Comments on Dr. Dilewis: De lo que se trata es de que no se nos imponga com...

El número de hipotecas inversas suscritas en 2009 ...

2010-02-01T13:44:40.335-05:00

El número de hipotecas inversas suscritas en 2009 creció un 8%, hasta alcanzar las 2.700, y el importe medio fue de 350.000 euros, según un informe de Optima Mayores, que prevé que 2010 sea el año del "despegue definitivo" de este tipo de productos si finalmente se da la promulgación del reglamento que determine las condiciones, forma y requisitos con que ha de prestarse el asesoramiento a este producto.

Durante 2009, la consultora asesoró a más de 3.000 clientes, fundamentalmente mujeres con una edad de entre los 75-76 años que precisaban complementar sus ingresos mensuales con mayor necesidad.

El informe resalta que el pasado año fue bueno ya que la crisis financiera e inmobiliaria le afectó "positivamente", sumándose a estos dos efectos la necesidad de complementar las bajas pensiones por jubilación y viudedad.

En este sentido, también resalta que la sociedad española tiene una necesidad que la hipoteca inversa está llamada a cubrir, para lo que es necesario que los potenciales interesados tengan acceso a la información necesaria para tomar la decisión más acertada.

Actualmente, existen 20 entidades en España que ofrecen hipotecas inversas pero hay un número muy limitado que realmente respaldan el producto desde sus departamentos de riesgo mediante procedimientos concretos de tramitación.

BBK y Catalana Occidente lideraron el ránking de comercialización de las hipotecas inversa pero durante el año desaparecieron del mercado las ofertas de Caja Duero y Caja Navarra, que ocuparon puestos relevantes durante 2008, según explicó la consultora.

Por áreas geográficas, Madrid fue la región con mayor demanda durante el pasado ejercicio, ya que un 51% de los potenciales clientes se mostraron dispuestos a contratar este tipo de productos.

La hipoteca inversa es un producto financiero destinado fundamentalmente a personas mayores y ofrece al propietario de una vivienda la posibilidad de obtener dinero por ella sin venderla. Si el propietario fallece, los herederos podrán asumir el crédito o bien vender la vivienda para devolver al banco las cantidades anticipadas.

THE FIDUCIARY FUNCTION The fiduciary issue is jus...

2010-02-01T13:41:39.099-05:00

THE FIDUCIARY FUNCTION

The fiduciary issue is just one more thing that divides us. Let's face it: The term fiduciary is a legal term, with very specific legal interpretations, which describes an ethical relationship of trust and confidence. Some advisors believe using the term simply opens us up to potential lawsuits. The suitability standard has served us well since 1934, they say, and we should leave it alone.

Tiburon's CEO Summit late last year featured a panel that consisted of three top litigation attorneys. These guys are in the business of suing advisors. They explained how advisors need to think about their relationships and activities with clients. They discussed the concept of "functional" fiduciary, which, in its simplest terms, means if it walks like a duck and looks like a duck, it's a duck. Just because we might not accept fiduciary responsibility in our relationships, does not mean we evade it.

A few years ago an SEC regulator, speaking at an industry event, described the components of fiduciary duty. The FPA adopted a version of this definition as its Standards of Care and outlines. In plain English, the fiduciary role in a financial planning engagement:

• Put the client's best interests first;

• Act with due care and in utmost good faith;

• Do not mislead clients;

• Provide full and fair disclosure of all material facts; and

• Disclose and fairly manage all material conflicts of interest.

Similarly, the Committee for the Fiduciary Standard, a group of highly respected industry leaders, has proposed five core principles that its feels should be key to any new legislation or rulemaking. These are:

• Put the client's best interest first;

• Act with prudence; that is, with the skill, care, diligence and good judgment of a professional;

• Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts;

• Avoid conflicts of interest; and

• Fully disclose and fairly manage, in the client's favor, unavoidable conflicts.

While there are subtle differences between the two, the most glaring similarity to me is the absence of the word fiduciary. When we remove the F word, what's left, I maintain, is the essence of who we are as practitioners.

PRINCIPLES COUNT

Look at these statements. Which could you not support? Which do not in some way reflect the relationship you have with your clients, whether it's formally declared or functionally performed?

I urge you to disregard the distractions of a business model, compensation or other practice details, and support and adopt the principles of these statements, whichever version you choose. They make up the invisible substance that keeps us together. These Standards of Care are our cosmic glue.

In the 1930s it occurred to a bunchof researchers ...

2010-02-01T13:40:20.127-05:00

In the 1930s it occurred to a bunchof researchers that the stars and planets should have been pulled apart by their own mass. Since gravity alone couldn't keep the galaxies in place, they concluded an invisible substance called "cosmic glue" must be keeping them together. When the atom was split in the 1940s, the cosmic glue was identified as the "strong force," which keeps neutrons and protons happy together.

