Can a single advisor handle it all?

So far in 2013, there has been a lot of discussion about the potential for “one-stop-shopping” either through advisors or through certain financial institutions. This begs a basic question in my mind – can any one advisor or any one FI properly handle all of the financial matters for a client?

From the perspective of the FIs, they would like the public to believe that they can, in fact, handle everything through in-house advisors or a team of advisors. Does this claim stand-up in the cold light of day? I suggest not. Financial planning, in all of it’s complexities and forms, is based on a close personal relationship between the client and the advisor(s) involved. FIs suffer from a few issues in this regard including lack of continuity, perceptions of conflicts of interest in products and services recommended – predominantly in-house or house-labelled generic products – lack of objectivity also springs to mind.

So what about the individual advisor? Currently we have two versions of this creature on the loose – the independent group (the largest in numbers) and the closely-tied (or career) advisors that represent one company (maybe with one or two strategic alliances to flesh-out their potential offering). I will offer some comments on the latter here. Everyone knows that no one company – regardless of size and breadth of offering – can be all things to all people at all times. Assuming that you accept this premise, the ability of the closely-tied advisor to hande all matters is obviously seriously impaired as is their ability to claim to offer independent and objective advice on all matters financial.

So what about the independent advisor? Can they fill these gaps? Again, I have to say no. While the vast majority of these advisors seem to stress their ability and talents in this area, at best they make broad-brush attempts – albeit very well meaning – but still fundamentally lack the knowledge and full product and service suite.

Is there a solution? I believe the answer here is YES. I believe the answer is what I call “strike teams”. Stay tuned for my next blog where is hare this concept in more detail! Cheers

Reacting to headlines is perilous!

You can avoid plenty of grief by reading headlines and as George Costanza (from the popular sitcom Seinfeld) says: “Do the opposite.”

You might notice that the average ‘Joe’ was far more concerned about his job (justifiably) until we began seeing headlines such as ‘Dow Hits Highest Close Ever.’ All of a sudden the stock market is once again a worthy topic for discussion and it’s okay to actually speak to one’s investment advisor. Judging by money flows it’s a good bet that clients are instructing their advisors to buy stocks, EFT’s, equity mutual funds or whatever it takes to get them invested and fast. There’s nothing but good news. As I type this, ‘Stocks resume winning ways’ appears on the TV screen (CNBC).

Before succumbing to the urge to herd let me take you back to June of 2010.

In the first chapter of A Maverick Investor’s Guidebook (Insomniac Press, 2011) I wrote the following:

In one newspaper, under the title “Economic crisis,” I found the headline: “World recovery under threat as growth slows, stimulus wanes.” On the same day in another newspaper, under the title “Recovery angst” was the similarly ominous caption: “Economic trouble is all investors see.”

If you are spooked by such nonsense and inclined to adopt a ‘wait-and-see’ approach before investing any of your money at all in financial markets, then give your head a shake. These headlines are gold!

I went on to pose the question: “If the press is even partially representative of what economists and strategists are recommending, and if investors all share the same sentiments, then what happens when there’s some good news?”

There was plenty of good news even in 2010, but it was generally delegated to those pages in the back of the newspapers which people seldom read. One example, and a very important one for stocks, was rapidly improving corporate profitability.

While the general mood was (and continued to be) let’s say ‘despondent,’ institutional and retail investors kept taking money out of stocks and channeling it into money market funds and bonds – to take advantage of what tiny returns were available in those securities (yes, I am being sarcastic).

Meanwhile in answer to my rhetorical – because it should have been obvious what the answer would be – question in 2010 we certainly know now what happened when there was good news. Stocks skyrocketed and recently surpassed their previous highs.

My concern today is that investors will make the same mistake they always seem to make. Rather than ‘interpreting’ headlines, they will simply take them at face value and chase the stock market at an inopportune time.

I am paraphrasing, but I’ve heard and read nothing but good news of late such as:

  • “It’s definitely a ‘risk on’ market.”
  • “Don’t fight the FED!”
  • “Looks like we might avoid the usual summer slowdown this year.”

