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Finding Financial Crisis Culprits; Selling Advisors Like iPhones: May Research—Slideshow

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Research magazine’s May cover story, “Finding the Culprits,” focuses on derivatives expert Janet Tavakoli and her hard-hitting analysis of who and what caused the financial crisis.

The Chicago-based consultant points to massive malfeasance at financial institutions, particularly “the interconnected fraud that infected the mortgage lending market,” and complains that politicians and regulators have shown little interest in punishing the malefactors or enacting meaningful reforms to stop such abuses.

The May issue also features an article on “Marketing Advisors Like iPhones.” This looks at the power of brands for marketing financial advisory services, and how “forward-thinking advisors are currently taking a deep dive into brand building, an exercise that involves not only a critical self-inventory but also outreach to top clients.”

Other highlights of the May Research include a strategy for coping with college costs, advice in implementing a “Model Day” approach to time management and a discussion of the dollar’s purchasing power and the limits of conventional inflation measures.

Click through the following slides to preview the May issue of Research magazine.

Finding the Culprits

In Research magazine’s May cover story, Contributing Editor Jane Wollman Rusoff interviews Janet Tavakoli, expert on credit derivatives, about the origins and implications of the global financial crisis.

Tavakoli’s new e-book The New Robber Barons charges that the relationship between between failed mortgage lenders and investment banks that securitized and sold risky loans was “a financial Pearl Harbor,” where “investment bankers piloted many of the planes.”

Tavakoli speaks bluntly to Research‘s readership of financial advisors, saying that in recent years advisors “have let themselves and their clients down badly by not paying attention to the bigger picture,” including risks in the global banking system and the safety of cash flows. Indeed, she argues, in light of the collapse of MF Global, clients are ill-advised to leave “extra cash in trading accounts with any of the major brokerage firms, such as Goldman Sachs or Merrill Lynch.”

Washington has been complicit in enabling and covering up wrongdoing in the financial services sector, according to Tavakoli, who asserts that Congress, regulators and President Obama all have shown little inclination to address the practices that erupted into crisis. In addition, in her view, current public policy is headed toward sparking another crisis by 2015, as low interest rates push people into riskier investments.

Marketing Advisors Like iPhones

Contributing Editor Ellen Uzelac reports on how innovative financial advisors are embracing branding as a powerful took for getting and keeping clients.

For instance, Venice, Calif.-based John Koudsi, CEO and chief strategist of Core Financial Partners, rarely wears a suit, meets with his entrepreneur clients in a modern loft and, Uzelac writes, “pretty much personifies his firm’s corporate slogan: ‘You don’t fit in a box and neither do we.’”

In another example, David B. Armstrong of Monument Wealth Management in Alexandria. Va., decided to build his firm’s brand around the “explorer” archetype, emphasizing freedom and possibility. “We’re the people searching constantly for a better way to do something,” says Armstrong. “We’re all about independence and fulfillment. My clients’ personalities are built exactly the same way.”

A sidebar focuses on Guy Kawasaki, former Apple executive and author of Enchantment: The Art of Changing Hearts, Minds, and Actions, who offers thoughts for financial advisors on how to create a great brand, for example in building trust. “Trustworthiness,” he says, “is about trusting others before you can expect them to trust you. This isn’t chicken or egg — there’s a definite order.”

A Strategy for Affording College

Kent Smetters, professor at the University of Pennsylvania’s Wharton School and co-founder of Veritat Advisors, charts out how to help clients find a path to affordable higher education in a time of surging tuition costs.

Setting up a 529 plan and establishing a regular savings schedule are key pieces of advice, Smetters notes. “Moreover,” he writes, “clients need to invest their 529 savings wisely. They should not be seduced by larger projected returns—they come with more risk.”

Smetters’ strategy touches on numerous topics, including: how to maximize financial aid assistance; looking into student loans; and shopping around for the best deals on tuition, with an eye toward projected lifetime earnings. Smetters assesses the value and limits of getting kids involved in contributing to their own educational payments. He also discusses a possible “Plan B”—best avoided for most households—of withdrawing money from tax-deferred retirement accounts when college time arrives.

How Much in Risky Stocks vs. Safe Cash?

Annuity Analytics columnist Moshe Milevsky, in the latest installment adapted from his book The 7 Most Important Equations for Your Retirement (Wiley), recounts how economist Paul Samuelson (1915-2009) cast new light on the question of how to allocate between stocks and cash.

Samuleson’s insight was that it is not a matter of how long an investor holds the respective assets—a position that may seem counterintuitive in light of the financial industry’s emphasis on time horizons as key to allocation decisions. However, Milevsky argues, Samuelson’s advice is compatible with what the industry doles out when one adds the concept of human capital. One’s own expectation of earning power over time is a central consideration in deciding how much cash and how much stock is appropriate in one’s portfolio.

Milevsky explains that “time is really embedded inside of Samuelson’s equation, because the human capital value gets smaller, and eventually hits zero, as you age. Once you reach retirement—defined as the date when you stop working, permanently—and you have no more human capital, and all your wealth is tied up in financial capital, then perhaps stocks really are too risky for you. This is your call.”

Your Model Day

Sales Seminar columnist Bill Good explains how to implement a “Model Day” approach to time management. A Model Day, he writes, “is a chart expressing your plan to perform certain kinds of actions at certain times. No chart? Your plan is just a wish.”

Essential to a Model Day is its division into “mini-days,” or time blocks allocated for particular purposes. For example, there is a planning mini-day, a meetings mini-day and a training mini-day. Once a mini-day is over, it is over, Good explains; moving on to the next time segment imposes a crucial discipline.

Writes Good: “The Model Day has three purposes that are constantly at war. Find the right balance, and your career will zoom: (1) Maximize sales contacts in the time available for work. (2) Develop a momentum in every area of business by grouping similar activities into their own mini-day. (3) Complete the most important tasks in each mini-day.”

Good offers additional advice to financial advisors who are starting out in their careers and do not have teams of staffers to handle multiple tasks: “Because you don’t have help, you will have many more mini-days than an established FA.” He adds that this will require a 60-hour week. “If someone recruited you into the industry and told you that a rookie can work 40 hours a week,” writes Good, “they lied.”

Debased Currency

Global Economy columnist Alexei Bayer argues that monetary easing has exacerbated declines in people’s purchasing power, even though inflation remains low as traditionally measured.

Labor markets are far more flexible than in the inflationary 1970s, notes Bayer, and companies generally have limited pricing power. Such developments translate into limitations on upward pressure on the Consumer Price Index.

However, with monetary easing going on at a heightened pace, liquidity may lead to unstable bubbles in the Treasury market and other markets, warns Bayer.

Moreover, although the CPI is rising only slowly, bayer writes, “if we attempt to construct a more complex measure—say, a basket of lifetime purchases of an average middle-class family, which will include a home, education for kids, medical care all the way through retirement, a number of motor vehicles, television sets etc.—we’ll see that the value of the average salary has been dramatically reduced.”

To access the May issue of Research, click here.


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