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

2.0 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 assumed inflation rates

Secondly, have the asset managers in financial planner clothing (compensated by a percentage of assets under management)  become born again ‘managing goals as their priority’ having ‘seen the light’ without a near death experience?’ Asset under management percentages are facing three headwinds lowering and compressing their percentage for assets under management from ‘the standard of 1%’:

-         Lower competitive percentage on assets under management by full or partial ‘robo’ advisers (i.e. Betterment etc)

-         smarter clients saying ‘why am I paying the same percentage for incremental dollar investment

-         lower expected rates of return from markets in general as anticipated due to demographic changes requiring increased withdrawals from the markets.

And viola’ – born again goals under management planner benchmarking as 'value added’ from the former ‘sinning’ (as in ‘missing the mark’ pun intended) assets manager in personal financial planner clothing. One can only wonder if there is a baptizing ceremony for these ‘missing the mark’ sinners. (Note in Greek – sin means missing the mark. Benchmark?)

2.      Benchmarking to goals measures investor results.

          The petticoat of percentage of assets under management compensation of an asset manager in financial planning clothes betrays the primary mindset of being an investment manager (inherent proclivity to ‘more’ given assets under management compensation) rather than a planner (managing goals). 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 per Maslow all one knows is a hammer (or is compensated by assets under management percentage) then everything  will look like a nail (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 –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 – to be on target, accomplished, and or maintained?  Stipulating to clients changing goals, their priority, and life changing events – each of the goals as applicable should be stated on a present value basis with an assumed after tax after inflation rate of return – risk adjusted – with date of start and duration 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 or failure taking into account on the asset accumulation goals – the sequence of return risk to minimize the flaw of averages.

Thus, 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 the asset under management compensation bias and confirmation bias?