Most worrisome: Kramer (wait long enough and you’ll eventually be right) is more wound up than a four-year old high on chocolate. I do believe that stocks are a better investment than bonds over the next several years, but the trend in corporate profitability (and consumer sentiment, GDP and job growth) will be interrupted – count on it – affording convenient opportunities to get invested. With nothing but good news and euphoria, what happens if we get some bad news? A chance to invest at lower price levels. Right now, ‘risk-on’ is exactly what you should expect if you respond to headlines.

Click on this link for a chuckle: George Costanza Does the Opposite

Mal Spooner

 

 

 

 

 

The costs of imposing a legal “fidcuiary duty” on the Canadian financial community

Presuming that reasonable people understand the need for a legally-grounded requirement for advisors – ANYONE who advices, sells, recommends, etc. any financial product or service – to have a fiduciary duty or responsibility, the next question is “WHO IS GOING TO PAY FOR IT?”

I can already hear pundits and armchair quarterbacks and experts pontificating that the industries should cover the cost of this new responsibility – and YES, there is always a cost to regulation – ALWAYS. So let us examine the cost issue a bit further. I have no way of quantifying, at this early stage, the cumulative financial impact of this additional layer of regulation, but it will add costs. For every regulation, someone has to supervise it, train advisors and employees, file reports, etc. PLUS, let’s not forget some amount of government supervision that will require more bureaucrats, auditors, examiners, investigators and support staff along with all of their associated staff and benefits costs.

The easy (and palatable) target is the financial services industry themselves – ALL of it. It is easy, politicians and regulators can say “we aren’t going to raise taxes for this, we will make all of the players pay”.

Unfortunately, this is utter nonsense of course – the only payor is the consumer – the user of the products and services is always the payor. Businesses are not going to reduce their profit expectations to their shareholders due to more regulation and the costs associated thereto. Those costs are going to be reflected in what those businesses charge for their products or services. Whether it is insurance premiums, MERs, fixed costs, reduced benefits, higher rates on loans, administration fees or something else, we, the consumers will pay for this new duty.

Please, don’t jump on me thinking I am using this as an excuse to try and stop this move – I am not – I firmly believe that EVERYONE who advises consumers about ANYTHING to do with their money, investments, financial affairs, credit, loans, mortgages, payday loans, real estate agents, general insurance agents, life insurance advisors, bank tellers, etc. SHOULD have a legally-mandated fiduciary duty and responsibility – I just don’t want people to think they are getting something for free! Remember TANSTAAFL (see a previous blog from 2012)

So the issue now is what is the limit that consumers are willing to pay for this added “protection”? How much is it worth to each of us

Fiduciary duty – a long time overdue

As most Canadian readers will know, the concept of mandating that certain advisors have a legally binding fiduciary duty to their clients has been gaining strength recently. Long overdue in my opinion!

Ignoring fancy legal words, a fiduciary duty or responsibility is to put the interests of the client FIRST, before the interests of the advisor. While for professional advisors this should be self-evident (and has always been part of my personal standard of integrity), regulators seem to feel the need to add more regulatory teeth to this issue.

So far, the impetus in Canada has come from the CSA (no – not the Canadian Standards Organisation – The Canadian Securities Administrators) which is a policy group consisting of the top Securities Regulators in each Province and Territory – and yes this includes Québec. They provide policy direction to Provincial Regulators and try and make the rules consistent across the country. There is a parallel insurance industry group called the CCIR (the Canadian Council of Insurance Regulators) which functions in the same manner as the CSA for the life and general insurance industries. I am going to presume that the folks on the CCIR are paying close attention to the work of their colleagues on the CSA and we can expect further action on the insurance side of the Canadian money world soon. Good stuff! HOWEVER, there is a problem from my perspective – what about the rest of the financial community??