I've been thinking quite a bit about our regulatory environment. I am fairly certain that by the end of 2010, we financial advisors will have new guidelines for practicing our craft, which should serve as our own version of cosmic glue. The issues involve defining who is a fiduciary, when someone is acting in a fiduciary role and even the definition of fiduciary care itself.

A YOUNG PROFESSION

One of the reasons that this profession is so hard to define is that we're still in the nascent stages of development. Last year we celebrated the 40th birthday of the advent of financial planning. Forty years is nothing compared with the accounting and medical professions. And, because we've all come from different disciplines, how we practice differs greatly. Although we share a standardized process for financial planning, there is very little beyond the Investment Adviser's Act of 1940 that specifically directs us regarding how to conduct our businesses and our relationships with clients. We can call ourselves anything we want-financial advisor, financial planner, investment advisor, investment counselor, wealth manager.

When I started in this business, I called myself a financial planner. In 1984, Forbes magazine put a monkey in a three-piece suit on its front cover, with the tag line, "Anybody can call themselves a financial planner." It didn't take more than 30 seconds for me to find other ways to refer to my professional activities. I landed on the term "wealth manager" because my partner began using the phrase to describe how we gave institutional-level advice and support to our private clients. The way we describe ourselves, and the manner in which we manage our practices vary widely. We use different products and perform different services. We charge differently.

In my early days I had a Series 7 license. One day I was interviewed by a financial reporter who told me that her newspaper didn't want her to use commissioned advisors as sources because they didn't want to give the impression that they endorsed any products. She asked me if I knew any fee-only planners; I didn't. She didn't either. That's when I decided that, if the press was going to pave my way, I'd be an idiot not to be a fee-only planner. I am no more ethical than I was, but I find it easier to be treated professionally because of it. This is another aspect of our practices that seems to divide our profession.

Mark Twain said, "Man is the only animal that has the True Religion-several of them." Whatever our background and orientation toward our industry, we seem to think that individually, we have the only true way of practicing. And because our bad apples are so visible in the press, we wag our fingers and declare we've got the best business model, the best method of compensation, and the best client service and support.

MAKING CHANGES HAPPEN Holding that thought, let&#...

2010-02-01T13:38:58.026-05:00

MAKING CHANGES HAPPEN

Holding that thought, let's move to another business consultant: Spenser Segal, president and founder of ActiFi. After offering practice management advice to thousands of planning firms, Segal has found that most advisors are not good at translating the things they want to happen in their firm into highly specific action steps. Asking you to build efficiency into your practice is a little like asking you to build your own automobile, he says. You know what you want and generally how you want it to work. But how do you acquire the parts and assemble it?

Let's say you want to grow your firm. ActiFi has a consulting software model called RoadMap, which takes that goal and forces you to make it incrementally more specific. Do you want to grow profits? Top-line assets under management? Number of clients? Or do you want to grow your capacity by taking on new employees?

Let's say you select "profits." The software takes you to a variety of options related to increasing revenue and reducing expenses, and each of those options leads to specific action steps. Suppose you want to increase assets under management from existing clients. Click on that tab and the screen invites you to quantify your goal. Let's say you select $20 million in new assets. By when? You pick a date; say, next December 31.

"Notice," Segal says, "that you have moved, in a matter of minutes, from this very nebulous idea of 'growth' to a very specific goal of increasing assets under management by $20 million, to be achieved by deepening the relationships you have with existing clients, and you want it to happen by the end of the year."

FINDING YOUR NICHE The Essential Formula is writt...

2010-02-01T13:38:19.985-05:00

FINDING YOUR NICHE

The Essential Formula is written up in detail in my newsletter, and also in The Coaching Report, which you can get for free from my website. But the quick version is that it starts with your selecting a client base that you personally resonate with, whether it be oral surgeons or people who fix the wires for the phone company, and-as quickly as possible-begin to specialize. If you can manage to do this, it opens up a whole lot of interlocking efficiencies in every corner of your practice.

Suddenly, you're able to train yourself to serve a small, distinct subset of the human population, and immerse yourself in the marketing issues of, say, your horse trainers or golf pros, the pension plan provisions for the hospital administrators down the street, or the business challenges that your swimming pool and spa servicing clients face-more completely than any other advisor. Your conversations with clients become effortless and rich.

This also allows you to get the best of all practice management worlds: You can create a client experience that is highly customized to the very specific needs of airline pilots, owners of dry cleaners or senior executives with a large local firm, but offer, essentially, the same services in a similar way to all of them. Your staff knows exactly what to do with these people, and you know exactly where to find them, how to market to their most pressing concerns, and how to get them talking to one another about you. The more you get to know these people, the more you can envision a dream service package for them. That means superior service, more value for the same work (and price), and more referrals within their network of acquaintances.

Beckes says that most advisory firms are built on a very different, inefficient foundation of outlier clients-that is, a bunch of people you picked up along the way who have little in common. This diffuses your focus. Most advisory firms experience a lot of confusion about who gets what service and who wants what to happen (and when), leading to a lot of unproductive catch-up time, weak job descriptions, difficulties in hiring and evaluating staff, insurmountable marketing challenges and crushing workloads when the markets go south and everybody panics.

