FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
A new report from Spectrem Group and Vanguard finds that response time is crucial to the wealthy. As it turns out, affluent investors care more about having an advisor who cares for them as opposed to having the best stock picker.
“Not returning phone calls in a timely manner,” is the top reason clients dump advisors. In fact the top four reasons all have to do with communication. “It’s important to note that not far behind the communications-related causes was, “long-term losses to my portfolio. …You have to be able to effectively balance both sets of expectations,” according to the report.
“Stock investors have learned over the years to either ignore geopolitical crises or use them as buying opportunities,” writes Ed Yardeni, in Dr. Ed’s Blog. “The forward P/Es of the S&P 500/400/600 rebounded dramatically at the start of the bull market as investors bet that the Fed’s ultra-easy monetary policy, FDIC guarantees for new bank debt, and the suspension of mark-to-market would end the financial crisis and revive the economy. They tumbled during the spring of 2010 as the Eurozone seemed to be heading for disintegration. They recovered over the rest of the year on hopes that wouldn’t happen.
“The P/Es plunged during the summer of 2011 on renewed fears of a Eurozone meltdown and on the downgrade of US Treasury debt. Since then, the forward P/Es of the S&P 500/400/600 are up 46%, 43%, and 50% to 15.2, 17.4, and 19.2. In a melt-up scenario, they could go higher. Right now, uncertainty about Yellenomics and geopolitics might put a lid on them.” For now valuations have mostly been impacted by financial risks, not geopolitical ones, but going forward that could change.
Investors often struggle in choosing between traditional individual retirement accounts (IRAs) and Roth IRAs — where you don’t get a tax break while investing in it but if you meet certain conditions you get a tax break on withdrawals. Michael Kitces told Christine Benz at Morningstar that tax rates are the most important factor in choosing between the two.
“And we really found that it comes down to only four factors, and one of them is really the dominating one: tax rates. It’s simply to recognise at the end of the day, if we’ve got this money that we’ve earned pretax and we’re trying to figure out where to send it, should we send it to the IRA or the Roth side?”
“If we send to the [Traditional] IRA side, we get a deduction now, we pay the taxes later. If we send it to the Roth side, we pay the taxes now, and then we don’t have to deal with them later. That fundamental split really actually just comes down to: If you are going to pay the taxes now or you are going to pay the taxes later, pay the taxes when the rate is lower, and then you finish with more money.”
Four Things Advisors Can Learn From March Madness (WealthManagement.com)
It’s time for March Madness, but Robert Sofia, co-founder of Platinum Advisor Strategies, writes that advisors can learn some important lessons from March Madness.
1. “Have a game plan” — Don’t get so caught up in daily tasks that you forget about your overall goals. Write out your goals every year.
2. “Assemble the right team, and get out of their way” — Stop micromanaging. “The most effective financial advisors focus 100% of their energy on the things they are uniquely qualified to handle — meeting with clients, gathering assets, selecting investments, etc. Everything else gets delegated.”
3. “Pay attention to details” — Sometimes clients leave not because of one big mistake but “because a multitude of minor details are out of place.”
4. “Make your timeouts productive” — Schedule a time to meet and go over your game plan and see if you’re satisfied with the way things are going.
Here’s How 18 Categories Of Equity Funds Measure Up Against Their Respective Indices (S&P Dow Jones Indices)
It’s frequently argued that low-cost index funds are better for long-term investors, than active fund which try and outperform relevant benchmarks. But a report from S&P Dow Jones Indices shows that “55.8% of large-cap managers and 68.09% of small-cap managers underperformed the benchmarks over the past 12 months ending Dec. 31, 2013,” according to Aye Soe, director of index research and design.
“The picture is equally unfavorable when reviewing the performance over the longer-term three- and five-year investment horizons. The results show that the majority of the active managers across all the domestic equities categories failed to deliver returns higher than their respective benchmarks.”
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