Articles of Interest

Wall Street Brokers Missed the Index-Funds Memo

The Wall Street Journal
October 6, 2019

MLPW Commentary: Wall Street egos and desire to make more may be keeping brokers from making better decisions for their clients.

In recent years, investors have been flocking to low-cost index funds, driven by their long-term record of outperforming higher-cost actively managed funds.

But the trend isn’t quite as strong for clients of Wall Street brokers.

The difference is fairly clear-cut. A report released last month… shows brokers at four major Wall Street firms have just 29% of their clients’ managed-fund assets in passive index funds—well below the 45% passive rate for independent investment advisers. The gap is even wider for regional and independent brokerage firms, which have smaller average account sizes and passive percentages of only 22% and 20%…”

Securities-industry experts say the difference can be explained partly by Wall Street’s historical sales culture, with brokers wanting to show clients their skill in picking money managers. In addition, there’s the raw fact that some brokers and their firms can still get paid more in commissions and other compensation with active funds than passive ones.”

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A Recession Is Coming (Eventually).  Here’s Where You’ll See It First.

The New York Times
July 28, 2019

MLPW Commentary: A recession isn’t likely, it’s imminent. Talk to a trusted advisor about how to better prepare.

“The stock market is in turmoil, the trade war is dragging on and the global economy is slowing. Plus, it’s been 10 years since the Great Recession ended, making this officially the longest expansion in American history. (Well, probably. More on that in a second.) So perhaps it’s no surprise that forecasters, investors and ordinary people are increasingly asking when the next downturn will arrive.

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You’re in Your 60s and Haven’t Saved Enough.  Here’s What to Do.

The Wall Street Journal
October 3, 2019

MLPW Commentary:  In a recent article, WSJ columnist Glenn Ruffenach tackles the tough question of pumping up your savings later in life.  Some of these tips are a great place to start – especially if you consider discussing them with your advisor early.

“Well, let’s start on a positive note: The fact that you’re asking this question means, presumably, that you have sat down and tried to calculate whether your savings and other sources of income (e.g., Social Security) will allow you to meet your expenses in later life. All of which is more than many people do.”

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A New Rule Won’t Make Your Broker an Angel

The Wall Street Journal
May 31, 2019

MLPW Commentary: Is your “advisor” a fiduciary or simply a broker? ASK.

As salespeople, stockbrokers have traditionally earned commissions to buy and sell securities. As providers of advice, investment advisers have earned annual fees that, in theory, help assure more-disinterested recommendations.

A recent nationwide survey asked consumers, “which of the following is held to a ‘fiduciary standard’ by law, meaning they are expected to behave with the highest standard of care and in the best interests of their customers?” Fully 51% of the respondents said – incorrectly – that brokers were.  Only 44% accurately said that investment advisers are.”

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Wow, Did We Get a Lot of Questions About the Roth 401(k)

The Wall Street Journal
May 31, 2019

MLPW Commentary: Wondering if a Roth 401(k) is right for you? You’ll want to talk to your advisor, but these questions are a great start.

Americans more than ever are responsible for planning their own retirement finances. But the pressure of that responsibility and the variety of options have many confused.

A few weeks ago, Tax Report attempted to help savers when we examined a trend of more companies offering Roth 401(k) retirement savings, instead of just traditional 401(k)s. But that column brought a deluge of questions from readers… The questions proved how difficult it can be to prepare for an uncertain future. In that spirit, we wanted to answer some of your best questions. So, here goes.”


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Among the Growing Risks Investors are Assisting: Their Own Fear

The Wall Street Journal
January 6, 2019

MLPW Commentary: Investors concerns about the potential for a bear market could affect consumer and business confidence, even when economic indicators appear stable.

“How financial conditions affect the economy is a particularly important question at this moment because there has been a stark divide between markets and U.S. economic data in recent months. While stocks—and other risky assets such as speculative-grade corporate bonds—have swooned since early October, most data have suggested that the U.S. economy is about as strong as it has ever been in the postcrisis period.

Investors mostly have shrugged off good economic news in part because they are worried about a number of fundamental threats to the status quo—from trade barriers to slowing growth outside of the U.S.—but also because they’re concerned about tightening financial conditions, analysts say.”

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Have I Got a Fund for You! Why Brokers Push Some Investments

The Wall Street Journal
January 4, 2019

MLPW Commentary: Brokers and many large Wall Street firms continue to find new ways to limit investor choices, fail to disclose conflicts of interest in an accessible and decipherable way, while layering fees. Buyer beware.

“Many major brokers, banks and financial advisers take revenue-sharing payments—legal kickbacks that mutual-fund companies pay to reward sales of particular funds. Such payments vary from 0.01% to about 0.15% of the amount invested.

That gives firms an incentive to favor the funds that share the biggest revenue payments with them.”

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Double Whammy: High-Fee Mutual Funds Do Worse

The Wall Street Journal
January 4, 2019

MLPW Commentary: Adding insult to injury, actively managed mutual funds with high expenses are often also the worst performers.

