Spending Triggers

Sue Bergin

One of the first steps to losing weight is to identify your eating triggers.  Hunger, boredom, sadness, anxiety, and habit are all called trigger feelings.  They are the emotions that set off overeating.

Certain environments also stimulate overeating.  These are specific social situations that lead to overindulgences.  For example, you’ve been getting popcorn at the movies since you were 10 years old.  You don’t even think about it.  You probably don’t even like it.  Yet, you do it each and every time.

By tuning into triggers, you can avert derailment. You can avoid the trigger or engage in a substitute substance or activity that won’t have a negative impact.

The same principles apply to over-spending.

Whether trying to reduce debt, save for the future, or live responsibly within your means, it is important to identify spending triggers.

Like hunger is to eating, necessity is the purest motivation for spending.  Most of us, however, indulge in items and activities that far exceed necessity.

As I wrote about in my, “Impatience and Sadness: Two Costly Emotions,” post, people who are sad seek immediate gratification and are more prone to self-defeating financial decisions.

Pain can also lead to overindulgent expenditures.  As reported in a recent study, people perceive pain as a form of punishment.[1]  A typical response is to give oneself permission to indulge in a guilty pleasure.

While evaluating the connecting between pain and indulgence, a research team from the University of Queensland in Australia found that people who had to submerse their hands in ice water later took 73% more pieces of candy than those who hadn’t.

73% more candy is likely to impact the waistband more than the wallet; however, the concept holds.  We treat ourselves.  M&M’s probably won’t harm the wallet, but if a shopping spree is the salve of choice, there might be a problem.

We also spend more than is financially healthy out of a sense of entitlement, or we give in to peer pressure.  Sometimes a purchase sets off a ripple effect which some have dubbed the,  “I Got This So I Need That” conundrum.   For example, a luxury car often leads to higher maintenance costs, a more substantial tax liability and increased insurance premiums.

As with overeating, the key to controlling overspending is to recognize triggers for what they are and strategize ways to prevent them from allowing them to cause financial harm.

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[1] Bastian, B., Jetten, J., & Stewart, E. (2012). Physical Pain and Guilty Pleasures Social Psychological and Personality Science

Beginning of a ‘Great Rotation’?

Joe Preisser, Brinker Capital

As the share prices of companies listed in the United States rose this week, to heights last seen in October of 2007, speculation has run rampant that a so called ‘Great Rotation’ from fixed income to equities may have commenced.

The continued easing of Europe’s sovereign debt crisis, combined with positive corporate earnings surprises and the temporary extension of our nation’s borrowing limit, has helped to quell a measure of the uncertainty that has plagued market participants during the course of the last few years. Tangible evidence of this phenomenon can be found in the marked decline of the Chicago Board Options Exchange Market Volatility Index (VIX), commonly referred to as the “fear gauge”, which is currently trading far below its historical average. The steep drop in expected market volatility suggests that investors believe to a large degree that many of the potential problems facing the global economy are already priced into current valuations, and as such have set expectations of the possibility of any external shocks to be quite low. This state of affairs has led directly to an increased appetite for risk within the market, which has culminated in strong inflows into equity funds. According to the Wall Street Journal, “For the week ended January 16, U.S. investors moved a net $3.8 billion into equity mutual funds. That followed the $7.5 billion inflows in the previous week, along with another $10.8 billion directed to exchange traded funds. Add it up and you’re looking at the biggest two-week inflow into stocks since April 2000” (January 24, 2013).

Although the movement of money into equities this year has been quite strong, whether or not this is the beginning of a significant reallocation from fixed income remains to be seen. Despite the flight of dollars into stocks, yields, which move inversely to price, on both U.S. Treasury and corporate debt have risen only moderately, and bond funds this year have not experienced the type of drawdowns that would be expected if investors were truly rotating from one asset class to another. In fact, what has transpired speaks to the contrary, as although inflows to the space have slowed from last year, they remain robust. According to an article in Barron’s published this week, “Bond funds, meanwhile, attracted $4.63 billion in net new cash. Bond mutual funds collected $4.21 billion of that sum, compared to the previous week’s inflows of $5.45 billion” (January 18, 2013). One possible explanation for the hesitation to exit the fixed income space is the lingering concern among investors over the looming fiscal fight in Washington D.C. and the potential damage to the global economy if common ground is not found. According to a recent Bloomberg News survey, “Global investors say the state of the U.S. government’s finances is the greatest risk to the world economy and almost half are curbing their investments in response to continuing budget battles” (January 22, 2013).

