How Far Will Clients Go To Avoid Taxes, by Sue Bergin

When we don’t like something, it’s human nature to go out of our way to avoid it.  This seemingly innate behavior applies to our financial lives as much as it does in other aspects of our existence.

When it comes to taxes, many people will go to great lengths to avoid payment.

On an ordinary day, many Americans travel far and wide, sometimes crossing state lines, to avoid paying taxes on items like clothing or gasoline.  For other purchases, consumers will wait for just the right time, like when a store has a sale or the unofficial sales tax-free weekend holiday—an event that prompts impulse purchases and creates a mini economic boom that rivals Black Friday in the 17 states that observe tax holidays.

As counterintuitive as it may seem, consumers seem fine with spending more than intended as long as they aren’t paying the government.

According to a recent study, 29% more Americans said they’d travel 30 minutes to save 8% on a tax-free item than the amount who would travel the same distance for an ordinary 9% discount.[1]

The study goes on to say that four times as many Americans would rather invest in a bond that offered a $120 annual tax-free return than a bond that offered $160 but required a $40 tax.

The payment of taxes is one of those instances where emotion and psychology influence investing decisions.  As the study authors point out, taxes are often perceived as representing a loss of personal financial freedom, expenditures without a fair return, or funds wasted by inefficient politicians.

Whenever you can remove the emotion from the equation and help your clients focus solely on the facts, you can guide your clients toward better financial decision-making.

[1] Axe the Tax: Taxes Are Disliked More than Equivalent Costs Abigail B. Sussman and Christopher Y. Olivola, 2011

The State of Municipal Bonds

 Amy Magnotta, Brinker Capital

In December 2010, analyst Meredith Whitney made a prediction of hundreds of billions of defaults in the municipal bond market. While we have experienced defaults, we have not yet seen anything close to the magnitude of that statement. Prior to that statement, in October of that same year, Brinker Capital released a paper that discussed our positive view on the municipal bond market due to technical factors and improving municipal credit. Because we invest in municipal bond managers with strong, deep credit research teams and a focus on high quality issues and structures, we encouraged our investors to remain invested in municipal bonds. Investors have been handsomely rewarded with close to 20% cumulative returns in municipal bonds since they bottomed in January 2011.

The financial health of municipalities is again hitting the headlines. Moody’s has warned of more problems for California cities after San Bernardino, Mammoth Lakes and Stockton have each sought bankruptcy protection. Scranton, Pennsylvania, which made the news after the mayor cut the pay of all city employees to minimum wage this July, is now seeking help from hedge funds in an effort to delay a bankruptcy. Even Puerto Rico municipal bonds, widely held by municipal bond strategies because of their attractive yields, are being seen as a greater credit risk.

We don’t believe the headlines are representative of the broader municipal bond market. There are more than 50,000 municipalities across the country, each with their individual issues. This makes municipal credit research in this environment extremely important, especially without the fallback of bond insurance. A positive corollary of these types of headlines is that it forces change. Many state and local governments have made the necessary changes to their budgets to set them on a sustainable path, but many still have more to go. Often, the largest owners of a municipality’s bonds are their own constituents – they need to maintain a good relationship with these investors in order to access financing in the future.

We feel the technical factors in the municipal bond market remain positive. Demand is very strong. While supply has been higher in recent years, most of it is refinancing, so net new supply remains at low levels. The budgets of state governments continue to improve while local governments remain under pressure. Rates are low, offering the opportunity for refinancing. The fights over pension and healthcare benefits for public workers will continue, but these issues do not present an immediate cash flow problem. However, this is a broad characterization of the municipal bond market. We will continue to invest with managers that have deep credit research teams and focus on high quality issues, seeking to avoid the problem issues as a result.

