I'm a financial planner. I've been doing this for going on 10 years now, after more than 20 years of working for financial organizations. I have great clients and my practice has had great growth, at least by my standards. I'm content.
But based on the writings of many successful financial planners ('the book' as I call it), I should be trying to ramp up by adding staff and other advisors, and marketing more heavily. I need to turn my financial planning 'practice' into a 'firm' and if I don't, I'll be ruined. I'm supposedly not doing it right.
The thing is, based on 'the book' I shouldn't have been able to build a fairly successful practice. If fact, if I hadn't followed 'the book' when I first became a financial planner, I'd believe I'd be much better off now than I am. (It's occurred to me more than once that perhaps one of the reasons 'the book' says to add staff is, the so-called successful advisors who wrote it weren't smart enough to know how to do their own paperwork, or make their own decisions.)
So I have two possible paths now. One, to slow down growth, and enjoy the practice and the balance it provides to my life. Or two, pursue more growth, probably make more money, work longer hours, and end up managing other support staff, advisors, and the headaches that go with a large firm.
Choosing option #1 is easy for me. My kids are grown and independent, and I live a comfortable if not affluent life. My focus is much more on health and having time to enjoy life more. I want my practice to be something I can and want to manage.
It's easy for me to ignore 'the book' now, to say yes to life, and no to more money and more work. The hard part was knowing when not to listen to what people / 'the book' tell you to do.
Showing posts with label Advisor. Show all posts
Showing posts with label Advisor. Show all posts
Monday, September 19, 2016
Saturday, April 9, 2011
Post #100
When TV shows reach their 100th episode, they usually have a retrospective show that replays some memorable clips. Since this is my 100th blog post, it seems a good time for a retrospective of some of the themes of this blog.
Let's start with this one, from Post #1 on July 26, 2009: "Too many people simply believe what others tell them, with the unfortunate consequence of allowing those who control the message to also control them.....Think about it, then make up your own mind."
Since then, I've tried to get you to think about how taxes, obesity, commissions, and political parties and fringe politicians are bad. On the other hand, medicinal marijuana, some lyrics, fee-based advice, and Caddyshack are good.
Speaking of Caddyshack - in honor not only of the 100th post, but of this weekend's 75th Masters golf tounament, here's my post from February 3, 2010: [standing in an ornamental flowerbed] What an incredible Cinderella story! This unknown, comes out of nowhere, to lead the pack at Augusta. He's at the final hole. He's about 455 yards away, he's gonna hit about a 2-iron, I think... [swings, pulverizes a flower] Oh, he got all of that! The crowd is standing on its feet here at Augusta. The normally reserved crowd is going wild...for this young Cinderella who's come out of nowhere. He's got about 350 yards left, he's going to hit about a 5-iron, it looks like, don't you think? He's got a beautiful backswing... [swings, pulverizes another flower] That's...oh, he got all of that one! He's gotta be pleased with that! The crowd is just on its feet here. He's a Cinderella boy. Tears in his eyes, I guess, as he lines up this last shot. He's got about 195 yards left, and he's got a, looks like he's got about an 8-iron. This crowd has gone deadly silent... Cinderella story, out of nowhere, former greenskeeper, now about to become the Masters champion... [swings, pulverizes yet another flower] It looks like a mirac- it's in the hole! It's in the hole!
Here's to the next 100 posts!
Let's start with this one, from Post #1 on July 26, 2009: "Too many people simply believe what others tell them, with the unfortunate consequence of allowing those who control the message to also control them.....Think about it, then make up your own mind."
Since then, I've tried to get you to think about how taxes, obesity, commissions, and political parties and fringe politicians are bad. On the other hand, medicinal marijuana, some lyrics, fee-based advice, and Caddyshack are good.
Speaking of Caddyshack - in honor not only of the 100th post, but of this weekend's 75th Masters golf tounament, here's my post from February 3, 2010: [standing in an ornamental flowerbed] What an incredible Cinderella story! This unknown, comes out of nowhere, to lead the pack at Augusta. He's at the final hole. He's about 455 yards away, he's gonna hit about a 2-iron, I think... [swings, pulverizes a flower] Oh, he got all of that! The crowd is standing on its feet here at Augusta. The normally reserved crowd is going wild...for this young Cinderella who's come out of nowhere. He's got about 350 yards left, he's going to hit about a 5-iron, it looks like, don't you think? He's got a beautiful backswing... [swings, pulverizes another flower] That's...oh, he got all of that one! He's gotta be pleased with that! The crowd is just on its feet here. He's a Cinderella boy. Tears in his eyes, I guess, as he lines up this last shot. He's got about 195 yards left, and he's got a, looks like he's got about an 8-iron. This crowd has gone deadly silent... Cinderella story, out of nowhere, former greenskeeper, now about to become the Masters champion... [swings, pulverizes yet another flower] It looks like a mirac- it's in the hole! It's in the hole!
