Insights into the world of high- and ultra-high net worth investing
July 21, 2009- Vol 3, Issue 29
When investing for retirement over
long time horizons, advisors can choose from two apparently conflicting approaches. They can follow
the advice of Wharton professor Jeremy
Siegel, who has steadfastly advocated equity-centric portfolios, most notably in his highly
popular book, Stocks for the Long Run.
Or they can listen to Boston University professor Zvi Bodie, who says equities are simply too risky over the long
term, and the core of a retirement
portfolio should be Treasury Inflation Protected Securities (TIPS).
Geoff Considine's article shows how to resolve this conflict.
some, breaking the ice when meeting someone new is a daunting task.
Many advisors have confessed to Dan
Richards that they are not natural salespeople and aren't comfortable
talking to people they don't know. Here are three keys to networking effectively when
you're in a setting where you're meeting new people.
New financial services regulation will touch on many areas, and mutual fund evaluation and monitoring is
one likely candidate. Over the past two decades, screening has been at the core of most mutual fund
evaluation processes. The advisor picks the
criteria, sets a minimum or maximum level for each, and comes up with a
list of funds that survive all screens. Bob Padgette and Ted Ponko of
Klein Systems demonstrate several
inherent flaws in this process.
On July 17, 2009, the Securities Industry
and Financial Markets Association ("SIFMA") announced
that its Private Client Group Steering Committee unanimously supports a new federal fiduciary standard for broker-dealers
and investment advisors, embracing a proposal advanced by the
Obama administration a week earlier in a draft of the "Investor Protection Act of 2009."
Ron Rhoades looks at whether this shift in direction by SIFMA, the lobbying
arm of many broker-dealer firms, poses a radical change in business models
for broker-dealer firms and their registered representatives, or whether
the "new federal fiduciary standard" is something else, in
Without technology and automation, compliance
will consume valuable time and resources. Even when things go
relatively well, important regulatory obligations and requirements often
fall through the cracks. William Mulligan of HedgeOP argues that getting the right tools in place doesn't just
simplify a firm's regulatory responsibilities; it also sends a strong
message to clients that the firm is trustworthy, operationally
sound and up-to-date with its fiduciary responsibilities.
Each quarter we analyze changes in the
Advisor Perspectives database - a $50+ billion universe of high-
and ultra-high net worth assets managed by Registered Investment Advisors.
Our analysis has three parts. We look at changes in asset allocation, the performance of the most popular mutual funds,
and the mutual funds that showed
significant gains or losses in popularity during the quarter.
In a letter to the Editor, a reader
challenges some of the findings reported several weeks ago in an
article, Compelling Evidence that Active
Management Really Works.
Lastly, we highlight submissions to Advisor
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Jeremy Siegel and Zvi Bodie cannot both be correct. Understanding
which approach is best for long-term investors, however, requires an
analysis of the subtle risk and return tradeoffs an investor faces. A
sophisticated Monte Carlo
simulation reveals how to reconcile these apparently conflicting conceptual
The Retirement Portfolio Showdown:
Jeremy Siegel v. Zvi Bodie
Easy Steps to Effective Networking
For many of us,
the key when meeting new people is to get outside of our comfort zone and
engage them in conversation. The next time you're in a situation like this,
consider giving this three step process a try.
Three Easy Steps to Effective
When you look at
how a mutual fund is managed, you expect the fund manager to constantly
evaluate the process it uses to evaluate assets and sectors. Would you
be confident recommending a fund manager who simply stuck to a time-worn
process regardless of its results? Of course not, and your clients
shouldn't expect any less of you. Regulatory changes will soon force
us to address these issues, but now is the time for proactive advisors to
initiate changes that will put them in the driver's seat.
Change or be Changed
SIFMA's Proposed "New Federal Fiduciary
Standard": Consumer Protection - or "A Wolf in Sheep's
SIFMA's embrace of the language contained in the Investor Protection Act of
2009 seeks to abandon the principles-based regime of fiduciary standards of
conduct, a regulatory scheme which grew out of the financial abuses of the
1930's and which has been developed through both legislation and court
decisions ever since, and return to a far less rigorous standard.
SIMFA advocates a standard of conduct that does not rise to the level of
fiduciary protection of consumers, even though it is called a
"fiduciary" standard of conduct.
SIFMA's Proposed "New Federal
Fiduciary Standard": Consumer Protection - or "A Wolf in Sheep's
Taking Care of Compliance
Creating a streamlined system for compliance demonstrates that assets
placed in your care are being handled prudently and that your business
activities are managed responsibly. Today's clients are suspicious and
wary. Firms that build a culture of compliance will have an edge attracting
Taking Care of Compliance
Changes in the Advisor Perspectives Universe
During the second quarter of this year, advisors shifted aggressively out
of cash and fixed income and into equities. Among the actively managed
mutual funds used by advisors, foreign equity funds continue to outperform
a broad-based benchmark, as do US equity funds (albeit by a smaller
margin). One of the funds with significant gains in assets was the
Vanguard TIPS fund, as it was in the first quarter of this year.
Changes in Asset Allocation
Q2 2009 Performance among the Most
Popular Mutual Funds in the Advisor Perspectives Universe
Changes in the Most Popular Mutual
Letter to the Editor Compelling Evidence that Active
Management Really Works
A reader challenges some of the assertions in Ken Solow's article on active
Letter to the Editor Compelling
Evidence that Active Management Really Works
Highlights from Advisor Market Commentaries
Harold Evensky of Evensky & Katz is
feeling better about our collective financial future then I have in awhile.
Although black swans still surround us the green shoots seem to be slowly
winning the day. So, with finger (and toes) crossed he launches into this
issue a bit more optimistic than he was only a few moths ago.
The Last Word - Post Madoff
Cliff Draughn of Excelsia Investment
Advisors writes that in June of this year, our unemployment rate
reached 9.5%, a 26-year high. As he predicted in January, the high rate of
unemployment, combined with an increase in consumer savings (versus
spending) by those who are working, is creating little if any revenue
growth for US corporations. At this time any improvement in profitability
for Q3 or Q4 of 2009 by corporate America will come from cost cutting, which will result in
additional unemployment. Long-term, companies cannot cost cut to renewed
profitability, and at some point top-line sales must increase to restore
GDP growth. Therefore, his outlook is for reduced corporate earnings growth
for Q3 and Q4 of this year versus 2008, which will be disappointing to the
Simple Rules for Complex Times
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