Portfolio > Mutual Funds

Meeting of the Minds

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Heavily attended sessions on tax and estate planning were the highlights of the New York FPA chapter’s Forum 2002 on Thursday, April 25. Titled “The New Reality,” the Forum offered planning strategies in several areas that often present substantial problems for advisors and their clients. Whether it was to get a look at long-term care planning issues from the inside or to hear the latest on estate tax planning within the parameters of the new tax laws, the more than 300 attendees crowded into rooms often taxed beyond their capacity.

Such “new realities” as planning for elderly clients who had failed to plan, seeking income from bond funds, taking another look at REITs, or exploring pension plans were popular sessions with the group, as was John Bogle’s keynote speech about the new realities facing the mutual fund industry. Citing a study by Forrester Research that suggests the heyday of mutual funds is at an end, Bogle called attention to the many inefficiencies within the industry that went virtually unnoticed during the boom but now are painfully obvious. Given the tendency of the ordinary investor to buy high and sell low, and to jump on the bandwagon of the current “hot” fund, basing decisions on past performance, Bogle said additional handicaps inflicted on the investor by mutual fund managers can be financially fatal.

Mutual funds, says Bogle, must change to survive; high expenses, tax inefficiencies, and high turnover rates are only some of the faults they must overcome to continue as viable investment vehicles. Funds, he accuses, spend a billion dollars in advertising annually and focus on short-term returns. Fund managers hold a stewardship, he says, and they must be cognizant of that responsibility and more aware of the consequences of risk and the needs of their investors. This means, among other things, that funds must pay far more attention to the underlying value of the corporations whose stock they purchase. If the corporation focuses on raising the price of its stock rather than the underlying value of the corporation, then that stock does not belong in the fund and the manager should recognize this.

Issues of stewardship of another kind were apparently on the minds of many attendees. The new reality facing planners as the population ages includes issues facing stressing boomers. Divorce planning, LTC planning, and planning for the elderly were all SRO sessions. Attendees asked lots of questions, and the presenters–such as Martin Shenkmann on estate planning; ABN AMRO’s Nancy Holland on REITs; and Philip V. Bouklas on elder law–were equal to the challenge.

At the Forum, the FPA presented its Malcolm S. Forbes Public Awareness Award for Excellence in Advancing Financial Understanding to Muriel Siebert for her work in educating the public. In addition to her many accomplishments within the field of finance, Siebert has developed a personal finance program currently in use in the economics curriculum in New York City public schools. It introduces students to the realities of finance, educating them so that they are better able to manage their own money and plan for their futures.