Developing that standardized, customized client experience may be the most important part of The Essential Formula because it lets you break down, step by step, what has to be done with each client. You can then train each member of your staff to play a specific role in the process, giving you more personal capacity. "Capacity is so valuable that it requires a lot of work to create," Beckes says. "In the final analysis, your only inflexible resource is your time."

Over my roughly 300-year career observing the fina...

2010-02-01T13:37:40.645-05:00

Over my roughly 300-year career observing the financial services world, I've discovered that the very best advice about succeeding in this business comes from people who have worked closely with hundreds of advisory firms. I'm going to share the insights of two of them here.

I'll start with Tracy Beckes, who has emerged as the business coach who seems most consistently to foster impressive life changes and positive results from planning practitioners. Beckes has an MBA from the University of Oregon and once co-led the coach training program at the prestigious Hendricks Institute in Ojai, Calif. I recently interviewed her for my newsletter, and she offered her insights on what she calls The Essential Formula for creating a successful financial planning practice.

The Essential Formula emerged from Beckes' own coaching experience. As she looked through the case studies from her financial planning clients, Beckes found a pattern that most advisors-who are deeply engaged in their own practices and familiar with only their own situations-couldn't possibly perceive. "I sat down with everything I knew about the most successful advisors I'd worked with, and all the things that started to happen as they began to achieve their business and personal goals," she says. "In every case, they would totally transform the practice management side of the equation in favor of the advisor, all in very similar ways."

ALL IN THE FAMILY OFFICE What the ultra-affluent ...

2010-02-01T13:36:54.813-05:00

ALL IN THE FAMILY OFFICE

What the ultra-affluent most want and need are answers to their complicated challenges-real solutions backed by expertise and world-class service. They expect their advisors to be highly qualified to address their issues. So to succeed in this market, you must set up your practice to demonstrate high quality at every point of client contact-and you must do so profitably.

Broadly speaking, there is one business model currently in use by advisory firms that serves ultra-affluent individuals: the family office. This organization is dedicated to meeting the entire range of its clients' financial and personal needs. A family office typically has an in-house staff to provide its core services of investment management and administrative services (such as recordkeeping, aggregated statements and accounting). All other services are usually outsourced to external specialists.

Operating a family office can be highly profitable, but only if the business is managed in specific ways. For example, you must minimize overhead expenses. If you try to build a complete in-house team of experts, your costs will be difficult to recoup. Instead, outsource the majority of work to qualified experts.

Create an effective network of experts. Your ability to bring together and manage a group of outside professionals who will work together is critical to your success. Successful advisors in family offices understand that they can't do it all themselves. While they may manage key items in-house (such as cash flow and investments, and the structures and relationships of the various entities and trusts), they outsource expertise in most other areas to specialists. They make it their business to know the experts in every field related to the management of ultra-affluent family affairs.

FIVE KEYS There are five core characteristics tha...

2010-02-01T13:36:25.783-05:00

FIVE KEYS

There are five core characteristics that the ultra-affluent tend to have in common when understanding how they relate to and use their sizable wealth. These five characteristics provide the framework for how advisors need to approach and work with the ultra-affluent.

* Complexity is the first and most significant characteristic defining this group. Tremendous wealth brings complications for many parts of their financial and personal lives. Even before you consider working with them, you should first comprehend the kind of complexity you would need to manage. Consider that an ultra-affluent family will probably consist of a patriarch, a matriarch and perhaps their two adult children. The adult children may each have several children, some of them adults. With these three generations, and a fourth soon on the way, you'll be confronted with planning not just 10 to 20 years out, as you're accustomed to now, but 100 to 200 years out.

Also consider the various entities that many ultra-affluent families control-professional corporations that support the family, limited liability companies, limited partnerships, various separate trusts and maybe even family foundations. You must understand each of these different entities from tax, compliance, planning, investment advisory, estate planning and gift perspectives. In addition, there's bill paying, accounting and expense management for each of these entities. Plus, various family members probably have different sets of personal, education funding, tax planning, charity and retirement goals that require detailed cash flow and investment management from a multigenerational wealth-transfer perspective.

And don't forget emotional complexity. The patriarch and matriarch of the family might each have different types of relationships with each of their children. The siblings each have unique interpersonal relationships with one another, with their children and with the children of their siblings. All of these various emotions and relationships come into play when managing the finances and dealing with people both within and outside of the family.

Great wealth raises the level of complexity in family and personal relationships, tending to magnify both eccentricities and animosities. Indeed, "Too Rich to Worry? Not in This Downturn," an article in the New York Times on Oct. 2, 2009, argued that the extremely wealthy have become particularly concerned about how the various people within their family units spend, save and invest the family money.

