Strategies
Labor Department Issues A Must-Read Guide On Target Date Funds For ERISA Plan Fiduciaries
Tuesday, March 05, 2013 14:50

Tags: fiduciaries | retirement income | retirement plans | target date funds

 A new document from the U.S. Department of Labor clears up two widespread safe harbor misconceptions: It’s not true that any QDIA will do – you need to vet your selection, and “safety in numbers” is not “safe in reality,” so T. Rowe, Fidelity and Vanguard do not provide fiduciary insulation.

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The Employee Benefits Security Administration has issued “Target Date Retirement Funds - Tips for ERISA Plan Fiduciaries,” a short document that contains invaluable advice. Please see DoL Tips for guidance on selecting and monitoring target date funds.
 
The DoL guidance concludes with a recommendation that the selection and monitoring process be documented. You should have an investment policy statement, like the one at Sample TDF IPS. TDFs are employer-directed rather than participant-directed, so the overall IPS does not do the job because it is focused on supplying choices for the participant, whereas TDFs are chosen by the fiduciary.

 

The rest of the document details steps that ought to be followed in choosing TDFs. For further clarification, please see the Fiduciary Guide and visit Fiduciary Corner.

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Top CIOs Cite Improving Customer Service Through Technology As Top Priority In Accenture Study
Thursday, February 28, 2013 07:16

Tags: Advisor businesses | client communications | technology

What’s the top priority of top chief investment officers (CIOs)? Going mobile.
 
A recent study by Accenture showed that 43% of CIOs cited improving customer service with instant data access, capture, and processing as a top priority.

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Thirty-six percent cited engaging clients through mobile devices and conducting transactions over mobile devices.
 
Up to 34% said they plan to develop and/or distribute connected devices to support B2B applications.
 
But they need to go beyond just focusing on mobile. They need to identify the top areas for mobile development, where they think they will achieve the most growth.
 
Then a gap analysis should be done to see what steps should be taken to fully exploit those growth areas.
 
Of the CIOs surveyed, 84% said mobile capabilities would significantly improve interactions with clients.
 
Forty-six percent said they plan to change workflows to better incorporate mobility into their business practices.
 
Seventy-three percent said mobility will affect their businesses as much as the internet did in the late 90s.
 
Half said they were planning to prioritize mobile initiatives over the next year. That’s up from 41% the year before.
 
Eighty-five percent said their mobile strategies must encompass smartphones and 78% would incorporate tablets.
 
There also should be a focus on people and expertise. Almost twice as many companies as last year—40% versus 27%--plan to leverage external experts to develop and refine their strategies.

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Fed Says Slight Rise In Interest Rates Is Sign QE Stimulus Is Working
Thursday, February 28, 2013 07:14

Tags: economic indicators | Economic Outlook | economy

Fed chairman Ben Bernanke testified to the House Financial Services Committee on Wednesday that interest rates have increased slightly as a sign that the economy is recovering.
 
He said it is a sign that the Fed’s stimulus program is working and that improvements in the auto and housing industries are further proof. The Fed chief testifies to Congress on a semi-annual basis.

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US durable goods orders excluding transportation gear rose the most in over a year and existing home sales rose more than expected.
 
This sent the stock market to another five year high, the second in as many days, on greater optimism about the economy.
 
The S&P 500 index also achieved a five-year high on February 19 on an improved consumer spending report.
 
Bernanke said the Fed would soon conduct a review of its exit strategy from its current bond-purchasing program.
 
The existing strategy calls for selling assets and raising benchmark interest rates. Another option would be to hold the securities a bit longer until they mature.

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Junk Bond Issuers Join Crowd Warning Of Interest Rate Risk On Bonds
Thursday, February 28, 2013 07:11

Tags: client education | Economic Outlook | markets

Now, even junk bond issuers are warning that prices on the bonds will drop when interest rates rise.

 
They say their job is to properly structure deals for companies that can fulfill the obligations on their debt and perform well. Interest rate risk is out of their hands.

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Underwriting fees for junk bonds are almost three times the fees for higher grade debt.
 
Simultaneously, banks are warning that when the Fed’s bond-buying spree dries up, prices will likely retreat.
 
Banks have underwritten over $89.6 billion worth of debt this year, 36% more than by this point in 2012.
 
Last year was a record one for junk-bond issuance, resulting in $433 billion in sales. Junk mutual funds and ETFs saw inflows of $33 billion, 55% more than in 2011.
 
Investors hungry for income in an historically low interest rate environment drove the push into junk bonds.
 
The risks in junk bonds in a recovering economic environment are less from companies’ inability to pay than in the fact that a three-year cycle in historically low interest rates must at some
point reverse itself.
 
This is no less true of credit-worthy bonds but the hit to principal values will be faster and larger to lesser credits than they will likely be to highly rated bonds.
 
This time, the market is healthier, say analysts. Most new issues are from companies capturing lower interest rates through refinancings.
 
Many analysts are recommending short maturities in anticipation that long-term interest rates will begin to rise before the Fed starts raising rates.
 
The long end of the curve could get out of control and could happen sooner than many expect.

 

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Normal Client Attrition Is A Fact Of Life But How Do You Handle Actions By Your Firm That Drives Them Away?
Thursday, February 28, 2013 07:02

Tags: Advisor businesses | business strategy | client retention

Client attrition happens. It just does. People move away, pass away, or move their accounts to family members or close friends who have become advisors, or move because of a divorce.
 
Most advisors accept this and realize they have to constantly be filling the pipeline to counter the small amount of shrinkage that naturally occurs in their books.
 
But when advisors lose clients because of an action by their firms, it’s quite another thing. Anger.
 
That’s the word for it.

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Headhunter Danny Sarch meets with advisors all over the country and hears horror stories about cross-selling and about managers who just don’t seem to care.
 
Many firms today have separate divisions that may offer credit services, mortgate-loan origination, or trust services.
 
They encourage—sometimes push—advisors to make these opportunities available to their clients.
 
Theoretically, it’s not a bad idea. Not offering such services could mean leaving a lot of money on the table.
 
But when the client has a bad experience in these other service areas, it reflects primarily on the advisor, not the firm.
 
The old days had their own horror stories. Firms would have designated days that advisors were supposed to show a specific new offering to their clients.
 
If the new product went down in value after it hit the market, it was not inconceivable to hear a manager say, ‘what do you care?’
 
Then there’s always the possibility that a competing firm will offer a better credit or mortgage rate or package and make taking advantage of that better rate conditional upon the client
moving his or her entire account.
 
Sarch says these are the times when advisors call him. How does your firm stack up in the consistency of its service offerings?
 
Even if you are part of a large RIA, do the ancillary services provided by your firm match the client experience you pride yourself in offering? At what point would you consider moving to another firm based on client experience?

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