I read the following article this morning and while it supports what I have always said, Strategic Asset Allocation provides more return over the long run than Tactical Asset Allocation it dawned upon me that for many clients they probably don’t even know the difference between the two.

One of the things we make very clear in our business is that we provide the strategic direction for our clients and then we involve specialists to make the final tactical decisions, most practices do not work this way though as far as I have seen.

The article below even goes on to question if the advisers even know if they are adding value to the strategy by incorporating TAA.

It is a great article and about time someone else other than me started to question some of the practices planners use to generate income.

Remember if you want to know more about the Financial Planning business, Professional Investment Services then click the link and explore our site.

The article starts here……………

Advisers hungry for TAA amid GFC
Strategy provides little value-add: Zenith

By Victoria Papandrea
Mon 29 Jun 2009
The global financial crisis triggers a massive rise in the demand for tactical asset allocation services from financial advisers.

With many investors experiencing significant negative returns over the past 18 months, there has been a substantial increase in the demand for tactical asset allocation (TAA) services from financial advisers and their clients, according to Zenith Investment Partners.

While this is a common reaction to any bear market, very few practitioners consistently add value from TAA over the longer term because of the unpredictable nature of investment markets, Zenith national research provider David Wright said.

“Most practitioners of TAA actually detract value by making asset allocation adjustments away from strategic asset allocation weights over the longer term,” he said.

Some financial advisers believe they add value from TAA in the management of client portfolios, however the reality is most don’t actually know, Wright said.

“The reason for this is that many advisers don’t actually look back and measure the value their decisions have made against strategic asset allocation benchmarks. As the old adage goes, ‘you can’t assess what you don’t measure,’” he said.

“This issue is magnified by the fact that the clients generally, with all due respect, don’t know any better and so think the TAA advice being provided is part of what financial advisers do and is adding value to their portfolio.”

Most financial planning practices with a medium to large number of clients are not adequately resourced from an administration perspective to pursue TAA within clients’ portfolios, Wright said.

“Unless administration is highly efficient and transaction processing times are instantaneous, there is significant risk that client moneys will be out of the market on days where the market provides a strong return,” he said.

By Vishal Teckchandani
Fri 26 Jun 2009

More than 25 per cent of wealthy clients in 2008 withdrew their assets from their wealth management firm and deserted their financial adviser, new research shows.

More than one in four high net worth (HNW) clients in 2008 withdrew their assets from their wealth management firm and deserted their financial adviser due to a loss of trust and confidence, new research shows.

Nearly half of all HNW clients lost faith in their adviser and wealth management provider, according to Merrill Lynch Global Wealth Management and Capgemini’s annual world wealth report.

Around 80 per cent of HNW clients also lost confidence in regulators for being unable to detect early symptoms of the economic downturn and failing to stop corporate losses.

Additionally, wealth management profitability was hurt by lower assets under management due to the loss of clients and attrition and an increase in clients holding low-margin products, the report said.

Globally, HNW clients held on average 50 per cent in cash, term deposits and fixed income funds in their portfolios in 2008, up 6 per cent from 2007.

The study also found clients aged 31 to 45 were more inclined to leave their wealth management firm than clients who were 46 to 65, as they have known their adviser longer. Clients who made their fortunes from business and income also have a higher propensity to leave than clients with inherited wealth.

“This is a significant finding because 52 per cent of HNW wealth was generated from business ownership and another 18 per cent was generated from income,” Capgemini senior manager of financial services Wayne Li said.

He said advisers who are quick in relaying statements to clients, have transparent fees, good risk management capability and a wide range of product choices will be able to boost retention in the future.

“A European HNW client asked her banker for a detailed report on her financial holdings at the end of last year, and when she didn’t hear back from the bank in 10 days, she transferred $25 million from the larger firm to the smaller firm who promised her the delivery of such a report within a day,” Li said.

“In this environment, there is no excuse for delays and as a result of that the larger firm lost business.”

The number of HNW individuals tumbled by 23.4 per cent to 129,200 in Australia and by 14.9 per cent to 8.6 million globally in 2008.

