Posts Tagged ‘Asset Management’
Thursday, March 22nd, 2012
There is a great article by Louis S. Harvey of Dalbar entitled Purpose-Based Asset Management.
When I read this article, my initial reaction was that this simplified method would result in people walking out of an advisor’s office, climbing into the car and saying to his or her spouse:
“Dear. For the first time in my entire life, I think I finally understand how to invest our money.”
You should spend a couple of minutes reading the article before reading the rest of this article. It is only six pages and has graphs.
OK. Back with me now? Here is how I would describe this process to a client:
“When I started in the industry, I used to sit through presentations by our Chief Economist and walk out wondering what language he was speaking. Investing and wealth management can be very confusing and overwhelming. It is our job to take complex financial products and services, filter them and translate them into a language that most people can understand.
To be honest, most people don’t understand how to invest their money. Most advisors take them through a fact-finding process to help identify financial problems and then recommend a portfolio of stocks, bonds and mutual funds. The portfolio is developed to generate returns to help grow investments over time.
Portfolios are generally developed based on the level of risk you are able to withstand. Most advisors generate a single risk tolerance and develop a portfolio based on that.
We do things quite differently. One of the first things that we try to identify is the purposes for your money. Let me give you a couple of examples.
Most people have multiple ways in which they plan to use money. Most people like to have an emergency fund or need to save money for retirement. Others have children who plan to attend colleges or universities, and some plan to purchase a recreational property or help their children to purchase homes.
I have placed several buckets on my desk to help you understand this process. Some buckets are large, some are medium sized and some are small. Each bucket represents a purpose for your money.
Your retirement bucket may be one of the large ones. A large bucket requires more money to fill. One bucket may be educating your children. This may be a medium bucket. Another may be for the purchase of a new car. That bucket is relatively small.
Some buckets need to be filled within a short time span. In the examples above, your new car bucket may need to be filled within the next two years. Your retirement bucket, on the other hand, may not need to be filled for twenty years or more.
When you invest money, one of the major factors for identifying risk is the length of time before the money is required. If you have a short timeframe, you cannot assume much risk because there are a lot of things that can and will go wrong in a short period of time. If something goes wrong, you don’t have time to recover and therefore, you need to be very conservative in the way you invest that money.
If you will not be using money in one of the buckets for over twenty years, you can take more risk. If you lose 20% of your capital in one year, you have lots of time to recover. This becomes really important when you review investment performance of the major stock indexes. Approximately 50% of the time over the past 111 years, the stock market has gained more than 16% or lost more than 16% in a single year.
Let’s use 2008 as an example. If you invested a one-year bucket in stocks at the beginning of the year, you lost 34% of your money that year. Let’s say, your new car bucket had $40,000 in it at the beginning of 2008 and you planned to buy a new car at the end of the year. You invested in the Dow Jones Industrial Average at the beginning of the year and at the end of the year, your investment was only worth $26,400 and you are nowhere close to buying your new car.
If you invested a 25 year bucket in the Dow Jones Industrial Average, you have time to recover from your loss and although it was uncomfortable, your bucket has more money in it today, especially considering that you have added personal funds to this bucket as per your plan, than you did at the beginning of 2008.
So the task ahead of us today is to put some labels on each of these buckets, determine how much you need to fill each bucket and put a timeframe on when they need to be filled. Some buckets, like your retirement bucket, will be more difficult to estimate how much money will be required to fill it but we have lots of time to make these calculations.
Then we need to put labels on each bucket symbolizing the target date for filling the buckets.
Are you ready to get started?”
The Bucket Strategy will help your clients to better understand the risks and will help them stay composed during difficult market conditions. This will improve investment performance and will reduce strains to your client relationships caused by high levels of stress caused by uncertainty.
Bob Simpson is President of Synchronicity Performance Consultants. Bob can be reached on his direct line at 905−502−0100, toll free at 866−646−6002 or by e-mail at firstname.lastname@example.org.
About Bob Simpson
Synchronicity Performance Consulting has been coaching financial advisors since 1998.
Bob Simpson, president and founder of Synchronicity has been involved, directly or indirectly in the financial services industry since 1981. He has been a very successful financial advisor with Nesbitt Thomson Inc., a major Canadian financial institution. Between 1981 and 1989, he built a business with more than $120 million in assets under management, was branch manager and SVP National Sales for Midland Walwyn and has been coaching financial advisors since 1998.
Tags: Asset Management, Chief Economist, Colleges, Couple Of Minutes, Dalbar, Emergency Fund, Graphs, Initial Reaction, Invest Money, Investment Performance, Investments, Mutual Funds, Need Money, People, Portfolios, Retirement, Risk Tolerance, Stocks Bonds, Universities, Wealth Management
Posted in Advisor Collaboration, Synchronicity | Comments Off
Wednesday, September 28th, 2011
Harvard’s Robert Pozen discusses the mutual fund industry in perspective.
Robert Pozen is Chairman, MFS Investment Management, the $184-billion global asset management subisdiary of Sun Life Financial, and was a former executive of Fidelity Investments in the company’s formative years.
Tags: Asset Management, Fidelity Investments, Formative Years, Global Asset Management, Harvard, Mfs Investment Management, Mutual Fund Industry, Perspective, Robert Pozen, Sun Life Financial
Posted in My Practice | Comments Off
Wednesday, August 10th, 2011
Your Business Plan starts with Defining Your Business. The four components of Defining Your Business are: Vision, Mission, Values and Business Opportunity. Your Business Plan is the articulation of your Strategy for growing your business. Strategy is the systematic output of what you want to achieve, the resources and capabilities available to you and the opportunities and challenges the environment provides. Your Vision Statement describes the systematic output of what you want to achieve. It is in the Business Opportunity section of your Business Plan that you describe how you will take advantage of the opportunities and challenges the environment provides. You identify your Business Opportunity by answering four questions:
- Where do you make your money?
- How do you spend your time?
- Who do you sell?
- What do you sell them?
In answering the first question, it is important to think about the tasks you perform that drive revenue. A financial advisor makes money by providing financial solutions for clients. The advisor can make money from the commissions earned through the sale of products or through charging fees for services such as financial planning and asset management. The more time an advisor spends with prospects and clients, the more successful they will be. When you describe who you sell, you begin with your Ideal Client Profile(s), the demographic and psychographic description of the types of people you want to serve. You also describe the markets within which you work. What you sell explains the products and services you provide.
Your Business Opportunity also highlights the areas of greatest potential in growing your business. These opportunities could include opening up a new market, new product initiatives or a new approach to an existing market.
You describe in two or three paragraphs why your business has a unique opportunity in your chosen market(s). Whether the opportunity is local, national or international depends upon the geographical scope of your business.
Norm Trainor is the founder of The Covenant Group, a company specializing in practice development for advisors. For further information, visit his Web site at www.covenantgroup.com.
Tags: Articulation, Asset Management, Business Opportunity, Business Plan, Business Strategy, Capabilities, Challenges, Client Profile, Commissions, Financial Planning, Financial Solutions, Geogr, Mission Values, New Approach, Norm Trainor, Opportunity Section, Paragraphs, Product Initiatives, Prospects, Scop, Time 3, Vision Mission, Vision Statement
Posted in My Practice, Norm Trainor | Comments Off