* Control. A major focus for many ultra-affluent investors is maintaining control over their money and every other significant situation in their lives. Because they see their professional advisors as the key to exerting this control, they typically have many advisors-ranging from an attorney and accountant to insurance professionals and investment advisors.

* Connections. Because contact with the right people is essential for success in both their personal and business lives, the ultra-affluent prize and protect their connections. In general, they have access to substantial numbers of influential people and have influence over those people.

* Capital. The ultra-affluent see capital not as money per se, but as the ability to deploy resources to make things happen-in other words, a means and not an end. For this reason, they are often more concerned with preserving their wealth (and thus their ability to accomplish big things) than they are with growing it.

* Charity. The tax incentives for philanthropic actions, plus the authentic charitable desire of many ultra-affluent Americans combine to make charitable gifting important in the lives of this group.

In their quest to move upmarket and serve wealthie...

2010-02-01T13:35:43.251-05:00

In their quest to move upmarket and serve wealthier clients, more advisors are interested in pursuing the ultra-affluent-those investors and families with investable assets of at least $30 million. Should you join them?

At the end of 2008, there were approximately 774,000 ultra-affluent individuals worldwide, according to the 2009 World Wealth Report by CapGemini. Now, there's no doubt that those ultra-affluent families can generate a lot of income. Given the ever-increasing level of financial complexity that comes with immense wealth, there is now more demand than ever before for advisors who can ably serve the ultra-affluent. What's more, the bear market prompted some advisors to look for a client base that is largely impervious to big economic shifts and volatile market cycles, and they believe that the ultra-affluent fits the bill.

But if you're among those advisors, be warned: Working with this select group of clients can be extremely challenging in terms of both effective client service and intelligent business management. If you're trying to pursue this market, or you're just curious about it, it's helpful to examine its key characteristics and see how you must structure and run your practice to decide if it's a path you should consider.

DOWNSIDE PROTECTION Advisors who spoke to Financi...

2010-02-01T13:34:53.133-05:00

DOWNSIDE PROTECTION

Advisors who spoke to Financial Planning for this article are focusing on long-term growth for their clients' retirement portfolios, as they should be. What they're not doing is trying to score big hits, to make back money their clients may have lost in the downturn. The marketplace is too often led by emotion, Pitcairn says. He recently heard from an equity analyst whose research found that despite the strong returns we saw in 2009, the typical individual investor really didn't participate in the rally.

"People put too much money in cash and left it there," Pitcairn says. "It's either a sick cycle of fear, like it was in 2008, or a cycle of greed like it was in 1999. Part of the investment policy process is to wash out that emotion-led decision-making and to move toward an understanding of one's investment goals-and looking to capitalize on a short-term market trend."

Pitcairn released a set of guidelines in December called Seven Principles for Managing Your Assets in a Maybe-Recovery. One such guideline: that the best time for an investor to diversify may be when some of the assets in the portfolio have lost value.

"If you're led by emotions, you were very loath in March to say you wanted equities-because nobody wanted equities then," Pitcairn says. He strips emotion from the decision-making process, he explains, by following a long-term investment policy.

Even with such a policy, Phillips says, many of his clients remain hesitant to put their sidelined cash to work. "But at the same time, they're getting an itchy finger because they can't get anything on the fixed-income side," he says.

STILL STOCKING UP? Of course, with the S&P 50...

2010-02-01T13:34:06.075-05:00

STILL STOCKING UP?

Of course, with the S&P 500's dramatic rally last year, investors didn't have to look very far for growth in 2009. J. Graydon Coghlan, president and chief executive officer of Coghlan Financial Group in San Diego, says his clients' gains averaged around 24% or 25% for 2009. "That isn't out of the ordinary," he says. "It wasn't as if we were completely separated from where everyone should be. The S&P was up in that range, so it's not as if we were creating magic."

Coghlan expects technology stocks to be a leading sector this year. He also expects to see the equity market continue to perform, driven by improved earnings. Thus far, many large companies have been underestimating their expected earnings so that they can beat them. The asset allocation Coghlan is using right now is about 15% in cash, close to 12% international equities, 35% in bonds and the balance (38%) in domestic stocks.

Genworth, meanwhile, has had an emphasis on yield and income orientation as opposed to just relying on capital gains, Knepp says. His investment team doesn't want to be completely dependent on earnings growth or expansion of multiples, which makes it guarded on equities. Within equities, however, yield is a good emphasis for retirees. Companies that have strong cash flows, pricing power and good balance sheets-such as healthcare, consumer staples and some tech companies-can support a dividend.

But Knepp is also concerned about some vulnerability on the downside with the S&P because so much of the rally has been supported by liquidity in one form or another from the federal government. One factor that might help the S&P's earnings going forward, Knepp adds, is that over time the components of the index are getting more of their sales and profits from outside the U.S.

