Fiduciary Magazine » Investments

GAO’s Private Pension Study

Andrew — Fri, 10 Jun 2011 04:05:17 +0000

Earlier this year, the U.S. Government Accountability Office (GAO) published a study on private pensions. The study examined the characteristics of defined contribution plan participants contributing at or above statutory limits and the long-term effects of the recent financial crisis on retirement savings. The study found that almost 75% of individuals who contributed at or above statutory limits had a salary of at least $126,000 while less than 1% of individuals who contributed at or above statutory limits had a salary no greater than $52,000. The study was unable to determine the effects of the financial crisis on defined-contribution and defined-benefit plans due to limited data. Not surprisingly, the study pointed out that “the unemployed, especially the long-term unemployed, may be at risk of experiencing significant declines in retirement income as contributions cease and the probability of drawing down retirement accounts for other needs likely increases.”

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Train Financial Advisors to Lure Affluent Back to Broker/Dealers

Andrew — Sat, 14 May 2011 03:33:17 +0000

According to a recent study by Dow Jones, affluent investors (U.S. investors who are at least 25 years old with a minimum of $500,000 of assets to invest) prefer to use self-directed investment strategies through online and discount brokerages rather than full-service firms. A majority of affluent investors are satisfied with their current advisor or wealth manager but are lacking advice on topics such as tax strategies, estate planning, and emerging markets. Financial advisors need to be knowledgeable in these areas to provide value-added services to their clients and lure them back from their online counterparts.Similar Posts:

Does Your 401(k) Plan Offer Index Funds?

Andrew — Fri, 13 May 2011 21:21:33 +0000

Apparently, it should. Ron Lieber of the NY Times makes a case for including index funds in the investment choices provided by a 401(k) plan.

What are your thoughts?Similar Posts:

12b-1 Fee Reduction Will Have To Wait for Frank-Dodd

Andrew — Fri, 13 May 2011 06:39:43 +0000

In an article that ran at On Wall St., SEC Chairman Mary Shapiro said that the SEC would take a hard look at the fees as well as a potential 25 bps cap, but it will have to wait until the completion of Frank-Dodd…if that ever happens.Similar Posts:

How Does One Invest One’s Savings, So They Are There When You Need Them When You Retire?

Harold L. Katz, CPA — Thu, 03 Jun 2010 09:21:29 +0000

Are the financial markets just a charade? Are we so numb to what has happened (and continues to happen) on Wall Street that we just accept the fact that the game is rigged and we continue to play anyway?

The answer is too often, but not always “yes.” Not all corporations are playing their investors. When management thinks back dating stock options are ethically correct, even if it is legal because some hack lobbyist snowed some Congress Members to vote to make it legal or to abstain from voting to make it illegal; same with the government’s decision that Derivatives which are insurance policies are in fact not insurance policies; do you really believe you have a chance of winning at this “crap game?” Sure many of the companies flourish and really make profits, but how do you know until after the fact?

Least you get the wrong impression, I am a strong believer in the Capitalistic system, and it is the only system that works. However, it requires regulation by the government, but by regulators that are intelligent and are not out to kill a deal. My sadness is that those who lead the Capitalistic system have in fact killed the goose that laid the golden eggs. There was so much money to made without the greed factor, and now the country is financially shattered. Yes the big guys are in good shape, but the Capitalistic system needs the middle class and they are not in good shape. With 400,000+ new filers for unemployment every month, we haven’t seen the worst of the worst yet. It is going to be a long climb up a steep mountain.

Back when Enron first hit the fan, I met with a close friend who is an investment advisor. I asked him how in the world he could make any judgments based on company financial statements. We were not happy with the international firms that appeared to have sold their souls in some big name cases, which is proven by the large amounts paid out in damages, accompanied by the repetitive statement that the settling national CPA firm admits to no wrong doing. Of course it was a matter of saving the cost of litigation that caused the settlement. We can all agree that these cases are a small part of the total audits performed and that many of them are performed in a highly professional manner, but tell that to the investors who lost their money.

When Derivatives first hit the market I said “They were overly complex and that many of the people who were selling them and buying them really did not know the degree of risk involved, especially at the beginning. I admit that this is a generalization and that there are people, some of whom I know, who make money in trading these complex financial securities. To me they should never have been allowed to be marketed due to their complexities and that fact that there was no regulation of them by the SEC. Even now, and while there are those who trade with a more limited risk factor, I still feel the same way, and I know some, or many of you will disagree with feeling about Derivatives.

