Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Monday, August 31, 2020

Reading Along With Ryder Part 3: Financial Planning Degrees

Cleaning all of these magazines off of my desk is hard for me, because I don't want to miss out on the knowledge they contain. To alleviate this, I will summarize one article from each magazine as I clear it away. Click here for the last article I read.

The bright color drew me in to today's magazine, beckoning from the stack on the floor. Financial Planning focuses on advisors, but this article on the education is relevant to anyone who engages with a financial planning professional.

For a little background, there is really not much to calling yourself a financial planner. While dealing with investments is a fairly well regulated industry, simply providing financial planning or advice is not. Neither the law nor customers necessarily have a hard and fast rule for what you do. As an investment advisor, I am regulated by FINRA and the Securities and Exchange Commission. I am also a CFA charter holder, which is a high standard for ethics and professionalism in the finance industry. Financial planning, however, doesn't have the same trappings of professionalism.

The CFP Board is working to change that. They administer the Certified Financial Planner certificate which involves a well rounded curriculum of personal financial planning topics. They also endorse college programs that help prepare a student for a financial planning career. The article notes that there are about 145 different baccalaureate CFP Board registered programs and asks if the lack of a standard financial planning degree is hampering the growth of the profession.

If you want to be a doctor, you can take pre-medicine classes, and go to medical school, if you want to be a lawyer, you can take pre-law classes and go to law school. If you want to be a financial planner, well, there are apparently 145 different endorsed programs you can enter around the country. Is this a problem for the profession?

The article speculates that the lack of standardization in education is what prevents people from seeing financial planning as a profession. I think not. The personal finance industry gets a bad rap from a lot of bad actors, high fees and bad service. That is changing a lot, thanks in part to the CFA Institute's insistence on high standards in wealth management and the CFP board's growing visibility as a comprehensive standard. While a financial planning degree might be nice, there are probably far better things to learn in college. A financial planning degree would likely prevent a future planner from having the sort of broad education that lends itself to looking at a client's entire financial picture.

Absent comprehensive regulation of the profession, these certificating bodies have an authority that elevates their own members.

I do think certification matters. Excellent financial planners can come from all walks, with diverse education and life experience. Having a certificate shows that you also have the comprehensive knowledge to address clients with great and diverse needs. I am also a fan of broad liberal arts education and believe that individual clients would be well served by someone who has a broad education and life experience themselves. The way to ensure that financial planners are held to a high standard is through a certificate that is a high standard - not a single minded education track.

I say all of this never having done the CFP curriculum. Generally the CFA is a higher standard (albeit for different audience), and they make it easy for CFA charter holders to obtain the CFP certificate. However, as our firm grows, having advisor candidates from a broad range of backgrounds will be important.

The public's view of the financial planning profession is important - how do you view us?

Friday, August 28, 2020

Read Along With Ryder Part 2: ESG

Cleaning all of these magazines off of my desk is hard for me, because I don't want to miss out on the knowledge they contain. To alleviate this, I will summarize one article from each magazine as I clear it away. Click here for the last article I read.

Today I picked up a magazine called Pensions and Investments which bills itself as "The International Newspaper of Money Management." This sounds very important, and is probably why it shows up at my office on a regular basis without my prompting. Most of the articles are pretty dry details about regulatory changes in the pension and retirement benefit world. The article that caught my eye was about ESG: Environmental, Social and Governance factors in investing.

ESG is a huge topic and its importance in investing is a growing trend. There are a lot of factors that people look at when making investments, and environmental, social or governance factors are not unusual. What sets ESG investors apart, however, is how they bring these factors to the forefront of their methodology. Some investors simply want to avoid investing in companies that are bad for the environment, bad for society or simply have bad actors in control. Others want to go further and actively push for better behavior at companies that are never perfect.