HNW clients, classified as having US$1 million or more in investable assets, saw their combined wealth slump by 19.5 per cent to US$32.8 trillion at the end of last year.

source: Investor Daily

Many experts are advising the best option at the moment is to fix your mortgage for short terms.

This week HSBC bought it’s 6month rate down to 5.39% which is now the lowest six-month rate on offer.

Westpac and Public Trust also cut their six-month rates bringing them to 5.50%.

I have just fixed my ANZ loans for the short term as well.

In the last week we have seen the reserve bank leave interest rates where they were which as you are probably aware did not go down well with me.

The banks have pretty well refused to lower interest rates and have announced significant profits in a time when the rest of the world is suffering from the actions that they took (i.e poor lending practices).

In my opinion as a borrower this is inappropriate however as an owner of their shares I am pleased.

I am working on new products for my Professional Investment Services (powered by Financial Gain) office and will hopefully be able to release these products in the near future.

Remember my focus is on developing strategies and systems that will allow our clients to have a prosperous retirement.

The first step in this process is completing a needs analysis questionnaire which is then analysed and used to create a strategy for you so that you can go out and implement this strategy using your chosen professionals, i.e mortgage broker, real estate agent, fund manager etc etc.

At the moment I am looking for 5 people who would like to help beta test my new questionnaire and have a strategy created for them.

If you would like to be a part of this process please contact me at either my Professional Investment Services office or via email.

betatest@nzpis.com

The Reserve Bank has left the Official Cash Rate (OCR) unchanged at 2.5 percent but indicated it may cut again.

It’s the first time in nine reviews of official interest rates dating back to June last year that the central bank hasn’t cut the OCR.

Reserve Bank governor Alan Bollard said today although the economic outlook remained weak both in New Zealand and overseas, there were signs international economic activity was stabilising. Furthermore, international financial conditions were improving.

Domestically the economy, mired in recession since the start of 2008, was expected to start growing again toward the end of this year although the recovery was likely to be slow and fragile.

“We therefore consider it appropriate to continue to provide substantial monetary policy stimulus to the economy,” Bollard said.

“The OCR could still move modestly lower over the coming quarters.  As we said at the time of the April OCR decision, we expect to keep the OCR at or below the current level through until the latter part of 2010.”

The OCR was slashed from 8.25 percent to 2.5 percent between July 2008 and April this year as the Reserve Bank tried to breathe life into the domestic economy against a backdrop of the worst global economic crisis since World War II.

“We have cut the OCR by a large amount over the year,” Bollard said.

“We expect the effects to pass through to more borrowers over coming quarters as existing fixed-rate mortgages come up for re-pricing.”

However, he had another crack at the retail banks, also under pressure from MPs for not passing on OCR cuts to mortgage holders, saying although rising longer-term interest rates overseas where banks source much of their funding were placing pressure on longer-term lending rates here, there remained room for further reductions in shorter-term lending rates.

Bollard also said that although there remained material downside risks to economic activity and inflation, for the first time in some months the Reserve Bank could identify some “clear upside opportunities” for activity.

One example was a potential rebound in household spending and residential investment due to rising immigration and a pick-up in the housing market.

“Ultimately, however, we do not think such a rebound in spending would prove sustainable given the soft outlook for employment, wages and farm incomes and high levels of household debt,” said Bollard.

Statistics New Zealand figures out last month showed unemployment rose to 5 percent, or 115,000 in March, its highest level in six years.

However,on Monday Quotable Value said its national residential property indices for May, recorded an 8.1 percent decline in values over the past year. That was an improvement on the 9.2 percent decline reported for the year to April, and the second month in a row where the year-on-year change improved, QV said.

The improvement was due to continued stabilisation of property values in recent months and contrasted significantly to a market that was declining sharply 12 months ago, QV added.

Bollard said, however, the risks to the economy remained weighted on the downside. The negatives included the recent rise in the kiwi dollar which created an “unhelpful tension.” A strong dollar at a time of weak global growth risked delaying or even reversing a projected rise in exports.

Annual consumer price index inflation was likely to fall temporarily below the central bank’s 1 percent to 3 percent target range later this year. However, Bollard expected inflation to return to the target range by early next year.

