Global Equities Rise on Hopes for End to U. S. Budget Impasse

Joe PreisserJoe Preisser

Optimism cautiously crept back into the marketplace this week, as investors continued to cast wary eyes toward Washington D.C. and the high stakes drama playing out around the looming budgets cuts and tax increases of the, “fiscal cliff”.  Stocks on Wednesday marked a turning point as they reversed earlier losses, and staged a late day rally with indications that policy makers in the United States were moving closer to bridging their differences helping to support share prices.  Although the momentum of late has been positive, indices around the globe remain beholden to news reports discussing the state of negotiations, with any hint of stagnation or progress toward resolution holding the power to move share prices significantly in either direction.  Joseph Tanious, a Global Market Strategist for J.P. Morgan was quoted as saying, “I think we’re going to have these markets that react to every single headline.  I think an agreement will be reached, and I think we’re likely to see a relief rally at the end of it.  But until then, hold on to your seat” (Wall Street Journal).

Through the confusion of this unnecessarily complex dance of politics, it appears as though the two sides are inching closer to common ground.  In a break with his party’s line, senior Republican Representative, Tom Cole of Oklahoma on Tuesday advocated to fellow G.O.P. members that they accept the White House’s proposition to extend tax rates for those making $250,000 or less (New York Times).  With the issue of possible tax increases on the highest income earners among the most contentious of the current debate, it has become apparent that the President may be amenable to adjusting the size of such an increase, potentially creating the conditions for compromise.  If the current tax rates of those Americans making more than $250,000 and $388,000 respectively, which represent the highest brackets, were permitted to expire they would reset to the Clinton era levels of 36% and 39.6%.  The co-chairman of the President’s 2010 deficit-reduction panel, Mr. Erskine Bowles suggested, following a meeting with President Obama this week, that those rates may be permitted to rise to a lower level as part of a broader deal.  According to the Wall Street Journal, “Mr. Bowles said White House officials made clear to him that the rates might not have to increase quite that high, as long as they increased a significant amount and were paired with some limits on tax breaks.”


Equity markets got an additional lift this week from an article published by the Wall Street Journal, in which Jon Hilsenrath, who is widely considered a de facto mouthpiece for the Federal Reserve Bank of the United States, suggested that the Central bank will likely continue their unprecedented monetary easing policies into next year.  Mr. Hilsenrath wrote, “Three months after launching an aggressive push to restart the lumbering U.S. economy, Federal Reserve officials are nearing a decision to continue those efforts into 2013 as the U.S. faces threats from the fiscal cliff at home and fragile economies elsewhere in the world” (Wall Street Journal).  Although volatility will almost certainly surround the remaining days of the “fiscal cliff” negotiations in Washington, if the framework for compromise which has been created is completed, the extrication of this uncertainty coupled with the possibility of additional action by the Federal Reserve will be strongly supportive of equity markets around the globe.

How Advisors Can Use New Media to Communicate More Effectively

Bev Flaxington, The Collaborative

Many advisors have an aging client base. Investors in their 60’s through 90’s may not care about technology, while their children and grandchildren do. The next generations are people who have grown up with the internet, playing video games and generally getting their information in a fast-paced, more interactive manner. While investment information doesn’t necessary lend itself as easily to game playing, advisors can find new and different ways to tell their story using some of the new media available.

What is new media? In many ways, it’s not that new. It involves taking information and delivering it through something other than the static email or newsletter. It is video, audio, webinars or slideshows that can be posted to an easily accessible place, such as your website, and accessed by clients and prospects.

New media can make your information come alive. If trust is a basis for relationship and selection in the investment advisory business, wouldn’t it help to see the person you might give your money to rather than just reading about them? Or would hearing an advisor give a talk about their philosophy on investing make it easier for a prospect to understand that philosophy? Would having a clip on YouTube replaying a speech that had been given, or an educational workshop for clients to pass along, help with referrals?

The answer to all of these questions is “yes.” Adult learners need to access information in a variety of manners to have it stick and make it understandable. Defaulting to the written word for all communication leaves a number of people without a way to truly comprehend why an advisor might be right for them. It is intuitive to think that many people learn and engage much more effectively through audio and video than by reading alone.

In addition, with clients and prospects busier and more preoccupied than ever, fewer and fewer are taking the time to read material on screen – let alone in hardcopy. And with the ever-increasing power of mobile devices, all media forms are available for these busy people to access regardless of where they are. Giving people choices and different access points increases your availability to them. Think of the number of places now where there is a live person to talk to you 24/7. Many firms know that data on a screen isn’t sufficient. People need to engage more actively to learn and understand.

