Financial Planning Thoughts

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Jan 4, 2011 1:15 pm

The average investor is seeking exceptional returns, through securities or real estate.

Average advisor is seeking average returns.

Permanent life insurance internal rate of return is either exceptional (high) or very low (not negative if properly structured).

Where an insurance need exists, it is rational to seek exceptional returns (even where the probability is low) combined with guarantees (for dependent survivors or legacy planning, high probability low internal rate of return) and to seek (high probability) average returns in the investment portfolio.

The correct strategy is goal-driven. The problem is devising a flexible strategy, because client goals change and options narrow over time.

Jan 5, 2011 12:44 pm

Marketing to women's market segment in 2011:

http://www.mainstreet.com/article/money/investing/how-find-best-financial-advice-women

http://www.slate.com/id/2274416/

http://www.ameriprise.com/global/docs/Mindscape_II_Report_-_Gender_Differences.pdf

Jan 5, 2011 12:48 pm

Is this going to become your "thought of the day, week, hour" thread?  Or is the goal to get the rest of us to play along too?  You didn't ask any questions or solicit any responses, so I'm not sure what point you're trying to make. 

Jan 5, 2011 1:22 pm

My client is not seeking high returns. They want income, and would like to see their assets grow modestly, keep up with inflation. My clients are generally retired, really retired, or surprisingly old. They are mnw to hnw. Most of them feel middle class, but are worth more than that. Fortunately for me, they are battle hardened veterans of the last 10 yrs, and it takes a huge amount of volatility to get them worked up. Some of my investors have even experienced the 73/74 market, or at least it had an impact on their business/lives.

For a new rep, I highly recommend when profiling, to discuss historical events in the market, past experience, and try to get a feeling for how the client reacted to those times, and what they learned from it. That kind of thing can really help avoid complaints, and improve your ability to create a proper asset allocation program for the client that will not violate their volatility comfort zone.

Just because  a rep hasn't been in biz for very long, doesn't mean that they can't learn about the past. Study the past, read books, look at charts, talk to old reps, talk to old clients. Learn, learn, learn, so you can add value. Watch the movie Rebel Without A Cause, from the early 50s. There is a huge financial lesson in that movie, and if you look for it, would hit you like a ten ton heavy thing. At the peak of the r/e boom, I discussed that with clients (who have all watched the film), so they'd realize the absurdity of McMansions...

Jan 5, 2011 2:11 pm

Awesome, thanks for reminding me about that JD movie.

I don't think anyone has ever really proved that you could beat some passive form of 60/40 allocation (60 stocks), so it's always about, how much downward volatility can you really handle. Maybe a retired person needs to buy and hold 25% diversified stocks, or range between 20 and 30 percent stocks, to keep up with inflation, if you they can handle the ride. Boring but effective stratetgy.

But for those of us who were in business in the late 90's, you know the history of greed is bound to repeat itself.

That will be interesting.

Spiff - yes.

It's my thread an' I'll do wha I want. I'm bored of reading about leads and braggers who think they're better - I'd rather think out loud or alone and be challenged or validated on what I'm interested in than explain that you have to suck it up and stick it out for the five hundreth time.

Jan 5, 2011 2:33 pm

Times, I think the best way to asset allocate, is to try to toss out anything that appears to be a bubble. Take a decent asset allocation fund back in early 2000, remove all tech and telcom. The performance would have been MUCH better. Same in 07, if you could remove financials.

This is what I try to do to add value. In the past I was right about tech and financials. I was not there for energy or precious metals on the way up. I got in a bit late with metals, last may. But, I got lucky and benefited from the big move of slv. Hopefully I know when to get out. I'm inclined to get out early.

Times, yes, boy, in the late 90s people were clearly insane with greed, could not be reasoned with. Just like the last big downturn, you couldn't pry even a few thousand away from their bank acct to do some buying during the winter/spring of 08/09. Makes it tough to beat the market when you have no control over their fear and greed. Most clients bring you the big fat check, when they "feel good about investing". Nothing seems to dictate performance more, than when that client brought you the money.

Jan 5, 2011 4:58 pm

Yeah, this whole biz is just filled with paradox and there is no killer app.

The best thing I can do is try to become a more humbled servant.

Damn I wish it was sunny and sixty eight degrees.

Possible client has me looking at a pile of stock certificates that dates back to the eighties. Could be worth a fortune, or not - almost impossible to research with the splits - they are just going to have to deposit these in a brokerage account and we'll see what we've got.

Jan 6, 2011 12:42 pm

On the topic of out-of-box client aquisition and financial advice delivery for women, here's a great article:

http://www.fpanet.org/journal/CurrentIssue/TableofContents/EmpoweringEducatingandEngagingWomenClients/

The education and work involved in personal financial management might be made more appealing to women if done in a group or community, organized and facilitated by the financial planner. Women clients, prospects, and friends could be invited into a circle setting to discuss any variety of subjects, such as their childhood money messages, surviving divorce, the death of a partner or spouse, or raising financially responsible children. The planner’s role would be to create the safe and convenient space for this discussion, and to provide occasional advice or guidance on technical or factual matters. The community could even be continued through online “threads” or networking. Most of the work would be done, however, by the women themselves, discovering the collective wisdom of the group on subjects that matter to them. The absence of any hierarchy among the participants can be empowering to women, many of whom are intimidated by the traditional “on high” delivery of financial advice. By building relationships among women, the financial planner thereby strengthens his or her relationship with clients or prospects. It can be a way of branding his or her commitment to the needs and wants of women.

... Building a women-friendly practice does not require financial planners to throw out the rulebook and start all over again. The six-step planning process still provides the best foundation for comprehensive financial planning and competent delivery of advice. The major subject matters of planning remain the same. The role of the planner as an experienced, educated, and ethical leader is still the ideal.
 
What’s different in the case of women is that all-important moment of entry to the financial planning engagement. Does she feel empowered, accepted, and comfortable? More importantly, does she feel safe? There is a huge demographic of women out there with assets, incomes, careers, and big financial decisions to make. As a profession, we have the financial answers and strategies for these women. We just need to open our advisory doors a bit wider to get these women “in the room.”