FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Investor Behaviour Is The Same As It Ever Was (Vanguard Advisors Blog)
The financial crisis did not change investor behaviour, according to Fran Kinniry, a principal in Vanguard Investment Strategy Group. “Investors continue to follow returns.” Pointing to an earlier blog post, Kinniry writes I sent up a warning flare about the strong returns of the stock market and the likely effect they would have on investors’ views of this asset class. At the time, stock mutual funds’ cash flows were relatively weak compared with the levels over the prior two decades, while bond mutual funds’ cash flows remained very strong. Fast forward a few months and we are now seeing — for the first time since the onset of the global financial crisis — significant positive cash flows into stock funds and negative flows out of bond funds.”
But this isn’t necessarily the smartest move. Instead he suggests investors look at their asset allocation and direct more money into bond mutual funds. “it is very common following significant gains in the equity markets for investors to question the benefits of rebalancing. Perhaps they think that “it’s gonna be different this time.” While it might be, it is much more likely to be the “same as it ever was.”
The Only Way The Fed Can Be Prepared For A Financial Crisis (AllianceBernstein)
Taper talk is back on the table, with some expecting the Fed to scale back its $US85 billion monthly asset purchase program as early as December. AllianceBernstein’s U.S. economist, Joseph Carson, writes that as stocks are at all time highs and credit conditions are no longer tight, “an “opportunistic normalization” of monetary policy when market conditions look appropriate will be the best way for the Fed to gradually change direction without jolting markets or jeopardizing economic gains.”
Carson thinks that the Fed’s policy that is now intended to generate “substantial gains in employment and keep core inflation at 2% has created a “difficult predicament” for the Fed.
“In our view, policymakers may eventually discover that these intermediate objectives — curbing unemployment and maintaining relatively stable core inflation — will not be compatible with the longer-term goal of normalizing monetary policy. In other words, policymakers should not be focused only on intermediate economic objectives; from a risk-management standpoint, we believe that they must start to plan ahead and think about where official rates and the Fed’s balance sheet should be in three to four years. This is the only way that the Fed will be in a position to respond forcefully and quickly to a financial crisis or economic downturn, should one emerge.”
HUGH HENDRY: I Can No Longer Say I Am Bearish (InvestmentWeek)
“I can no longer say I am bearish,” Eclectica Asset Management’s Hugh Hendry told InvestmentWeek. “When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out.” The market he said, “only makes sense through the prism of trends.”
More Advisory Practices Need To Implement Referral Programs (The Wall Street Journal)
“There’s a huge disconnect between what generates new business and what firms actually do to get that business into the door,” writes Zack Shepard, of Cincinnati-based Matson Money in a new Wall Street Journal column. 52% of new clients come from referrals, but not enough advisory practices implement referral programs and strategies he writes. Advisors can ask for referrals by establishing a “coaching relationship” with their clients.
Advisors can do this by asking their clients to rank their comfort with their finances at the start, and then ask them again after a few years. After their comfort level increases, “asking for a referral becomes as simple as asking them about who else in their life the client thinks may appreciate having the same financial peace of mind.”
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