point is a prudent process and discipline will lead to successful long term results.

Proper expectations are the key to investing with Peace of Mind.

Do not expect to predict or forecast stock prices and movements.

Do not expect to pick winning stocks and beat the market.

Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight.

If you expect the impossible you will be frustrated, unhappy and fearful.

All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get closer to and into retirement.

To succeed in reaching your long term financial goals you should:

Own equities….globally diversify….rebalance.

Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.

“DISCIPLINE is the soul of an army. It makes small numbers formidable; procures SUCCESS to the weak, and esteem to all.” -George Washington

Are You Investing or Speculating?

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During conversations with investors and financial professionals I hear of the hot adviser who beat the market. They made money throughout the ‘great recession’. They are a Chartered Financial Analyst CFA or some other designation that ‘proves’ their ability to beat the market. They have the system to make money in futures, options, gold, real estate and/or other alternative investments.

English: CNBC’s “Mad Money with Jim Cramer” ca...
English: CNBC’s “Mad Money with Jim Cramer” came to Tulane University’s Freeman School of Business Oct. 19, 2010 to broadcast in front of a live audience as part of the show’s “Back to School Tour.” (Photo credit: Wikipedia)

These ‘hot’ analysts claim they can pick the right stocks to beat the market. If you look at celebrity stock pickers like Jim Cramer and look at his track record you will realize how poor his picks are. And yet people continue to watch him and take his advice. He continues to make bold predictions. He sounds very confident.

During my studies of investing strategies over the last twenty years I have learned trading strategies work until they don’t. When they stop working it gets real ugly real fast.

Just because someone else got lucky doesn’t mean you will.

If we offered you a million dollars to play Russian roulette with a gun containing one bullet and five empty chambers. You would be a fool to ignore the chance of blowing your brains out. Every day in the world of investing, someone takes a foolish gamble, gets lucky, and wins big.  When investing, you must always consider the sum of all probable outcomes, including the bullet in the chamber.

IF you are saving for a long term goal, like retirement or college for your kids or anything that is important to you, follow a prudent strategy.  Or if you are already in retirement a prudent strategy is a must. In all cases you should follow a strategy which is backed by academic research. This research should use as much data that is available in order to eliminate any chance of bias.  There is data going back to 1927 for many asset classes. Now that is what I call long term.

To succeed in reaching your long term financial goals you should, buy equities……globally diversify….rebalance.

Allow the equity markets to work for you. In most if not all cases it requires the help of an investor coach/fiduciary adviser.

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Real Control is More Important Than Perceived Control.

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Brokerage firms create the illusion of “control” by encouraging investors to generate activity – frequent buying and selling. Remember the TV commercials with the talking baby who trades stocks?

This brokerage firm is giving the illusion that even a baby can follow simple rules to successful stock picking. The illusion is that you can pick your own stocks better than professional money managers.

It turns out neither can predictably or consistently pick the “right” stocks. Remember there are three signs that you are gambling and speculating with your investment dollars:

  • Stock picking.
  • Market timing.
  • Track record investing.

In a similar fashion, gamblers feel more in control of the outcome when they actively pull the arm of a slot machine. Activity is not control. Buying and selling often feels “good” and proactive.

In reality, most activity with regard to investing is counterproductive.

Many get frustrated with their adviser because they are not always making them money. Many of us expect our adviser to be moving our money from poorer performing stocks or funds to the best stocks or funds.

In talking with other advisers I have learned that some will review actively managed mutual funds. The criterion is to watch performance on a quarterly basis. If the fund manager under performs for 2 or 3 quarters they will replace the manager with the ‘current’ hot manager.

Essentially what they are doing is buying high and selling low. I wonder how their clients like this strategy.

Even worse these advisers will look at under performing asset classes and sell them and buy the ‘hot’ asset class. Another example of buying high and selling low. No wonder the financial services industry has a bad reputation.