If begun in earnest, a rotation by investors from fixed income to equities would certainly present a powerful catalyst to carry share prices significantly higher; however caution is currently warranted in making such an assertion, as a potentially serious macro-economic risk continues inside the proverbial ‘beltway’. If the budget impasses in the United States is bridged in a responsible way, and the caustic partisanship currently gripping Washington broken, the full potential of the American economy may be realized and this reallocation truly undertaken. David Tepper, who runs the $15 billion dollar Apoloosa Management LP was quoted by Bloomberg News, “This country is on the verge of an explosion of greatness” (January 22, 2013).

The War Against Your Credibility

Sue Bergin

While you were enjoying some quiet family time on Sunday morning, America’s most read magazine was advising its readership to dump you.

In an article “How to save $1,000 this year,” Parade magazine tells its 33 million readership that the average investor could save $750 if they moved to a self-directed IRA.

In case you missed it, here is the excerpt:

Shed Investment Fees

It’s one of the quickest ways to save …. Consider rolling over 401(k) assets from old jobs into a self-directed IRA.  Since the average 401(k) is $75,0000 saving 1 percent makes sense.  Potential Savings:  $750 per year.

The article fails to mention is that the average U.S. individual stock investor doesn’t fare very well.  In fact, they typically get significant lower returns than the S&P.  Over a recent five-year period, the average U.S. investor got an annual return of just 1.9%, while the S&P 500 returned 8.4%.[1]

The do-it-yourself investment management trend is gaining momentum in the media.  This is just the latest example.  Know that there is a war being waged against your credibility and the value you bring to your relationships.

Fight back.

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[1] The Most Destructive Behavioral Bias, Summer 2012, The Journal of Investing

Economic Headwinds and Tailwinds

We continue to approach our macro view as a balance between cyclical tailwinds and more structural headwinds. While we have seen some improvement in the economy and strong global equity markets, helped by easy monetary policy, we continue to face global macro risks and uncertainties. The unresolved risks could result in bouts of market volatility. As a result, portfolios have a modest defensive bias, and are focused on high conviction opportunities within asset classes.

To read more, click here

What Does “Help” Look Like to Your Clients

Sue Bergin

When someone asks for help they usually have something specific in mind.  For example, when I hit a website “help” tab, I want a contact number.  I don’t want to engage in an online chat.  I don’t want to hunt through generic questions and answers to find one that resembles my issue.  And, I certainly don’t want to send an e-mail and wait for a response.   Others may find these alternatives helpful.  Not me.  I just want a number.

The same can be said for financial advice.  An advisor may provide clients with all kinds of helpful information, data and insights yet the client may still feel dissatisfied.

For example, you could have an in-depth discussion about the fiscal cliff.  You could wax poetic about the political winners and losers, and long and short-term economic impact.  Unless you discuss precisely what it means to her financial situation, the client may describe the conversation as interesting … but not helpful.

BlackRock recently surveyed plan sponsors and plan participates and asked whether sponsors had done enough to help participants achieve financial security.  In the plan sponsor camp, 76% said they believed they had done enough.  Only 40% of participants felt the same.

Three dangerous assumptions that can lead to client dissatisfaction:

1. Presuming to know what the client wants
2. Assuming the client will proactively disclose what they are seeking in the relationship
3. Assuming (without confirmation) that the client’s needs have been fully met

Always remember to ask clients how they want to be helped.  Once you define what “help” looks like to that client, you can tailor your approach. At the end of a meeting or conversation, ask if you have met the client’s needs.   Find out if you have been helpful as they define the term. These simple questions will close the kind of gap in perception that exists between the survey participants in BlackRock’s study.

One For The Muni

@AmyLMagnotta, CFA, Brinker Capital

Municipal bonds have delivered very strong positive returns since Meredith Whitney famously predicted hundreds of billions in municipal defaults during a 60 Minutes interview in December 2010. Municipal bonds outperformed taxable bonds (Barclays Aggregate Index) by meaningful margins in both 2011 and 2012.

Source: FactSet

Municipal bonds have benefited from a favorable technical environment. New supply over the last few years has been light, and net new supply has been even lower as municipalities have taken advantage of low interest rates to refinance existing debt. While supply has been tight, investor demand for tax-free income has been extremely strong. Investors poured over $50 billion into municipal bond funds in 2012 and added $2.5 billion in the first week of 2013 (Source: ICI). This dynamic has been driving yields lower. The interest rate on 10-year munis fell to 1.73%, the equivalent to a 2.86% taxable yield for earners in the top tax bracket. Similar maturity Treasuries yield 1.83% (Source: Bloomberg, as of 1/15). We expect new supply to be met with continued strong demand from investors.

*Excludes maturities of 13 months or less and private placements. Source: SIFMA, JPMorgan Asset Management, as of November 2012

While technical factors have helped municipal bonds move higher, the underlying fundamentals of municipalities have also improved.  States, unlike the federal government, must by law balance their budget each fiscal year (except for Vermont).  They have had to make the tough choices and cut spending and programs.  Tax revenues have rebounded, especially in high tax states like California.  Last week California Governor Jerry Brown proposed a budget plan that would leave his state with a surplus in the next fiscal year, even after an increase in education and healthcare spending.  Stable housing prices will also help local municipalities who rely primarily on property tax revenues to operate.

While we think municipal bonds are attractive for investors with taxable assets to invest, the sector is still not without issues.  The tax-exempt status of municipal bonds survived the fiscal cliff deal unscathed, but the government could still see the sector as a potential source of revenue in the future which could weigh on the market.  Underfunded pensions – like Illinois – remain a long-term issue for state and local governments.  Puerto Rico, whose bonds are widely owned by municipal bond managers because of their triple tax exempt status, faces massive debt and significant underfunded pension liabilities and remains a credit risk that could spook the overall muni market.  As a result, in our portfolios we continue to favor active municipal bond strategies that emphasize high quality issues.

Preparing for a New Year: The Importance of Goal Setting

Bev Flaxington, The Collaborative

Whether you run an advisory firm with two people – or 200 people – setting goals and determining your desired outcomes for 2013 is critical. Most people think about goal setting in terms of the numbers – how many new clients do we want? How much in AUM? What should our profitability per client be? These are all very important and should be included, but don’t forget to put an emphasis on qualitative goals, too.

What are qualitative goals? You want to think about things such as:

(1)    What do you want your advisory firm to stand for? It seems to be a given that you would want to be trustworthy and responsive to clients, but what else matters to you? Do you want to be leading edge in investment offerings? Do you want to be known as proactive and anticipatory of client needs, instead of just responsive? Do you want to be a value provider – low cost with high service? Think in terms of reputation and define what you would like your firms to be.

(2)    What kind of culture do you want to have in your firm? Many people think culture evolves naturally and cannot be defined. Culture evolves in a directed way, when the firm puts emphasis on it. Aspects of firm culture could include team orientation, or fast decision-making, or a willingness to take risks (with compliance support of course!) or innovation. Take a moment to examine your culture now – see if you can identify the traits associated with it. Now take a moment to define what you would like it to be. What is the “gap”? Where do you need to make shifts? Note these and incorporate them into your planning process.

(3)    What is the client experience at your firm? When writing marketing materials we often ask about the client experience. What is it like for a new client to join your firm? What happens to them step-by-step? Again, this can evolve as your firm goes about its daily business of serving clients, but it can be a powerful aspect if you define it at the outset, instead of just letting it evolve. How often do you want to touch clients? What do you want to be doing at each touchpoint? How do you want clients to describe their experience in working with you? What three words would best capture what it is like to be a client of yours? Be illustrative in defining this so that someone else can actually picture or imagine what it feels like, or looks like to be a client of your firm.

(4)    What is the firm’s mission for this year? What do you want to accomplish in addition to serving clients well and finding new revenue? Do you want to be a market leader? Do you want to be known among the competition in a certain way? Do you want to raise the firm’s profile and be more engaged in PR (public relations) and media relations? Think outside of just the business development goals to broader, market-oriented goals

Thinking about these qualitative aspects takes time. It can be a great exercise to have other members of your firm join you in identifying these aspects and defining them. Even if you have only one other person in the firm, bring that person into the planning process. Most importantly if you take the time to think about any of these qualitative pieces, take the time to write them down. Use them as your guideposts for next year to help you navigate where you want to go.

Good luck for much success in 2013.

Brinker Capital and eMoney Advisor Sponsor Philadelphia Wings Lacrosse Match And Auction To Benefit Wounded Veterans

Conshohoken, Pa. – January 16, 2013 – Brinker Capital, Inc., a leading investment management firm, has teamed up with eMoney Advisor (“eMoney”), the only wealth-planning system for financial advisors that offers transparency, security, mobile access and superior organization for everything that impacts their clients’ financial lives, and the Philadelphia Wings professional lacrosse team to sponsor an American Heroes celebration benefitting wounded armed forces veterans.