Nevertheless, with the Treasury and Fed expected to back off their support, advisors and their clients are going to find out how much of this market rally was stimulus-driven. Jeffrey Phillips, chief investment officer of Rehmann Financial, a financial planning firm in Saginaw, Mich., believes the valuations have priced in the expected impact of the economic stimulus, but without a sustainable job recovery he is concerned that the domestic market will move sideways or even negatively.

"There is so much government involvement right now, which makes this business a lot more difficult than it was three or four years ago," he says.

Rick Pitcairn, chief investment officer for Pitcairn, a multifamily office in Jenkintown, Pa., acknowledges that much of the recovery is stimulus-led, "so the question marks aren't completely removed. We aren't in this state of nirvana." He still believes the data clearly shows we are in an early-stage recovery. "How it winds itself out will really revolve around Fed policy and whether or not and to what degree inflation takes hold," he says.

As the financial meltdown drained investors' a...

2010-02-01T13:32:40.281-05:00

As the financial meltdown drained investors' assets a year ago, many took refuge in the booming bond market in order to bolster their retirement portfolios. But with observers' outlook for fixed income this year ranging from guarded to dismal, retirees and pre-retirees are likely to find themselves wading back into equities.

Common sense would dictate seeking out the beaten-down asset, which some might still think is domestic equities. Yet, even though stocks are generally expected to outperform bonds this year, another economic dip could disrupt expectations for modest gains in 2010. As a result, many advisors appear to be avoiding plain vanilla-and instead are seeking out international equities and other nontraditional assets that don't correlate to the S&P.

Even as advisors seek out growth opportunities for their clients, however, risk management obviously remains a priority. With one eye on long-term growth and the other on protecting a client's retirement assets, big losses are much more disastrous than sizable gains are beneficial.

With more questions than answers about where the economy and markets are headed in 2010, advisors know they are going to have to be nimble this year. "We do think there are opportunities for returns in 2010, but [earning them] will require very good securities selection and pretty active management instead of just saying that we're back to the days of 60/40 and I can sleep well at night," says Tim Knepp, chief investment officer for Genworth Financial.

A closer look at the role of the client base of 1Q...

2010-02-01T13:31:37.140-05:00

A closer look at the role of the client base of 1QA firms provides further insight.

As noted in Service Model, shown at left. as firms move into the top quartile, they tend to shift their practices into wealth management. The broader range of services they provide result in the higher expense per client-the business development, service offering and staffing model required to support a wealth management practice is deeper and, of course, pricier. Part two in the study series, which will be released in spring 2010, will report on correlations between business development practices and enhanced business performance.

One question on everyone's mind is just how bad was 2008 for various firms, given the market declines? Surprisingly, not as bad as you might think-on paper at least. Across all participants, median revenue grew 3.8% in 2008. Only 36% of firms lost revenue, while 64% saw positive revenue growth. Median owner income rose 1.8% from 2007 to 2008, and median operating profits increased 6.5%.

How is it that firms saw gains, nominal though they may be, in the year of the most brutal market crash since the Great Depression? The saving grace of this situation was timing. Strong financial performance in the first three quarters of 2008 helped mitigate overall calendar-year performance. Consider further that the second half of the decline was contained to the first quarter of 2009, followed by an impressive recovery. Had the six-month period of decline taken place in one calendar year, financial statements would have fared much, much worse.

Nonetheless, all affiliation models experienced an overall decline in assets under management performance in 2008, providing a more realistic view of the dismal landscape they were dealing with. This in turn affected fee-based billings and revenue.

At the same time, many practices took on new clients. Given the bill-in-arrears style of most advisors, the impact new clients had on AUM was faster to show up in most firms than was their impact on revenue. While 2008 showed modest gains compared to prior years double-digit growth averages, the real story here is that, given the timing, most advisors did not feel the paper gains of 2008 in their pocketbooks

A New Class of Top Performers: 1QA One of the goa...

2010-02-01T13:31:27.115-05:00

A New Class of Top Performers: 1QA

One of the goals of this study was to provide a performance comparison relevant to advisors across every practice, service and affiliation model. With this in mind, we created a new category of business performance: 1QA. This stands for first-quartile advisors or the top quartile of advisors based on total owner income (comprising owner compensation, bonuses and benefits, plus operating profits). Counting both compensation and profits in this way accounts for the disparities in the methods advisors use to divide their income between labor compensation and profit distributions.

By definition, of course, one would expect 1QAs to outperform non-1QAs (the remaining 75% of the population), but what is striking is the size of the performance gap. As noted in Median Performance by Practice Model, at left, performance far exceeds that of their peers. For instance, 1QA revenue, income and profits significantly outpace those of non-1QAs, with 1QAs showing 5.1 times greater revenue, 5.1 times greater operating profits and 4.8 times more owner(s) income. Even accounting for multiple owners in silos and ensembles, with a median of two owners and three advisors, 1QAs' median income per owner of $417,000 is still nearly four times greater than non-1QAs' income per owner of $113,000.

A breakdown of performance ratios between 1QA firms and non-1QA firms, as shown in the charts on page 60-Median Expenses, Operating Profit and Fee-Based Assets Per Client-further highlights the magnitude of this performance gap, which is nearly a chasm.

This led us to explore the reasons for such enhanced performance. Among our findings was that 1QAs spent significantly more per client than non-1QAs: $3,181 versus $1,000. This suggests that those firms that invest in staff and infrastructure are better equipped to grow and drive increased revenue, income and profits.

A Broader View Our inaugural study had 1,006 part...

2010-02-01T13:30:05.131-05:00

A Broader View

Our inaugural study had 1,006 participants, representing early, emerging and mature firms across all business, affiliation and practice models. This is the first study to separate silo-style practices from ensembles and report on each type, based on our experience that the strategy, cost structures and goals of these firms vary, and therefore warrant individual review. Business models represented included investment advisory, investment management, insurance, financial planning, insurance, and wealth management. An equally diverse participant mix is reflected in the affiliation models, with participants across: Independent broker-dealer (IBD)-only, IBD with insurance, IBD with planning RIA, primarily RIA, RIA, regional brokerage firm, national brokerage firm and bank/trust company.

The 2008 to 2009 market downturn was the most tumu...

2010-02-01T13:29:11.958-05:00

The 2008 to 2009 market downturn was the most tumultuous period in U.S. financial history since the Great Depression. It was also a wake-up call for financial advisors, who faced declining revenue and eroding profits as they worked longer and harder to meet the demands of those challenging days. And the challenges may not be behind them. Lesson learned: Nothing is static. One must always be prepared for change.

Many advisors have responded to these times by looking closely at how their businesses are run, where expenses are going, how teams can be more effective, what operational efficiencies can be gained and what changes to business practices must be made to ensure sustainability and long-term success. They are coming to recognize, more than ever, that their own business success is driven by the same principles espoused to clients: establishing clear goals, analyzing options, making ongoing performance assessments and periodic adjustments-all to be executed with discipline to promote a positive long-term outcome.

The Quantuvis Best Practices: Business Performance Study 2009, sponsored by Genworth Financial, provides the relevant empirical benchmarks advisors are looking for. The results will be published in Financial Planning as a four-part series. The study provides a broad view of business performance that will help advisors effectively navigate the days ahead. As the study series continues, we expect a rich pool of information across business disciplines.

DIVERSIFY, BUT CAREFULLY For advisors hoping to t...

2010-02-01T13:28:06.201-05:00

DIVERSIFY, BUT CAREFULLY

For advisors hoping to transform both the reality of higher growth rates outside the United States and the possibility of a declining greenback into higher returns for clients, the challenge is figuring out how to accomplish it. The answer-be diversified, but be very picky-may be the only way to go, say Kozhemiakin and Don Gervais, global head of fundamental equity at Goldman Sachs Asset Management. Placing a big bet on any single high-growth region is foolish. Sure, China's stock market soared about 300% in two years, from 2005 until 2007. But what goes up can come down-are your clients prepared to put an outsize portion of their portfolios in a market that can move 7% or 8% in a day?

"We spent much of 2009 underweight the dollar and overweight Asia, but not overweight a single country or market," says Michael Ho, CIO at Mellon Capital Management. While China's enormous growing middle class may be alluring for stock market investors, Ho is just as interested in owning the yen (but not Japanese stocks or bonds, whose value may be hurt by that country's renewed deflationary pressures).

Michael Church, president of Addison Capital, a Yardley, Pa.-based advisory firm, is seeking out ways to profit from what he expects to be a dollar that will continue to diminish in value. "The strategy can be as simple as investing overseas, especially in foreign sovereign debt issued by countries that have a big interest-rate differential like Australia, Canada and Norway."

BEYOND OUR BORDERS When it comes to global divers...

2010-02-01T13:27:34.255-05:00

BEYOND OUR BORDERS

When it comes to global diversification, most advisors already have a lot of ground to make up compared with their European counterparts. "We're more parochial in our investment views than anyone in the world," argues Erik Davidson, managing director of investments for Western states at the private bank of Wells Fargo. "I have to remind our clients that 97% of the world's population, 75% of its economic production and two-thirds of the stock market capitalization is now outside our borders. And we should be following those trends in our portfolios."

Some financial advisors are already taking advantage of the long-term opportunity. Rob Lutts, president and chief investment officer of Cabot Money Management in Salem, Mass., has already allocated about 40% of the aggressive growth stock portfolios he manages for high-net-worth clients to emerging markets. "Keeping a high allocation to global markets, particularly emerging markets, gives you the potential for moderate returns in local currency to become bigger when they're translated into dollars. That's the gravy. The meat? That these are going to continue to be some of the highest growth markets around."

In 2009, many advisors kept their eyes closer to home. That was both logical and necessary: When the recovery got under way, the simplest way to benefit was to "go long" U.S. stocks and bonds; the best-performing equity mutual funds of the year were leveraged index funds tied to the Nasdaq 100, which soared as the markets staged a recovery. But with that low-hanging fruit long plucked, advisors like Lutts say the best place to seek out future gains is "beyond our own borders."

The reasons are many. While the U.S. economic recovery could be slow and growth is never likely to exceed a few percentage points a year, the emerging markets-and even some developed markets-may post more rapid growth rates, whether because they're rapidly developing economies (Brazil, China and India) or because they will benefit from high commodity prices in years to come (Russia and others). "There are reasons to doubt the viability of the dollar as the world's reserve currency over the long run," suggests Alexander Kozhemiakin, director of emerging-markets strategies at Standish, a subsidiary of BNY Mellon.

While the dollar is still the safe haven of choice in times of turbulence, the further the crisis recedes into the past, the more likely it is that the dollar's role will diminish as well, Kozhemiakin believes. That's a view shared by pundits like Warren Buffett and Gross, who believe the dollar's decline may be a longer-term phenomenon as the U.S. government's need to finance its burgeoning deficit, coupled with the Fed's determination to avoid a double-dip recession by keeping interest rates low, make owning dollar-denominated assets less appealing for investors.

BEYOND OUR BORDERS When it comes to global divers...

2010-02-01T13:27:34.040-05:00

In the waning days of 2009, many advisors and mark...

2010-02-01T13:26:49.438-05:00

In the waning days of 2009, many advisors and market analysts, when asked for their thoughts about the new year, opted to emphasize the risks. What if the Fed began raising interest rates? Did the deteriorating job market signal a double-dip recession on the horizon? Or would the Fed's willingness to keep lending rates so low, for so long, spark inflation as an economic recovery gathered momentum?

Amidst all the angst, it's reassuring to note that at least one of those clouds-the slumping U.S. dollar-may have a silver lining in 2010, in the shape of hefty returns from investing in non-U.S. markets and, in particular, from increasing allocations to emerging markets. True, Asian markets were hard-hit by the credit crunch of 2008, and few countries have been immune to the recession that followed. Nations from Iceland to Dubai and Greece have suffered major economic blows that make them areas to avoid. But that leaves investors with a lot of opportunities to diversify their holdings and reduce the risk associated with their portfolios, while also capturing some upside potential if the dollar continues its decline against other major currencies.

Take a look at Brazil. In 2009, its Bovespa (Ibovespa)index rallied 82.7%; the dollar's plunge against the Brazilian real last year turned that into a gain of about 145% in dollar terms.

Not every non-dollar investment will produce such dramatic gains. But veteran investors argue that this is the time to go global, with many overseas economies offering higher economic growth rates over the long term, with potential for extra upside if market guru Bill Gross and his Pimco colleagues prove correct in their predictions that the "new normal" means a falling dollar.

Buying Power "Empowerment experiment." ...

2010-02-01T13:24:55.637-05:00

Buying Power

"Empowerment experiment." That's what John and Maggie Anderson call their quest to only patronize African American owned businesses last year. The controversial adventure allowed the Oak Park, Ill. couple to take a closer look at the state of black owned establishments.

"There was a feeling that now we have really created a vehicle to force ourselves to look into the mirror and address some of the issues we don't want to talk about," said John Anderson.

African Americans have nearly $850 billion in spending power, but very little of that money circulates through "underserved" communities, reports Ted Gregory of the Chicago Tribune in Adding up family's year buying black.

While some embraced the experiment, others deemed it as an exercise of racism, an idea that the Andersons reject. "This is really about African Americans taking ownership of a problem," John said.

Q: I've completed the budget template from &qu...

2010-02-01T13:24:22.738-05:00

Q: I've completed the budget template from "The Power to Prosper" and realize that I'm spending over my means by about $200 a month. I don't use my charge card. What am I doing wrong? Where would you suggest the first place for me to cut back should be?

A: Without looking at your budget and talking to you, I can't say what you should cut out of your budget. That's a very personal thing. It all depends on what you value. But good for you to complete a budget and realize you are living above your means. That's one of the first steps toward getting your financial life together.

Try this. Keep a spending journal for 30 days. Write down every single penny you spend, including when you pay your rent or mortgage, car payment, etc. That may help you see where you are overspending. Often it's the little expenses that can sink you. Additionally, you might try the envelope money management system. Read more about it in a column I wrote recently, Envelopes can help spendthrifts.

Q: What are your views on Roth 401k's? I'm considering allocating a portion of my contributions to this option as I am young and in a lower tax bracket than I anticipate being at in retirement.

A: I'm a fan of the Roth IRA if you qualify. And I really like the Roth 401(k) because there are no income bars you have to jump over. Here's how a Roth works. Withdrawals from a Roth are tax-free, including earnings, if you take them after more than five years and after you reach age 59 ½.

In a traditional 401(k) plan, you invest with pretax dollars which reduces your taxable income and the taxes you pay that year. You pay taxes when you withdraw the money at retirement.