An investor coach will build a globally diversified portfolio. Once built they will follow this prudent strategy. Most importantly will keep their clients and themselves from making an emotional change to their portfolio when the economy or whatever is going against them.  A prudent process and discipline to that process will guide you to a successful outcome in the long term.

Remember you will be retired for a long time. You need an investor coach/fiduciary adviser to keep you focused and centered.

To succeed in reaching our long term financial goals we must

  • Own equities and high quality short term fixed income.
  • Globally diversify.
  • Rebalance.

Remember sometimes rebalancing means buying poor performing asset classes and selling better performing asset classes.

In 2014 the S&P 500 was the best performing asset class by far. To succeed in investing you must be capable of selling the S&P 500 and buying the poorer performing asset classes. This of course is just an example. You must remain globally diversified.

Making changes to your portfolio based on short term volatility will result in disappointing long term performance. The difference may be a successful vs an unsuccessful retirement.

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Biased financial advice is shockingly common, but investors don’t take the unbiased stuff

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Most investors do not realize the conflicts of interest they have with the brokers and agents that sell them financial products. In most cases these products benefit the broker or agent and their companies. Investors would be much better off seeking an adviser who is willing to serve as a fiduciary to them. A fiduciary adviser must put the interest of the client first.

Investor-Relations-auf-Facebook
Investor-Relations-auf-Facebook (Photo credit: koesteran)

 

Advisers who get paid for the products they sell tend to harm their clients’ portfolios, two studies suggest. These advisers appear to make our biases worse.Unbiased financial advice exists. But investors who need it most don’t seek it, a third study shows. Investors who do rarely follow it. And those who do follow it need the advice the least.I’m not sure what to say about all this other than it’s time we all woke up. Regulators, employers and advisers can do more to protect our savings from biased money managers. But a whole lot of our success hinges on us.

via oregonlive.com

Investors should look for advisers who are willing to be a fiduciary to them. In other words they will only recommend what is in the best interest of the client.

Please comment or call to discuss how this affects you and your investment portfolio.

Posted via email from Curated 401k Plan Content

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Common Mistakes Plan Sponsors Should Avoid

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English: The Court of Chancery: This engraving...
English: The Court of Chancery: This engraving was published as Plate 22 of Microcosm of London (1808) (see File:Microcosm of London Plate 022 - Court of Chancery, Lincoln's Inn Hall.jpg). Русский: Канцлерский суд Великобритании. Лондон, начало XIX века. (Photo credit: Wikipedia)

Many plan sponsors do not realize te importance of this benefit to their employees as well as themselves. Many do not realize the fiduciary responsibilities and risks that are involved in offering a qualified plan to their employees. Many times plan sponsors rely on insurance salespeople for this valuable service. They do not realize that their broker or agent cannot provide fiduciary services.

Not Hiring a Financial Adviser Plan sponsors should always enlist the help of an adviser, Ary Rosenbaum, managing partner of The Rosenbaum Law Firm P.C., told PLANSPONSOR. Aside from purchasing fiduciary liability protection and hiring a competent third-party administrator (TPA), Rosenbaum said, there is no better protection for liability than hiring a knowledgeable adviser.

“As long as you have an employee … you need to hire a financial adviser,” he said. “It’s impossible for the plan sponsor to do that all on their own.”

Plan sponsors must keep in mind that the role of a plan adviser is not just choosing investments, he added.

Not Caring What Participants Are Paying  

Rosenbaum likened this to choosing the most expensive item on the menu because someone else is footing the dinner bill. It is still the plan sponsor’s responsibility to find an affordable plan.

“Plan sponsors have to find out whether the fees being paid are reasonable or not,” Rosenbaum said.

Litigation can arise if the participants think they are paying unreasonable fees, and plan sponsors should especially be aware of this in the wake of August 30participant fee disclosure regulations, effective August 30  (see “Plan Sponsors Should Not Delay Preparing for 404(a)(5)”).

via plansponsor.com

Everyone needs help with fiduciary decisions. These decisions should not be made emotionally nor because of a sense of loyalty to your bank or personal adviser.