What are some advisors doing now in this area? Many are providing audio- and video-based newsletters or commentary, firm or service overviews, and interviews with firm leaders telling the firm’s story or advisors explaining the markets (among many other examples). Some are creating a YouTube channel and posting quick snippets of their perspective on the market, or updates on trends. If an advisor lacks the time to do some of these things, there are vendors available to write copy or interview questions, record remotely or in person, and then complete all production work.

Using new media can help with marketing. Video sales letters – animated overviews sent in email blasts – are eye-catching and help increase “open rates.” Posting audio and video forms on your website, YouTube, SlideShare, iTunes and other free posting sites enhances search engine ratings and allows your existing clients or centers of influence a place to direct friends, family or clients to see what you can do.

Of course, the compliance issues are the same as with any client-oriented or marketing material. An advisor needs to consult with their internal compliance, or broker/dealer, to find out what’s acceptable and what’s not. The rules around testimonials, guarantees and making broad claims are the same. But this doesn’t mean an advisor cannot tell stories about the kinds of clients they have helped, give insight into their philosophy and approach, or talk generally about market trends and the impact on investors.

The beauty of new media is that it can be taken a step at a time. Start with an audio, or a video of a speech or educational workshop. Ask clients what kind of media they enjoy. View what others are doing to see the variety of options available. New media is going to continue to grow. See if there is a way to learn more about how it could work for you.

Divergence in Confidence

Amy Magnotta, CFA, Brinker Capital

Consumer confidence fell to extremely low levels during the financial crisis.  While improving in the 2010/2011 period as economic conditions stabilized and markets rebounded, consumer confidence had still remained at levels previously associated with recessions.  Confidence retrenched again in the summer of 2011 when S&P downgraded U.S. debt; however, it has been steadily improving since.

While consumer confidence is strengthening, business confidence has weakened.  Companies have downgraded their growth expectations.  Despite healthy balance sheets, policy uncertainty in the U.S. is causing companies to hunker down and delay capital spending and hiring.  CEOs of U.S.-based companies have urged policymakers in Washington to act “to end the crippling uncertainty that is stifling business investment and hiring” (Source: Business Roundtable).  On November 18, the Wall Street Journal reported that “half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next” (Investment Falls off a Cliff).

It is clear that the paralysis in Washington is keeping business investment muted.  Until the rules of the game are settled by Congress and President Obama, capital expenditures and hiring will likely remain on hold.  Companies have the ability to invest for the future and drive economic growth in the process, but we must wait until fiscal policy uncertainty is removed.

Source: Thomson Reuters, Conference Board

While consumer sentiment has improved, we remain concerned that consumers have not prepared for a fiscal drag that may hit next year.  Even if a deal is reached to extend a number of the tax and spending provisions for 2013, it seems that there is very little support in Washington to extend the 2% payroll tax cut.  Even if current rates are extended for most taxpayers, everyone will see their take home pay decrease as a result of the expiration of this temporary tax cut.  Consumers have already drawn down their savings rate to a level of 3.3%, so there is limited cushion to fall back on.  If the fiscal cliff does hit, it could result in further pressure on consumers, and serve dampen confidence.

Source: Bureau of Economic Analysis

Giving Thanks to Top Clients & Referral Alliances

Matt Oechsli, President, The Oechsli Institute

Thanksgiving is a time for friends and family, but for forward-thinking advisors, it’s also a time to show top clients and referral alliances just how much they’re appreciated. Show gratitude by giving Thanksgiving-themed gifts such as organic turkeys, honey-baked hams, fruit baskets, desserts, and flowers. Get your team on board to assist you & strengthen your top professional relationships.  To get started, follow these steps:

  1. Segment:   Divide your top clients and referral alliance partners into 2 groups; those that will have gifts delivered from you and your team & those that will have gifts delivered via FedEx.
  2. Review Client Intel:   Personalize your gift by reviewing intel you’ve gathered about each recipient.   (You’ll recall that Mr. Smith loves gourmet cheesecakes from the local baker.)
  3. Organize & Delegate:  Determine which team member will order gifts, who will personally deliver gifts to specific clients & referral alliances, who will manage FedEx deliveries for out of town clients, and when the entire process will be carried out.
  4. Execute:  The senior advisor will visit their top tier of clients, the junior advisor will make their delivery to top referral alliances they want to get to know better, and the remaining clients will receive a special delivery from their favorite assistant.  Ensure both spouses are home at the time of delivery, and extra holiday cheer is extended to the spouse that is less involved in the family’s finances.

