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Archive for January, 2012


FINRA Issued an investor alert about Email hacking.

“FINRA has received an increasing number of reports involving investor funds being stolen by fraudsters who first gain access to the investor’s email account and then email instructions to the firm to transfer money out of the brokerage account. …we are issuing this Alert to warn investors about the potential financial consequences of a compromised email account and to provide tips for safeguarding your assets.”

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Key Numbers for 2012 and 2011

The 2011 key numbers will help in preparing your tax return.  For those of you that use a tax preparer it will help in organizing your information.  It may also generate questions that you should discuss with your tax return preparer.  the 2012 Key numbers will help you in your planning for 2012.  
Key Numbers for 2012 and 2011

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“Lou buys a computer”

You have to be old enough to remember Abbott and Costello and
too old to REALLY understand computers, to fully appreciate this.
For those of us who sometimes get flustered by our computers, please read on…

   If Bud Abbott and Lou Costello were alive today, their infamous sketch,
‘Who’s on First?’ might have turned out something like this: 


ABBOTT:  Super Duper computer store. Can I help you?

COSTELLO:  Thanks I’m setting up an office in my den and I’m thinking about buying a computer. 


COSTELLO:  No,  the name’s Lou.

ABBOTT:  Your computer?

COSTELLO:  I don’t own a computer. I want to buy one.


COSTELLO:  I  told you, my name’s Lou.

ABBOTT:  What about Windows?

COSTELLO:  Why?  Will it get stuffy in here?

ABBOTT:  Do you want a computer with Windows?

COSTELLO:  I don’t know. What will I see when I look at the windows?

ABBOTT:  Wallpaper.

COSTELLO:  Never mind the windows. I need a computer and software. 

ABBOTT:  Software for Windows?

COSTELLO:  No.  On the computer!  I need something I can use to write proposals, track
expenses and run my business. What do you have?

ABBOTT:  Office.

COSTELLO:  Yeah, for my office. Can you recommend anything? 

ABBOTT:  I  just did.

COSTELLO:  You  just did what?

ABBOTT:  Recommend  something.

COSTELLO:  You recommended something?


COSTELLO:  For my office?


COSTELLO:  OK, what did you recommend for my office?

ABBOTT:  Office.

COSTELLO:  Yes, for my office!

ABBOTT:  I recommend Office with Windows.

COSTELLO:  I already have an office with windows! OK, let’s just say I’m sitting at my computer
and I want to type a proposal. What do I need?

ABBOTT:  Word.

COSTELLO:  What word?

ABBOTT:  Word in Office.

COSTELLO:  The only word in office is office.

ABBOTT:  The Word in Office for Windows.

COSTELLO:  Which word in office for windows?

ABBOTT:  The Word you get when you click the blue ‘W’.

COSTELLO:  I’m going to click your blue ‘W’ if you don’t start with some straight answers. What about financial  bookkeeping? Do you have anything I can track my money with? 

ABBOTT:  Money.

COSTELLO:  That’s right. What do you have?

ABBOTT:  Money.

COSTELLO:  I need money to track my money?

ABBOTT:  It comes bundled with your computer.

COSTELLO:  What’s bundled with my computer?

ABBOTT:  Money.

COSTELLO:  Money comes with my computer?

ABBOTT:  Yes.  At no extra charge.

COSTELLO:  I get a bundle of money with my computer? How much?

ABBOTT:  One copy.

COSTELLO:  Isn’t it illegal to copy money?

ABBOTT:  Microsoft gave us a license to copy Money.

COSTELLO:  They can give you a license to copy money?


àA few days laterß

ABBOTT:  Super  Duper computer store. Can I help you?

COSTELLO:  How do I turn my computer off?

 ABBOTT:  Click on ‘START’…….

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Should there be different standards for brokers and advisers?

This issue has been around for a long time. ” Brokers must recommend ‘suitable’ products, not necessarily best or cheapest’.”  “Advisers must put client’s interest before their own.”
Most investors do not understand the difference in the the various players in the “financial” field or the different standards they are held to.  Years ago, this was confirmed by a Rand study.  Things got more confusing when the “Merrill” rule was adopted.  Some regulators and consumer advocates have been trying to have all players (some are currently exempt such as those that are regulated by the states).
When discussing this issue, people usually tell me their broker does put their interest first.  Most brokers I talk to tell me they put their clients’ interest first.  Some even mention that they do not always sell the products with the highest commissions.  It sounds as if everyone agrees that the clients interest should come first.  If this is true why is their such a strong opposition to adopting one standard, putting  the clients’ interest first?  

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“Most advisers overstate their expertise”

Jeff Benjamin of “Investment News” discussed a recent survey by Scott Smith
of Cerulli Associates Inc.  Following is a portion of the article:

‘ “We found that 59% of respondents were calling themselves full-scale financial planners, when it fact many of them were actually investment planners,” he said.

In Cerulli’s parlance, which divides the overall financial intermediary universe into four broad categories, there are subtle yet distinct differences between an investment planner and a more comprehensive financial planner.