What about banks, trust companies, credit unions, caisse populaires? How about household financing companies, mortgage lenders and brokers and payday lenders? What about vehicle dealers and their financing arms? Have people considered the furniture and appliance dealers and their lending practices? Even issuers of credit cards should be subject to this duty – some could argue they are the biggest offenders of not putting the interest of the client or customer ahead of their own! What about MLM businesses that require an “investment” by new “distributors” before they can play the game? Who is considering this issue beyond just the “investment” industry?

How do we, as a society, deal with those unscrupulous folks such as Earl Jones who was never registered or licensed in the first place? It wouldn’t matter what rules were in place via IIROC, the MFDA or the equivalent bodies in Québec for the Mr. Jones’ of this world. How will this impact Ponzi-schemes and the perpetrators behind them?

My next blog will examine some of the costs that will have to be paid – by guess who?? The consuming public is the ONLY source of $$ to pay for regulation and they need to be fully informed of this aspect as well!

Mutual Fund Mania – Choose wisely during RRSP season!

Usually the first vehicle of choice for new investors is a mutual fund. In days of yore, which in the investment industry is more than five years ago, investors usually bought equity funds but in more recent times balanced funds have grown more popular and even bond funds have attracted money.

Oftentimes, the first mutual fund experience is a disappointing one. There’s a reason for this. People intuitively want to be associated with success, so their first mutual fund will have these characteristics:

  • A great track record of top quartile performance over at least three to five years.
  • Billions of dollars invested in it, so it is “safe.”
  • Offered by an investment firm with a long and “distinguished” history.

Many years ago, there was much less data readily available and few statistical tools at one’s disposal, but I was curious and decided to examine a group of funds over time to see what their performance looked like. What I discovered is represented in the chart. There were no exceptions; every fund in my sample followed this same pattern.

It doesn’t take a mathematician to interpret a picture. If you invest in the fund when it’s a dog (ranks very poorly compared to other funds), the odds are great that given time it will be a top performer soon enough.

The problem is that most investors will pick a top performer. However, the top performer will soon become a dog, and the investor will be unhappy.

A great track record might actually guarantee poor performance.

When it comes to your money, intuition sucks. You “intuitively” steer towards something that “feels good.”

There is enough publicly available data nowadays to help you find a few funds that suit your tastes and examine their performance patterns. What suits your tastes may include funds that are easy to buy in and out of, those you have read about in the press, whose portfolio manager sounds smart on TV, or you may prefer socially responsible funds. When one of the funds that does occasionally perform very well has been in a slump over the past year or two, buy it. After the performance has improved over the course of a couple of years and you’re happy with the results, consider selling (or redeeming) it when the fund is in the top of the rankings (or wins an award) and buy a different fund that is in a temporary slump.

Being a curious sort, I once had the urge to see if award-winning funds followed the same pattern. After all, if someone wants a top-performing fund, wouldn’t they head straight for the ones that have just won awards for their outstanding performance?

I looked at the award-winning funds in any given year, and then checked their performance just one year later. Rather than examine every category (there are just too many nowadays) I stuck to basic Canadian equity, U.S. equity, small cap, international equity. Included were “thematic” funds popular at the time, such as ‘precious metals’ and the ‘dividend and income’ funds. Here are a couple of examples of what I usually found:

Results:

  • 100% of the winners were either 1st or 2nd quartile funds. The next year, 88% of these had fallen to 3rd or 4th quartile.
  • All the former 3rd quartile funds (dogs) rose to 1st quartile (stars) in the following year.

Winning an award (being a top performer) is not an indication of how that fund will rank in terms of its future performance, even in the following year. In fact, the odds are awfully good that your 1st or 2nd quartile pick will be below the median or worse one year later. Interesting! If there’s a lesson, I suppose it’s simply that funds should be bought because they meet your objectives, not because they’ve been performing well recently.

It’s not important to understand why this roller coaster occurs for mutual funds, it just does. Markets change, so, for example, when a growth fund invested primarily in technology stocks suffers, it’s no doubt because the upward trend in technology stocks, or their popularity among the herd, has either stopped or deteriorated. Apple is a prime example in the news right now.