Your clients and referral alliances will speak highly of you to their close friends and family, and you’ll see increased client loyalty for months and years to come. There is no question that this will all pay off!

See how an elite team executed this here

Matt Oechsli is the author of The Art of Selling to the Affluent. His firm, The Oechsli Institute, does ongoing speaking and training for nearly every major firm in the US. @mattoechsli,

Thought of the Week, from J.P. Morgan Asset Management

The following commentary has been posted with the consent of J.P. Morgan Asset Management.

When markets become volatile, it can be easy to lose perspective. Since the November 6th U.S. election, the S&P 500 has fallen nearly 5% as concerns have shifted from who will be the next U.S. President to how the fiscal cliff will be resolved. We continue to believe that Congress will come up with a solution – the biggest question is when. Thus, as uncertainty continues to plague markets, investors should remember that markets rarely move higher in a straight line. Since February 2009, the S&P 500 has fallen by more than 5% in 6 different months, but has risen more than 5% in 10 different months, and is up over 100% since the March 2009 low. Given that this market volatility will likely continue until the fiscal cliff is resolved, it will be important for investors to stay balanced and not panic in the face of a choppy market.

When Markets Become Volatile, Keep Things in Perspective

Source: J.P. Morgan Asset Management

Concerns Over “Fiscal Cliff” Continue to Dominate Markets

Joe Preisser

The sharp selloff in global equity markets that, through Thursday, had sent the Standard & Poor’s 500 Index down almost 6% since the reelection of President Obama, brings into stark relief the depth of the concerns among market participants over the looming “fiscal cliff” in the United States and the potential impact on the global economy if it is not averted.  With the compilation of automatic spending cuts and tax increases totaling more than $600 billion which comprise the so called, “cliff”, scheduled to take effect in January, unless an accord can be reached to forestall it, investors have quickly begun to pare back their exposure to risk based assets.  As Amy Magnotta pointed out in her most recent blog post, the effects of a failure of policy makers in Washington to reach an agreement would be severe, resulting in a  4 percent drop in Gross Domestic Product and casting the world’s largest economy back into recession.  Marko Kolanovic, the Global Head of derivatives and quantitative strategy at JPMorgan Chase & Co. was quoted by Bloomberg News, “about 90 percent of the drop in the S&P 500 since election day can be attributed to concerns about the U.S. fiscal cliff.”

The divided government, which remains in the United States following the Nov 6th elections, with a Democratically controlled White House and strengthened position in the Senate, and a continued Republican hold on the House of Representatives, has led to a continuation of the stalemate that has gripped the Capital for much of the past two years.   Although the representation of differing philosophies and governing styles is essential to a functioning democracy, the current environment inside the ‘beltway’ has degenerated to the point of stagnation.  Neither side of the proverbial ‘aisle’ appears, at least publically, willing to compromise with Republicans declaring their resolve to avoid tax rate increases of any kind, and Democrats extolling the need to increase the percentage paid by the top income earners in the country.  It is impossible to know how much of the recent rhetoric is simply political posturing and how much represents entrenched positions, but what is evident is that it has created an atmosphere of uncertainty which financial markets abhor. One potential area of concession, that has lately developed, is the rate of increase Democrats are seeking.  Although it had been earlier suggested that a return to the 39.6% level last seen under President Bill Clinton was all that would be accepted, that stance has softened in recent days,(Strategas Research Partners), suggesting that a smaller increase could be where an accord is found.

As I am writing this morning, leaders from both political parties are preparing to meet at the White House to begin negotiations on bridging the gap that divides them.  If they are successful in their efforts and common ground is reached, even on a temporary basis, which is the most plausible scenario, we should see a strong rebound across financial markets.  While the process of resolving the differences that separate the two sides of this debate will undoubtedly take time and potentially create turbulence in the marketplace, if our policy makers can fulfill their responsibilities and find a resolution to this issue it will greatly strengthen the recovery in the global economy and lead to a substantive rally in risk based assets.

Products and Solutions are Not Interchangeable Terms

Sue BerginSue Bergin

In an attempt to appear as holistic financial service providers, many advisors have stopped using the word product.   Solutions is the new phrase darling.

Now a retirement solutions cloak drapes annuity sales. Income protection solutions describe disability insurance.  It all sounds remarkably client-centric and needs based oriented, but often the advisor is simply recommending a product that fulfills a niche need.

The term product has gotten a bad rap because theoretically:

  1. Clients live happily ever after with solutions providers but have limited expectations of product salespeople.  They consider a product sales person as one-dimensional professional who meets a need then moves on to the next client.
  2. Products are implicit commission generating vehicles, whereas solutions are holistic and in the client’s best interest.

The products have not changed.  The sales, servicing and payment to the advisor have not changed.  The only difference in many cases is that whenever the client is in earshot, products are referred to as solutions.

The approach might work when writing brochure copy, but it leaves gaping holes in a client’s quest to achieve financial goals.

Product and solution are not interchangeable terms.  A product may solve a problem, or it may be just one component to a solution.  More often than not, a solution involves more than one product and includes other services or features.

Brinker Capital’s income solutions, for example, go well beyond product.  Both our Crystal Diversified Income Strategy and our Destinations Balanced Income Strategy have income distribution features.

We also offer customized income distribution services.  We deliver “paychecks” to clients for a specified period, while managing reserves to cover their long-term capital growth needs.  We also generate reports that include a spending analysis and notify clients if their portfolios are in jeopardy of falling short of stated goals.

You can only offer solutions when you analyze client needs holistically and extend your offering to include products, services and technology that address the problem on all levels.

Our Destinations, Crystal Suite, Personal Portfolios and Core Asset Manager products all solve specific client needs.  On the other hand, our Personal Distribution Strategy, Dollar Value Averaging, and Asset Class Strategies are holistic solutions that combine product, services and technologies that address client problems on all levels.

Surviving the Middle

Sue BerginSue Bergin

One of the dynamics advisors face with many clients in the retirement planning process is a loss of interest or focus.  During initial meetings, clients seem gung-ho to organize their financial lives organized and plan for the future.  They eagerly meet with their advisors and gather any documents or paperwork the advisor needs to initiate the process.

After about the second meeting, suddenly things slow down.

Sometimes they even grind to a halt.

The same phenomenon occurs with other tasks that people view as chores.  After all, who hadn’t looked around a driveway littered with everything that formerly inhabited the garage and wondered why they got involved in the project in the first place?

A research team at Northwestern University’s Kellogg School recently proved that there is such a thing as a “stuck in the middle” phenomenon.

Study participants had to read and find the errors in nine essays.  The first time they read essays, they found an average of .122 errors per second.  The next time they only .092 spotted errors per second.  Their accuracy was the best on the third and final try.  They found .124 errors per second in the third set, which they knew would be their last.

What this study demonstrates is that people are motivated at the beginning of the chore, and at the end – because it is almost over.  The middle is the attention vortex.

Keep this in mind when you structure your process.  If possible, front and back-end load the tasks that you need the client to complete – like filling out fact finders and locating documents.  Also, let your clients know when they are nearing the end of the planning process (and entering the active monitoring stage), so you both can benefit from extra burst of energy.

The Implications Of The 2012 Presidential Election

This Tuesday marked the end of the 2012 Presidential Election campaign, with Barack Obama heading back to the White House.  In a campaign marked by elements of vitriol and an astronomical amount of money spent, most experts ballpark it around $6 billion in total, the results were status quo.   Republicans maintained their majority in the House, while the Democrats, after picking up a few surprise seats, remain in control of the Senate and Presidency.

As the new(ish) regime begins to game-plan for the next four years, a number of issues to address lay in wait.  The first, and potentially most significant, is the fiscal cliff the government must face before January 1, 2013.  With the Bush-era tax cuts expiring in conjunction with spending cuts, the U.S. economy will see about a 4% drag on GDP, forcing policymakers to address the looming recession.  The most likely scenario is an extension of most of the provisions already in place, which would result in a drag on GDP closer to 1%.

A key proponent in all of this is a compromise of tax increases on high-income earners—a significant area of compromise for President Obama. It would seem that the majority of investors are anticipating such a short-term deal to take place, but if no deal is signed before the end of the year, the market will react to the disappointment.

Next on tap for the President is a defined, long-term fiscal package. And while it will be a difficult task with a split government, it has been done before.  It is important for investors to have a roadmap to address our fiscal issues as it would reduce uncertainties, provide businesses and consumers with a higher level of confidence, and ultimately spend and contribute to positive growth. One strong point here is our high demand for U.S. Treasuries, even at current low rates.

With possible changes facing the Federal Reserve and tax increases, we are faced with a number of uncertainties.  We’ve crossed the election off our list of concerns and now turn our heads to the fiscal cliff. So as we head into year end, we will prepare for market volatility while keeping a close eye on what Congress is planning.