Here's to the next 100 posts!
Saturday, December 26, 2009
More Evidence On The Failure Of Active Investing
From an article in the 12/3/2009 Wall Street Journal on a study done by two of the world's smartest academics in field of investing:
It's impossible to tell whether actively managed funds that beat the market do so out of luck or skill, according to a new study by the professors who've championed passive/index investing for years.
The claim means that investors can't know for sure how good their active manager is, say the professors, Eugene Fama and Kenneth French. The latest Fama-French study is another piece of ammunition to support their view that most active managers can't consistently beat [passively managed] funds, which track the market. Underpinning that is the efficient-market hypothesis, developed by Mr. Fama in the 1960s, that states that assets are appropriately priced since the market has all available information.
Mr. Fama and Mr. French, professor of finance at Dartmouth College's Tuck School of Business, ran 10,000 simulations of what investors could expect from actively managed funds.
This was based on data for 3,156 stock funds from January 1984 to September 2006. They found that outside the top 3% of funds, active management lags behind results that would be delivered due simply to chance.
The study, "Luck Versus Skill in the Cross Section of Mutual Fund Returns," included mutual funds that were liquidated and any fund launched before September 2001 that reached more than $5 million in assets. (Find a copy of the report at the Social Science Research Network.)
"The simulations tell us that for the vast majority of actively managed funds, true [abnormal expected return] is probably negative; that is, the fund managers do not have enough skill to produce risk-adjusted expected returns that cover their costs," wrote the professors.
The fact that some funds in the professors' study beat the simulations does suggest that by picking the right funds investors can consistently outperform the market. But there's just one problem, according to the professors: The "good funds are indistinguishable from the lucky/bad funds that land in the top percentiles."
Given this evidence, why do most investment advisors continue to use actively managed funds? I covered this in an earlier blog (http://streffblog.blogspot.com/2009/10/simple-yet-inevitable-wealth-creation.html), but in short, it's because that's how they get more of your money.
MORAL: Only use advisors who believe in the passive/index approach.
It's impossible to tell whether actively managed funds that beat the market do so out of luck or skill, according to a new study by the professors who've championed passive/index investing for years.
The claim means that investors can't know for sure how good their active manager is, say the professors, Eugene Fama and Kenneth French. The latest Fama-French study is another piece of ammunition to support their view that most active managers can't consistently beat [passively managed] funds, which track the market. Underpinning that is the efficient-market hypothesis, developed by Mr. Fama in the 1960s, that states that assets are appropriately priced since the market has all available information.
Mr. Fama and Mr. French, professor of finance at Dartmouth College's Tuck School of Business, ran 10,000 simulations of what investors could expect from actively managed funds.
This was based on data for 3,156 stock funds from January 1984 to September 2006. They found that outside the top 3% of funds, active management lags behind results that would be delivered due simply to chance.
The study, "Luck Versus Skill in the Cross Section of Mutual Fund Returns," included mutual funds that were liquidated and any fund launched before September 2001 that reached more than $5 million in assets. (Find a copy of the report at the Social Science Research Network.)
"The simulations tell us that for the vast majority of actively managed funds, true [abnormal expected return] is probably negative; that is, the fund managers do not have enough skill to produce risk-adjusted expected returns that cover their costs," wrote the professors.
The fact that some funds in the professors' study beat the simulations does suggest that by picking the right funds investors can consistently outperform the market. But there's just one problem, according to the professors: The "good funds are indistinguishable from the lucky/bad funds that land in the top percentiles."
Given this evidence, why do most investment advisors continue to use actively managed funds? I covered this in an earlier blog (http://streffblog.blogspot.com/2009/10/simple-yet-inevitable-wealth-creation.html), but in short, it's because that's how they get more of your money.
MORAL: Only use advisors who believe in the passive/index approach.