“Data show that actively managed mutual funds with relatively high expense ratios—yearly fees as a percentage of assets under management—are associated with some of the worst performing and most poorly managed funds, especially in the U.S.-stock category.

I looked at all actively managed mutual funds that trade in the U.S., comparing the average return of high-fee funds (those with an expense ratio over 1.5%) with the average return of low-fee funds (all funds with expense ratios under this level). It painted a pretty negative picture of the high-fee options.”

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What Should You Do About a Falling Stock Market? Nothing

The New York Times
January 3, 2019

MLPW Commentary: If you are working with a trusted professional, remain calm and stay the course – because even supposed experts can’t time the market.

“Suppose you were clever enough to recognize at the start of December 2007 that a major recession was about to take place, and you moved your money out of stocks.

Yes, you would have saved yourself from steep losses in 2008 and early 2009. But you have to ask yourself: Would I have also had the courage to put money back in while the economy was still in horrendous shape in 2009, with double-digit unemployment and a banking system in tatters?”

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Impatient Investors Get Caught in the ‘Return Gap’

The Wall Street Journal
May 6, 2018

MLPW Commentary: Working with a trusted advisor to ride out market storms and it may help you to close the return gap.

“Most investors think of themselves as rational and immune from the behavioral elements that periodically roil markets. Human factors, however, do continue to affect our personal portfolio decisions—usually to the detriment of our long-run returns.

One way to measure the damage is what is known as the “return gap,” or “investor gap.” This gap captures the difference between the average return for a fund and what the average investor actually experiences in returns within that fund. Why might these two numbers not match up exactly? A mutual fund’s stated return will reflect the average return of its stock or bond holdings over a period of time. But because investors on average pull their money at the exact wrong time (panicking when the market has already hit a bottom and putting in more when at the top), they often don’t experience this stated return in full.”

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Wells Fargo Improperly Kept a Pension Fund’s Fee Rebates

The Wall Street Journal
May 9, 2018

MLPW Commentary:  Too big to fail and still not learning from their mistakes.

“Wells Fargo & Co. has acknowledged that it pocketed fee rebates that should have been passed on to a public pension fund in Tennessee while acting as its trustee, according to correspondence between the fund and the bank reviewed by The Wall Street Journal.”

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Starting Next Week You Can See Brokers’ Profits From Bond Sales

The Wall Street Journal
May 9, 2018

MLPW Commentary: The opportunity to review the fees you pay

“Starting next week, mom-and-pop investors will learn how much their broker made selling them bonds. The change in practice is due to a new rule meant to curb abusive sales practices. Beginning Monday, brokers will have to say how much they pocket when they buy corporate and municipal bonds and sell them to retail investors later that day.

The disclosures are aimed at addressing long-standing concerns that individual investors who buy bonds don’t know how much they are paying in fees, known as markups, that can eat into returns. Retail investors pay a variety of different prices for the same securities.”

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The Stock Market Has Turned Nasty. It Was Long Overdue

The New York Times
Date: September 22, 2017

MLPW Commentary: Does the drop in the market worry us?  No. This is a natural part of the market cycle.  We discussed our anticipation of this event in in our June Blog Post.

“Until this month, the scariest thing about the stock market was its uncanny calm and stability. Like the opening sequences of a classic horror movie, the market last year was relentlessly and unnaturally cheerful. Well, now the ax has fallen and the stock market has begun a “correction” – financial jargon for a decline of at least 10 percent.  The scariest thing about the market right now is the shocked response of traders who had become accustomed to the unsustainably placid conditions that have been unceremoniously swept away.”

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The Best Way for Wealthy Parents to Talk to Children About Family Money

The Wall Street Journal
Date: February 11, 2018

MLPW Commentary: Talking to your kids about money can be complicated, but what you say now may set the groundwork for understanding and appreciation later.

“Discussions about family money are especially important these days given that financial professionals estimate that tens of trillions of dollars in financial and nonfinancial assets will be passed from baby boomers to their heirs over the next several decades. How much to disclose—and when—will depend on each family’s dynamics and wealth situation. But, generally, financial pros say that discussions with children around family wealth should take place in stages, over a number of years.”

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The Best Investment Since 1926? Apple

The New York Times
Date: September 22, 2017

MLPW Commentary: If you avoid cap weighting and indexing, the likelihood that you will grow wealth from the stock market goes down dramatically because of the extraordinary performance of a handful of stocks.

“Most stocks aren’t good investments. They don’t even beat the paltry returns of one-month Treasury bills, he has found.  But a relative handful of stocks are extraordinary performers. Only 4 percent of all publicly traded stocks account for all of the net wealth earned by investors in the stock market since 1926, he has found. A mere 30 stocks account for 30 percent of the net wealth generated by stocks in that long period, and 50 stocks account for 40 percent of the net wealth.”

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Your Tolerance for Investment Risk Is Probably Not What You Think

The Wall Street Journal
Date: September 10, 2017

MLPW Commentary: Is your advisor asking you the right questions about risk?  Maybe not.  Here’s why the typical questions about risk just aren’t cutting it these days.