Please comment or call to discuss how an independent fiduciary can protect you and help your employees successfully retire.

Posted via email from Curated 401k Plan Content

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Is Human Nature Hurting Your 401(k)?

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Thank goodness people have emotions, life would be unbearable without them. However, when investing for your financial future emotions can be very costly. We all watch TV, listen to all media sources that are playing on your emotions. You need someone managing your investments and your emotions for you to succeed long term.

Asset Allocation on Wikibook
Asset Allocation on Wikibook (Photo credit: Wikipedia)

Choice conflict leads to choice avoidance. Translated, this means that having too many choices often leads to inaction. This is all too true in the 401(k) world. Many plans offer too many investment choices, leading participants to do nothing. Plan participantsoften feel overwhelmed by having to direct their own investments. Add a large number of choices and you have a formula for inaction. In today’s world, this often means that many participants are defaulted to a target-date fund or some other default option. This may or may not be the appropriate choice for their situation.Inertia is the norm. According to the professor, most employees have the same asset allocation as the day they started work. As an adviser to a number of plans, this has been my experience as well. Participants rarely change their allocations, even as they age. If fund A is replaced in the lineup by fund B, you rarely see money move into or out of the new fund. An allocation that was appropriate at 35 is likely not appropriate for that participant at age 55.

Taking charge of our own retirement savings and investing is a daunting task. If you see the traits outlined above in yourself, consider some ways to take charge of your 401(k) plan:

–Consider using an advice option if offered by your plan. This might be in the form of online advice, via telephone, or in person.

–Managed accounts, which generally allocate the plan’s existing funds into portfolios that fit various levels of risk, are gaining in popularity.

–Engage the services of a financial adviser. A professional should take a broad view of your overall financial situation and advise you on how to invest your 401(k) account as part of that process.

via finance.yahoo.com

There is a saying about portfolios ‘your portfolio is like a bar of soap the more you touch it the smaller it gets” The opposite is also the case, most employees set it and forget it. 401(k) Plans can become more ‘pension fund like’ and allow investment professionals make the investment decisions for participants and employers.

Please comment or call to discuss how this would affect you and your company sponsored retirement plan.

Posted via email from Curated 401k Plan Content

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Why your employees may balk at their 401(k) fees

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Most plan sponsors are unaware of the scope of fees that the plan participants pay for their 401(k) plan. This will be a game changer for many [lan providers as pln participants become aware of fees later this year. Remember higher fees result in lower returns and lower retirement accounts. Not all fees are created equal, in that some add no value to the plan.

English: Mondeaux (Mondo) Dam - Westboro, Wisc...
Image via Wikipedia

The individuals responsible for the plan will need to first understand the fees. Here are some of the main types of fees that 401(k) providers commonly charge:●Recordkeeping and administrative fees: This is what the provider charges to keep track of participant accounts and process their transactions. These fees also typically include services to keep the retirement plan in compliance.

●Investment adviser fees: Some plans have an independent adviser select and monitor the plan’s investment options.  These fees cover the adviser’s services.

●Expense ratio: This will usually be the largest component of plan fees. Most plans utilize mutual funds that will have expenses associated with them. Investment companies charge a fee to run the funds, and they generally take a certain percentage off the top. But built in to those fees can be other fees paid to third parties, arrangements loosely known as revenue sharing.

via washingtonpost.com

Many plan sponsors are unaware of the fees charged their employees. Many believe that their plan is free with no administrative costs to them. This will become clear when the new regulations become effective later this year.

Please comment or call to discuss how your plan compares to your peers.

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DOL fiduciary crackdown on retirement advisors underway

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Far too many financial advisors have sold 401(k)s as a lead generation tool. The 401(k) is a by product of their ability to sell high commissioned products to plan participants. Plan sponsors should be aware that allowing this action is another way of endorsing it. This could result in fiduciary liability. The 401(k) is far too important of an employee benefit to allow this. It is a benefit that must stand on it’s own.