Tuesday, September 1, 2009
Investment Rules And Where To Invest
In an interview earlier this summer, Berkshire Hathaway CEO Warren Buffett was asked for his top three pieces of advice for Americans who want to grow their savings and keep their money safe. His answers:
1. If it seems too good to be true, it probably is.
2. Always look at how much the other guy is making when he is trying to sell you something.
3. Stay away from leverage. Nobody ever goes broke that doesn't owe money.
People should be especially aware of #2 (literally and figuratively). That's why you don't want to work with a commission-based investment advisor - they usually care more about what they make than they do about what's best for the investor.
One more nugget from this Buffett interview had to do with his views on education. He said, "Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents. Nobody can take it away from you. They can run up huge deficits, the dollar can become worth far less, your can have all kinds of things happen. But if you've got talent yourself, and you maximize your talent, you've got a terrific asset."
1. If it seems too good to be true, it probably is.
2. Always look at how much the other guy is making when he is trying to sell you something.
3. Stay away from leverage. Nobody ever goes broke that doesn't owe money.
People should be especially aware of #2 (literally and figuratively). That's why you don't want to work with a commission-based investment advisor - they usually care more about what they make than they do about what's best for the investor.
One more nugget from this Buffett interview had to do with his views on education. He said, "Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents. Nobody can take it away from you. They can run up huge deficits, the dollar can become worth far less, your can have all kinds of things happen. But if you've got talent yourself, and you maximize your talent, you've got a terrific asset."
Wednesday, July 29, 2009
Investors Need Independent Advisors
In today's Wall Street Journal there's a very good article headlined "Wary Investors Are Seeking Out Objective Voices" by Anne Tergesen and Jane Kim. It essentially summarizes the merits of using independent financial advisors (like me) instead of people affiliated with financial institutions. The full article can be found at
http://online.wsj.com/article/SB10001424052970204423804574288130378749314.html#articleTabs%3Darticle
As noted in this article, Independent Registered Investment Advisors (RIA - again, like me) are held to a higher fiduciary standard to work in a client's best interests. They must fully and transparently disclose their costs and how their firm operates. Most provide a full range of financial planning advice for a percentage fee of assets under management and/or an hourly charge.
In contrast, brokers (affiliated people may call themselves financial 'advisors' or 'consultants' but in truth they are brokers) are in the business of selling their firm's preferred brokerage products to make commissions. They may not be working on a client's behalf but rather their own, and believe me, I've seen that happen dozens of times over the years. Of course, brokers do a great job of burying these commissions from sight through a variety of hidden fees.
I've said it many times: It will take an independent fee-based advisor years to make the same compensation that a broker makes with one product sale commission. Who do you think is more likely to want to establish a thoughtful, long-term client relationship?
The article also recommends people look for advisors who have the Certified Financial Planner credential (again - like me!) The testing, ethics, and experience required to obtain that designation are good indications that you'll be working with someone you can trust.
This article is a must-read and must-report-on for someone in my line of work. And to find out more about changing the way people invest, contact me at VW Advisors, West Des Moines, IA Phone 515-223-6068!
http://online.wsj.com/article/SB10001424052970204423804574288130378749314.html#articleTabs%3Darticle
As noted in this article, Independent Registered Investment Advisors (RIA - again, like me) are held to a higher fiduciary standard to work in a client's best interests. They must fully and transparently disclose their costs and how their firm operates. Most provide a full range of financial planning advice for a percentage fee of assets under management and/or an hourly charge.
In contrast, brokers (affiliated people may call themselves financial 'advisors' or 'consultants' but in truth they are brokers) are in the business of selling their firm's preferred brokerage products to make commissions. They may not be working on a client's behalf but rather their own, and believe me, I've seen that happen dozens of times over the years. Of course, brokers do a great job of burying these commissions from sight through a variety of hidden fees.
I've said it many times: It will take an independent fee-based advisor years to make the same compensation that a broker makes with one product sale commission. Who do you think is more likely to want to establish a thoughtful, long-term client relationship?
The article also recommends people look for advisors who have the Certified Financial Planner credential (again - like me!) The testing, ethics, and experience required to obtain that designation are good indications that you'll be working with someone you can trust.
This article is a must-read and must-report-on for someone in my line of work. And to find out more about changing the way people invest, contact me at VW Advisors, West Des Moines, IA Phone 515-223-6068!
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