Sunday, April 29, 2018

Myopia: Assets Management Compensation Astigmatism - Assets Manager in Personal Financial Planner Clothing


Myopia: Assets Management Compensation Astigmatism -
Assets Manager in Personal Financial Planner Clothing 

Does a personal financial planner manage goals or manage assets?
 A personal finance ‘commentator’ recently wrote the following statements:

1.     'A recent ‘innovation’ suggested by some advisers and managers  is to benchmark results relative to the ‘investor’ (financial planning) goals in the first place, rather than the manager’s comparable benchmark.

The premise of this assumption of a recent ‘innovation’ is historically incorrect. Going back to the ‘60’s Connecticut General Life Insurance was doing ‘Living Planning’ which matched living objectives/goals to living resources and survivor objectives/goals to survivor resources – on a present value basis adjusted for assume inflation rates
Secondly, are the asset managers in financial planner clothing compensated by a percentage of assets under management  born again ‘managing goals having ‘seen the light’ without a near death experience?’ Asset under management percentages are facing three headwinds of lower competitive percentages by full or partial robo managers, smarter clients saying ‘why am I paying the same percentage for incremental dollar investment, and lower expected rates of return from markets in general as anticipated thus facing compression of asset under management percentage they can charge. And viola’ – born again goals under management planner benchmarking - as 'value added.' One can only wonder if there is a baptizing ceremony.

2.      Benchmarking to goals measures investor results.

          The petticoat of an asset manager in financial planning clothes betrays the primary mindset of being an investment manager rather than a planner. Benchmarking to goals/key result areas includes not just asset accumulation (education, slow down, retirement etc) but also asset protection (capital depletion due to health, disability etc, income conservation (tax reduction as a strategy for asset accumulation), asset conservation (income adequacy for heirs, asset disposition according to desires, estate liquidity and shrinkage. Thus if all one knows (or is compensated by assets under management percentage) then everything will be about assets under management and the other goals will get short shifted or worse nailed.
Benchmarking in personal financial planning is relative to the client’s – NOT THE INVESTOR’S – goals. The use of the phrase ‘investor’s goals’ is ‘a tell’ as they say in poker – of an asset manager in personal financial planner clothing rather than personal financial planner. (Furthermore, like pulling a thread on a sweater, the client’s – again ‘client’s’ goals interweave. For example, even long term care capital depletion or disability insurability questions may impact the cash reserves and or volatility the client can take relative to asset accumulation goals)).
 The ‘asset under management’ commentator apologist uses confusion to leave room for plausible denial for comebacks. But the question remains – what is the alternative to holding the engaged personal financial planner accountable other than progress or lack of progress thereof to the interrelationship and accountability of personal financial planning goals – interrelated as they maybe – to be on target, accomplished, and or maintained?  Stipulating to client changing goals, their priority, and life changing events – each of the goal as applicable should be stated on a present value basis with an assumed after tax after inflation rate of return – risk adjusted – as a start with a year by year tracking to see if ‘on track.’ And yes, monte carlo et al should be run for the probability of success and failure taking into account on the asset accumulation goals – the sequence of return risk to minimize the flaw of averages.
Due to asset under management astigmatism/myopia confused as ‘personal financial planning’ the commentator confuses asset management with personal financial planning – maybe just maybe to protect asset under management compensation bias and confirmation bias?

Sunday, April 22, 2018

The Tightwaddery---ENOUGH--- More Continuum - Historic Revisionism & Omission

The Tightwaddery---ENOUGH--- More Continuum - Historic Revisionism

MONEY (tim) Magazine Cover : F.I.R.E, Vicki Robin,& Joe Dominquez

I knew Joe Domingez who started it all = not Vicki Robin  for what has now become FIRE
That said - Joe's 'enough' (he published in 1992 like I did) is explained I believe in the context of a continuum of enough

On one end is More on the other end is tightwaddery
 
Enough is in the middle with variations - Joe's was more toward fiscal restraint even tightwaddery --- at the time there was a Kiplinger's cover story of a guy shining his shoes with a banana peel to say money... There was even the Tightwad Gazette.

The enough I professed at the time was 'one man's floor was another man's ceiling'.

So there wasn't the political agenda in my approach to Enough as there was in the tightwad and Joe's at the time

Furthermore, the enough approach I wrote of took more of the emphasis on aligning personal financial resources with life goals and values as you would see from my book 1st edition which was the culmination of my writings on enough from 1977 on.

From enough being 'clientle realizable goal determination with orderly plans for achievement' (1977) evolving to aligning personal fnancial resources  to achieve life goals and mission (1990's) to today enough is 'healing financial anxiety, puttin' money in its place, to transcend - elevate- connect and align to one's significance/assignment - what one is meant to do, meant to be - enough to live for, enough to live on (c)

So there is this continuum to consider -- but both would agree '- why sacrifice what you need (for enough) for what you don't need (for more - by more-ons__)

Interesting the historical revisionism and omissions by Money Magazine

84% & The Death of Today’s: Accounting, Security Analysis & Asset Manager Compensation in Personal Financial Planning Clothing


84%  & The Death of Today’s: Accounting,
 Security Analysis & Asset Manager Compensation
 in Personal Financial Planning Clothing

According to investment group Ocean Tomo, 84% of the S&P 500’s market value is comprised of intangible assets.
 Patents, trade secrets and brand reputation are the lifeblood of many modern business.
Best’s Review, ‘Insuring Intangible Risks,’  p47, April 2018

(note: A.M. Best Company provides news, credit ratings and financial data products and services for the insurance industry since 1899)

Given the above:

·         What is the value & usefulness of corporate balance sheets prepared by accountants?
·         As for securities analysis – Johnny Carson being reincarnated as Carnac the Magnificent – would be more reliable in predictions (especially given security analysts rely heavily on the corporate income, balance sheets, and cash flow statements provided by Accountants in Wonderland (with or without Alice but certainly the Mad Hatter.)
·         How can personal financial planners, compensated as a percentage of assets under management like asset managers, play asset manager selecting stocks, bonds, mutual funds, etfs’ etc? What added value do these asset under management compensated personal financial planners provide?
·         How can actuaries – the same one’s responsible for long term care policy screw ups even after the travesty of crash value life insurance premiums blowing up and companies going under in the early 90’s – insure these risks – without a firm calculation of values?

As a recovering fee only personal financial planner who practiced the concept of Enough in contrast to the More of moreon planners, personal financial planning is about managing goals not managing assets. Planners – especially asset under management compensated asset managers in financial planning clothing – manage assets often to an orphan secondary status even to the detriment of other personal financial planning goals (recall Maslow: if all you know is a hammer, everything looks like a nail ---((or assets under management??))). Now given the Tomo Study unless disputed and the compression of asset under management percentages due to robo advisors, planners will have to – need to – go back to personal financial planning – managing goals.

PS: Isn't it interesting this study has not been exposed to date in The Wall Street Journal, and accounting journals - given the monumental impact on accounting, securities analysis, risk management. One can only wonder why - as inquiring minds want to know.