Awareness of ESG factors in investing is a growing trend, and whenever you have a trend, people want to jump on board. This article begins by noting that while many investment managers say publicly that they are aligned with ESG principles, hardly any of the assets they manage have ESG factors in their formal documentation. They cite two main reasons for the low integration of ESG factors in official documentation: Lack of standard terminology and the newness of explicit ESG integration into guidelines.  The article later notes that the UK Investment Association is working on standardizing language for this very purpose. Formal documentation can backfire when the language is so vague and boilerplate as to have no meaning, as this twitter user pointed out:

The article notes progress made and progress needed. It notes that the alternative investment space has a long way to go to achieve anything close to gender parity. While women are a growing part of the financial industry workforce, women make up 8.5% to 13.5% of leadership positions, depending on the sector. When it comes to getting quality ESG advice about companies, the article notes that public companies feel that they are wasting effort engaging with proxy advisors on these matters. Progress made includes a large French public-sector pension fund accelerating their divestment in carbon-heavy industries, reflecting similar announcements by the Norwegian pension fund dumping similar investments. Institutional managers are more often considering ESG as part of their fiduciary duty - a responsibility to the end investors. 

Aside from this article, some interesting things that have caught my eye in ESG lately include a new "Social Justice" focused ETF from Adasina. The growing success of Impax Asset Management's Ellevate fund, which adds a "gender lens" to their already robust environmental focus. The Financial Times noted that ESG was getting blamed by CoreCivic, a private prison operator, for "increasing their cost of capital" - most ESG investors would probably call that a success.

Thanks for reading along with me today! ESG allows investors to better align their investment portfolios to their values. Progress is being made, but as this article indicates, it isn't a clean straight line.

Thursday, August 27, 2020

Tidying Up My Desk Part 1

I was knee deep into a spreadsheet when I caught a movement out of the corner of my eye. I looked up in time to see a stack of magazines cascading off my desk!

My magazines have stacked up over the past several months. They range from moderately spammy finance magazines that show up in our mailbox to legitimate publications like The Economist or Bloomberg. I didn't have time to read them as I was working from home.

Back in the office, I will tackle that pile. I can't bear to just throw away all of that accumulated knowledge, so I need to read them. I will select a random magazine, flip through it and summarize an article. I'll make this into a series and maybe we will learn something along the way...

The first magazine I selected is the Economist. Embarrassingly, this is from November 23rd, 2019. I guess I didn't get to read this as I was taking a family road trip for Thanksgiving. That's my excuse anyway. The cover is a rather intimidating image from the protests that were in full force in Hong Kong at the time.

I was drawn to Impoochment: Americans and their Dogs This resonates well in our office, particularly as of late when Joseph has been bringing his dog George along most days.

While it is fairly well known that Americans are obsessed with their pets, dogs in particular, this article gives detail, context and history to that obsession. Twenty Five Million people were expected to watch the National Dog Show in Philadelphia after the Macy's Parade on Thanksgiving; and the pet products industry generates over $70 billion a year!

What I found most interesting was the history and current evolution of our pet preferences. The growth of our dog obsession was tracked down a surge in the usage of the word "pet" to the 1950's and 60's. Initially, they say, pedigree dogs were the most sought after pets as distinctive breeding represented a triumph of man over nature. Now, "Randomly Bred Dogs" (or, mutts, as we know them) are move popular. Interestingly, the interstate trade of rescue dogs is smoothing regional differences as states where mutt's are plentiful (like Mississippi) export dogs to Northeastern cities where they are in demand. Having had a friend in the pet rescue business, that was always interesting to see her shipping dogs and cats far away from here - and now I know why.

Some Americans take their love for pets to another level. Many pet-owners will call themselves as dog-parents or refer to their pets as their children. This article shows just how important pets are to us.

With consumer spending on pets so high, there are opportunities for saving and investing. Local business are catering to "higher-end" pet accessories, apps like Rover connect you with local pet sitters and you can even buy a pet care index fund

Thank you for reading along with me! Check back later to see what magazine we are reading next...

Monday, August 24, 2020

Mississippi Goes Shopping

 I read a great article in the NY Times this morning, “Virus Alters Where People Open Their Wallets, Hinting at Halting Recovery.” Mississippi is a main character in the story. Our own Richard Shapley, owner of Ely’s Restaurant is quoted in the article. Look for other states in the graphs. I would have posted a link, but you won't be able to get it without a subscription. If you can’t get to it and are interested, let me know. I’ll see if I can find a workaround. 

A quote, “How people spend will determine which companies survive, and who ultimately keep their jobs.” The pandemic has not been even-handed in the economic pain it has doled out. Which companies are thriving? Home improvement stores and e-commerce. Bars are dying but liquor sales are healthy. Sit down restaurants are hanging on by their fingernails, while fast food restaurants with their drive-thru windows are doing well. 