“The truth is that the questions advisers ask often don’t measure what they purport to. Instead, they take all sorts of different concepts—such as regret, fear and overconfidence—and they lump them all together under this vague concept called risk. Each of those things is worth understanding and examining on its own. But to call them risk ends up distorting more than clarifying, and leaves investors with portfolios that may be disturbingly inappropriate for their goals.”

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Now, Your Financial Advisers Will Have to Put You First (Sometimes)

The New York Times
Date: June 8, 2017

MLPW Commentary: Unlike brokers and insurance agents who are may be greatly impacted by the new rule, MLPW has ALWAYS been a fiduciary for our clients, first and foremost because our culture compels it, and as a registered investment adviser the law demands it as well. Simply put, in our view the client’s interests always come first – ahead of our own. Are you working with a true financial professional?

“The fiduciary rule — which was created under the Obama administration and has, for now, survived efforts to quash it — takes partial effect on Friday. That means all types of financial advisers, including brokers and insurance agents, must put their customers’ interests ahead of their own financial motives, at least when handling customers’ retirement accounts.

While the new rule strengthens consumer protections, there are large gaps in what it actually covers. And nothing in the rule requires professionals who call themselves wealth managers or financial advisers to advertise the fact that they may only be licensed to sell a product — and have little training or education in genuine financial planning.”

 

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Morgan Stanley Dumps Vanguard Mutual Funds

The New York Times
Date: May 4, 2017

MLPW Commentary: Is Morgan Stanley’s recent move to dump Vanguard Mutual Funds about unpopularity or because Vanguard has a policy of refusing to pay firms to sell its funds?

“Morgan Stanley will soon prevent its clients from buying Vanguard Group’s mutual funds, the latest big Wall Street brokerage to mostly shut out some of the index giant’s funds…

The restrictions come as Vanguard has boomed amid investors’ embrace of funds that mimic broad indexes for a fraction of the cost of actively managed funds.”

 

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Is Your Financial Adviser Acting in Your Best Interest?

The New York Times
Date: February 10, 2017

MLPW Commentary: Is your advisor recommending proprietary products?  If so, you should probably take a closer look.

“This is a tale of two mutual funds with abysmal performance — but very different reactions from their investors to their returns.

Given that both funds come from the same family…it might seem to be a curious question why one dysfunctional family member is being battered more than another.

The answer, however, is in plain sight, and of importance to investors: The Waddell & Reed version is sold by Waddell & Reed representatives to their financial advice clients. The Ivy fund can be bought by anyone — and those independent advisers seem to have told their clients to get out of it…”

 

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We Put Financial Advisers to the Test–and They Failed

The Wall Street Journal
Date: October 27, 2016

MLPW Commentary: A poignant read about advisors that aren’t up to snuff

“The world we live in asks us to make an abundance of financial decisions every day. These range from the inane, such as whether to risk a parking ticket when you stop for one minute to drop off your dry-cleaning; to the highly complex, such as which funds and investment products to pick for your retirement savings.

All of these decisions require risk-return tradeoffs. Unfortunately, while people have many opportunities in life to perfect their strategy concerning parking tickets, the same is not true for the complex and all-important decisions of how to invest retirement savings. By the time you learn whether a retirement strategy was the right choice, it is usually too late to change it…”

 

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JPMorgan Chase Hit With Multi-Million Dollar Fine For Shady Investment Advice

The Huffington Post
Date: December 18, 2015

MLPW Commentary: One of more than a dozen fines levied against JP Morgan since the financial crisis of 2008.

“JPMorgan Chase will pay $307 million in fines after admitting it didn’t properly tell customers about conflicts of interest in how it managed their money.

The bank pushed wealth management clients into its own mutual funds and hedge funds without telling them those funds had higher fees than competitors’ offerings, the Securities and Exchange Commission said Friday. Those higher fees, of course, were reaped by the bank, rather than going to an outside company if JPMorgan had sent clients elsewhere…”

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My Approach to Portfolio Rebalancing

The Wall Street Journal
Date: July 4, 2016

MLPW Commentary: If your advisor isn’t rebalancing your portfolio could be in trouble

“Investors use rebalancing as a way to control risk. If investment portfolios are not rebalanced periodically, the risk tends to increase beyond that which is intended. This seems like a basic financial concept that most adults should understand. But, as it turns out, most don’t. And that includes my adult grandchildren and even one of my daughters.

Not only do they not know how to rebalance a portfolio, they admittedly don’t seem to understand the importance of doing so. So I wrote the following, on my approach to rebalancing, for them (and the many others like them)…”

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The Money Management Gospel of Yale’s Endowment Guru

The New York Times
Date: November 5, 2016

MLPW Commentary: This NYT piece covers the legendary David F. Swensen, whose investment strategies have been called everything from genius to disastrous, proving his style is paramount to the Yale Endowment’s notable success.

“Mr. Swensen is legendary in the rarefied world of endowment management. He has pioneered an investment strategy that expanded Yale’s portfolio from a plain-vanilla mix of stocks and bonds to substantial holdings in real estate, private equity and venture capital, along with other alternatives. Until then, the typical endowment was far more conservative…”

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