I fired a couple for dramatic underperformance compared to their peers.

I fired one because the money manager was retiring.

I fired one because they had been in the media a lot over questionable business practices even though they had average performance.

[quote=noggin]ICONSULT- C shares is the same argument....[/quote]

I suppose there's some truth to that if you're dealing with small accouts that otherwise wouldn't qualify for a fee break and don't care about tax issues. I just find the hidden fee aspect annoying and I don't have much use at all for funds with clients with over about $500k.

[quote=iconsult100]

I fired a couple for dramatic underperformance compared to their peers.

I fired one because the money manager was retiring.

I fired one because they had been in the media a lot over questionable business practices even though they had average performance.

[/quote]

Same here. Underperformance of peers, changes in management teams, changes in management styles, allegations of misdeeds....

When I said Financial Planning was overdone, I meant the theory of
charging $5,000 to analyze the insurance, investments, build a
portfolio, analyze budgets, holistic crap…  People need financial
advisors to build a portfolio, invest the money and educate them. 
The vast majority of middle income America can pass on the rest of the
garbage. 



I had a client pull out a financial plan that was over 100 pages that
someone had run for him.  What the hell is that?  He paid
several thousand and never read the entire thing.  The planner was
paid hourly so didn’t care if the recommendations were actually
performed - bunch of crap.



I’m all for building a situation where I’m on the same side as the
client.  My opinion is 1% for an entire portfolio is rather
expensive.  I’ve been getting clients from a regional firm who is
dumping clients with less than $500k.  They charge 1.5% for assets
up to $2million.  I’ll take all their small clients they want to
pass my way and I’ll make about $2,500 each per year.

Financial Planning is a process, not a product.  The book is
useless after a year or two.  Running non-detiministic planning is
needed in order to have an education conversation about goals, risk
tollerance, and allocations.  For the typical middle class client,
they do not know if they are saving the right amount, in the right type
of account, in the investment allocation, and in the right
investments.  They do not know know how to properly review the
situation, rebalance, and re-act to life changing events.  Anyting
other than following a planning process is guessing, and that is
dangerous.  Everyone should go get their CFP.

Get your CFP and provide financial planning to clients for free.   Then watch the rest of your business boom.  Use managed accounts.  Wow.  You and your clients will make a lot of money and will be really happy with the results.

In the end.... if they don't reach their goals, they're really not gonna care about returns that they got.

Wrong, wrong, wrong.

Q: What is the client’s perception of “free” financial planning?

A: The same as free legal or tax advice.



Q: What value is a financial plan if your returns don’t meet your

projections?

A: Zero.



Gee Mr. Client, I know you want to retire at 59 but with these returns, it

looks more like 69. Financial planning is something I address after the

client’s portfolio is “back on track”, ie: making money.



I have a 51 year old attorney that I’ve worked with for almost 10 years

with no financial plan. Recently, both parents passed away, and client is

now coming into about $2 million in assets.



For years we brought up the subject of financial planning but nothing

developed. Why? because client always felt like they would work forever

and because nothing I could propose would match the firm’s generous

401(k).



Now, client resigned from firm and is planning to study Chinese abroad

for three months and sees the value of financial planning. I’m involved

because the client knows what I can do with $600K, and feels comfortable

with me handling the rest.

[quote=skeedaddy]Financial planning is something I address after the
client's portfolio is "back on track", ie: making money.

[/quote]

How do you know where the "track" is if you don't have a plan?

…capital gains

[quote=skeedaddy]...capital gains [/quote]

Capital Gains of 8% mean nothing if the client need 9.5% to meet his/her goals.  Why give the same blind advice to everyone?  Those who discount planning either don't have the knowledge to do it, or they're just too lazy to do it.

Rule 405.  Know your client.

So if you don’t hit your bogey of 9.5% (your number, not mine) your client

should replace you?



What has been the annual return since Jan 2000? FYI its negative as far as

US equities are concerned. Nobody brings this point up, but this could

very well be a decade of flat performance for US equity market. How will

the client realize their goals?



Financial planning, as it is used 90% of the time, is nothing more than a

fancy term for time value of money. It was devised as a means of

uncovering a prospect’s assets. A sales tool…plain and simple. It has no

bearing on a portfolio’s results, or the probablity of the plan’s success.



Take a look at some of the plans that you prepared in 1999 and tell me if

it still holds true.

