On this episode of Advisor Skinny, Mike Walters shares some surprising statistics about investors and their actions after a death in a family. By understanding these forces, an advisor will be better prepared to retain clients’ assets.
On this episode of Advisor Skinny, Mike Walters discusses business valuation from the buyer’s perspective. He explains what it means to buy a business rather than a job and how that will ultimately lead to a more successful transition and future growth.
On this episode of Advisor Skinny, Mike Walters discusses business valuation from the point of view of the seller. He shares his thoughts on finding the right buyer, how to structure a practice so it’s more valuable to a buyer, and how to approach the sale with clients to allow for a smooth transition.
On this episode of Advisor Skinny, Mike Walters starts the discussion around business valuation. He shares his thoughts about beginning the process, engaging professionals to help, and mistakes to avoid.
Join Mike for this engaging new season of the Advisor Skinny podcast!
Here’s the Skinny,
I apologize for my recent absence. Very unexpectedly, we have moved homes.
My two oldest are in college (so mostly out of the house), which leaves just me, my wife, and our youngest. We had been halfheartedly (read as lackadaisically) looking for a new home over the past two years. We were in no rush. But then my wife stumbled onto a home she really liked and we could “see” ourselves in for many years to come.
And if you know the Walters, once a decision is made, we hit the gas pedal and get to high gear as quickly as possible.
Bang – bang real estate conditions in our area had a bit to do with the speed of things, but in a nutshell, we bought a new home in 24 hours and sold our existing home (of 15 years) in under 48 hours. Bang – bang – done. And to make things even more interesting, the previous owners of the home we purchased were relocating to Hawaii, so we bought their furniture as well. Then the buyers of our home expressed a desire to buy our furniture as they were relocating from Chicago. Bang – bang – done.
Its like we were in college all over again, throw the cloths in the car, bang – bang – done.
Or so I thought. We soon learned, the traditional moving companies were not interested in “our small job” as there was no furniture involved. That left us to do all the packing (not something we had anticipated) ourselves. But the good news is that we were able to prune & purge 15 years of accumulated clutter. This cut the moving job in half, literally.
In the end…
In that vein, below is a link to a great article from John Jones, Digital Marketing & Communication Manager at USA Financial. He shares great insight on using Facebook as a marketing & seminar tool. May I suggest you focus on John’s article while thinking how you could revamp, streamline and enhance your seminar/event marketing?
Here is the article link from July 24, 2018, Investment News, “Why advisors are turning to Facebook ads to fill seminar seats”.
I’ll be back at it with regular blogs and podcasts in August.
That’s the Skinny,
Here’s the Skinny,
Socially responsible investing is great in theory, but lacks in real life traction.
Sad but true.
People talk a good game, but as I’ve always said, “If you really want to know what people think or believe, study their actions, not just their words.”
Nuveen just released a detailed study titled, “Investor interest in responsible investing soars.” The study/survey includes great detail within its 9-pages of results, but one graphic including the core questions really caught my attention…
I do not question the validity of the verbal responses from those surveyed. However, in answering questions number 2, 4, 6, 7, and 9… I can’t help but wonder, do their “actions” really support their “words” in real life?
Human nature is tricky.
In real life, our asset management firm, USA Financial Portformulas, offers 30+ investment model strategies, and one of our least popular models (according to assets invested) is our socially responsible model based upon the S&P 500 universe. Interestingly, investors seem to love knowing that we have such a model even though they may not invest in it themselves. I find that predictable, but still intriguing.
Similarly, cigarette smoking is the leading cause of preventable disease and death in the United States, yet over 13% of adults age 18-24 still smoke and almost 18% of adults age 25-44 continue to smoke. In the United States, over 70% of adults age 18+ drank alcohol in the past year (and that’s including ages 18-20, when age 21+ is drinking age). With a growing trend toward marijuana legalization, 22% of adults admit to current usage (even more than cigarettes). I believe it’s safe to say, most adults know these things are not good for their health and most would steer their children away from such things… Yet these industries are all thriving.
Does investing work similarly?
I think, all things being equal, investors prefer the idea of socially responsible portfolios. But if the socially responsible portfolio does not live up to its “less socially responsible peers” and/or it costs more to return the same or less, then investors generally tend to revert back toward traditional portfolio allocations. And financial advisors know this, so many do not broach the subject unless the investor makes such a request.
Do I sound cynical or am I just a realist?
I love the idea of socially responsible investing. And speaking as asset manager, it’s not that difficult to add socially responsible screening mechanisms in order to de-select the socially irresponsible stocks. But until market demand supports the effort, the effort isn’t worth the price of mass deployment (at least not yet). Like I said, we promote a socially responsible investment model, yet it is one of the least utilized models we provide.
Additionally, socially responsible investing can become a bit murky. When does an investment cross the line? If you wish to invest with social responsibility, but you enjoy craft beer or a nice glass of wine, do you re-include the alcohol industry even though it would normally be excluded? Or what about a tech firm that has poor data security and/or outright sells data you would deem private – include or exclude?
I’ve read that the socially responsible investing category under professional management is currently as high as 22%, but again, that math is a bit murky as it does not include passive management (only active or professional management).
In the end, many lay claim to millennials being the force behind the ultimate push toward socially responsible investing. And in many ways that argument makes perfect sense, yet millennials are also credited with the push toward marijuana legalization… And it may be difficult for those two things to coexist. Not all that different from previous generations wrestling with ways for socially responsible investing to coexist with the popularity of alcohol.
