Outside voices and views for advisers

Feb 1, 2015, 12:01 AM EST

Want to build a better portfolio? Consider smart beta strategies

By Anthony B. Davidow

There's no question that smart beta strategies have captured headlines as well as the attention of investors and advisers, but do they have a place in your clients' portfolios? And, more importantly, how might you adjust your asset allocation models to capture the benefits of these strategies for clients with different investment needs and goals? The first generation of exchange-traded funds was designed to mimic popular market-cap indexes, providing cost-effective exposure to virtually every segment of the equity market. In the last several years, we have seen a proliferation of smart beta strategies designed to improve the market experience while still using an index-based approach. Smart beta — also known as “strategic beta” or “alternative beta” — includes such non-capitalization-weighted strategies as equal weight, low volatility and fundamental strategies. While all of these fall under the... Read full post

Jan 28, 2015, 7:38 AM EST

A fiduciary standard creates internal conflicts for advisers

By Bill Militello

Registered investment advisers could have more competition by the end of the year if Finra extends a fiduciary standard to its regulated brokers. The change would be significant, increasing expectations for brokers currently held only to a suitability standard.While it's difficult to anticipate what Finra will accomplish this year from its lengthy list of regulatory priorities, the announcement should serve as a reminder that competition for clients will continue to emerge.With brokers potentially hot on investment advisers' fiduciary tail, an adviser's ability to tout a fee-only revenue model and serve as a fiduciary to clients are points of differentiation that could be disappearing. And I say it is for the better.A fiduciary standard, for all its good intentions, puts a veil over investment advisers' priority to conservatively manage the risk of their practice. Managing risk for clients by directing them to conventional investment... Read full post

Jan 28, 2015, 5:09 PM EST

How to perfectly time your clients' Medicare enrollment

By Peter Stahl

In a competitive environment, adding value to client relationships and prospects by understanding the convergence of health care and financial planning has never been more important. Advisers recognize the need to help clients make the optimal decision regarding when to claim their Social Security benefits. As we learn from the experts in this area, the choices are extensive and the financial implications connected with the decision are large. It is critical, however, to understand that decisions on Medicare enrollment also carry a meaningful financial impact and are often closely tied to Social Security enrollment choices.(Related read: Stakes for making the right Medicare decision are high)At a minimum, two areas warrant particular attention by advisers. The first comes into play with clients who are working beyond age 65. Many clients in this situation will want to delay their Medicare enrollment in order to save thousands of... Read full post

Jan 27, 2015, 8:28 AM EST

6 market developments to watch for in 2015

By Thomas Hoops

Of 2014 we can say many things, but boring is not one of them. Equity markets reached historic heights, bond markets sustained historically low interest rates, oil plunged and geopolitical turmoil made us all hold our breath. Through it all, domestic market indexes delivered attractive returns: the S&P 500 was up 13.69%, while investment grade bond markets gained 7.46%.The question now is: What will 2015 bring? The year has started with plenty of volatility, which should create more opportunities for active management. When dealing with dislocation and changing markets, active management becomes increasingly important for financial advisers as they strive to help clients seize the opportunities – and avoid the pitfalls – that inevitably arise.(Related read: Optimism abounds for financial advice industry in 2015)Legg Mason is built on a multi-affiliate model, where each asset management entity maintains independence across... Read full post

Jan 21, 2015, 3:41 PM EST

Currency-hedged ETFs giving investors new option for improving international returns

By Scott Kubie

Currency hedging is one of the key emerging trends in exchange-traded funds, one that has seen an explosion over the past year and can help provide clients with a new, flexible option to manage risk in their portfolio. While a small number of currency-hedged ETFs have been around for some time, the number of currency-hedged ETFs doubled in 2014. Their increasing popularity and importance is partly due to the economic environment and partly to the ongoing expansion of ETFs into new parts of the investment spectrum. To really maximize this sort of ETF, it is important to review the basics of currency hedging. Currency hedging is designed to allow investors to gain international exposure without being affected by moves in exchange rates. When investing in a foreign stock, whose price is measured in a different currency, the U.S. investor can make or lose money as a result of changes in the price of the stock or the exchange rate.... Read full post

