posted on October 12th 2016 in Austin CFP Team Posts with 0 Comments /

Presidential aspirations? I have none. It’s very fulfilling helping families and business owners with their lives and I would not want to give that up to participate in a political system that is ripe with conflicts of interest. I have been approached to run for office, but my response is that I would be a better benevolent dictator. You see, I very much enjoy working in an efficient environment where two people can look each other in the eye and make decisions based on intelligent input and mutual trust.

Alas, our political system is not the only place ripe with conflicts of interest and nefarious dealings. The following is a redacted, but real, online review of a financial “advisor” that came to my attention as someone who was “retiring.” This financial advisor advertised as both a CPA and a CFP®. Although I can neither confirm nor deny the veracity of this review or the advisor’s credentials, I believe the senate hearings on the docket regarding this matter will shine a light pending delivery of all communications and computer servers of said advisor. Or, maybe not.

Review:
(Unclassified)
Failure to adequately disclose the risks involved in the XXXX Oil & Gas investment recommended to my husband and I, when we came for retirement planning assistance.  I have come to learn that XXXX is a risky investment and that I cannot sell the stock.  XXXX failed to perform the necessary due diligence prior to recommending them to us. XXXX was paid a commission, even though we paid a fee for financial planning. We did not understand the risk, and he had a staff member call us multiple times selling us to buy the funds. I made a big mistake on this action.

$XX,XXX purchase of XXXX Oil & Gas Income and Development Fund III, L.P.
Purchased $XX,XXX on XX/XX/XXXX.

One of the central issues at hand is a financial product distribution system that rewards commissioned sales and was designed to sell products that investors don’t really understand. This has the tendency to encourage unneeded activity and overly risky and expensive investments in an investor’s personal financial ecosystem. Also, it appears the investor could not sell the investment, thus they were locked in. The key is finding an advisor whose firm’s business structure does not encourage this type of activity or lock you into any long-term contracts or products. A fee-only firm, one where the only source of income for the firm are the clients themselves, is the first test. If you’re not sure about your advisor’s fee arrangements, ask.

Some of the blame must also be put on investors themselves, whose lives are swayed by the media that stokes the emotions of greed and fear. It’s much like a presidential campaign, so you need be sure you are voting with an eye on the long-term effects of strategic policy as opposed to sound bites and social media mashups.

In a sense I am running for office everyday and I will stand firm in my commitment to encourage successful long-term outcomes. Strategic vision and values are the most important elements and these cannot be upheld by any single advisor unless his or her firm’s business structure puts the client’s interests first. This all starts with fee-only advice.

I would bet our country would have better outcomes if we applied these same principles to our government officials. Happy voting.

2016 Q3 Index & Market Review moregan-2 (Table disclosures and http://worthpointeinvest.com/disclaimer/) performance for periods greater than one year are annualized. Selection of funds, indices and time periods presented are chosen by the client’s advisor. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Past performance is not a guarantee of future results. Russell data copyright © Russell Investment Group 1995-2013, all rights reserved. The S&P data are provided by Standard & Poor’s Index Services Group. MSCI data copyright © MSCI 2013, all rights reserved. Barclays Capital data provided by Barclays Bank PLC.)

Out of the many notable events that occurred in the 3rd quarter, there are a couple that stand out. The first is that Federal Reserve Chair Janet Yellen signaled that a rate hike was still on the table, but she was vague on the timing. The second was that the Dow, S&P 500 and Nasdaq all closed at records on the same day for the first time since 1999. For further insight into what market closing records mean for future returns, read my article titled, “Stocks: It’s Time To Sell” here.

Regarding vague statements by Ms. Yellen, they have swayed the opinion to a point where the consensus is that sometime in the future, interest rates will rise. It’s this consensus that has a short-term effect on the market, but no one really knows how things will play out in the long run.

Anyone stuck with the S&P 500 as their portfolio anchor would have been somewhat disappointed this quarter, with the Russell 2000 beating it by more than twice the return at 9.05%. Over decades, we know this overperformance to be consistent, but it sometimes gets lost in short-term analysis. Thus our recommendation: never make investment decisions based on short-term analysis. The US REIT index pulled back slightly from its lofty performance of late and international stocks (EAFE) were robust at 6.50% for the quarter. Most bond indexes were slightly positive, with a slight pullback of -0.25% for the US Government Bond index.

For globally diversified investors, this all bodes well for performance for the 3rd quarter. There should be no surprises in your return unless of course you are betting on, for example, the implications of market highs and the market’s reaction to vague Fed statements.

about the author: Morgan H. Smith Jr. IMBA CFP®

Morgan Smith Jr. IMBA, CFPMorgan H. Smith Jr. IMBA CFP, who has been a fee-only financial planner for over 12 years, specializes in wealth management for successful families, business owners, retirement plans and institutions requiring a disciplined fiduciary process.

An Assistant Professor at the University of San Diego, Morgan has been a frequent speaker to many professional organizations and has appeared on CNBC, Fox Business New Live and is a founding member of the Strategic Trusted Advisors Roundtable.

Learn More and/or Contact Morgan

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