Monday, March 24, 2008

SEC's Director of Trading and Market Regulation to speak March 28 at Babson College conference

The first Babson Investment Management Conference on March 28 offers some interesting speakers, including Erik Sirri, the SEC's Director of Trading and Market Regulation.

The conference will take place on the campus of Babson College in Wellesley, Mass.

The cost for the general public is only $25.

Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at or sign up for my free monthly e-newsletter.


Tuesday, March 18, 2008

It'll be tough to sell advisors on longevity annuities

Longevity annuities--annuities that kick in at, say, age 85--are going to be a tough sell to financial advisors.

That was my gut reaction when I wrote about longevity annuities on this blog. My unscientific sampling of advisors on LinkedIn reinforced that impression. They warned against the costs associated with annuities and suggested other alternatives for providing long-lived income in retirement.

Many oppose longevity annuities

For example, Tom Taylor, principal and portfolio Manager at Thoma Capital Management LLC, said "I have never recommended a longevity annuity to a client or any annuity for that matter. Building a bond laddering portfolio that invests in TIPs and US Treasury notes is a much better way to go."

Patrick Costello of Costello & Associates said, "paying a lump sum now for a benefit that won't be available for 20 years, with no interim access to the sum, predicated on the unlikely scenario that one will be alive long enough to receive a good inflation adjusted return seems like a fool's move."

Some advisors would consider longevity annuities

However, I did turn up some advisors who seemed willing to consider longevity annuities to help clients avoid outliving their assets.

"As with all insurance products, based on actuarial tables, there are winners and losers," said James C Brandon of JCB Capital Performance.

Jeff Motsco of Motsco Financial said, "Some annuities are good, some are great, and some you don't want to go near, but dismissing something based on cost without considering benefit is haphazard."

Al Aldrete of New York Life suggested that a longevity annuity is a good way to hedge the possibility that a client would live much longer than he or she expected. He said, "This is not a tool to be used with everyone. But for clients who have serious concerns about living too long (because their parents and/or Grandparents have lived into the 90's and 100's) and they are not sure about the fate of Medicare, Medicaid (MediCal in California) and Social Security, this gives them a peace of mind that they will have something."

Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at or sign up for my free monthly e-newsletter.

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Monday, March 17, 2008

Asset allocation in a low return world

The rules of asset allocation have changed. Two of the new imperatives:
  • Using tactical asset allocation (TAA)
  • Investing in real assets
These are among the best strategies for individual investors in an environment in which U.S. stocks are expected to average annual returns of 6%-7%. This is what I took away from "Asset Allocation in A Low Return World," a March 13 presentation to the Boston Security Analysts Society, by Adrian Cronje, vice president and director of asset allocation, Wilmington Trust.

Tactical asset allocation doesn't deserve its bad rap

Everyone says, "Don't try to time markets." But TAA is not market timing, said Cronje. "It is not about forecasting turning points." Instead, it is a form of rebalancing that can boost your returns.

You might think of rebalancing as buying and selling assets to return them to predetermined percentages. That's not what Cronje meant. He spoke instead about adjusting allocations to take advantage of changes in risk premiums.

"Dispersion among sub-asset class returns reflects risk premiums that are not stable, but cyclical," said Cronje. He talked about sub-asset classes because he looks at distinctions finer than large-cap vs. small-cap or growth vs. value. He'd prefer to invest in narrowly defined subsets, such as value as defined only in terms of book value or growth in terms of earnings.

Sub-asset class outperformance can be significant—what Cronje calls "large amplitude"—and last one to four years. That's often enough to justify the transaction and tax costs of TAA.

Cronje believes it's possible to identify when there has been a strategic shift in sub-asset class returns, so you can change your allocation once the new cycle is already under way. That's a lot better than suffering for getting in too early.

TAA can deliver returns that made Cronje say, "Beta is not always boring, cheap and alpha's unloved cousin."