The fact is on most, but not all, Derivative sales (not daily trading) there is going to be a 100% loser and a 100% winner. My problem is the seller never, at least to the best of my knowledge, ever sets up a reserve for losses, the seller reports 100% of the gain, reports bloated profits and pays out gigantic bonuses. Then the public generally gets stuck with covering the losses of those too big to fail.

With Derivatives, the market place has found it impossible to evaluate the risk associated with them. Recently I read about a group of mathematicians using a super computer to try and determine the risk involved in some very complex Derivatives. After four days of calculating the computer couldn’t do it with any degree of accuracy. I also know that those working on the Lehman Bros case, trying to unravel the Derivatives are have a difficult time due to their complexities. Anything that complex should not be allowed to be sold, but that is one man’s opinion, what say you? The one thing you know is that the seller will generally win and the buyer will ultimately lose unless the United States Government steps in and bails out the seller.

Certainly the alleged accusations against Goldman Sachs that they were betting against the products they were selling tells the story. We were told they were hedging their risk, but if I had bought a suggested investment by a broker and the broker was betting I was going lose my money, I would not be a happy camper. However the most shocking thing about the Goldman Sachs fiasco is that some of the people across the table were supposed to be capable of making intelligent decisions and it appears that in many cases they were not.

The most difficult question to answer today is what you invest in to secure the savings you have accumulated by hard work, so it will be there to cover your retirement? That is a question that is harder and harder to answer.Similar Posts:

I’m Not A Contrarian, I’m A Confusitrarian

Harold L. Katz, CPA — Thu, 20 May 2010 23:07:25 +0000

As you read this you might conclude that I am a contrarian, but the fact is I am not, I am a confusitrarian. You will see how I came to coin this word. What better place to start then with the sage of sages, Warren Buffet. At a May 1, 2010 shareholders’ meeting Mr. Buffett told his shareholders that “U.S. is recovering. He also said he was worried about “significant inflation” in the United States and elsewhere and that the Greek debt crisis has the potential for “high drama.” He went on to say that a large share of Berkshire’s fortunes was tied to the euro through investments in European companies. You will note that Euro has not been doing too well recently.

Mr. Buffett went on to say that very low interest rates in the United States cannot continue indefinitely, a statement I totally agree with, which I’m sure will excite Mr. Buffett.

But I go on to ask what impact will increased interest rates have on the economy of the United States, and especially on the economy of Los Angeles and California? California is the alleged 10th largest economy in the world and I recall reading that Los Angeles County is the 18th largest economy in the world and certainly West Los Angeles makes up a great portion of that economic engine.

Mr. Buffett says if huge budget deficits and easy money causes problems, Congress rather than the Federal Reserve should get the blame. I go one step further, I don’t want either to get the blame, I want the problem eliminated. Our investments are all in jeopardy due to the financial programs being driven by the U.S. Government.

Every day I read financial news reports that report happy news and not so happy news, all of which leads to my confusion. Let me share some of these with you. Certainly May 6th was a day that left many investors scratching their head and many very angry, such as a certain commentator on TV who said his stop loss orders kicked in when the market dropped 1,000 points in a few minutes, he lost a small fortune and then the market kicked back up but he no longer owned those shares. He questioned the wisdom of investing in the stock market, but then where else can you go to hedge against inflation?

Sellers of Gold are having a field day but I recall that Gold value stayed flat for some 15 years (that is a guess from memory) in the $300 to $400 range. It may have been longer than 15 years, but the Gold is irrelevant other than the fact that everyone should have a portion of their accumulated wealth allocated to gold you can hold in your hands as insurance against a worldwide financial crisis and runaway inflation. I have always considered Gold to be an insurance policy and not an investment.

Looking at a May 6, 2010 WSJ Evening Wrap, I find the following news: U.S. Productivity Gains Slow at a more modest 3.6% rate as the recovery continued to take hold. Separately, the number of U.S. Workers filing new claims for jobless benefits fell slightly, but they didn’t give the number. When only 300,000+ new people file for jobless benefits that is considered progress and a good sign. To me that is a big number, annualized that is 3.6 million new workers looking for work. And what about those that have given up.

This leads us to a 9.9 % unemployment (do you sometimes think the numbers received a close shave to keep them from hitting 10 % ?). Then people in the know, say the number of unemployed is really closer to 17 % when you include those that have given up looking for a job and those that are underemployed. This leads me to one of my favorite expressions as uttered by others; we are going through a “JOBLESS RECOVERY.”

