Classic Indexes Are Hurting Retirees

Personal Benchmark InvestingEngrained in most retirees is that as the markets go, so do their savings—up markets are good, down markets are bad. It’s not that it’s inherently wrong to think that way, it’s just that there’s a better way of looking at your savings in action. Historical benchmarks do a disservice to investors at indicating how successful they can be in creating real purchasing power.

Chuck Widger, Executive Chairman of Brinker Capital, was brought on to TheStreet.com, a leading financial news website, to discuss this new line of thought, and how the industry needs to redefine its value proposition.

Check it out here: Classic Indexes Are Hurting Retirees

*Please note that references to specific holdings in the video are for illustrative purposes only and not necessarily owned by Brinker Capital.

Your Personal Iceberg: There is More to Measuring Success Than What Lies on the Surface

Wallens, JordanJordan Wallens, Regional Director, Retirement Plan Services

This is part two of a two-part blog series.

Next time you catch yourself bemoaning a down day in the stock market, calmly ask yourself, “Did I need the money today?” Benchmarking yourself against daily fluctuations is like looking outside and wondering why that tree in your yard doesn’t look any taller today than it did yesterday.

All of this is not to suggest that you shouldn’t seek help – you should. Simply put, having two sets of eyes and experience on the bridge is always better than one. You’ll fare far better at the essential behavioral art of saving yourself from your base instinct to Buy High and Sell Low, by retaining a seasoned financial advisor to walk beside you and talk you down from the ledge of your litany of poorly-timed short-sighted misbegotten past investment decisions.

The key is to once and for all truly personalize your benchmarks, rather than sweat the screeching heads on CNBC, aka Nickelodeon for adults. Better to diligently establish and maintain your own benchmarks, chart your progress, toward your concrete unchanging goals, including past progress, not just fleeting future predictions.

3.22.13 Wallens Personal Benchmarks2Suppose for example you already have a plan in place to save for retirement. What percentage of annual portfolio growth did you assume? 7%? And how much longer do you expect to work? Well how did you do last year? Forgot already? Too bad, especially if say you earned 12%. Why? Because the good news is, that properly harnessed, last year’s out-performance could very well result in meeting your goals a year earlier than planned. Congratulations, you’re money and you didn’t even know it. (Industry should’ve told you so.) My guess is that rather than properly recognizing, accounting for, and adjusting your risk, you’ve probably already moved on to, “So what’s the best stock to own this year?”

Whenever someone touts a fresh baked personal stock pick, I have a pat response for that too. I ask the inquirer what was the top performing stock last year. For the record, in 2012 that would be homebuilder PulteGroup, yet not a single putative stockpicker polled has answered it correctly. This they rarely relish either. So let me get this straight, if you can’t figure out what was the top stock in the past, do you really think you’ve got edge on what’ll outperform the pack in the future? Sorry, ya don’t. But the best news is, it just doesn’t matter.

Get help, it’s never too late. Start early, and you couldn’t screw it up if you tried. Start too late, and there’s nothing Cramer or anyone can do to help. Rehabilitate your investor behavior. Assess via readily available online tools your personal risk tolerance. Establish and zealously maintain your personal benchmark, un-phased by the chattering masses.

Quit obsessing over schizophrenic ever-changing variables that are outside your control, beyond your comprehension, and have nothing to do with your steady consistent lifelong goals. Ignore the reports of others’ flashy investment performance, and instead manage your personal investor behavior, to achieve the glide path, experience, and inalienable progress toward the life of your dreams. You’ll find you arrive at the station on time and intact, and best of all, without ever disembarking from your righteous path at the least opportune moments.

Another wise fellow declared, “Be the change you hope to see in the world.” But in this instance, ’tis far wiser to simply “Stay the same you want to see from the world.”

Your Personal Iceberg: There is More to Measuring Success Than What Lies on the Surface

Wallens, JordanJordan Wallens, Regional Director, Retirement Plan Services

This is part one of a two-part blog series.

As a financial professional, I’m often asked what equity markets will do next. My response never changes: “It will fluctuate”. This truth they do not relish.

A wise man once declared that the beauty of an iceberg lies in the fact that it is 8/9 submerged. Yet when it comes to our investments, we too often make ill-advised decisions driven by passing metrics, subjective outlooks, weather, inputs, and theories that concern only the 1/9 of our personal iceberg showing above the water’s surface. The true tale of the tape for all of us will ultimately be measured not by those investment results, but by our own investor behavior, which accounts for the 8/9 of the iceberg that wise man spoke of. We fret and posture over raindrops when we should in fact, focus on our vessel and navigating the ocean beneath us.

According to a recent nationwide advertising campaign conducted by a prominent global financial services firm, we, as investors, are surrounded on all sides and ever beset by a constantly changing system of confusing and complex variable equations. Whoa, really? Getting anxious? Good, that’s what they intended.

3.12.13_Wallens_PersonalBenchmarksDeep breath and relax. This is but a typical modern example of the financial industrial complex’s fundamental mistruth laid bare by author Michael Lewis, who pointed out that the reason financial types speak in such stilted esoteric jargon, is to constantly remind individual investors that they should never ever consider trying to do this stuff for themselves. They tout “custom strategic solutions” yet sow widespread tactical bewilderment.

And besides, nothing could be further from the truth. Though the eddies of Finance, Economics, and Mathematics may swirl around all of us, the one and only equation that does not change is the “you” part. Your personal benchmark isn’t the S&P500, unless you trade at a 14 P/E and aspire to be one of America’s 500 largest companies. No, your personal benchmarks, like progress toward retirement, college funding, security, vacation home, trip around the world, or whatever you aspire to, are far more static than media barkers would have you believe—which is a good thing (for you, not them).

Worse, this type of indiscrete industry mongering exerts a deleterious effect on individuals’ resolve to do something, anything, to embark upon preparing for retirement, or at least take proper control of their financial future. So what can be done? The good news is things are not nearly as complicated as industry “Chicken Littles” would have you fear. Salvation begins with divorcing the benchmark, and eliminating that pesky habit of gauging your progress by how any given index performs today, this month, this quarter.

Look for Part Two of this blog next week!

Brinker Capital on Fox Business News

Brinker Capital’s Vice Chairman, John Coyne, joins Lori Rothman on Fox Business News to discuss the changing sentiment of financial advisors and the drive towards alternative investments, like absolute return.

Coyne_FBN_500x298

The Brinker Barometer: Absolute Return Strategies On The Rise

Each quarter, we conduct a survey among financial advisors to gauge their confidence and sentiment regarding the economy, retirement savings, investing and market performance.  In our most recent Brinker Barometer, we asked respondents to reflect on key financial issues, including their clients’ retirement readiness, investing and the nation’s debt problems.

Click here for the official press release

Below is an infographic that sums up the results of the latest Brinker Barometer survey:

Brinker_Barometer_Q4_2012

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.

Lighten the Load

Sue BerginSue Bergin

Saving for retirement can seem like a daunting task.  When an advisor enters the picture the perceived difficulty of the task lessens.  Before the advisor makes a single recommendation.

It’s all about perception.

A research team at Rutgers recently proved that a task looks lighter if help is promised.  The team asked study participants to estimate how much a sack of potatoes weighed.  If the participant thought he or she would have help lifting it, they guessed it weighed on the average of 9.4 pounds.  If they thought they had to lift it alone, their estimate was 10.5 pounds.

The Rutgers team took a look at how competence shapes perceptions as well.  They ran a study where the aid came in the form of a seemingly injured person, i.e., someone with an arm in a sling.  In those instances, the task didn’t seem lighter at all.

While saving for retirement is intimidating, if clients know they have an expert at their side, the burden will seem lighter.

Reaction: ‘Plain English’ on 401(k) Fees Often Reads More Like Gibberish

Bill Simon, Brinker Capital

Many businesses and advisors may be glad to have 408(b)(2) and 404(a)(5) behind them, but the reality is that the more difficult work may just be starting. As fiduciaries or advisors to the plan, it is the responsibility of the plan sponsor to review and analyze their plans’ fees and services to assure plan participants that they are reasonable. As a recent Wall Street Journal article points out, not only have a significant percentage of small business owners not even reviewed the disclosure notices, but of those that have, more than half don’t fully understand what they are reading. Confusion creates opportunity. At Brinker Capital we can clearly demonstrate how our 408(b)(2) disclosure is designed to provide clarity and transparency to this critical requirement while providing assistance and support to the advisor and plan sponsor.

How 401(k)s are failing millions of Americans

Recently, some startling facts have surfaced that hint at a looming widespread retirement crisis.

Consider these statistics:

  • According to the Employee Benefit Research Institute (EBRI), there are 50 million 401(k) participants in the U.S.
  • The average 401(k) balance of those is slightly over $60,000
  • The average 401(k) balance of those within 10 years of retirement is $78,000—a third of them actually have less than $25,000 saved.
  • 43% of workers ages 45-54 are not currently saving for retirement at all.
  • In 1980, 60% of private sector workers had access to a lifetime income in the form of a corporate pension. As of 2006, only 10% still have access to a pension.
  • It is estimated that a middle-class lifestyle will require a nest egg of $900,000 at retirement.
  • Social Security only pays $14,780 per year for individuals and $22,000 per year to couples.

To read the entire article on How 401(k)s are failing millions of Americans, click here.

[1] “How 401(k)s are failing millions of Americans. The Week. April 20, 2012. <http://theweek.com/article/index/226886/how-401ks-are-failing-millions-of-americans&gt;