Outside voices and views for advisers

Nov 16, 2017, 5:53 PM EST

'Affiliation arbitrage' is a bad reason to go RIA


By Rich Whitworth

The past several years have witnessed a surge in the number of independent financial advisers who have established their own RIAs – often motivated by the desire to achieve a form of "affiliation arbitrage." By sidestepping broker-dealer and corporate RIA affiliation fees, the thinking goes, independent advisers who choose to set up their own RIAs can maximize their profit margins. Certainly, there are valid reasons for advisers to try this. For example, having your own RIA makes perfect sense for groups that manage a substantial amount of fee-based assets, since they would likely have the necessary resources to support that effort. Other good candidates include advisers whose value propositions are principally rooted in their ability to conduct proprietary research, select stocks and put together portfolios that can outperform the market, as well as firms that may only do business in one state (though that's a rarity). Otherwise,... Read full post

Nov 15, 2017, 4:19 PM EST

Morningstar's tax-cost ratios beat its fund rankings

Tax Rate Keyboard

By Paul Samuelson

In 1973, Burt Malkiel published the first of what would become nine editions of "A Random Walk Down Wall Street." He popularized the efficient markets hypothesis, in which stock prices accurately reflect future expectations so that stock-picking mutual funds are unlikely to beat an index strategy.Empirical studies of mutual funds have repeatedly supported the theory and in turn, have dismissed the notion that past outperformance predicts future outperformance. Yet 44 years later, Morningstar still publishes star rankings, which are based on mutual funds' past performances. Recently media outlets have highlighted the star rankings' inability to predict future performance. Don't despair. This doesn't mean advisers and their clients are without dependable tools to predict how they can boost returns. Investing in funds with lower expense ratios, such as ETFs, certainly helps. Another effective method is to minimize taxes, which, studies by ... Read full post

Nov 15, 2017, 12:35 PM EST

El-Erian would be safe pick for Fed Vice Chair


By Gary E. Zimmerman

Forming consensus in Washington these days can be a tall task. Yet when it comes to the leadership of the U.S. Federal Reserve, it is important that we elevate pragmatism over politics. The void left by the retirement of Stanley Fischer from the Fed left big shoes to fill, but it is difficult to think of a better candidate to fill those shoes than Mohamed El-Erian.El-Erian has had a long and renowned career in both private enterprise and public service. He is a pragmatic investor and global thinker. Educated at Cambridge with a Ph.D. from Oxford, El-Erian became deputy director of the International Monetary Fund (where he worked with Fischer), ran the emerging markets team at Pimco, was named CEO of Harvard Management Company, and ultimately returned to Pimco as CEO and co-CIO. El-Erian also taught at Harvard Business School and served under President Barack Obama as chair of the Global Development Council.NATURAL COMPLEMENTHe is an... Read full post

Nov 14, 2017, 4:18 PM EST

To 'fix' the broker protocol, bring in the SEC


By Sharron Ash

The foundation of the Protocol for Broker Recruiting, and indeed the stated purpose, is to support client freedom of choice, to permit clients to move with their adviser when they change employment. By joining the protocol, member firms agree they will not enforce restrictive covenants, often appearing as non-solicitation provisions to employment agreements, so long as a departing rep follows the rules. These rules include taking only very limited information about clients and furnishing specific notice and information to their former employer. Since inception, the protocol has allowed for the development of a predictable, well-worn path to independence for thousands of advisers. For more than 12 years, litigation in employment transitions conducted under the protocol have been rare and the cases were typically limited to allegations of wrongdoing, such as taking unapproved client-related information. But over the course of the past... Read full post

Nov 14, 2017, 11:49 AM EST

Yes, impact investing can be profitable


By Abhilash Mudaliar

Impact investing is a growing movement capturing the attention of investors across the world. But too much capital is still sitting on the sidelines, which results in part from suspicions around financial performance. Throughout the industry's development, investors have questioned the ability of impact investments to generate financial returns similar to traditional investments.When considering impact investing on behalf of clients, financial advisers may find recent research, GIIN Perspectives: Evidence on the Financial Performance of Impact Investments, useful. In reviewing the financial performance of funds in the three largest asset classes in impact investing: private equity, private debt, and real assets, as well as individual investor portfolios allocated across asset classes, we see signs of real credibility for the market.WORTHWHILE RETURNSFirst, market-rate returns are achievable in impact investing. A private equity... Read full post