You must excuse my doubtful nature, but I don’t consider a “jobless recovery” a recovery at all. I consider it a disaster in the making as millions of American’s cannot find a job. This means they can’t make their rent or mortgage payments, they can’t make their car payments and they certainly can’t make their credit card minimum payment that shoots them into interest rates that remind me of the bandits that used to rob the stage coaches as they traveled from city to city in the west. What happens to the lenders on these people’s homes, their cars and their credit cards? Will we once again be asked to bail out the banks/investment banks/ insurance companies?

We recently made a job offer to an administrative assistant, they used to be called file clerks, who had been unemployed for about a year. He had worked for a CPA firm that he said had gone from 140 people to 40 people. On the subject I have talked to fellow CPAs that have all undergone significant layoffs of personnel. Fortunately that doesn’t apply to our firm who finds itself as busy as ever, though collections have slowed as clients deal with their own financial problems.

Coming back to the Evening Wrap, it states that Retailers hit speed bump as U.S. consumers pulled back in April. Target and Gap were among retailer posting sales declines. Yet this Sunday my wife and I visited Bloomingdale’s in Century City and the store appeared very busy and the women were all carrying Bloomingdale’s signature bag, the little brown bag, a great piece of creative marketing.

Let us now jump to an Editorial by Cliff Smith of the Beverly Hills Courier, if you don’t read him you should. While I’m recommending reading material, I must recommend one of the finest business newspapers in the United States, The Los Angeles Business Journal and its editor Charlie Crumpley. If you want to know what is going on in the business world in Los Angeles, the Business Journal is the only place to get that news and it has a great Editorial section in the back of the Newspaper.

On April 9th Mr. Smith offered a number of interesting tidbits of information. There are 36 million people living in California. The state’s adult workforce is approximately 18 million, which means 50% of the population are either students or senior citizens. Of the 18 million people more than 2 million are out of work. Of the 16 million who have jobs, about 1.9 million works for the government, including schools and colleges, that is one out of every eight workers. If you step back and look at these statistics, it paints an interesting picture regarding your investment portfolio.

Continuing with Mr. Smith’s musings, he reports that a Stanford University study reported $535 BILLION in unfunded public employee pension funds or five full years of 100% of state tax revenue. This does not include the LA County and City Retirement System. This must be considered in the allocation of your investment portfolio. These are not just numbers on paper; we are headed for the day when payouts will exceed the total cash available. Where do you think it will come from? What impact will that have on our general economy? What about your investment portfolio?

Mr. Smith goes on to say, and I have written similar words, Go look at Beverly Drive, Pico , Beverly Blvd., Rodeo Drive, North Robertson or South Robertson and see the empty store fronts. I would add Melrose and Montana Avenue. I know a number of retailers in Brentwood that are suffering from downturns in business unlike anything they have experienced in the last 30 years, so yes I wonder about all the talking heads talking about the fact that the U.S. has turned the corner and is on the road to recovery.

Going back to the WSJ Evening Wrap, they report the MGM Mirage Swings to Loss, amid write downs at the casino company’s City Center. Yet I’m told that Maestros in the City Center is booming as is their entire chain, including the Beverly Hills location which my wife and I love to go to, we love to listen to Gary Shearer make music and we dance between the tables. We also love the food. Lest you think all is doom and gloom there is plenty of good news. The WSJ reports that the sales of luxury goods are on the rebound as Hermes quarterly sales jumped 19% (note the reference to sales but not to profits?).

The Evening Wrap also informs us that NY plans to cut 11,000 of its 300,000 workers, including hundreds of firefighters and thousands of teachers. I wrote a piece for CityWatch.com an Internet Newspaper focused on the city of Los Angeles, and it was entitled “LA Fiscal Crisis could Kill You” and I was serious. If you should have a medical condition that requires you to call 911 you might find that your local fire station is out on a call and one of its engines are moth balled due to financial problems, so the call rolls to the next closest station, but they too are out on a call so it rolls to the next station where again an engine is moth balled due to financial problems so it rolls one more time and you get lucky and they respond. By the time they reach you, you may have suffered irreparable damage or you might be dead. So much for the local financial crisis’ that you haven’t given to much thought to. Did you keep that life insurance policy up to date or did you let it lapse due to tight financial restraints?

On May 7th it was announced that the U.S. economy added 290,000 jobs in April. No further details were given in the news release I received. A week later it was reported that U.S. retail sales rise 0.4 percent in April, lower than March surge but lifted by surprise gain in motor vehicle purchases.