Jan 21, 2015, 2:53 PM EST

Obama's capital gains tax plan: What it boils down to for you and your clients

By John Nersesian

In Tuesday night's State of the Union address, President Barack Obama laid out many big picture ideas meant to support his theme of “middle-class economics.” What was conspicuously missing in this discussion was any mention of taxes, beyond the contextual talk about “closing loopholes” for wealthier folks.White House officials, ahead of the speech, provided journalists with details of Mr. Obama's tax plan — specifically that he would propose raising the marginal capital gains rate to 28% (including the 3.8% surtax), and perhaps more importantly, eliminate stepped-up basis of capital gains assets at death.Why would Mr. Obama avoid specifics when his team released the plan ahead of time? Well, one reason is that proposals put forward in the State of the Union, especially with an unfriendly Congress, rarely become law — our friends at fivethirtyeight.com found that just 5% and 14% of his proposals... Read full post

Jan 21, 2015, 12:01 AM EST

Looking for investment value across the globe

By Norman J. Boersma and Cindy L. Sweeting

Whenever we're asked for an outlook, we're always reminded of the words of our founder, Sir John Templeton: “I never ask if the market is going to go up or down because I don't know, and, besides, it doesn't matter. I search nation after nation for stocks, asking: 'Where is the one that is lowest priced in relation to what I believe it's worth?'”Regionally, Europe remains a focus. Europe has been hampered by the limitations of its banking system and political structure, but the generally positive results of the system's comprehensive assessment and the formation of a pan-European banking union supervised by the European Central Bank should go a long way in restoring confidence and improving liquidity in the European financial system.(More: Europe and Asia may be a mess, but long-term investors can find opportunities there)Compared with its developed-market peers, Europe also maintains the broadest scope for additional... Read full post

Jan 20, 2015, 3:26 PM EST

Five surprise investment themes for 2015

By Scott Colyer

Like me, many investment counselors attempt to map out return expectations and places to allocate capital. We spend a lot of effort trying to assemble a macro view and apply it in an investment thesis. In my decades in this business I have learned that often times the consensus is wrong, as unforeseen events happen that completely change actual results.In going through this annual process I dutifully read, listen and study many different sources of information and interpretation available in the market. Emotion tends to play an enormous part in markets and I think it is important to drain out as much of it as possible. In my opinion, emotion is the biggest enemy of investment returns. It causes rational people to do irrational things that are almost always self-destructive to one's wealth. Finally, I try to understand consensus and filter it with just a bit of common sense. I would hope that nearly 30 years of experience might add a... Read full post

Jan 18, 2015, 12:01 AM EST

It's about more than payouts

By Jodie Papike

When looking for a new broker-dealer, many advisers start with the basics. Payout and cost of doing business are usually at the top of the list of due-diligence questions advisers use to determine if a firm is a good fit. But the independent broker-dealer landscape offers so much more than it used to. For many IBDs, it's no longer just about being a service provider; it's about being a true partner with the advisers they work with. For advisers focusing on compensation, this may eliminate potential firms from consideration. Here's another way to look at it. Take Linda. She is a $500,000 a year producer who receives a 90% payout. Linda is being courted by an IBD offering her a bump in payout, to 92%. The additional $10,000 a year sounds appealing. Instead of focusing on the higher payout, however, she can look at firms that are fully committed to helping her grow. These extra services are not offered at most IBDs, as they are costly to ... Read full post

Jan 16, 2015, 2:28 PM EST

Why security in retirement is often luck of the draw

By Wade Pfau

From a historical perspective, clients seeking to retire at the present time are facing a tough environment. This is a matter I've been working to quantify. We all face an intense vulnerability regarding our lifetime sequence of market returns. The specific returns we earn with our investments in the years around retirement disproportionately impact our lifetime financial outcomes. For people who otherwise plan and save in the same responsible way, those born at the right time will be fortunate to sustain a high level of spending over their retirements. Others will live and work at times that will result in less fortunate outcomes. Good fortune is derived from experiencing strong market returns in the years around the retirement date, and we have no control over what these returns will be. How can you help clients better understand whether they are seeking to retire at a good time or a bad time? I created an index to provide an answer... Read full post

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