Portfolio managers are just people working for people. I’ve witnessed the following scenario occur time and again:

  • Fund performance begins to soar.
  • Fund attracts lots of new money.
  • Marketing folks want more and more time from portfolio manager for meetings.
  • Money pours into the fund in droves.
  • Portfolio manager’s head swells (the “I’m a genius” syndrome).
  • Performance begins to deteriorate.
  • Money leaves the fund in droves.
  • Portfolio manager has to sell the fund’s best stocks (there are still buyers for these).
  • Performance sucks, and it takes two to three years for things to get back to normal.

Size really doesn’t matter…unless the fund is humongous.

A thinking person should be able to figure out that it doesn’t take a big fund or a big fund company to provide good performing funds. Think about it. Do you shop at the big box stores because the level of service is better? Is the quality of the merchandise better? No. You shop there because the economy of scale for the store allows them to buy products at a lower cost. They can order in bigger volumes and squeeze their suppliers. They then pass these savings to their customers.

Larger financial institutions enjoy similar economies of scale. Of course, the transactions and administration costs of the bank or insurance company are lower, and these benefits might come your way in the form of lower fees and expenses, but we’re not talking about buying lawnmowers. Rates of return on funds managed nimbly and intelligently can make those fees and expenses pale by comparison.

Bigger is safer possibly when you’re banking, but legitimate capital management companies are structured so that they never really touch your money. The custodial (where the money is physically held) and administrative (recordkeeping) functions are usually provided to these firms by big banks or huge financial institutions anyway—for safety and regulatory reasons and it makes the potential for fraud near impossible.

The reason why large financial services companies got into the fund management business was simply economics. They were providing banking, custodial, and administrative services to mutual fund and other asset management companies anyway, so why not also earn management fees by offering their own mutual funds and private wealth management services?

Take it from someone who knows from experience. Managing a massive quantity of money in one fund is much more difficult for a portfolio manager. You can only buy big companies. A portfolio manager will try to buy the best big companies, but since everyone else with big portfolios is doing the same thing, it’s not like you can outsmart them. It’s sort of like playing poker with jacks, queens, and kings being the only cards in the deck. If the three other players see three kings on the table, everyone knows you still have one in your hand.

Applying some discipline is important when directing your savings and will spare you much grief. For several years since the financial crisis, investors have swarmed into bond (see chart – it shows the net Sales of bond mutual funds) and balanced funds because of their strong relative performance and are considered to be less risky. Even today buying into income-oriented funds ‘feels good’ – everyone else is doing it, past performance is good and the fright we all experienced during the financial crisis still stings a bit.

Equity funds have been avoided for years – constantly redeemed – despite the fact the stock market returns have been outstanding since the crisis more or less ended (or at least stabilized). Now that the past returns are looking better, investors will be shifting money out of the bond funds (and perhaps balanced funds as well) and chasing the top performing equity funds.

This is an inferior strategy. If you examine the best ‘rated’ funds you will find they hold more dividend paying and income securities and will likely drop in the rankings very soon after you buy them.

With RRSP season comes a plethora of marketing campaigns and firms will be pushing us to buy their best performing funds (we are so quick to buy what ‘feels good’). Since you won’t see many advertisements for those not doing so well today, but are likely to do very well tomorrow, it would be wise to do a bit of homework before buying in. Good luck!

Mal Spooner

 

 

 

And a Happy New Year to all!

, T-bnAs we finally close 2012, there are many things on which we can reflect. The sad, the inexplicable, the disappointing and yes, some good things too – from an investment perspective anyway!

Canadian banks and other financial institutions, despite a credit downgrade late in the year, are among the safest in the world and investors continue to benefit from holding their preferred shares, common stocks and various debt instruments. The same appears true for the utility industry, despite the contretemps of the Northern Gateway (or maybe Arctic Gateway or Eastern Gateway) oil pipeline in Canada and the US side of the Canada/US Keystone XL pipeline project. Oil is a key utility input in all of it’s many forms as is natural gas. I will stay out of the debate on fracking!

