Jun 2017
23rd Jun 2017

North Capital Weekly Update on Sector Benchmarks 6/22/17

Top 10 Performing Asset Classes over recent trailing time periods up to 5 years:

Get the full picture here: North Capital Weekly Update 062317
15th Jun 2017

North Capital Weekly Update on Sector Benchmarks 6/15/17

Top 10 Performing Asset Classes over recent trailing time periods up to 5 years:

Get the full picture here: North Capital Weekly Update 061517
14th Jun 2017

The CFA Institute addresses the fiduciary rule in a letter to Jay Clayton

by James P. Dowd, CFA


As a CFA charter holder, today I received a copy of Paul Smith's letter to incoming SEC Chair Jay Clayton.  Smith is the CEO of CFA Institute, the leading professional organization for investment management professionals.  The letter offered several recommendations, the first two of which I have supported publicly for many years as an individual and as CEO of North Capital. Beyond the specific policy ideas, Smith's letter simply and elegantly highlights the issue at the core of the debate over the fiduciary rule:  misrepresentation.   Smith's basic point:  commission salespersons have a role to play in financial markets, but that role is not providing advice with limited oversight under a made-up title "financial advisor."  The full letter may be viewed here, but these two paragraphs shine a bright light on the central issue in the debate:


"We, like the Commission’s Investor Advisory Committee , recommend that the Commission require that anyone wishing to refer to their title and/or activities as advisory in nature (e.g. “adviser” or “advisor”) adhere to the Investment Advisers Act and the fiduciary duty implied by common law interpretation of the Act. Such control of terminology would not be new to the Advisers Act, which already expressly limits use of the term “investment counsel” to those who must adhere to the Advisers Act’s requirements.


At the same time, we believe commission-based sales activities serve important client needs and give investors options for how they wish to conduct their investment activities. Whether commissioned brokers provide investment ideas or execute trades, we support that they be permitted to pursue their business activities, so long as they are clear about their roles vis-à-vis their clients. Specifically, we recommend that the Commission require that they refer to their roles with the title, “salespersons.” For too long, these sales staff have blurred the line between what they do – selling investment ideas to generate commission-based transactions – and what investment advisers do – advising clients on investment strategies and tactics to achieve their financial goals."


Mic drop.
9th Jun 2017

North Capital Weekly Update on Sector Benchmarks 6/8/17

Top 10 Performing Asset Classes over recent trailing time periods up to 5 years:

Get the full picture here: North Capital Weekly Update 060917
2nd Jun 2017

North Capital Weekly Update on Sector Benchmarks 6/1/17

Top 10 Performing Asset Classes over recent trailing time periods up to 5 years:

Get the full picture here: North Capital Weekly Update 060217
May 2017
28th May 2017

Advisor’s Alpha:  Quantifying the Value of a Financial Planner

by Devin Frampton and James P. Dowd, CFA


Are the costs of professional financial advice outweighed by the benefits you receive in trying to build your retirement nest egg? Should you avoid this cost by undertaking investing and money management on your own, or is this a penny-wise and pound-foolish approach? If you are asking these questions then you might already have saved yourself more then you know.  The value added by a financial advisor, referred to as “advisor alpha,” varies depending on the knowledge, skill and effort of the individual investor to whom the advisor is giving advice.  If someone does a terrible job looking after their own investments, advisor alpha will be high.   If an individual does a good job on their own, then it might be substantially less.


Asking questions about your finances and investments is smart and prudent, whether you work with a professional or go it alone.  It makes sense to educate yourself while researching your options, even if you ultimately plan to work with an advisor for part or all of your planning and investment needs.   Financial planners do more than manage your money;  they can help you quantify your needs, articulate your goals, manage your time, keep your emotions in check, and deal with your family.  Some observers have likened the job of a financial planner to that of a therapist or a counselor, providing support and guidance as much as money management services.


If you have the time and interest  to become educated about finance and investments, regularly monitor the market, and critically evaluate your investment options, then you may want to handle your investments on your own.  If you do not have the time, are not particularly interested in the topic, and/or have difficulty managing your emotions when making investment decisions, then a financial advisor can save you time, money, and aggravation.  Finally, financial planning is not one product or service.  Some individuals find that they need help putting together a plan, or that they would like a second pair of eyes overlooking a plan they have developed on their own.  While not all advisors offer these types of ad hoc services, many do.  Flat fee or hourly-based engagements can be a good way to bolster your own efforts and supplement your own knowledge of specialized topics, such as investment location and tax.


What about paying a financial advisor an asset-based fee for money management?  Vanguard produced a piece on Advisor’s Alpha in 2013 that explains why professional advice can make sense for even the most fee-conscious investor:  “For some clients, paying fees regardless of whether transactions occur may seem like ‘money for nothing.’ This is viewing the advisor’s value proposition through only one portion of the cost benefit lens. The benefit and wisdom of not allowing near-term market actions to result in the abandonment of a well-thought-out investment strategy can be underappreciated in the moment.”   The piece continues:  “ advisor’s alpha (that is, added value) is more aptly demonstrated by the ability to effectively act as a wealth manager, financial planner, and behavioral coach—providing discipline and reason to clients who are often undisciplined and emotional—than by efforts to beat the market.”  In short, the goal is not to outperform the market, but rather to outperform an investor working on his / her own, without professional advice.


Another study by Terrance K. Martin Jr., Ph.D. and Michael Finke, Ph.D., CFP® compared profiles of planning and advice over the span of 14 years. The four categories were Comprehensive Planning, Planner Only, Self-Directed, and No Plan. Martin and Fink noted that few academic studies had attempted to quantify the value provided by a comprehensive financial planner, so this one was one of the first to draw any such conclusions.  As they wrote in the  Journal of Financial Planning:  “Those who had calculated retirement needs and used a financial planner (which likely captures those who used a comprehensive planner who follows a more thorough planning process that includes retirement needs assessment) generated more than 50 percent greater savings than those who estimated retirement needs on their own without the help of a planner.”

Their report continues:  “When average retirement wealth was examined by survey year (1994–2008), households with a comprehensive strategy to retirement planning consistently recorded higher mean values of accumulated retirement wealth.


In conclusion, professional financial advice is not right for all investors, but understanding the value of a good advisor will help lead you to a successful outcome, whether you work alone, receive ad hoc advice from a professional, or hire a comprehensive, professional wealth manager.  Ultimately you must make the decision that feels right for you.