The Philadelphia Wings will host the Calgary Roughnecks at Wells Fargo Center in Philadelphia on Sunday, January 27, 2013 at 4 p.m. Commemorative camouflage jerseys provided by Brinker Capital and eMoney will be worn by the players during the game and auctioned off after the game to raise money for the Wounded Warrior Project, a non-profit organization that seeks to empower and honor injured veterans.

“The Wounded Warrior Project plays an important role in reintegrating injured veterans into civilian life,” said Chuck Widger, Executive Chairman, Brinker Capital. “By attending the American Heroes event, the residents of Philadelphia and the surrounding metropolitan area can help this organization continue its life-enhancing work with wounded veterans and their families.”

“It is our duty as Americans to recognize the tremendous sacrifices made by our veterans, especially those who have been injured in the line of duty,” said Michael Zebrowski, Chief Operating Officer, eMoney, a former Marine who served in the Persian Gulf War. “We take the Wounded Warrior Project’s motto, ‘The greatest casualty is being forgotten,’ to heart by ensuring our community never forgets the brave men and women who risked their lives to protect us.”

This is the latest endeavor in the firms’ ongoing commitment to veterans. They co-sponsored a previous American Heroes celebration during a Philadelphia Wings game on January 21, 2012. In addition, on December 7, 2012, eMoney sponsored the Be a Hero-Hire a Hero Career Expo at Philadelphia’s National Constitution Center to help qualified veterans and their family members find employment.

Tickets are available at www.wingsLAX.com or by calling (215) 389-WING.

About Brinker Capital
Brinker Capital, Inc. is a leading investment management firm which provides managed account investment programs to individual and institutional investors through financial advisors. Brinker was founded in 1987 by Charles Widger and is located in suburban Philadelphia. Learn more at http://www.brinkercapital.com and http://www.twitter.com/BrinkerCapital.

About eMoney Advisor, LLC
eMoney Advisor, LLC, (eMoney), based in Conshohocken, Pennsylvania, is the only wealth-planning system for financial advisors that offers transparency, security, mobile access and superior organization for everything that impacts their clients’ financial lives. Our award-winning, web-based services and resources are designed to transform the advisor’s ability to implement comprehensive financial plans and prepare clients for a secure financial future.

You: The Key to Better Investment Returns…and More

Sue Bergin

John Hancock’s recent Investor Sentiment Survey demonstrates that over half of investors who use an advisor are confident (56%) that doing so will lead to better investment returns.[1]

How’s that for a confidence boost?

The study also gives us tremendous insights into why clients choose to work with financial advisors and highlights the importance of three factors:

1. Realistic assessment of one’s own investment management capabilities
2. Confidence in advisors’ ability to generate better returns than the individual could do themselves and add value to the process
3. Time constraints

A significant number of participants who work with advisors (47%) do so to obtain a comprehensive financial plan and for validation that their financial decisions are on track.   They tend a need to have a professional’s stamp of approval on their decisions.  This is a moderate showing of confidence in his or her own ability and reveals a willingness to seek and listen to advice.

37% of those working with advisors claim to do so because they lack the knowledge to manage their own investments.  43% of the respondents who do not have an advisor chose to go at it alone because they feel like they can manage comfortably on their own.

36% of the “do-it-yourself” group said that they did not think advisors provided good value for their money.

Working with An Advisor	No Advisor
56% believe working with an advisor will lead to better investment returns	43% have confidence in their own abilities and therefore do not need to work with an advisor
47% seek comprehensive financial planning advice and to validate financial decisions	40% actually enjoy the process
36% acknowledge they couldn’t manage investments on their own	36% lack confidence in advisors
24% don’t have the time

Few people think they could perform surgery on their own knee, but many investors believe they could get comparable results without a professional’s assistance. Technological innovations are only going to fuel that sentiment by making it easier and more fun than ever for the do-it-yourselfers.  The key for advisors is to focus on your unique qualification and the value you add to the relationship.

Instill confidence in your abilities, so theirs are never even considered.

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[1] John Hancock Investor Sentiment Survey, January 7, 2013

The S&P 500 in 2012

2012 was definitely a better year than it felt, with the S&P gaining over +13.0% on a price basis and +15.9% on a total return basis.

It was a great year to be invested in the global equity markets despite investors pulling out over $139 billion from equity mutual funds. Investors continued to pour into fixed income funds, adding over $300 billion during the year. (Source: ICI) The Barclays Aggregate gained +4.2% in 2012.

Below is a great snapshot of S&P 500 performance in 2012 from Bespoke Investment Group: