It’s good to read articles like this one in Wall Street & Technology by Tim Clark. They give me hope that some day our data issues will be on track to be resolved. Primarily, this is because the big boys are now starting to look at how much they are spending on data. A lot of what they buy is duplicated across multiple vendors and there is no reason for this.

In our corner of the world, it amazes me that I can download a security master from Fidelity and one from Schwab and get different data. How many different prices does a security close at? So maybe, just maybe some of this efficiency will trickle down to us.

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In Challenging Conventional Wisdom, Evan Simonoff writes about how the financial services industry is changing. Though the article starts off somewhat funny :

Evan Simonoff on conferences:

…self-congratulation leavened with pompous platitudes about the noble public service provided by their businesses, culminating with a bunch of guys presenting awards to each other and telling each other how great they are.

The article does turn serious and has quite a few insights that were gathered at the conference. There is quite a bit of hard data presented in the meat of the article. Some of it is interesting and some not.

If you only have a few minutes the good stuff is at the bottom. Basically it says that RIA’s are thriving while traditional brokers are not. There are several comments from ordinary people that try to get at the heart of the issue.

I can sum it up for you, Advisors have more of a relationship with their clients. It’s no surprise to me, money is a very personal topic. You are talking with people about their worth, goals and dreams they’re not buying a new dishwasher.

Most people like to know that you genuinely care about them and that you are on their side of the table, not just trying to sell them a product and move on to the next mark.

My finance and I are at my parents’ house for Christmas. Having a blog doesn’t seem to make much difference in the fight for computer time. My dad got everybody addicted to this silly game where you shoot Christmas elfs. So I had to get up early on Christmas day to get an hour of uninterrupted surfing.

Investment News has released their DataBook 2006. They call it a one-stop source for the biggest and best of the financial services industry. They have lots of odd-ball rankings like Top 25 ETFs ranked by 20-day average share volume, clearing firms ranked by top broker dealers, and Top defined contribution service providers ranked by assets.

Morningstar Advisor has selected their “Best Technology Products of 2006“:

• Software product of the year: IPS AdvisorPro,
• Hardware product of the year: Logitech QuickCAM Fusion,
• Rookie of the year: Upswing Virtual Office.

Upswing is a new online contact management for advisors. Joel wrote about it before and it uses Ajax (a new better way of building Web apps). Their web site doesn’t have much information but I’m hoping to get a demo in a couple weeks.

Back in the early days of my career in this industry, it was difficult to start out. You really only had two choices, work in a wire house or go to work for an established financial planner. I started in a wire house selling penny stocks, I did not know anything; it was all smiling and dialing. I was selling penny stocks over long hours while studying for my series 7.

As soon as I reached the chapter in my book that told me I had to have a license to sell stocks I left the firm. I realized they were breaking the law by having me cold call and sell stocks. I landed a back-office job with a large financial advisory firm in the area and started to grow that way. Within no time I was licensed (first this time) giving seminars and landing clients. Life was good.

However, there was no real growth path, I was doing all I ever would. I had quite a few clients in my book when I sort of realized this. Either, I would have to strike it out on my own or accept my fate and live with it. Due to a strong no-compete, I left the sales side of the industry and entered the software side. I find it odd that our industry has not changed much. In this article, Jeff Schlegel writes about how young advisors are still making this same decision.

The accounting and lawyer professional model has had this for years. It works, they attract young talent cultivate them, teach them corporate values and eventually turn the firm over to them. I only know of a few firms that implement this model in our industry. Mostly, they are larger firms with multiple partners. I don’t think smaller firms realize the value of this model to the firm or to the young planner.

I was reading this article at Financial Planning magazine’s website. It’s talking about some of the new products coming out that are designed to help people retiring. Mostly it focuses on new products by Merrill Lynch and Mass Mutual. These are some new and innovative products like… Annuities, Laddered Annuities and SMA’s.

It all sounds a lot like marketing hype to me. It’s creative ways to sell insurance products to clients in retirement.

“Determining a month-to-month cash flow is challenging for clients,” said Jennifer Bennett, vice president of retirement marketing for New York-based Merrill Lynch. “We want people to feel there is a 90% to 95% chance they can achieve their goals,” she said.

Don’t get me wrong, these products have a place in the financial planning practice. But don’t try to tell me these are “all new products”. I am hopeful that these companies will take the time to help educate planners and explain when these products are good to use AND when they are inappropriate.

Call me cynical but I have this vision of companies training 22 year old phone “planners” what to tell mom & pop when they call in on the help line.

Matt Hougan has created a great guide for selecting ETFs. He takes a look at whether advisers should be using ETFs for their clients. He gives us five things to look for when selecting an ETF:

1. Check Your Commissions
2. Check The Index
3. Check The Tracking Error And Spread
4. Check The Back-Test
5. Check The Turnover

I’m a big fan of ETFs and use them in my personal portfolios. His advice about checking the back-test is insightful. Most advisors don’t own anything like TradeStation or have the skill set to recreate ETF trading strategies to see if they’ve been unduly optimized against past data.

But his tip about looking for odd numbers is a great rule of thumb. Consider an EFT where the stated strategy is to buy stocks with a P/E ratio between 12.5 and 14.7 that had IPOs in April. There’s a pretty good chance the people launching the ETF plugged every possible odd combination into their strategy and picked the one that gave them the best past results. That’s just a way to cheat your back-test data so you can report higher returns.

He also opines on the recent explosive growth in this segment:

But recent trends in the industry have me worried. Average expense ratios are creeping up, average fund turnover is increasing, and recently, many product launches look more like reflections of marketing than reflections of the market.

Consider the aforementioned Listed Private Equity fund, from PowerShares. If there ever was a fund designed to ride the coattails of a media phenomenon, this is it…

Here’s a great article about the coming shift from asset accumulation to asset distribution. As the baby-boomer generation rolls into retirement, their wealth focus will shift from asset gathering to finding intelligent ways to distribute the money.

“The financial services industry largely is centered on selling appropriate financial products and holding assets under management for as long as possible. This tactic no longer will work for baby boomers, who will consume their assets over time.”

It says a baby boomer turns fifty every eight seconds. Statistics like that crack me up. A couple other things that happen every eight seconds: a blog is created, and Carmen Electra thinks about sex.

Investment Advisor Magazine’s has a December issue that should get you in the holiday spirit.

The cover story is entitled Hearts & Minds, where they claim “investors large and small have discovered that they don’t have to pay a “conscience penalty” for using their capital to make the world a better place”. It’s about mutual funds who only invest in companies with Christian values.

They follow up with Sowing Good Works about the rising trend in philanthropic giving. And they even have Accentuate the Positive, which talks about some of the good things the CFP Board has been doing recently.

How sweet.

Investment News has an article entitled “Chuck” Schwab eyes short list of successors. Buried in the article is an interesting tidbit that could be very bad for independent advisors:

…Schwab also is studying ways to spend the $2.5 billion after-tax proceeds from the U.S. Trust sale… The two obvious candidates, E*Trade and TD Ameritrade Holding Corp. of Omaha, Neb., are both priced at about $10 billion, Mr. Schwab said. “Can we get the appropriate return? It’s very difficult to get a clear answer on that. Do we want to be a consolidator?”

The article focuses more on the possibility of an e*Trade acquisition but TD Ameritrade is held out as a second possibility. That would be bad for independent advisors.

TD Ameritrade is one of the three big providers of custodial services to reps. If they were to be acquired by Schwab, then we’d be down to two (Schwab and Fidelity). Granted, there are quite a few other second-tier custodians, namely First Trust and Pershing. But Schwab, Fidelity, and TD Waterhouse Ameritrade have the bulk of advisor assets.