It’s an emotional subject and a trend to watch closely. But I contend the trend is probably further off in “action” than it is in “words.”
That’s the Skinny,
On April 1, 2018 we celebrated 30 years in Business at USA Financial. I’m assuming most who are reading this have not spent their career in the financial industry, so rather than focus on the minutia and details of “our” story… I’d like to share a few crucial high-altitude observations I’ve gleaned over 30 years of evolutionary corporate leadership (albeit, my leadership experiences are derived from steering a financial services holding company and its collection of synergistic subsidiaries).
Looking back, our growth falls in to 4 stages:
Cornerstone 1 – Walking Flatlands and Climbing Mountains
Cornerstone 2 – The Corporate Security Fallacy (aka Avoiding Valleys)
Cornerstone 3 – Give ‘Em What They Want, Followed by What They Need
Cornerstone 4 – Moonshots are Crucial
I wrote about each of these Cornerstones and my biggest breakthroughs and learning experiences in the latest USA Financial Trending Report. I invite you to take a look and hope you find the cornerstones valuable and entertaining. Next time I’ll get back on task with my financial writings.
That’s the “30-Year” Skinny,
As a follow up to the previous post: Here’s the skinny…
Risk Managed Accounts May Subdue Sequence of Returns Risk (Part II)
Risk managed accounts are my first line of attack (my second will be discussed in Part III) against the sequence of returns risk for investors withdrawing retirement income from their accounts.
In Part I, we analyzed a scenario in which investors had a nest egg of $1,000,000 and were attempting to take annual withdrawals beginning at $60,000 and increasing each year by 3% adjusting for inflation. The problem was, depending upon the sequence of their returns, (1) one ran out of money, (2) another had a declining balance, and (3) the third maintained their $1,000,000 nest egg after withdrawals. Mathematically these are all accurate and true. That’s the unusual challenge with sequence of returns risk – it depends on the luck of the draw.
So, do we just throw up our arms and pray the sequence of returns works in our favor? Of course not.
The looming retirement planning question is “How may we prepare in real life?” Can we do anything to combat this risk besides simply withdrawing less money? Well, let’s address the ultimate stress-test… Let’s hypothetically look at what would have occurred to investors in the midst of the 2008-09 financial crisis.
We will compare and contrast relevant numerics for the S&P 500 Index alongside a risk managed account from USA Financial Portformulas, using the Sector Bull-Bear Strategy.
Here’s what performance and accumulation look like if we simply assume that both the S&P 500 and the Sector Bull-Bear Strategy have $1,000,000 invested and are allowed to accumulate with no withdrawals from 2004 through 2016:
I’ll attach a PDF brochure for the Sector Bull-Bear Strategy if you would like to know more details specifically about how the model functions. Suffice it to say here, the Sector Bull-Bear is a formulaic trending risk managed model that uses specific criteria to select amongst 11 sector ETFs for the S&P 500 via “sector trigger scores,” but then also calculates an overall “master sector trigger” to formulaically dictate when the model will shift entirely out of equities to a conservative bond/gold ETF blend.
The chart above illustrates the S&P 500 (the GREY line) versus the net fee performance of the Sector Bull-Bear (the BLUE line) from the beginning of 2004 through 2016. Take particular note of how the Sector Bull-Bear would have responded during the 2008-09 financial crisis by automatically shifting out of equities – revealing the popularity of using risk management.
But remember, we are discussing the perils of the sequence of returns risk and the difficulties it creates when distributing retirement income withdrawals from a portfolio.
So next, we will extract withdrawals just as we discussed in Part I of this write-up.
In the chart below, we will use the identical investment of $1,000,000 and identical performance from the chart above. However, now we will assume that the investor begins to immediately withdraw $60,000 per year, via monthly income checks, increasing each year by 3% to adjust for inflation.
In this chart, the GREY line still represents the S&P 500 with ZERO withdrawals, just so you have a point of reference. But our real focus is now on the green and orange lines. The GREEN line represents the S&P 500 less the withdrawals (again, beginning withdrawals at $60,000/year paid monthly and increasing 3% annually for inflation). Notice the severity of the decline during the 2008-09 financial crisis and the fact that by 2016 the GREEN line is running consistently below the initial investment of $1,000,000.
The ORANGE line represents the Sector Bull-Bear less the same withdrawals (again, beginning withdrawals at $60,000/year paid monthly and increasing 3% annually for inflation). Once more, focus your attention on the reaction of the ORANGE line during the 2008-09 financial crisis. Also, follow the ORANGE line movement through 2016 as it remains significantly above the initial investment of $1,000,000 through the duration. This is the value of using risk management to combat the sequence of returns risk!
Unfortunately, all I ever read about the “acceptable retirement withdrawal rate” and/or the “sequence of returns risk” is that one must reduce their retirement income. It’s as if everyone forgot what investment planning was all about. Risk management is why we exist! Anyone can simply identify a 60/40 portfolio allocation and reduce income payments from 6% down to 3%; there’s no need for a financial advisor in a relationship based on that math.
But financial advisors exist to deliver value to their investors. And risk management is one of the primary ways that such value may be delivered… Especially to an investor in need of withdrawing retirement income.
That’s the Skinny,
Mike Walters, CEO