It was likely to be “some time” before an economic recovery became self-sustaining and monetary policy support could be withdrawn, Bollard added.

http://www.nzx.com/news/4937953

This article came across my desk earlier this week and I thought it was particularly interesting.
The discussion is a good one and highlights the very uncertain nature of the financial planning process. I hope you enjoy it as much as I did.
Professional Investment Services (powered by Financial Gain) can help you make sense of what when and how to do what needs to be done so that you can live the lifestyle you want in retirement.

Casting no stonesby Bob Veres |  Monday, 8 June 2009

I’ve been having the same discussion lately with a variety of advisers, and sometimes the conversation gets heated. So I’d like to lay out my position here for all to see, and maybe this will start a useful dialogue.

The discussion usually starts when I am approached by an adviser who jumped out of the market sometime before November, and in some cases before September of last year – and when I mean “jumped,” I mean took client equity positions down to 20% or less. These advisers are still sitting on losses, but they aren’t nearly as significant as what most of us are looking at in our retirement portfolios. And now, when I ask them how they’re doing, they immediately, sometimes eagerly, tell me that they paid attention to the economic signals and avoided most of the wreckage, and how (they ask me) can other advisers call themselves financial planners when they were too ignorant to see this train wreck coming?

This always starts the argument. On my side, I point out that a few others missed these obvious signals too – people like Hank Paulsen and Ben Bernanke and Warren Buffett and, oh, maybe a few hundred million others, and on their side they say that most financial planners are brainwashed zombies who would buy and hold even if we declared nuclear war on China, and that advisers, if they are REAL advisers, need to pay more attention to the economy and valuations and everything else so they can protect their clients.

Inevitably, I agree that, yes, more investment sophistication is needed. But I also ask them when the upturn will begin, and I have yet to get a consistent answer.

My sense is that there is some truth to what these people are saying. The financial planning community has been gliding on a kind of investment auto-pilot for way too long, and that planners of the future will either delegate their investment management activities, either through actively-managed mutual funds that have a broad mandate to shift their allocations if they think valuations are out of whack, or to some of these financial advisers who live and breathe market and economic statistics and who incorporate valuation measures into modern portfolio theory. (Is the market safer with a PE of 8 than it is when PEs are running into the 30s? If you answer ‘yes’ then you should probably be paying attention to these valuations and structuring client portfolios accordingly – though, frankly, I still have no idea what the precise recommendations should be.)

I also, however, think that this is not exactly a perfect time to be switching investment philosophies. Even if you are a convert to what these sage or lucky advises are now preaching, does that mean you should switch allocations to something more conservative now, when valuations are low?

I think there are four kinds of investors roaming the streets these days.

First, there are the investors who were lucky enough to work with an adviser who sidestepped this mess, and we will see if their advisers are skillful enough to get them back into the market when it gets bullish – and that probably means navigating around who knows how many sucker rallies before we hit the real thing.

Second, there are the clients of advisrs who maintained their investment allocations and rode the roller coaster all the way down, but who are going to stick it out and give their clients the benefit of riding it back up – and I have yet to talk to anybody who thinks the market will stay down forever, so we seem to agree that there will be a recovery that will eventually make everyone whole.

In third place in this race are the consumers who panicked last September or October and fled the market, and who are probably boasting to their friends that stocks are just too risky. They’ll watch a sucker’s rally go by and enjoy the subsequent downturn, feeling safe in their cash position. They’ll watch another one, and then they’ll smugly watch the bull roar upward until, somewhere near its peak, there is so much frenzy and excitement, and so much regret at how much upside they have already missed, that they’ll put their money in near the top and end up far worse off than they were before.

Finally, there are the clients of advisers who will lose their nerve, who gave their clients the full brunt of the downside in a buy-and-hold posture, and then will decided to give up and take an ultra-conservative position. They will lock in losses, and be caught by surprise by the sudden, unexpected bull run, either mistaking it for another sucker’s rally or simply not having cash in the market in time to catch most of the updraft. The clients of those advisers will have suffered most of all.

Like it or not – even if you now believe there are ways to evaluate the future returns of this or that asset class, even if you think you learned something from this bear market and that there is something to what these sophisticated advisers are saying about sidestepping the worst of the bear – you’re really trapped into offering your clients the second best of four alternatives. And, if those advisers casting stones fail to recognise the next bull, you may actually wind up with the best of the four.