Even though 59% of respondents identified themselves as financial planners, Cerulli calculated that only 30% actually fit the definition of being better qualified and certified, working with clients to build comprehensive plans that include insurance and estate planning.

Investment planners, by comparison, focus on asset management, retirement and college savings plans but tend to offer more-modular-style plans.

According to Mr. Smith, only 22% of the 1,500 respondents identified themselves as investment planners. But when he went over the details of each respondent’s business, Mr. Smith realized that 56% of respondents are actually investment planners.

Mr. Smith said much of the discrepancy could be attributed to that fact a lot of advisers view themselves as being more comprehensive than they actually are, simply because they believe they have the potential to be more comprehensive.

“Firms have encouraged their advisers to expand their advice relationships with clients; however, advisers tend to overstate the degree to which they are involved in the planning process,” he said. “The movement to extend advice services is likely being accelerated by turbulent markets, as advisers who base their value to investors on investment performance have suffered more than those with broad advice relationships.”

In the two remaining categories — money manager and wealth manager — Cerulli found that advisers have a more realistic perspective on the services they are providing.

Money managers, defined as mostly managing and building portfolios, were identified by Cerulli as representing 9% of the total universe, which was in line what survey respondents indicated.’

The above illustrates why consumers need to understand the different type of financial and investment services that are available.  Then they need to identify which type of service they need.  There are resources on line that can help identify the background and experience of the person they think may be appropriate.  Several people should be interviewed before retaining their services.  

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AICPA 2012 Advanced Personal Financial Planning Conference

The last three days I attended the 2012 Advanced Personal Financial Planning Conference of the American Institute of Certified Public Accountants.  The conference is an annual conference for CPA personal financial planners.  The comprehensive program had an exceptional lineup of nationally recognized experts.  It was an energizing experience.  I learned new tools and techniques that can help my clients achieve their financial goals.  It included the opportunity to bet current information on changes by lawmakers and rule makers that could affect clients’ finances.  Discussing this information with an elite group of financial planners from around the country was also an opportunity to share best practices.  I was able to take away many ideas that will increase my value to my clients. 

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Sometimes investment firms are held responsible.

An article in today’s “The New York Times” discusses a recent win for two investors.  The securities arbitration panel agreed with the position of the investors.  The investment firm “asked a United States district court to overturn the arbitration panel’s award.”  By filing an appeal, documents in the case became public.  Documents relating to securities arbitration are not available to the public.
The internal documents of the investment firm clearly indicated that the investment was rated a 5, the highest level of risk.
One argument the investment firm advanced was that the investors were wealthy.  The minimum investment was $500,000.  The argument is that wealthy investors are sophisticated and “…know a gamble when they see one.”  Another argument is one that I have heard many times in the last few years.  This argument is that the investor signed the “…subscription agreement in which they expressly acknowledged the risk associated with the investment.”  
“Customers might have known what they were getting into if they’d known about the 5 rating.

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Can you benefit from “Analysts’ Stock Recommendations”

Jack Hough’s article in today’s “Wall Street Journal”, “How to Profit From Analysts’ Stock Recommendations”, provides food for thought.  Early in the article he states “…the historic evidence shows stocks with lots of “buys’ don’t do better than the broad market, on average.”  He notes a 1933 study by an economist that demonstrated “Stock forecasters can’t forecast with any accuracy.” 
Next the discussion notes that a paper published 16 years ago argued that the analysts’ recommendation could be beneficial.  There was an initial pop and then a gradual drift.  The key is to timely take advantage of the pops.  One key finding was: “…analyst recommendations are like dairy products in that it is best to use them quickly or not at all.”  A second key finding was: “‘sells’ tend to be far more prescient than ‘buys’. 
The article then moves to a working paper by three authors from three different institutions (University of Toronto, Virginia Tech and Cornell University).  The article theorizes “…that the best recommendations changes are ones… from concrete new information , and that changes in near term earnings for forecasts are a good sign of such information.” 
Another approach the article discusses is “…by using analyst math in reverse.”
The article seems to make a case that analysts’ stock recommendations do not provide much, if any benefit for long-term investors.  However, if you follow the daily recommendations, determine what information they are based on and act quickly you could develop a trading strategy to benefit from the recommendations.
The article suggests that the Dow Jones RBP U.S. Large-Cap Core Index follows a reverse math approach.

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“Where to Put Your Money in 2012”

Burton G. Malkiel wrote “A Random Walk Down Wall Street”  (10th ed., paper, W.W.Norton, 2012).  His article in the January 5, 2012 edition of the “Wall Street Journal” contained many interesting, helpful, and?or profound points.  For example: “Presenting an annual investment outlook is a hazardous task”; “But it is possible to make reasonable long-term forecasts”; and “Whatever the specific mix of assets in your portfolio at the start of 2012, you would do well to follow one crucial piece of advice. Control the thing you can control—minimize investment costs. That is especially important in a low-return environment. Make low-cost index mutual funds or ETFs the core of your portfolio and ensure that any actively-managed investment funds you purchase are low-expense as well.”

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Choosing a financial planner: 5 red flags has an article with practical tips on how to pick a financial planner. READ MORE

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