There’s Mud on Your Face: The Advisor Smear Campaign

Sue BerginSue Bergin

Remember when you were a kid how snowball fights typically erupted totally unannounced?  You’d be hanging out at the bus stop when – WHAM! – out of the blue you got smacked right on the side of the head with a snowball that you didn’t even see coming.  When it happened, you’d quickly dust the snow out of your eye, set your sights on the assailant, and launch your counterattack.

While you didn’t know it at the time, you were, in fact, honing an important skill that might now come in handy to help you defend your practice.

The advisor profession has been hit on the proverbial head by a whole lot of mud.  Our credibility, integrity, and worth have been called into question in a smear campaign launched by companies that profess a noble mission: to help Americans become better financially prepared for the future.

They are going about it by “reinventing” financial services and eliminating the need for an advisor.  They are giving consumers tools to learn more about financial management, become better organized, and evaluate the effectiveness of their portfolios.

The functionality and sophistication of these personal financial management sites and mobile applications are evolving at warp speed.  Take SigFig, for example.  SigFig aggregates all investment holdings and then makes recommendations based on current holdings.  It compares the holdings in a user’s portfolio against other investments in the same category and share class.  It then suggests different, less expensive investments that perform better than the user’s current holdings.  It even goes a step further.  After reviewing the user’s trading patterns, it evaluates the brokerage fees.  Advisors are evaluated according to the fees assessed and the performance obtained.  This functionality has led to all kinds of provocative headlines, such as the one inviting you to “Find Out if Your Financial Advisor is Overcharging You.”

Another media darling is Jemstep, which served up this headline: “Use Jemstep to See if Your Broker is Wasting Your Money.” Jemstep’s ranking engine analyzes 80 attributes of more than 20,000 mutual funds and ETFs.  Jemstep helps clients identify their financial goals, provides a ranked list of the “best investment options,” and tracks aggregated investment performance.

While the functionality of these tools may have been the baton that the media picked up in launching the smear campaign, Personal Capital marched to the front with its own marketing efforts.  Personal Capital is a little different from some of the other personal financial management sites because it actually manages money.  It positions itself as the next generation of financial services that has evolved by moving away from a paternalistic, craftsman-like approach.  Its pitch is that clients should move money to them because they can invest it in cheaper, better performing funds while giving clients full transparency.  One of its hooks is the “How Much is Your 401(k) Costing You?” calculator.

These services and dozens of others are gaining in popularity.  They are free or come at a modest fee, and they have seized the attention of both venture capitalists and the media.

If we have learned anything from schoolyard snowball fghts and political campaigns, the best way to deal with an attack is to launch an immediate counterattack.  If the suspicion, exaggerations, and fear prompted by the smear campaign are left to linger, credibility is destroyed.

It’s time for those in the business of giving financial or investment advice to wipe the mud from their faces and launch a counterattack.  Here is an effective, three-pronged approach to take with clients:

  1. Ask clients whether they would be willing to turn over their life savings to a computer program. Most personal financial management services offer a mathematical approach to an emotion-filled process.  They aggregate holdings, use algorithms to evaluate investments, and spit out recommendations based on a computer model.  It is not only black and white and cold; it ignores the uncertainties of life.  It also ignores the single most important role that a financial advisor fills: to act as a sounding board for clients throughout their lives.
  2. Demonstrate the enduring value of the professional advice model. The premise of many personal financial management sites  is  that  the computer can do all the work better than an advisor.  It has never been more critical than now, therefore, that you demonstrate your worth.  You are your expertise.  You are the knowledge, resources, and guidance that you provide.  A computer program can’t begin to offer the sense of comfort and confidence you deliver to clients.  Remind your clients that you are savvy and accessible, and that you genuinely care about their goals.  Because the smear campaign seeks to create doubts about your motives in recommending certain products and solutions, make sure to remind clients that you always have their best interests in mind.
  3. Deliver a better online experience. An estimated 30,000 Americans are flocking to personal financial management sites every day! The word has spread.  An organized, online financial view helps make money management easier.  Personal capital, however, is asserting that advisors are unable to offer clients an online experience.  The CEO has been quoted as saying that personal financial advisors are still stuck in “pre-electronic practices.”

Prove him wrong. Show clients that an organized, online financial view is most beneficial when it is part of a wise collaboration with a trusted advisor

Republished with the permission of eMoney Advisor.  For more information about eMoney, visit