English: Logo of the United States Department ...
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So far this year, the Department of Labor’s Employee Benefits Security Administration has significantly raised its enforcement efforts in what Andy Larson, director of the Retirement Learning Center, said should serve as a wakeup call to advisors who advise retirement plansand plan sponsors.In 2011, EBSA said it had closed 3,472 civil cases and obtained monetary results of nearly $1.39 billion. EBSA also closed 302 criminal cases that resulted in 129 individuals being indicted and 75 cases being closed with guilty pleas and/or convictions. DOL also wants to increase the number of its enforcement personnel from 913 to 1,003 this year.

Larson called those EBSA enforcement numbers “astonishing,” and warned that many advisors are surprisingly still unaware that the DOL has jurisdiction over them.

via benefitspro.com

Most plan sponsors and retirement advisers are unaware of the focus by the DOL. As stated in this article most advisers are unaware that the DOL has jurisdiction over retirement plans. As the retirement crisis becomes more evident more focus will result in more audits and consequently more fines.

Please comment or call to discuss how this affect you and your company.

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Why Variable Annuities Have No Place in Your 401(k) Plan

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Variable annuities are another way for insurance companies to hide unnecessary fees from plan participants. Many of the features when viewed over the long term are unnecessary and hurt performance. The complexity in these annuities does nothing but confuse plan participants and are might to feed their fear. In other words they help sell more insurance.

Image via Wikipedia

Annuities can make sense for a part of your portfolio especially as you reach retirement and you are looking for some stability to your income stream, but not in your 401(k).  The costs and issues in managing a 401(k) plan in your employees’ best interest far outweigh the need for providing annuities in any company’s retirement plan.

via forbes.com

When you consider all the fees involved in any annuity the benefit to the investor is very small and in most cases will result in a smaller account balance. Annuities are sold based on the fear of the client. Agents and brokers make money on commissions and will sell whatever the client wants at the time. An real investment adviser is not merely a salesperson. Sometimes being in the correct investments is uncomfortable but is the best for the client.

Please comment or call to discuss how this affects you and your company.

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Siedle’s Rules for Handling Financial Adviser Conflicts of Interest

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Finances
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The new fiduciary standard for all advising clients on investments will help avoid these conflicts. The question remains, why is the financial services industryso adamant about not following the fiduciary standard?

First, conflicts of interest are generally to be avoided. Why? It’s a simple matter of loyalty. You want to know that the agent you’ve hired to handle your hard-earned savings is exclusively motivated by what’s best for you and not what’s best for him or his firm. Again, conflicts result in real harm. We’re not concerned here with theoretical moral dilemmas. The concerns are improper economic incentives and divisions of loyalty that will cost you. Every financial adviser that admits to a conflict will, in the same breath, tell you that you should not be worried. Already the guy is lying to you. Don’t believe it for a minute. Conflicts are red flagsthat demand your attention. Don’t dismiss your concerns before you’ve even begun to address them.Second, conflicts of interest are to be tolerated only when they are either (1) unavoidable; or (2) the potential rewards outweigh the risks. In my professional experience, when it comes to investment products and services, rarely, if ever, are conflicts unavoidable. You can almost always find another firm with comparable pedigree and performance results that is not subject to the conflict at issue. There are tens of thousands of advisers out there and unless you’re living on a deserted island, seriously consider whether you can get the same product or service without the attendant baggage, i.e. conflict-related risk.

More likely, you may believe that the potential reward (future outperformance) outweighs the potential risk (known conflicts). That may be a valid conclusion but the question is: how did you arrive at it?

via forbes.com

Great article. The financial services industry will need to more thoroughly train their representatives on what they sell rather than how to sell more.

Please comment or call to dicuss how this affects you and your financial future.

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