The world needs power – from any and all sources so I believe that for long-term holdings, exposure to this part of the economy is important. Short-term, be prepared for some storms in all of the energy sector, and I suspect they will all be of a political making. So some inclusion of energy and utlities makes some sense – the amount you include depends on your investment comfort level and time-horizon.

Communications in all of it’s forms will continue to grow although I suspect it too will be choppy due to anti-trust, patent issues and regulatory meddling on one level or another. Manufacturing and transportation industries should experience reasonable grow as I believe that deficit and national debts will gradually be controlled allowing economies to begin expanding again.

Whether doing your equities on a do-it-yourself basis or using some form of managed funds or ETFs, I would be staying blue-chip common shares and preferreds particularly for the risk-adverse.

Short-term interest rates (10 years and less), I believe will stay within about 1% to 1.5% of curent levels, which is positive for everyone including companies loooking to expand their operations. If doing things on your own, I recommend GIC or GIA ladders and if you are going the managed fund or ETF route, then I would be looking at average term-to-maturity south of 10 years and only A or better ratings – BBB if you feel adventurous.

On the pure cash side of things, whether in a bank account, T-bill account or some life insurance cash values, it seems to make sense to hold somewhere in the 5% to 7% range – both for protection and any buying opportunities that present themselves.

On Precious Metals – flip a coin! From everything I can find, the “experts” are about evenly divided on direction and potential upside/downside movement. Some level of exposure would seem reasonable if you can tolerate the earthquake-style market reactions but for these I would personally stay on the managed money side and look for broad diversification across countries keeping in mind political situations and I wouldn’t be comfortable holding more than 4% to 5% and only then if I was looking in the 10 plus-year holding range.

Think positive about yourself and your family, keep personal debts going DOWN and by wise in your discretionary spending in 2013!

Some happy year-end thoughts!

An interesting year on many fronts – financial and societal. But have I learned anything I can use in the future? From a financial perspective, I very strongly believe we are going to get more of the same in 2013 that we had in 2012 – notwithstanding the “fiscal cliff” nonsense taking place in the Untied States (deliberate). Resolved or not, my best assessment is that world markets will be slightly chaotic for at least the next 2 years before some level of stability re-appears. Am I psychic?? Absolutely not – but I am a fiscal realist. On a relative basis, Canada is better off that just about everwhere in the world with the exception of New Zealand. For my younger audience, NZ did go bankrupt as a country about 30 years ago – and ever since have kept things fiscally responsible.

Canada may be the best of a bad lot, but we are certainly not having the country’s finances managed in any way, shape or form in a conservative manner. Quite frankly (and I am not, have not been and never expect to be a member of ANY political party), our proclivite spending habits are much more reminiscent of Liberal and NDP spending patterns.

Over the past 18 months or so, there has been a real shift around the world to a more socialistic approach to all levels of government. Citizens of all countries are demanding more services and support from their governments yet no-one wants to pay the price. It is the same in North America, Europe, South America, the Far,Middle and Near-Easts plus the former Soviet states, the Indian sub-continent and Australasia. The people in the Sahara and sub-Saharan regions in Africa are facing even more serious issues of civil wars and genocoide, on one or more levels. The Scandinavian folks are much quieter about things in their part of the world, but they are facing the same issues as the rest of the Eurozone as our our friends in Iceland.

Governments have no money, unless they print more – which brings inflation back into the picture in a big way – something no-one in the world can afford. Some parts of South America are dealing with double-digit inflation now – but on a WEEKLY basis – not annually! So with no money for governments to spend, national debts are growing in leaps and bounds (regardless of the “blue” colours of some leaders), from where does the money originate?

People are still hesitant to invest for the long-term and are spooked every time a politician anywhere in the world, talks about defaulting, restructuring, devaluing or cutting deficits without raising taxes. All of which makes for choppy markets. Yes the Warren Buffet’s and George Soros’ of this world will always make money, because they take the long view.

I haven’t mentioned China and South Korea (or the rest of the Asian-Pacific Rim countries) because despite generally higher levels of “state” control over their economies, they are in no better shape. Closed and partly closed economies may appear to be doing better, but we never really see the complete truth – so in the absence of clarity, investors tend to shy away from them as well.