Investing in real assets is essential for individual investors

"Today, traditional stocks and bonds just aren't good enough any more," said Cronje. Individuals should diversify into real assets and alternative assets. These are asset classes that can deliver real sustainable earnings power.

In one sense, real assets can be defined as physical or tangible assets. But more importantly, they're assets that offer a hedge against inflation. For example, inflation-linked bonds, real estate securities, and commodities. Since the debut of ETFs, these asset classes have become much more accessible to individuals.

A typical Wilmington Trust client might have 10%-15% in real assets. But they're a lot wealthier than your typical individual investor. Cronje didn't describe the profile of the individual investor who should consider these techniques. Presumably there's a minimum level of investable assets required.

Alternative assets—hedge funds, private equity, and private real estate—are also expected to outperform over the long term. They're not as accessible to individuals. In fact, even institutions must compete to invest with top performers. Although Cronje didn't discuss them, there are new investment vehicles—such as mutual funds that pursue long-short strategies—that alternative investments more accessible.

Cronje based these asset class recommendations on a long-term, inflation-adjusted forecast for returns. He called forecasts for periods of 10 years or more "highly reliable." Of course, he's not looking for accuracy down to decimal points. What's important is which asset classes will outstrip others, and in what order.

Follow Cronje's advice, and perhaps your portfolios will be better positioned for today's uncertain environment.

Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at or sign up for my free monthly e-newsletter.

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Sunday, March 16, 2008

"How to write investment commentary that people will read": Attend one of my upcoming presentations

I'll deliver presentations on "How to write investment commentary that people will read" in:
Also, I'm tentatively scheduled to give a lunchtime presentation on writing on May 14 to Boston Women in Finance.

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You can highlight market turmoil's silver lining

Tired of giving bad news about the stock market to your clients? Follow the example of The Wall Street Journal to talk about "How Market Turmoil Creates Opening to Enrich Heirs" (March 15-16, p. B1).

In short, the market's decline enables your clients to give your heirs more shares of stocks or mutual funds and to get more mileage out of grantor-retained trusts.

By the way, if you read the article, notice the "The Market's Gift" box. Using a box--known as a "sidebar" in the lingo of layout professionals--to highlight your article's main takeaways can snare the attention of readers who skim. Try it some time.

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Monday, March 03, 2008

Write your own newsletter or buy a canned newsletter?

You've decided to send a newsletter to your clients. Which route should you go? Write it yourself or send a canned newsletter provided by a third-party service?

Do it yourself, said most of the advisors who responded when I posted this question on LinkedIn.

The pluses of writing your own

"Writing your own newsletter is the most timely and cost-effective method," wrote
Ike Devji of The Wealthy 100.

Assabet Advisors' Lisa Phelps likes having complete control over topics. She said, "I can pick topics for which I have a particular interest resulting in an article with a bit more depth or excitement than normally found in such newsletters." Plus, she can mix in insights from her own practice.

Brian Langenberg of Langenberg & Co. said that newsletters don't require a big investment of time--just a few hours per issue in his case. Moreover, "It is a great way to reach a broad audience, give them your thoughts, and stimulate awareness." I'm sure the investment of time varies by advisor. Some would find it much more time consuming.

Another plus of writing the newsletter yourself: It gives your readers a sense of who you are, especially if you're a good writer. It helps you to create a personal connection with them.

Why choose a canned newsletter

Russell Lowry of Sagemark Consulting prefers to talk directly with his clients, so a personally written newsletter would be overkill for them. He uses a canned newsletter to stay in touch with prospects.

Assabet Advisors' Phelps understands that some advisors prefer a canned newsletter because they "lack the time or skill to write a newsletter themselves."

A newsletter is a great marketing tool

Whatever route you take, a newsletter is a great way to keep your name in front of clients and prospects. Of course, a third option is to hire a writer or editor to help you produce a polished newsletter.

What route are YOU taking? Please leave your comments.

Susan B. Weiner, CFA
Investment Writing
Writing that's an investment in your success

Check out my website at or sign up for my free monthly e-newsletter.

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