I may be wrong, but I believe that the only sensible time to make dramatic changes in your investment philosophy is toward the end of a bull market, when high valuations are making you uncomfortable and your reading of the economic tea leaves leads to disturbing conclusions.

I think when that day comes, many of the advisers who are being castigated and dismissed by their peers will actually have a better solution than they did this time around.

Moreover, I agree with the successful sidesteppers that it will become accepted wisdom throughout the profession that correlation coefficients, mean variance calculations AND valuations need to be taken into consideration when assessing the opportunity set offered by the markets.

But that day isn’t here yet.

I readily congratulate the advisers who managed to sidestep the worst bear market since the 1930s, and I am happy for their clients.

But I’m not ready to throw the other advisers under the bus for sticking to their principles when the alternatives look like they do today. In my own portfolio, I have no idea when the next bull market will come, but I intend to ride it up from the very first moment it appears, and I know only one way to do that – grit my teeth, maybe wish I had been smarter, and hold on to the handlebars of the roller coaster to wherever it takes me next.

Bob Veres is Editor of Inside Information, and one of the most respected and influential financial services commentators in the US. In NZ, financialalert has exclusive access to and distribution rights for Inside Information. www.bobveres.com

© 2009 financialalert Limited.

ANZ and the National Bank have both increased rates for most terms of 18 months or more. The one rate they haven’t changed is for a two-year term. The increases are all in the 10 to 15 point range.

Much of the attention has been on ASB for hitting the 8.00% mark with its five-year rate. ANZ has increased its five year rate 14 points to 7.99%, while NBNZ is up 10 points to 7.95%.

Both banks have 18 month rates of 5.89% and they have taken different positions on three and four year rates. ANZ has the higher three year rate, 6.99%, compared to NBNZ’s 6.95%, however NBNZ’s four year rate is 7.55% compared to ANZ’s 7.50% rate.

Kiwibank so far has only increased its five-year fixed home loan rate by 35 basis points to 7.95%.

CBS Canterbury has increased its one and two-year rates by 20 bps, its three-year rate has gone up by 30 bps and its five-year rate up by 55 basis points to 8.15% whicih is now the highest rate in our table.

NZF has also made increases to its rates of one or more albeit in smaller lots.  Its one and two-year rates went up by 10 points and its four and five-year rates were increased by 15 to 25 points respectively.

Source: Good Returns

So a week away in Australia surfing and enjoying the warmth has me fired up to get ready for the next trip over there in about a month.

I saw Michael Hill receive great honors at the world entrepreneur awards and it was interesting listening to him talk about what he would like to do next.

Our share market was off to a flying start this morning in the wake of rallies in stock markets around the world on improved global factory activity.

Our dollar powered to highs not seen for many months against major currencies, boosted with other commodity-related currencies because of a jump in oil prices and a rise in United States stocks.

The property market has received mixed commentary and in my opinion the worst is yet to come.

One of the biggest concerns I have with the current markets and the mixed talk that is about is the fact that people will forget or become “too scared” to invest for their retirement.

For many years I have been passionate about helping people create wealth for their retirement and it is times like now where you really need to stick to your plan. That is if you have a plan.

One of the scariest things facing our aging population is the fact that in a short space of time there will be more people who are eligible for government assistance than there are people working. Do you really think our tax system can continue to pay for these pensions? Think about it….we have a deficit now when we have more people working than are on pensions so how could the system work when this particular statistic changes. The only thing that can happen is that the government will either remove the pension system altogether or they will reduce the amount or they will increase the eligibility age.

Do you really want to be working when you are 75?

At Professional Investment Services (powered by Financial Gain) we make it easy for you to create wealth, save tax , reduce debt and minimise risk using the Lifestyle Builder program (c).

Drop in and check us out at the main site. It costs you nothing to look around and it costs you nothing to book a meeting with one of our Wealth Coaches. If we can not help you we will let you know. If we can help you we will also let you know how we can help and then we will put our recommendations in writing. You can then decide if you like what we are recommending and join our very happy group of clients or say no… that’s OK too, at least you will be making an informed decision.