The next day, May 15, the Bank of England Governor, Mervyn King announced that the United States is facing the same fiscal problems as Greece.
Going back a month, on April 13, David Weidners column in Market Watch stated “the good news is that the bailouts worked. The bad news is the bailouts worked.” I think he may be in my group, a confuisitrarian.

I still have a half a dozen documents I have gathered as resource material for this article but I have already written too much. I close with the fact that I consider myself a pessimistic optimist. I think America has untold numbers of brilliant business people and inventors and we will continue to lead the world in innovations. How we overcome the problems our governments face is truly beyond my comprehension.

For the benefit of my children and grandchildren I hope the optimistic side of me comes out the winner, but I am very concerned about the pessimistic side of me.

All of this has to be considered when you are accumulating wealth and investing it for the future.Similar Posts:

ETF Expert Dave Morton On Fiduciary Responsibility In The Investment Landscape

Editor — Thu, 13 May 2010 08:46:23 +0000

I had the great pleasure of seeing and hearing Dave Morton on a panel at the Milken Global Conference a few weeks ago called The Road Ahead For ETFs.

Morton is the Chief Research Officer and Co-Chief Investment Officer of Foxhall Capital Management, a firm with $800 MM in assets.

In this interview, Morton discusses how you can achieve a higher fiduciary standard by implementing ETFs in your investment process whether you’re an RIA or plan sponsor. We also talked about how granular one can be in diversifying their clients portfolios using ETFs.

One thing you don’t want to miss, is discussion on the reality of what the public sees liquidity-wise, versus what Foxhall can accomplish utilizing specific market players in the ETF space.Similar Posts:

Larry Fink speaks at the UCLA Anderson School of Management

Ben Dusastre — Sun, 02 May 2010 03:04:07 +0000

On April 22nd, Larry Fink, Chairman & CEO of BlackRock, was featured as a Distinguished Speaker at the UCLA Anderson School of Management. Mr. Fink is an alum of UCLA (MBA 76′, BA 74′) and discussed with students his views on the future of financial reform in the wake of the financial crisis.

I was fortunate to be able to attend the event and it was a treat to be able to get his opinion given the fact that he has the ears and attention of very senior people in government including President Obama.

Mr. Fink who runs Blackrock as if it had a fiduciary duty to its client, is a proponent of increased regulation. This view differs widely from most of Wall St. but he stressed how important it is for clients’ interests to come first and that stronger regulations will increase confidence in the financial markets.

The video of his visit at UCLA Anderson is present on the business school’s website: Larry Fink speaks at UCLA Anderson School of Management.Similar Posts:

Et tu Debtus?: Leverage is your best friend but can turn on you if you abuse it

Ben Dusastre — Thu, 29 Apr 2010 07:46:08 +0000

Paul Habibi is a real estate lecturer at the UCLA Anderson School of Management, has my vote for the most passionate and dedicated professor at the institution and someone that I’d like to consider a friend.

At the close of the previous quarter he published a letter to students sharing lessons from business and from life. Paul insights are should be taken into consideration not only by future graduates but much more seasoned professionals.

My personal favorite is #4: ” Try not to put all your eggs in one basket, but if you do, make sure you do so knowing the risks, and walk slowly. Remember that it’s harder to keep money than to make money, so once you get a nice nest egg, make sure you are vigilant towards preserving capital and reputation. If you’re a high-flyer and just want to grow at all costs, admit that to yourself and then learn to have a tough stomach so you can weather the ups and downs.”

http://www.habibiassociates.com/2010/03/life-lessons-closing-escrow-on-another-quarter/

You can also follow his blog on real estate at http://www.habibiassociates.com/blog/Similar Posts:

Just another addition to the library of Buffett?

Ben Dusastre — Mon, 26 Apr 2010 03:20:07 +0000

Georgetown University Professor Prem C. Jain has just published Buffett Beyond Value. Given recent talk of the value of Berkshire Hathaway (BRK.A) with or without Mr. Buffet, Jain’s release of Buffett Beyond Valueis a timely addition to the already crowded Buffett section at your local bookstore.

Seeking Aplha’s Ravi Nagarajan provides a compelling review of Jain’s work and praises the author for “identifying the key drivers that are responsible for Mr. Buffett’s success.” Buffett Beyond Value thus stands apart from its peers by focusing on Buffet’s investment principles and not the billionaire’s life which has already been covered generously by most other author’s who have written on the Buffet subject.

http://seekingalpha.com/article/196893-prem-c-jain-makes-significant-contribution-to-crowded-field-of-buffett-books?source=hp_wcSimilar Posts: