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Retirement Planning > Retirement Investing

Indie Advisors’ Growing Pains; Behavioral Finance; Effective Differentiation: June Research—Slideshow

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Indie Advisors’ Growing Pains

Adding clients, and finding ways to serve them efficiently, is key to business expansion.

Independent channel executives love to cheer their space — and no wonder. It continues to grab market share. It exudes a strong client-first mindset. And, according to Fidelity Investments’ new Broker and Advisor Sentiment Index, RIAs and the independent broker-dealer channel generate the highest levels of advisor satisfaction. These folks are happy.

But in corner offices, top leaders are grappling with a key question: As it faces revenue-building inhibitors and other challenges, what must the independent channel do to create sustainable success?

Indie sector experts weigh in on how to advisors can climb to the next level in today’s straitened economic circumstances.

Giving Clients What They Need

Behavioral finance expert Meir Statman focuses on beating bad thinking.

Professor Meir Statman has been doing notable behavioral finance research for decades (some of it together with billionaire investor Ken Fisher). Now he has published a book that makes this research accessible to lay advisors and investors.

In What Investors Really Want, the Santa Clara University researcher provides deep insight into just what drives investor decisions. Science is the route to smarter investing, says Statman, who urges FAs to deter clients from “the tempting voice of wants” — often prompting bad investment choices — and steer them instead toward “shoulds” — which mostly lead to smart choices.

Researchrecently interviewed Statman to shed light on how advisors can use the science of behavioral finance to build client trust and add value.


The Differentiation Dilemma

Why should prospects hire you over your competitors?

While attempting to win over a new client, we may think that we are impressing them with our investment knowledge and financial planning acumen. All seems to be perfectly aligned as we begin to feel quite proud of our salesmanship and performance. However, that euphoric feeling can be rather abruptly shattered when the prospective client says: “So, tell me why I should hire you over the other hundred financial planners who called my office last week?”

The key to resolving this dilemma is to realize that it is not sufficient to tell them why you are different, but rather you need to show them that you are different. In his Client Relationship column, Raphael Lapin offers a two-step approach to effective differentiation.

Retirement Planning Gone Awry

Poor planning and poor luck plague retirement outcomes.

Most investors end up needing to take retirement income out of current assets, with most advisors defaulting to the rule of thumb known as “the 4 percent rule.” However, recent research shows that this rule of thumb is far more hazardous than commonly understood.

Wade Pfau, a professor at the National Graduate Institute for Policy Studies in Japan, has demonstrated that the experience of international markets suggests a withdrawal rate far lower than 4 percent, and that a 4 percent real withdrawal rate is based upon “irrational optimism.”

Indeed, data from countries such as Spain, Belgium and France suggest that even a 3 percent withdrawal rate is highly problematic. Pfau has also shown that Americans who retired around the turn of the century are often in real danger. Indeed, for 2008 retirees, Pfau estimates a maximum sustainable withdrawal rate of only 1.46 percent.

In this Annuity Analytics column, Bob Seawright looks at various approaches to common retirement income challenges.

Mexico’s Resilient Market

The Mexican stock market has a history of overcoming economic and financial crises.

Mexico’s long-ago president, José Porfirio Díaz, is credited with a memorable, though likely apocryphal, quote, which translates as: “Poor Mexico, so far from God and so close to the United States!”

Díaz’ desire to keep some distance from the giant northern neighbor echoed through the 20th century in Mexican policies that kept a tight rein on cross-border trade and investment.

In recent decades, though, and particularly since the North American Free Trade Agreement went into effect in 1994, Mexico’s policymakers have sought to capitalize on their country’s proximity to the U.S. Consequently, Mexico has attracted investor interest for its uncommon identity as both emerging market and member of a vast trade bloc.

Ken Silber details how, in recent years, Mexico’s market has soared to unprecedented heights, notwithstanding a significant but transient plunge during the global financial crisis.

Facebook Frenzy

Is there a new high-tech bubble?

In stocks, a new mini-bubble is inflating in the social networking sector of the Internet. Valuations of companies have gone through the roof. The leader of the whole social networking phenomenon, Facebook, has gone from around $10 billion less than two years ago to over $75 billion in early 2011. Worse, there seems to be an unstoppable bubble mentality at work. Even though everyone realizes that it is a bubble, there is a buying frenzy that compels investors to keep buying small stakes in top-tier social networking firms at astronomical prices.

According to many analysts, today’s situation is fundamentally different from the late 1990s environment, when valuations got out of hand. There are fewer companies involved than a decade and a half ago, when literally hundreds of companies rushed first to the stock market and then on to the bankruptcy court. Today’s social networking operations have a solid business model and are, by and large, making money — some hand over fist.

Alexei Bayer argues these cheerleaders are like European generals in the 19th and early 20th centuries — always preparing to fight the past war, not the future one.

Whacking Moles?

Time management, not multitasking, gets things done.

Of course you played the game. A silly face pops up, WHACK. Then another. WHACK. No matter how good and how fast you are, there’s always another mole leering at you, begging to be whacked. Odds are you also lead a whack-a-mole business life, which means that you suffer from bad work habits.

Specifically, those bad work habits are: (a) multitasking; (b) unstructured day; and (c) little or no administrative system.

It does not take much loss of structure for an entire labor of moles to run in uncontrolled abandon through your office and life. (Yes, a group of moles is called a labor — most apropos don’t you think?)

“The secret” of bringing structure into your day is to start with a single “mini-day.” Pick a type of activity: planning, calling clients, cold walking, whatever. Start on time. End on time. Then add another “mini-day.”

In this column, Bill Good offers a time-management strategy that keeps those moles at bay.


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