With a Roth 401(k) and a Roth IRA, you pay taxes on the money before you invest. When you withdraw your funds, including any earnings, it is not taxed.

So the question is: do you want to pay taxes on your money now, or when you retire?

Additionally, with a traditional Roth IRA, there are income limits, meaning if you make over a certain amount you can't contribute to a Roth. However, that's not the case with a Roth 401 (k), which makes it good choice for highly paid employees. If you aren't paying high taxes now, a Roth is a good choice.

Do you think it's possible to raise a level-he...

2010-02-01T13:23:32.614-05:00

Do you think it's possible to raise a level-headed, unspoiled child when you give him a car worth more than what the average American pays for his or her home? (The average home price, by the way, was $290,600 in Dec. 2009, according to the U.S. Census Bureau.)

In her Celebritology blog, the Post's Liz Kelly reports that Sean "Diddy" Combs gave his 16-year-old son a $360,000 Maybach, a luxury sedan. Oh, and the kid doesn't even have a driver's license.

I have never heard of that model of car and even if I had it like that, I wouldn't give it like that. Would you? Let's talk celebrity cash. If you were loaded like Diddy, would you give your child a sweet sixteen party and car collectively worth what several households make in one year?

Nicolas Cage is the latest example of the notion t...

2010-02-01T13:22:12.949-05:00

Nicolas Cage is the latest example of the notion that it's not what you make that matters, but how you make do with what you have. (That's a saying from my grandmother, Big Mama, who never made more than $13,000 a year, yet knew how to manage her money.)

The Oscar-winning actor's Las Vegas mansion was recently foreclosed on and sold for nearly $5 million, reports the Associated Press. Cage has said his former business manager gave him bad advice and that allegedly led to his financial mess.

So, um, did the man advise him not to pay his mortgage? Did he have his mortgage payments invested? I understand some celebrities are busy acting or singing or playing ball, but just like the rest of us working folks, they have to take care of their own business. Even when you hire someone to help you with your money, you have to do your homework. You have to check up on what the adviser is doing.

3. Illinois Gov. Pat Quinn (D) appears to be in ge...

2010-02-01T13:18:32.916-05:00

3. Illinois Gov. Pat Quinn (D) appears to be in genuine jeopardy of falling in next Tuesday's Democratic primary at the hands of state Treasurer Dan Hynes, a loss that would reinforce the anti-incumbent bent of the American electorate. A recent Chicago Tribune poll showed Quinn, who took over from disgraced former Gov. Rod Blagojevich (D), leading Hynes by just four points -- a rapid erosion for the incumbent in less than two months time. In a conference call with reporters Wednesday, Hynes campaign manager Mike Rendina claimed that "every minute we are gaining support across the state." Hynes pollster Jef Pollock argued that Quinn was simply unelectable in a general election and comparing him to New Jersey Gov. Jon Corzine (D) who lost his reelection bid after months (and months) of polling showed the incumbent in the low 40/high 30s in ballot tests. "Quinn is in a far worse situation than Jon Corzine," added Pollock. While a loss by Quinn would almost certainly become part of a broader national narrative for voters' rejection of their elected officials, the Illinois race has some unique traits that make it somewhat difficult to draw lessons from. First, there is the Blagojevich factor. Blagojevich's downfall has become the stuff of parody but it has left a lasting scar in the minds of Illinois voters that Quinn, despite being no friend of Blago, has struggled to overcome. Second, the accidental release of hundreds of prisoners by Quinn's Administration has handed Hynes a potent issue by which to paint the incumbent as out of touch. Still, a sitting governor -- even an appointed one -- is a big deal. And Hynes is now well within striking distance.

4. Republicans are falling all over themselves to challenge embattled Sen. Blanche Lincoln (D) in Arkansas with Rep. John Boozman (R) set to run and former University of Arkansas star Jim Lindsey apparently also looking at the contest. Boozman, who has held the 3rd district since 2001, is reportedly going to join the race later this week although he does not appear to be clearing the field -- or at least not yet -- of serious challengers as state Sen. Gilbert Baker has said he will not drop out no matter who gets in. While Lincoln has had to beat back retirement rumors since Democrats lost the Massachusetts special election race last week, the more crowded the field gets, the better the chances that Lincoln could survive if the GOP badly fractures itself in the May 18 primary.

5. Republicans are falling all over themselves to challenge embattled Sen. Blanche Lincoln (D) in Arkansas with Rep. John Boozman (R) set to run and former University of Arkansas star Jim Lindsey apparently also looking at the contest. Boozman, who has held the 3rd district since 2001, is reportedly going to join the race later this week although he does not appear to be clearing the field -- or at least not yet -- of serious challengers as state Sen. Gilbert Baker has said he will not drop out no matter who gets in. While Lincoln has had to beat back retirement rumors since Democrats lost the Massachusetts special election race last week, the more crowded the field gets, the better the chances that Lincoln could survive if the GOP badly fractures itself in the May 18 primary.