Becoming an Obvious Expert Beverly D. Flaxington for Brinker Capital

One of the best ways for financial advisors to generate new business is to become “known”. Known as the expert, as the advisor with insights, and as the person who has something important to say. Many investors like to work with someone they perceive as knowledgeable and well-rounded.
How best to become an obvious expert? The first important piece is to be seen and heard. This can be done through using a PR (public relations) strategy and through social media. PR includes things like being interviewed on radio and television, being written about in newspapers and periodicals, and issuing press releases or other news stories. Social media includes things like LinkedIn, Twitter and Facebook, and means engaging in online discussion and information boards to talk about your expertise.
Some advisors shy away from the media because they don’t know what to say. As a first step, think about what interesting angles you can address relative to important topics in the news. Don’t limit your thinking to just the stock and bond market movements; think about trends for retirees and/or divorcees, multi-generational issues, or any other newsworthy trend that can connect back to your process or philosophy with regard to investing or planning.
Consider some of the following to establish your credibility as the obvious expert:
(1) Radio and television interviews are “free” advertising. Read and watch different journalists and reporters. Find out what they often report on. Write an email or a note to respond to some information they’ve given and your angle on their story. Make friends with your local media. Reporters and journalists are looking for new, fresh angles all the time.
(2) If you want to put more effort into it, consider doing your own blog talk radio show. You can pay a nominal fee to get set up on one of the major networks such as Live365 or blogtalkradio. With your own show you are responsible for coming up with content for each program, but you can always leverage other relationships such as COIs (Centers of Influence) like realtors, attorneys or accountants. Having your own show means you would be the interviewer instead of the interviewee. However, it allows you to get your thoughts and ideas across to an audience each week or month, depending on the show schedule.
(3) Create audio or video recordings of any interviews you have, or just record yourself telling case stories about how you work with clients. Circulate the audio or video to the press and also post it on your website.
(4) Issue a press release about something interesting happening at your firm. This could be the launch of a new website, a new angle on your service offerings, or a new hire to your firm. Anything happening at your firm can be newsworthy. Send press releases out over many of the free services available, such as this or this
(5) Engage in social media. As you pursue relationships with the younger generation (i.e. anyone under 40 years of age), they will immediately search you out on Google or some other engine to find whatever they can about you. It’s imperative to have a presence of some kind. Have an updated LinkedIn account, follow people on Twitter or create an account, if your compliance department allows it. Have a blog if you can, or at minimum post to other’s blogs when you have a response or idea to share.
Put a focus on becoming known, being seen and staying out in the public eye.

There are many opportunities to do so. Consider the ones that are right for your practice.

Signs of Letting Go by Sue Bergin

There is usually a gap of time between acquiring new technology, and letting go of the old way of doing things.  Depending upon your circumstance, that gap can span hours to days to years.

Lately, we are starting to see signs that Americans are letting go of the old.  The most recent example comes from the cable industry.  In the second quarter of 2012, the U.S. cable TV industry lost more than 400,000 subscribers.  Many experts speculate that the erosion in customer base is due to the availability of free or cheap alternatives, such as Netflix and YouTube.

Even more prevalent is the number of people who have cut the telephone cord in favor of solely relying on their mobile device.

According to a recent 2011 study by the National Center for Health Statistics, 26% of Americans have already opted for cell service only.  In 2010, one in four homes in the U.S. reported no landline.  It’s a trend that, according to the Centers for Disease Control and Prevention, shows no sign of slowing.

This trend appears to be fueled by the middle and lower classes that actively seek ways to reduce household expenses more so than their wealthy counterparts.   Government estimates show that the highest percentage of people who rely solely upon a mobile device for telephone service are located in Arkansas and Mississippi, where many cannot afford to pay for two separate lines.[1]

Click here for an infographic by illustrating how many have cut the cord on cable/satellite services and what devices/services they now use.

Economic Data Lifts Stocks, Market Commentary by Joe Preisser

Global equities resumed their upward march last week, reclaiming levels unattained since April, following the issuance of economic data from both the Eurozone and the United States, which largely exceeded expectations. The release of gross domestic product figures from Germany and France offered encouragement to investors as they revealed more favorable readings than analysts had forecast. Alexander Kraemer, an analyst at Commerzbank AG was quoted by Bloomberg News, “while not great in any way, German and French GDP numbers were better than expected, which adds to the scenario that there is no risk of an imminent euro break up. It shows that global growth is not collapsing, which also helps reduce investment risks.”

Following closely on the heels of the positive news from the Continent was a report of retail sales from the United States which surpassed expectations. In a sign that consumer spending may be on the rise, all of the major categories surveyed rose to post the largest increase in five months (New York Times). Adding to the optimism already present in the marketplace were better than expected readings on industrial production and consumer prices, as well as continued signs of stabilization from the labor and housing markets in the U.S. (Bloomberg News) released during the latter portion of last week.

The concern with which the Israeli government views the threat of the nation of Iran acquiring a nuclear weapon was on full display last week as a marked increase in bellicose rhetoric as well as highly publicized preparedness measures for its citizenry emanated from the country. Comments made by the Israeli Ambassador to the United States, Michael Oren, during a Bloomberg Government breakfast in Washington last Wednesday served to highlight the rapidly rising tensions. “Diplomacy hasn’t succeeded. We’ve come to a very critical juncture where important decisions have to be made.”

The distribution of gas masks to the public, as well as the testing of other civil defense measures last week accompanied the strong warnings from Mr. Oren and further revealed the precariousness of the situation. As the potential for a preemptive Israeli military strike continues to mount, and with it the possibility of a major disruption of the supply of crude oil to the global marketplace, the risk premium assigned by traders around the world to the per barrel price has contributed significantly to the twelve per cent rally seen since June, which if unabated will hold negative repercussions for the world economy.

As the data released last week continues to outpace expectations, the belief has grown within the marketplace that the economic improvement seen, although still only incremental, may reduce the chances of the Federal Reserve enacting additionally accommodative monetary policies in the near term. In a reflection of this growing sentiment among traders, prices of U.S. Treasury debt have moved significantly lower over the course of the last several weeks, sending yields, which rise when prices decline, to levels unseen since May as the bond market has begun to adjust to the changing environment.

Byron Wien, Vice Chairman of the Blackstone Group’s advisory services unit gave voice to an increasing belief among investors, in an interview with Bloomberg News, “housing is bottoming, gasoline is down from the beginning of the year. The European situation is getting better, not resolved, but getting better…there will be more good news than bad.”

A Novel Approach to Creating a Sense of Urgency By Sue Bergin

Creating a sense of urgency within clients is a skill that all financial advisors must develop.  Clients may know that a financial product or strategy is in their best interest, yet they still don’t act upon it.

There are a few fall-back strategies you can use to get them to move off the dime.  Fear and badgering are among the most common.

Or, you could take a cue from an Argentine book publisher.  In an effort to promote new authors and create a sense of urgency actually to read books and not just place them on shelves, they created “The Book that Can’t Wait.”

They used disappearing ink.

Within two months of opening, the book goes blank.

The text actually vanishes.  Forever.  If you didn’t get to the ending in two months, you’ll have to borrow a quick-reading friend’s copy or buy another.

The publisher found a way to urge readers by establishing a deadline and applying negative consequences.  They also accomplished their goal of boosting sales of first time authors, which provides an incentive for those writers to continue with their craft.

Most interestingly, they broke the mold.

In the era where ebook sales dominate hardcovers the publisher sold out of its disappearing ink print run novels in its first day.


Phones Will Be Ringing by, Sue Bergin

For many advisors, the phone lines seem to simmer down just a bit during the summer months.  That is about to change, however, according to a recent survey conducted by Edward Jones.

In mid-July, 2012 Edward Jones interviewed 1,010 U.S. adults to determine the issues that will impact investment and savings decisions the most. They found that 90% of Americans plan to change their investment strategy in the next six months. 

The election was sited as the most significant reason for driving strategy changes.

39% percent of respondents indicated that the election was, again, the most significant reason prompting investment and savings changes.  The next most significant factor was healthcare costs, representing 30% of those surveyed.  Global economic issues were prompting 20% of the respondents to consider investment strategy changes.

96% of people earning more than $100,000 a year were the most likely to say that they will make changes to their investments and savings.[1]

Take advantage of these final few weeks of summer by proactively scheduling investment review meetings. This will give you more control over your calendar in the fall, and help you prepare for the discussions that will inevitably occur.

Can Technology be a Differentiator? by Sue Bergin

Nearly every marketing seminar you come across touches on differentiation. Market differentiation is that quality, or bundle of values or attributes, that makes you unique. It makes your services stand out from the crowded advisory marketplace.

Recently, SEI surveyed advisors and asked whether technology was used as a point of differentiation. 55% tout technical capabilities to some degree. To break that number down further, 15% said that they regularly tout technology as a differentiator; 45% occasionally use it.

40% said that they would never boast their technology because it wouldn’t be a selling point.

When these statistics overlay advisors’ responses to another statistic, a clearer picture emerges. SEI also asked advisors to describe their firm’s current use of technology. Here are the results:

• 12% claimed to be at the cutting edge, indicating that they have invested heavily and utilize its full capabilities.
• 58% said they had the right tools in place, but haven’t fully integrated them.
• 20% conceded that they have talked about upgrading their technology but haven’t gotten around to it.

There are several ways advisors use technology to gain efficiency and grow their practice. Client-facing technology investments improve the client experience. Financial planning software, mobile technologies, website design, and educational tools are types of client-facing technologies. They help the advisor provide added value and service to their clients.

Clients are far more likely to be impressed if they can see how the technology makes their lives easier. How encouraged will the client be if you have the tools to help them become more financially organized? Account aggregation and consolidated client reporting are other excellent examples. Some clients are drawn to innovative and “cool” technology that they can talk about to their friends. In this way, client-facing technologies can be a clear differentiator, particularly if the advisor’s technology offering is unique and has perceived value to the client.

Back-office technologies improve efficiency and increase effectiveness. CRMs, end-to-end business processes, transaction processing, and portfolio management all play a supportive, behind-the-scenes role in helping the advisor perform better. These systems are incredibly important to helping advisors grow their practice, but don’t share the limelight that a mobile wealth management application app might enjoy.

Advisors allocate their resources according to whether or not they view technology as a potential selling point to clients. 40% of the respondents to SEI’s survey did not see technology as a selling point. Those individuals likely invested in back-office technology, or are part of the 20% pool that conceded that they are in need of technology upgrades, but haven’t gotten around to it yet.

Without question, an advisor’s expertise and commitment to engagement in the relationship should always be the focal point of any pitch. Client-facing technology, however, does indeed play a role in shaping clients’ perception of value. In the eyes of an increasing number of clients, better technology means better service.

Why the Apathy in Client Attitudes Towards Technology By Sue Bergin

Do your clients care about the tools you use or the advice you give?

If the recent study released by SEI caught your attention, you might have a false sense that technology only aids efficiency and doesn’t impact the overall client experience.

Here are some of the statistics about clients’ perception of the technology that their advisors use:

• Over half (51%) of the advisors who responded to the survey said that clients didn’t care about the technology that the advisor used.
• 22% weren’t sure how clients felt about their technology. One can only imagine that if their clients felt strongly one way or the other, the advisor would know.
• 5% reported that clients often complained about the advisor’s technology.
• 24% of the advisors who responded to the survey were able to impress their clients with technology.

These statistics seem to suggest that clients are indifferent towards the technology. There is a plausible explanation for all of this indifference. Perhaps the advisors responding to the survey had technology that met the present-day comfort level of their current client base.

This is problematic for a few reasons. First and foremost is that clients’ comfort with technology is a moving target. At varying speeds, every demographic is embracing technology.

The more your clients shop on Amazon, Skype with their grandchildren, and rely upon Web MD for medical information, the less enchanted they will become with an advisor who uses outdated methods. The discontent probably won’t be relayed in the form of an objection about technology, but rather a complaint about response time, transparency or access to current and relevant information.

The second reason clients may find a false sense of security in the notion that their clients are comfortable with their technology is equally important, because it has to do with a firm’s growth.

An advisor’s technology platform fits the needs of her current client base, but what if he or she would like to grow his or her practice? Whenever an advisor contemplates entering a new market, he or she must evaluate tools and resources for adequacy in serving the new target.

Multigenerational planning is an instance of where technology meets the needs of a current client demographic, but is not positioned or aligned with a market extension. That is to say that the current generation may be satisfied with the status quo but, their children will be harder to placate. They will demand automation, instant gratification, and online access to everything.

The bottom line is this. “Adequate” technology goes unnoticed; the same does not hold true for “old” technology. If your systems and tools are outdated your clients will notice. They will complain. Eventually, they will leave.

SEI Advisor Network Technology Integration Survey Findings, July 2012

Central Bank’s Sway Stock, Market Commentary by Joe Preisser

Aided by a broad based reassessment of comments issued by European Central Bank President, Mario Draghi on Thursday, and the release of better than anticipated employment figures for the month of July in the United States, stocks rallied strongly on Friday to reverse the losses suffered earlier in the week and reclaim their upward trajectory.

Following a meeting of the American Central Bank’s policy making committee this week, the decision to forbear enacting any additionally accommodative monetary policy at present was announced in tandem with indications that measures designed to stimulate the world’s largest economy may be forthcoming.  The Federal Open Market Committee said in its official statement that they, “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions.”  As the recovery in the world’s largest economy has continued at a frustratingly slow pace, hope has pervaded the marketplace that increased liquidity will be provided by policy makers in order to encourage growth should they deem it necessary.  In its most recent communiqué, the Federal Reserve has reinforced this belief thus offering support for risk based assets.  Brian Jacobsen, the Chief Portfolio Strategist for Wells Fargo Funds Management was quoted in the Wall Street Journal as saying, “They probably are closer to providing, as they say, ‘additional accommodation as needed’, but I still think that they want more data before they actually pull the trigger.”

Investors across the globe registered their disappointment on Thursday with the decision rendered by the European Central Bank, to refrain from immediately employing any additional measures to support the Eurozone’s economy, by selling shares of companies listed around the world.  Hope for the announcement of the commencement of an aggressive sovereign bond buying program, designed to lower borrowing costs for the heavily indebted members of the currency union, which blossomed in the wake of comments made by Central Bank President Mario Draghi last week were temporarily dashed during Thursday’s press conference.  Although Mr. Draghi pledged to defend the euro, and stated that the common currency is, “irreversible” (New York Times), the absence of a substantive plan to aid the ailing nations of the monetary union was disparaged by the marketplace and precipitated a steep decline in international indices.

Friday morning brought with it a large scale reinterpretation of the message conveyed by European Central Bank President, Mario Draghi the day before, as investors parsed the meaning of his words and concluded that the E.C.B. is in fact moving closer to employing the debt purchasing program the market has been clamoring for.  The release of better than expected news from the labor market in the United States combined with the improvement in sentiment on the Continent to send shares markedly higher across the globe.  According to the New York Times, “on Friday, stocks on Wall Street and in Europe advanced as investors digested the announcement alongside data showing the U.S. added 163,000 jobs.”  Although the absence of immediate action served to initially unnerve traders, further reflection upon the President’s comments revealed the resolve of the Central Bank to support the currency union and fostered optimism for its maintenance. A statement released by French bank Credit Agricole on Friday captured the marked change in market sentiment, “Mr. Draghi’s strong words should not be understated, in our view.  The ECB President made it perfectly clear that the governing council was ready to address rising sovereign yields…Overall, notwithstanding the lack of detail at this stage, we believe the ECB will deliver a bold policy response in due time”(Wall Street Journal).