And national numbers don’t tell us what is happening in our neighborhoods. With the shutdown, retail sales dropped nearly 50% nationally, but, in Mississippi, the decline was only 25%. Nationally, the recovery in spending is not back to last year’s levels… except in Mississippi. Believe it or not, Mississippi’s retail numbers are 17% higher than last year. Hmmm… 

Nationally, retail sales increased 1.2% in July over June’s sales. Sounds good, right? Well, that spending has been subsidized by the fiscal stimulus. Back to Mississippi—maybe, just maybe, many of our citizens actually had MORE money in their pockets this year because of expanded unemployment and PPP. IF that is the story behind our variance, don’t expect this to hold. 

For now, the federal trough has run dry. Our data is always backwards-looking, so we won’t know how this plays out until we see August’s numbers. If Congress stalls until September, Mississippi may “revert to the mean,” or, worse yet, end up once again at the bottom of the barrel. Stay tuned, and stay safe! 


Tuesday, August 04, 2020

How to Be Wealthy

Can money buy happiness? Tom Rath and Jim Harter, authors of the book Well Being, say it can. I have often thought about what it means to be wealthy. Why is a $400,000 enough for one client, while another needs $3,000,000 and yet another doesn't think winning the lottery is enough. Being wealthy is to have financial well-being, which looks different for different people. This book put into words my thoughts about wealth, and how money can buy you happiness.

I rarely write in books - but this one called for my special multicolored pencil.

So what is financial well-being? First, you must have enough money to address your basic needs of food, clothing, shelter and healthcare. Beyond that, money can make you comfortable and gives you control of your time. Financial well-being is intimately tied to your satisfaction of other areas of your life.

The more money you have, the more you can spend, but not all spending is equal. The book cites studies that show spending on others or giving to charity leads to greater satisfaction than spending on oneself. Spending on experiences is superior to spending on material purchases. Experiences lead to "decades of fond memories" while material items "lose their novelty" and "our satisfaction with material goods decreases over time."

Financial well-being is not measured by dollars saved or possessions gained. Financial well being isn't money in the bank, but the freedom and lack of worry that that money brings you. This is why "enough" is different for every client. While the money to satisfy their needs is different, the need for satisfaction is the same.

We get trapped by our own ideas of wealth. While having a higher income, more dollars in the bank, or bigger and better stuff than our neighbors can make us feel superior, this thinking only leads to a cycle of disappointment. We get trapped keeping up with the Joneses as they get a shinier car or fancier home remodel. If we focus on a dollar amount as the goal, we keep moving the goal posts. If you thought a million dollars would make you happy last year, now you won't be satisfied until it's two million.

The authors call this the "comparison dilemma." This is one place where your financial well-being overlaps with your career and social well-being. If you are comfortable and confident in your social relationships, and proud of your friends achievements, you are less likely to be jealous and judgmental of them. If Mr. and Mrs. Jones next door put in a new pool, hopefully you will bring over a pitcher of margaritas and share their joy - not waste money on your own pool. If you are fulfilled and engaged in your job, you will be less likely to be casting your resume elsewhere, fishing for a higher salary. Once your basic needs are met by your salary, your work can engage you on a deeper level.

How do we attain financial well-being? A great place to start is by automating your financial life. Regularly depositing money and investing for long-term growth is a powerful tool for building wealth. Working with a professional to answer your biggest financial questions eases the daily stress that money can bring and gives you confidence in your financial future.

So why doesn't winning the lottery make people happier? One possibility is that they spend the money down too quickly. If material possessions are not what that person truly valued, the effect would wear off. Lottery winners may get stuck in a cycle of comparing themselves to others or their own ideas of wealth. If you are not satisfied in other areas of your social, professional or physical well-being, money isn't going to fix all of your problems.

As the authors say:
People with thriving Financial Wellbeing are satisfied with their standard of living, don't worry about money in their everyday lives, and have confidence in their financial future. They give to others and don't just spend on themselves. As a result of managing their money wisely, they have the financial freedom to spend even more time with the people whose company they enjoy best.
  1. Wealth is financial well-being: Having the money to be comfortable and being able to control your own time.
  2. Spending on others, charities and experiences can bring lasting satisfaction.
  3. Automating your finances and working with a professional grow your wealth while you enjoy your life.
  4. Anyone can be wealthy if what you have brings you satisfaction.