[quote=skeedaddy]So if you don't hit your bogey of 9.5% (your number, not mine) your client
should replace you?
[/quote]

No, you replace the under-performing money managers.  As far as the past 5 years are concerned, I can show you several portfolios that have performed 5-10% since 2000.

It's about balance, clients should NEVER be 100% equities as it is.  Planning helps you identify what returns you need to hit your goal and you build the portfolios around that.  It's called efficiency.

If you don't plan, you don't know what the bogey is for that client.

[quote=iconsult100]

[quote=skeedaddy]Financial planning is something I address after the
client's portfolio is "back on track", ie: making money.

[/quote]

How do you know where the "track" is if you don't have a plan?

[/quote]

Exactly. And without a plan you and your client don't really know what his asset allocation should look like, how much risk he needs to take on, what sort of insurance (life and disability) he should carry.

No professional could claim with a straight face that your slightly-better-off-than average Joe could plan for retirement (to name just one goal) with the same asset allocation of a seriously wealthy client. One may need to be 75% in equities, the other may be able to get by with 75% in munis.

"Making money" isn't a plan, it's a tiny part of it.

[quote=skeedaddy]
What has been the annual return since Jan 2000? FYI its negative as far as
US equities are concerned.

[/quote]

Check again, "US equities " is a much broader defintion than you seem to realize. The DOW and the S&P 500 may be down Jan 2000 to date (I haven't checked lately) but other US equity indexes are up during the same time period.

[quote=skeedaddy]

Nobody brings this point up, but this could
very well be a decade of flat performance for US equity market. How will the client realize their goals?

[/quote]

Because, hopefully, they're dealing with a professional who looks beyond the headline indexes and has them in international equities, perhaps TIPs, converts and US equities aside from just large cap growth.

[quote=skeedaddy]
Financial planning, as it is used 90% of the time, is nothing more than a fancy term for time value of money. It was devised as a means of
uncovering a prospect's assets. A sales tool...plain and simple. It has no bearing on a portfolio's results, or the probablity of the plan's success.

[/quote]

It's a fine sales tool, it does turn up all assets, but everything else you said is wrong when applied to every professional I know of.

[quote=skeedaddy]

Take a look at some of the plans that you prepared in 1999 and tell me if it still holds true.


[/quote]

It clearly does...

Based on our previous exchanges, I’m going to start by acknowledging

that every man is entitled to their opinion. I guess that if you hear the

same thing enough times…you begin to believe it. That’s how religions

were started.



As far as financial planning, the thought of taking out an 18 page

questionnaire and coming back a week later with a canned, cookie-cutter

38 page analysis, (that 95% of clients don’t even read) is nonsense.



Instead, I use a one page worksheet for estate planning, if the client has

over $5 million in assets right now. The same goes for insurance, a one

page worksheet.



Now, allow me to broaden my definition of equities. Here are total returns

(not annual averages) for the last 5 years:

Russell 1000     -1.27%

Russell 2000       6.45%

Russell 3000     -0.72%

Russell Midcap    7.17%

Russell SmallCap 1.35%

Russell Top 200    -4.02%



Pretty flat, and that doesn’t include transaction fees, wrap fees or any

fees. TIPS peaked my interest but I passed because the FED is sooooo

focused on inflation, I don’t think those securities have much of a chance.

The Franklin Convertible Fund, one of the best, has averaged about 5.5%

per year, hardly worth the risk when compared to a Treasury Note.



For the last 5 years the only standouts are Latin American and Emerging

Markets at about 20% per year. Now Mike, you have to admit that even if

you do have any clients involved, the percentage is likely so small that it

can’t have a material impact on accounts.

[quote=skeedaddy]Based on our previous exchanges, I'm going to start by acknowledging that every man is entitled to their opinion.[/quote]<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Agreed.

[quote=skeedaddy]

As far as financial planning, the thought of taking out an 18 page
questionnaire and coming back a week later with a canned, cookie-cutter 38 page analysis, (that 95% of clients don't even read) is nonsense.

[/quote]

“Canned, cookie-cutter”… I suppose there could be some truth to that, if the plan produced for every client looked the same. What I’ve seen is that plans for people in SIMILAR CIRCUMSTANCES tend to look the same. That’s hardly the same thing you said, and it seems completely logical to me.

But, on the subject of “canned, cookie cutter” responses, are you telling me that every single one of your clients has a wholly unique portfolio and investment strategy offered by you to them? Yeah, I didn’t think so.

[quote=skeedaddy]

Instead, I use a one page worksheet for estate planning, if the client has over $5 million in assets right now. The same goes for insurance, a one page worksheet.

[/quote]

Hmm, sounds like bits and pieces of a plan. Say, those worksheets, do any of them resemble any of the others that you’ve produced for clients? And what do you produce for people considering retirement planning? Doesn’t their retirement goal and timeline greatly narrow the investment process that follows?

BTW, I would say that over $5M TODAYis too high a hurdle (try 2M) and estate plans that don't take into account reasonable asset growth and general life expectancy are useless. The question isn't just what would happen today, it's what would happen if you lived 10-20 years (and your assets grew accordingly). Otherwise you're doomed to last minute estate planning.

[quote=skeedaddy]

Now, allow me to broaden my definition of equities. Here are total returns
(not annual averages) for the last 5 years:
Russell 1000     -1.27%
Russell 2000       6.45%
Russell 3000     -0.72%
Russell Midcap    7.17%
Russell SmallCap 1.35%
Russell Top 200    -4.02%

[/quote]

You might want to check your numbers. I didn’t check them all, but the 6.45% you showed for the Russell 2000 is an annualized total return, not a total return. Here’s a link;

http://www.russell.com/us/indexes/us/calculator.asp

It shows the Russell 2000 at 7.45 ATR. The Russell Midcap was 7.9 (The value portion at 13.72).

It’s also important to note that we’re talking indexes here and it’s been my experience than active management beats index performance (aside from the S&P500 exception) regularly.  An example, while the Russell 100 Value produced a ATR of 6.6% from 6/2000 to 6/2005, Brandes returned a whopping 15.4% over the same time period. Or Small Cap Value managers annualizing at better that 15% for the past 5 years.

[quote=skeedaddy]TIPS peaked my interest but I passed because the FED is sooooo
focused on inflation, I don't think those securities have much of a chance.

[/quote]

Rising rates would be a reason to buy TIPS, and you can hold them in a variety of ways. I maintain an asset allocation for most clients that includes fixed income and I often use TIPS as part of it.

[quote=skeedaddy]

The Franklin Convertible Fund, one of the best, has averaged about 5.5%
per year, hardly worth the risk when compared to a Treasury Note.

[/quote]

First, converts aren’t a Treasury Note alternative, it’s an equity alternative. Second, what’s been the total return of a T Note for the past five years? Would you continue to hold any note in the face of upward rate pressure? Just curious.

[quote=skeedaddy]
For the last 5 years the only standouts are Latin American and Emerging
Markets at about 20% per year. Now Mike, you have to admit that even if
you do have any clients involved, the percentage is likely so small that it
can't have a material impact on accounts. [/quote]

As I mentioned above, there are many managers that beat their respective indexes like a drum. Secondly, you didn’t have to go exclusively into <?:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Latin America or Emerging markets to get a great return over the last five years. The MSCI EAFE index provided a ATR of -.2% (ex Japan 1.8) but managers like NWQ (13.3%) beat the index like a drum w/o going deep into LA or Emerging markets.

For all but my most conservative clients, international equities makes up 24% of their equity total. As others have pointed out in the past, even in the very difficult market of the past five years, well diversified portfolios using mainstream asset allocation models have produced ATR of 10% or better. I have plenty of happy clients willing to testify to that effect.

Mike:

I applaude you…no I salute you. Your clients are indeed in good hands.

Your analysis back in 1999 was able to position clients in Emerging

Markets ahead of a six year positive trend while the Dow and S&P have

faltered.



Tell us your secret. Where can we get some of this higher insight? My

clients should fire me today…my accounts are up only 14% YTD. How will

they be able to live their golden years in comfort? Less than 10% have a

"financial plan". I’m a disaster.



C’MON MAN…FIRING AN OUTSIDE MONEY MANAGER BECAUSE OF

PERFORMANCE SLIPPAGE IS A COMPLETE COP OUT.



I’m planning on converting to an incentive-based compensation plan

where the client pays me a bonus based on absolute performance.



As far as convertible bonds are concerned…had you invested in a 5 year

T-Note back in 2000 you could have locked in 6.00% guaranteed with

your capital returned. Why subject yourself to the volatility low-rated

bonds to capture the same rate of return?

[quote=skeedaddy]Mike:
I applaude you...no I salute you. Your clients are indeed in good hands. Your analysis back in 1999 was able to position clients in Emerging Markets ahead of a six year positive trend while the Dow and S&P have faltered. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

[/quote]

Not emerging markets so much as international equities. I thought I was pretty clear about that. The US equity market is less than 1/3 of the world's markets (from memory). Seems to me having 24% overseas is no great insight, it's simple asset allocation. The same applies to the S&P 500, that's just one part of the US equity market and if you're not including small and midcap equities as well, you're not covering large parts of the market.

[quote=skeedaddy]
Tell us your secret. Where can we get some of this higher insight? My clients should fire me today...my accounts are up only 14% YTD. How will they be able to live their golden years in comfort? Less than 10% have a "financial plan". I'm a disaster.

[/quote]

Hmmm, up until now you've been talking about how "the market" has been flat to down for the past five years, now you're up 14% YTD. By your own logic, since your clients are making money, shouldn’t you be writing financial plans for them now?

All I can say to you is there's not much of a secret beyond a disciplined approach to asset allocation and a realization that better than 90% of your portfolio's returns don't come from individual equity selection as it comes from cap size and style (value, growth). That’s why when I hear a prospect say they have one guy running their money, after I ask for their investment policy statement (which usually leaves them staring blankly, since their guy never produced anything of the sort) I ask if their guy is a large cap growth manager, a small cap value guy, or what. Most people gather the point very quickly that it’s pretty unlikely that their guy is a master of all styles and caps. Then, since their guy has, no doubt, sold the client on performance, we simply examine his real risk adjusted performance against a real diversified portfolio. Then the ACAT gets signed.

I didn’t invent the process, but I do know how to use it.

[quote=skeedaddy]
C'MON MAN.....FIRING AN OUTSIDE MONEY MANAGER BECAUSE OF
PERFORMANCE SLIPPAGE IS A COMPLETE COP OUT.
[/quote]

I don't see how that's true if you're measuring their performance against other managers in the same cap/style discipline. Now, if you're firing a large cap manager because he's under performed a large cap value average, or a midcap average, well, then you're a fool. That’s like the folks that fired Warren Buffet style value managers in the late 1990s because the momentum growth guys were doing so much better. We all know how that turned out.

[quote=skeedaddy]
I'm planning on converting to an incentive-based compensation plan
where the client pays me a bonus based on absolute performance.

[/quote]

I sincerely wish you luck with that. There are many ways to skin the cat.

[quote=skeedaddy]

As far as convertible bonds are concerned....had you invested in a 5 year T-Note back in 2000 you could have locked in 6.00% guaranteed with your capital returned.

[/quote]

When could you last buy a 6% five year T bond? When high quality corps were paying 8%? When the market was running at 15% and money markets were paying 4%?  And, if it isn't a 5 year Note, what's the current value of the bond? I can promise you it isn't face value. That was quite a decision to tie up money for a long period in what was at the time grossly under performing asset. I congratulate you on how that worked out.

Converts aren't a TNote alternative, they’re an equity alternative. Take a look at Calamos's SMAs. They offer around 75% of the equity market's upside with only 30% of the downside. I consider that a good thing to include in an equity portfolio.

Oh, and a final note. I think I was pretty kind to you after your egregious error of reporting the indexes annualized total return as merely total return.  Feel free to return the favor.

This message board is a perfect example of why “financial planning” is over sold - in my opinion.



I’m all for the occasional look at estate planning - we have an attorney who does it.

I’m all for the occasional insurance analysis - we have a CLU ready to step in when it’s time.

Tax planning and preparation?  It’s done in office.

Budget analysis - we’ll charge a little and run it but only if we see a problem.

The rest of the stuff I handle and it can be done very quickly - just
as Skeedaddy said.  Every client runs through it when they are
signed up and we develop a risk analysis, develop goals, write up a
plan of action and implement.  That’s our job.  Selling
someone 1,000 shares of IBM isn’t going to cut it anymore. 



But is this the same financial planning someone who is charging per
hour and isn’t following up and implementing the plan?  It’s
different, not saying it is better or worse.  My plan of action is
what 98% of the public needs.  If you deal with the top 2% of
wealth, you probably need a little more.

Mike:



First of all I concede that I read the Russell results wrong.    The work

I do is primarily focused on the S& P 500 as my benchmark. Since I cream

the index consistently, and because its [S&P 500] components are

headline makers, my clients feel comfortable participating in the space.



I do continue to take issue with “financial planning” as a metric to target

specific returns to meet future obligations as specified by a client. Since

no one can assure or predict portfolio results, I don’t see how a canned

report can pre-position a client’s assets to reach that objective. Even by

your own admission, often, an outside money managment firm with

billions under management fails to meet objectives, and must be

replaced.