Nov 13, 2017, 10:16 AM EST

Say goodbye to IBDs, and hello to 'IAB firms'


By Richard J. Lampen

Sometimes inertia wins the day on issues such as nomenclature. Perhaps one of the most obvious examples of this can be found in how many independent firms across the retail financial advice space continue to describe themselves as an "independent broker-dealer (IBD)," despite growing discomfort among firms and advisers with this term. Perhaps the time has come to revisit this particular nomenclature issue on an industrywide basis. Names and labels in this context are significant, as they signal to advisers the kind of approach and support they might reasonably expect from a firm. Today, continued use of the IBD term potentially does a disservice to our industry, especially when so many independent firms have already embraced fee-based advisory services. The move away from transactional and product-driven business is well advanced, so there is no better time than now for our industry's firms to reflect this in how we refer to ourselves.... Read full post

Nov 9, 2017, 1:44 PM EST

The latest in financial adviser #FinTech

cybersecurity main

By Michael Kitces

Welcome to the November 2017 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management! This month's edition kicks off with the big debut of CleverDome, a next-generation cybersecurity solution that aims to bring all major financial services providers into a closed network that operates with a "Software Defined Perimeter" (SDP) to block out hackers and only permit known entities to interact with vendors. At the T3 Enterprise advisor technology conference, CleverDome announced that it is launching with Redtail CRM, Orion Advisor Services, Riskalyze, Entreda, and TD Ameritrade all "under the dome," and is looking to rapidly add more advisor tech providers in the coming months. Also in the news this month was a slew of new "Model Marketplace"... Read full post

Nov 9, 2017, 1:10 PM EST

Smart data can improve behavior, outcomes for retirement savers


By Fred Barstein

We have all heard of big data, which the defined contribution industry has not leveraged sufficiently and has gotten a black eye for it. At a recent industry conference, I heard Tina Wilson, senior vice president at MassMutual, mention a new concept that may have far reaching implications for the 401(k) industry: smart data.Today, the DC industry uses averages to guide plan participants – save 10% to 12%, for example. Target-date funds employ the worst use of averages. Everyone born within a five-year period gets the same asset allocation or risk model.Tina Wilson quips, "It's like a cardiologist telling a patient that people around your age have heart problems and then diagnoses treatment."Smart data leverages what's available about a participant on the record-keeping system, which is a good start, then digs deeper into information that Wilson says is readily available about an individual and their families. This includes... Read full post

Nov 8, 2017, 12:00 PM EST

Behavioral finance can attract fee-based assets


By Adam Malamed and Kirk Hulett

Most independent firms agree that successful adviser practices in the future must become more effective in gathering fee-based advisory assets. But from there, industry views diverge. For some firms, it's solely about providing the latest technological bells and whistles for prospecting, while others purely emphasize mechanical elements of fee-based advisory work, such as portfolio construction and manager selection. In fact, the process of determining how advisers can most effectively gather more fee-based advisory assets begins and ends with asking advisers one question: "What meaningful added value are you going to provide clients to justify your fees?" Based on the latest research conducted at our annual ELEVATE fee-based advisory conference, one of the most important ways for independent firms to help advisers succeed in this kind of asset gathering is to help them lead with behavioral finance, and to complement that effort with... Read full post

Nov 6, 2017, 3:46 PM EST

Tap role models to maximize efficiency


By Drew Jackson

Every financial adviser wants to serve his or her clients, operate more efficiently and effectively, and build their business. But how do you divvy up limited time and resources? How much of your day should be spent managing assets and how much managing clients—talking to current clients, cultivating prospective new clients and proactively growing your business?Some might say it depends on circumstances, personal preferences and priorities. But there is a right answer, and it's not complicated: If you want to know what success looks like, ask successful people. Sounds simple, right?From business mix to technology tools, and product mix to time management, larger advisory practices with more assets under management run their business in ways that are fundamentally different than smaller organizations. That's no coincidence.COMMUNICATIONThe Investment Management Consultants Association (IMCA) Research Quarterly recently published... Read full post

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