So what to do now? Stay happy and think positive thoughts! Stay short on the fixed-income side of things and use GIC or GIA ladders to protect yourself against upward movement in rates. Keep at least 5% to 7% in cash. In equities, for less than 15 years holding, stay with large caps that have good dividend histories, or mutual funds/seg funds that hold those stocks. For 15 years and longer – right now, your guess is as good as anyone’s! Have a safe and happy Christmas Season! Cheers Ian

Invest Risk Free —- NOT!

I saw this headline on a half-page ad in the Vancouver Sun this past week – 4 colours – no-one could possibly miss it. The headline in very large print read INVEST RISK FREE with a very, very small asterisk directing readers to the bottom of the ad for the usual disclaimers.

I must say that it continues to amaze me that companies (in this case a very large bank) would continue to advertise such absolute rubbish. In this instance, the institution publishing the ad was promoting their version of an equity-linked GIC. The theme being, buy this product, hold it until maturity and regardless of what happens to the stock market index chosen as the benchmark, you will be guaranteed to get your money back. With this fact, the ad promotes this as a “risk free” investment – oh, by the way, this was for a non-registered product. If the benchmark market went up, then within certain limits, the holder would get back some interest return on the positive side – no losses.

Let’s examine this a bit more closely – has everyone forgotten about this thing called INFLATION? Or how about TAXES?? I am not going to do a lot of fancy calculations here – you can all do that on your own time.

Scenario ONE

Product pays ZERO interest at the end of the 5-year holding period – you get back 100% of your initial investment – so according to the bank in question – no loss – therefore risk free. Absolute nonsense! If no interest – no taxes so they drop out of this equation. But inflation is still here! If we assume that inflation stays at the current low level of 1.9% and it stays there for the next 5 years, then (ignoring compounding), your money has lost at least 10% in purchasing power – that is a LOSS to the investor and worse, it is a loss which is NON-DEDUCTBLE!!

Scenario TWO

Same as number 1, but let’s throw in an average gain of 3% for each of the next 5 years. Lowest marginal tax bracket currently in BC is about 25%. So 3% gross equals about 2.25% net, after tax. If we again subtract inflation of 1.9%, then the client is left with a real, net, after-tax, after inflation rate of return of .35% – yes .35% – but at least in this possibility, the client hasn’t lost any $$ nor have they lost any purchasing power. If the investor is in a 35% marginal tax backet or higher, then we are back to Scenario ONE but with a smaller net loss of purchasing power.

But – that is a lot of buts! Please, don’t be fooled – there is NO SUCH THING as NO RISK INVESTING!

Year-end Tax Planning – part 2!

Greetings once again – this next commentary will focus on some of the less well-known items on the list – starting with self-directed RESPs – Registered Education Savings Plans.

There are a few different types, but generically they typically invest in mutual funds, segregated funds (legally and correctly known as Individual Variable Insurance Contracts) or GICs/Term Deposits. Nothing fancy, but remember, the contribution period in order to potentially qualify for the CESG – Canadian Education Scholarship Grant – is on a calendar-year basis – no 60-day grace period as there is for RRSPs and Spousal RRSPs – it works the same as TFSAs – Tax Free Savings Accounts – calendar year deposits only.

If you are planning to make a contribution, a deposit to a plan of $2,500 should get you the annual maximum of $500 in CESG from Her Majesty. Miss it in 2012, you don’t get to “catch up” in 2013.

If the CESG is not an important factor for you, remember there is NO maximum age at which you can start a self-directed RESP! You can be 60 years of age and decide that on retirement you want to go back and get that lost BSc or MBA – you can use an RESP for yourself too!!

Switching now to self-employed people – regardless of industry – one of the key tax savings available to you is a Private Health Services Plan or PHSP. These are available through most financial advisors and you can contribute up to $1,500 per year (January 1st to December 31st – no 60-day grace period – and also not cumulative for missed deposits) for your-self, $1,500 for your spouse and $750 for each eligible dependent. Talk to an advisor to learn more about these interesting creatures – the potential benefits are very substantial!

Next for the self-employed are equipment purchases and software purchases. If you know you are going to need a new version of software for business purposes, but it now – you can generally claim the full amount as a deduction in the year of purchase if the cost is less than $1,000 (before taxes) – if more than $1,000, consult CRA tax bulletins to review write-off rates and duration.

The same applies to business equipment – if initial cost is less than $1,000, generally you can deduct it in the year of purchase – if more than $1,000, then it generally has to be amortised over a few years – again, refer to CRA bulletins or their website for more information.

For the rest of us, you may want to consider prepaying for Physical Education programs that qualify for the Fitness tax credit and getting your transit passes early if you can.

When in doubt – check with CRA via their website at www.cra.gc.ca or your tax preparer or accountant for other tips to maximise your deductions and tax credits! Cheers

So What Goes in a Full Financial Plan Part 3 of 3

So – now the wrap up of this series.

Financial Planning is intensely personal and clients need to have complete faith and trust in their advisor to make the process work properly, effectively and efficiently. The relationship is the key to success.

It is for this reason, that top planners spend the first meeting just working on laying the foundation for a relationship to grow and blossom – listening is the key of course – the good Lord gave us two ears and one mouth – and good planners and advisors use them in that ratio! This is what as known as a “non-interview”.

I first learned about this concept about three decades ago by reading a book by a fellow named J. Douglas Edwards – “Questions are your answer” – copies are still available in used book stores and on-line – I highly recommend that everyone involved in the financial/estate/retirement planning process, read it – and read it several times. In fact, it is excellent reading for anyone in a sales, marketing and/or management role.

I want to touch on the reporting now – I can hear advisors and planners already saying that if they covered everything I listed in my two previous posts, the final report is going to be 100 pages in length! Well, that depends, doesn’t it ——– on the client.

Some clients are detail-oriented, number crunchers, navel inspectors, etc. – and for those people, a planner can create dozens of reports and many dozens of pages – looks impressive I admit – but of what value to the client?

I learned from studing about and listening to people like Jim Rogers, John Savage, Jack and Gary Kinder, Norman Levine, Charlie Flowers, Don Pooley, Hal Zlotnik, Rick Forchuk, Dick Kuriger, Jim Otar and many others – that simple is best.

In my experience, I have found that the planners who use the longest reports are often trying to impress clients with quantity as opposed to quality. Certainly the attitiudes of the client drive the entire process – including the reporting and some clients do want more details than others – but this is a fine line to follow.

I have found that there needs to be enough detail to illustrate to the client that their goals can be achieved given a certain set of circumstances, what changes they need to make and actions they need to take and I allow the client to determine how that is done. As an example, before I present a plan, it is my normal practice to ask them a few questions first, including: How much time to you want to spend at our next meeting reviewing the plans? Do you want to go over the entire plan in detail, or do you want just a high-level summary and then decide on what sequence to follow before getting deeply involved in the entire report? As part of my interview process, I ask clients very early on to indicate their priorities in dealing with their goals – and regardless of my personal preference or prejudice, I follow the sequence or timing as verbalised by the client – this is critical IMHO.

My preference is to give a high-level overview at the first reporting meeting – typically no more than 3 or 4 pages – I don’t want to frighten them or have them start to think they can’t change anything – spoon feeding in other words. Then the rest is covered over the next two or even three meetings so they aren’t overwhelmed and I use LOTS of pictures and graphs and as few tables of numbers as possible. If they ask for some specific details, of course I can produce them, but I don’t try to bury them.

Last, but not least, as a professional financial planner, it is great to have a plan but unless it is implemented and there is regular follow-up (at a minimum of once every two years) to make adjustments as necessary – the whole thing collapses into a pile of snot with only some wasted money and good intentions left lying on the ground!

Anyway, that wraps up this series – hope you find some of the comments of value or at least thought-provoking – agreement is neither necessary, required or expected! Cheers Ian