These 6 Steps Can Help Assess And Adjust Your Financial Portfolio (Morningstar)
As you check on your portfolio from time to time, Morningstar's Christine Benz recommended using a quick list of assessments, modeled after a food pyramid, to evaluate your investments. "Like the original food pyramid, the items toward the base of the financial pyramid are the most important--the equivalent of whole grains, fruits, and vegetables," she writes. "Meanwhile, the top of the pyramid features items that have less of an impact on the success or failure of their financial plans."
Benz points out six things that investors need to ask themselves, starting with the base question, (have your goals changed) to the top of the pyramid. Here they are verbatim:
1. Have your goals changed?
2. Is your savings or spending program on track?
3. How does your asset allocation compare with your targets?
4. Does your portfolio align with your risk tolerance? Are you reducing exposure to the market hot spots?
5. Have you maxed out your tax-sheltered accounts? If any changed are warranted, can you make them in a tax-sensitive way?
6. Are your holdings on track?
"As you conduct your portfolio checkup, don't focus disproportionately on individual holdings' absolute returns and return rankings, though they can be difficult to ignore," Benz said. "Instead, concentrate on fundamentals, revisiting whether your reason for holding each position remains intact."
SEC Will Prioritize Examining Expensive Mutual Funds And Bad Brokers (Reuters)
As the Securities and Exchange Commission prepares to examine financial advisory firms, they named a couple key focuses for 2015. These include costly mutual funds that rake in high fees, and brokers with disciplinary violations.
Citing Kevin Goodman, who heads the broker-dealer examination program for the SEC, Suzanne Barlyn at Reuters writes that "one issue of concern was brokerages that sell pricey share classes of mutual funds and variable annuities."
"Goodman cited 'an explosion' of so-called 'L-shares,' a type of mutual fund shares held in variable annuities that have short surrender periods, but higher upfront costs,"Barlyn reports. "The SEC was interested to know whether investors were aware of the fees they pay for different types of share classes and whether these charges were appropriate for the investors buying them, Goodman said."
"...The agency may decide to look at individual branch offices on a standalone basis next year. If finalized, examiners would choose those offices based on factors such as their size, trading activities, and sales in certain products, such as an unusual amount of risky complex securities, Goodman said. The industry can also expect a 'laser like focus' on brokerages and brokers who have a history of disciplinary violations."
Financial Advisors Are Seeing Increased Pay And Job Security (Wall Street Journal)
As profits from wealth management divisions at financial firms are increasing, financial advisors are risking up in the ranks. WSJ's Corrie Driebusch reported that large banks, such as UBS and Morgan Stanley are focusing more on wealth management, rather than riskier businesses.
"Profits from wealth management are swelling at Morgan Stanley, Bank of America Corp. and other firms with big retail brokerages. That has meant bigger signing bonuses for top brokers who choose to change shops and better job security for those who don't. The advising industry also is viewed as suffering from a shortage of new and younger talent, making older, proven producers a coveted commodity," Driebusch said.
"A top-producing financial adviser jumping from one big firm to another could demand a recruitment bonus of as much as three times the revenue he or she produces, according to brokers and recruiters. That compares with bonuses of about two times revenue before the financial crisis. "
FINRA Has Created A New Task Force To Improve The Arbitration Process (Wealth Management)
The Financial Industry Regulatory Authority (FINRA) has created a task force to review the arbitration process and suggest improvements. Diana Britton from Wealth Management reported that although there have been changes in the last several years, many advisors remain critical of the process.
"One possible issue the task force could look at would be the downward trend in what claimants recover," Britton said. "[Attorney Howard] Prossnitz said claimants now recover 44 percent of the time, down from as high as 55 percent, and when they do recover, they typically get one-third of what they're seeking. 'The elephant in the room, which no one ever really wants to discuss, is mandatory arbitration,' Prossnitz added."
"There are also limited ways to get a case thrown out, said Richard Roth, founder and partner of The Roth Law Firm in New York. In court, you can file a motion to dismiss or a motion to summary judgment," Britton said. "The arbitration process is also much longer than people would anticipate, Roth said. The average case takes about a year, he said, while some can go on for four or five years."
Why Some Investors Are Using Treasury Inflated Protected Securities (BlackRock)
BlackRock's Matthew Tucker explained why investors are using Treasury Inflation Protected Securities (TIPS) to hedge against rising inflation in a recent blog post. Tucker remains skeptical of this strategy because he foresees inflation accelerating only at a modest rate.
"When considering TIPS as an investment it's important to note that TIPS derive their returns from two sources - rates and inflation - and while TIPS may be a good option when hedging against rising inflation, they're not ideal for a rising interest rate environment," Tucker said. "TIPS tend to struggle in rising interest rate environments, especially those that have low levels of inflation. Looking forward I believe that interest rates will gradually rise, and that inflation may pick up but isn't likely to increase substantially in the near term. Additionally yields remain low; as a result TIPS won't generate much income if inflation does not accelerate."