Dan Ariely says disclosure may hurt investors: Report from his #CFA2010 talk -- #CFA2010

Most investment professionals, including CFA charterholders, figure that more disclosure about financial advisors' conflicts of interest will help investors.

Not so, said Dan Ariely, author of Predictably Irrational, to the CFA Institute's annual conference on May 16. In fact, disclosure may not improve investors' decisions.


Two countervailing forces apply when a financial advisor reveals conflicts of interest, said Ariely.

Let's assume the financial advisor tells a client that he'll receive a higher payment if the client chooses Fund A over Fund B.

On the one hand, the client will tend to discount the advisor's opinion because of the potential bias, said Ariely. On the other hand, the advisor will feel freer to push Fund A because he has revealed his conflict. Ariely believes that this second force will overwhelm the client's discounting of the advisor's opinion. As a result, investors end up no better off despite disclosures. 


You can watch Ariely present
Some of Ariely's past presentations have been captured on video. You can view Ariely on YouTube. 


Follow the CFA Institute's annual conference
You can learn about presentations at the CFA Institute's annual conference as they occur. Read the CFA Institute's conference blog or follow the conference using the #CFA 2010 hashtag on Twitter.
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Copyright 2010 by Susan B. Weiner All rights reserved

Guest post: "Correct Grammar Errors in Your Writing Quickly and Easily "

Adults often struggle to improve their writing skills. That's why I've become a fan of the teaching techniques of @LindaAragoni. In this article, Linda shares a technique for cutting the number of grammar errors in your written communications.

Correct Grammar Errors in Your Writing Quickly and Easily

By Linda Aragoni

Do you have trouble correcting your writing for grammar errors?

I know I do.

I suspect you do, too.

Here is a simple way to make correcting your writing easy.

First, keep a list of the grammar errors you make regularly. Most people make a few errors repeatedly. An error you make once in five years is no big deal, but a grammar error you make once every five sentences is an error you need to eliminate.

Your teachers probably have told you about your habitual errors for years. Errors like sentence fragments, comma splices, and run-together sentences top the list. Subject-verb agreement errors and problems with pronoun-antecedent agreement are not far behind. Chances are you know how to correct those grammar errors if you see them.

To make sure you see grammar errors so you can correct them, read your completed paper looking for just your most frequent error. If your most common error is writing sentence fragments, scrutinize each group of words between terminal punctuation marks to see if it is a true sentence. Do not worry about anything else when you look for fragments. If you see any other kind of error, highlight it to fix later.

After you finish reviewing your paper for your most common mistake, go through it looking for your second most common error.

Keep doing that one-error-at-a time correction until you have examined your paper for each of your habitual errors.

When you correct for a single error at a time, take a break between errors. Do not try to cram the editing into the hour before a paper is due. If you do your editing in 5-10 minute sessions spread over a day or more, you will do a better job and experience much less stress.

Although this single-minded correction strategy sounds as if it would be terribly time-consuming, it can be done quite quickly. And it pays off quickly, too. If you can eliminate from your writing three errors you make habitually, your writing will show a big improvement immediately.

Linda Aragoni's one-mistake-at-a-time strategy grew out of teaching grammar study skills to first-year college students using their error-riddled papers as practice exercises. Her e-book Grammar Abusers Anonymous teaches mature high school and adult students how to master grammar without paying tuition. Copyright 2010 Linda G. Aragoni. 
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Copyright 2010 by Susan B. Weiner All rights reserved

Top four email mistakes to avoid when you've got a referral

You've probably used a referral to ask a stranger for an informational interview or a chance to talk about your business. If you make your initial contact by email, please avoid the following common mistakes:

• Burying the name of your mutual acquaintance in the body of your email
• Not making it clear immediately what you're seeking
• Not identifying yourself clearly and succinctly
• Putting the burden on the other party to follow up

Let's flip these mistakes to get a list of best practices. 
 

1. Highlight the name of your referrer

When I've got a referral, I often put the referrer's name into my subject line. For example, "Allan Loomis referred me" or "Allan Loomis suggested I talk with you." The familiarity of that person's name raises the odds that the recipient will open your message. 

2. Quickly tell your reader what you're seeking 

3. Identify yourself briefly

People are busy. They don't want to read a long email to figure out what you want from them. Open with a line such as "Allan Loomis suggested I contact you for a brief informational interview about how you manage your investment research needs." Then, and only then, should you give a brief self-introduction.

4. Take the initiative to suggest some times when you and your reader can connect. Nothing stops you from writing "I look forward to hearing from you." But don't expect your recipient to follow up. The burden is on you because you're the person requesting the favor. I increasingly find myself writing "I will call you next week to follow up."

Pay attention to these tips and you'll increase your odds of success whether you're marketing yourself or your company.

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Copyright 2010 by Susan B. Weiner All rights reserved

Hear Roger Ibbotson on asset allocation for free on May 27, thanks to CFA Institute

Roger Ibbotson will speak about "The Importance of Asset Allocation" in a live audio webcast on May 27 at 1:00 p.m. EDT. You can register on the CFA Institute's website.

This event is free, even to non-members of the CFA Institute.

If you read "Roger Ibbotson attacks asset allocation 'folklore,' " you know I think Ibbotson is worth hearing.
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Copyright 2010 by Susan B. Weiner All rights reserved

Morgan Creek Capital's Yusko riles up Tweeters with comments on investment fees

Mark Yusko, CEO and chief investment officer of Morgan Creek Capital, got off easy when he spoke to the annual meeting of the Financial Planning Association of Massachusetts (FPAMA) last week. Nobody at the FPAMA questioned Yusko's opinions about investment management fees. But plenty of my Twitter followers took issue with Yusko. Still, nobody's saying that one should always choose the cheapest fund.

What Yusko said
Yusko seemed to suggest that fees rise along with the investment manager's ability to deliver performance.

He made the following statements:

• "If you pay low fees, you have your money managed by the worst people" 
• "In what business does the best person not charge more?"
• "The idea that you want to minimize costs makes no sense."
• People say they know that indexing beats hedge funds, but for a 20-year period, S&P 500 returned 6.5% vs. 13.2% for hedge funds.

Disagreement
@BillWinterberg was the first to weigh in on my tweets of Yusko's comments.

 
@MariposaCap agreed with Bill.

@NathanGehring raised another issue, saying "By charging higher fees the manager may feel a need to take additional risk to justify the fee." He also questioned Yusko's hedge fund returns.

Paul Puckett (@investiphobia) emailed me saying, "Disagree, over the long term the opposite is generally true. Expenses are one factor, not the only factor when choosing managers."

One lonely defender, but some room for higher fees
Only one person tweeted in Yusko's defense.

Still, as Paul Puckett noted, nobody suggests that expenses suggests that expenses should be the only consideration when you're choosing a manager. In fact, this theme came up later in the day at the FPAMA conference. 

Fees matter, said Karen Dolan, Morningstar's director of fund analysis, in "Beyond Stars: Using Fund Analysis to Improve the Investor Experience." As her slide stated, "Advisors have responded by moving assets to cheaper funds, but there's more we can do to close the gap." 

Stewardship and portfolio analysis are also keys to choosing good funds, said Dolan. The fund families on her list of "Top Wealth Creators" over the past decade--American Funds, Vanguard, Fidelity Investments, Franklin Templeton, and PIMCO Funds--have all been good stewards, she said.

The great debate about what really matters in fund selection is likely to continue.


Related posts
* Morgan Creek Capital's Yusko on investing
* "Using Trading Costs to Identify Better Mutual Funds" in Advisor Perspectives (2007)

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Copyright 2010 by Susan B. Weiner All rights reserved

Timely, creative financial ad from Northwestern Mutual

Somebody was on the ball in Northwestern Mutual's marketing department or ad agency. 


I like their new ad, which I spotted in yesterday's Wall Street Journal. You can view the complete ad on Northwestern's website.

I like this ad because it
* Plays off a timely topic as well as people's emotions
* Is written in a conversational tone, without any 10 dollar words or extensive compliance disclosures

Nice job!
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Copyright 2010 by Susan B. Weiner All rights reserved

How to improve your financial planning client relationships

You can improve your relationships with financial planning clients by encouraging them to communicate honestly with you from the very beginning. 

This is the main lesson I took away from Shari Harley's presentation on "How to Say Anything to Anyone: Paving the Way to Powerful Working Relationships" to the annual conference of the Financial Planning Association of Massachusetts.


Ask for honesty
Harley suggested that audience members achieve this by saying, "I want a great relationship with you. If I do anything that violates your expectations, frustrates you or causes you challenges, please tell me. I promise I will say thank you."

Assuming that your client says "yes" to your request, then you can add, "I hope I can do the same with you." This sets the stage for two-way communication. If it works, you'll never be surprised again by a client defection. 

I asked Harley what she'd recommend saying after "thank you" when a client gives negative feedback. Don't say anything other than "thank you" right away, she suggested, because you'll feel defensive. Go away and think things over. You can follow up later.


Follow up with questions
Don't stop with your initial agreement to be honest with each other. Follow up with questions that help you to understand your client better, said Harley.


Here are some of her suggested questions:
1. Who was the best service provider you ever worked with?
2. What made him/her the best service provider?
3. What are your pet peeves?
4. Do you prefer email or voicemail?
5. What do you wish I would start, stop and continue doing? 

I can see how these questions would benefit me as a service provider and a client. It's time to rev up my courage and start asking more questions.

I believe Harley's approach could benefit you in your professional and personal life.

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Copyright 2010 by Susan B. Weiner All rights reserved

10 blogs I can't live without--Writer's edition

You'll learn the names of some useful resources for writers in this post. But first I must tell you why writing this blog post was so hard for me.



Blogs? What blogs?
"10 blogs I can't live without" is a topic that participants in the WordCount Blogathon are supposed to post about on May 10. When I read the topic I thought "Blogs? What blogs?" I simply don't consume blogs as blogs. I'm more likely to catch my favorite bloggers on Twitter. 

On the other hand, some of my readers probably don't think of me as a blogger because they visit my blog through my monthly e-newsletter or my LinkedIn status updates. They might respond to the WordCount Blogathon assignment by saying, "I don't read any blogs."

People consume their online information in different ways. This  assignment reminded me that it's important to make information available to readers in the format they prefer.




Online resources for writers 

Here are some of my favorite online resources for writers. They're not all blogs. Nor have I limited my list to 10. 

B2B example 
If I were stranded on a desert island with such slow Internet connection speed that I could only read one e-newsletter or blog, I'd choose Michael Katz's E-Newsletter on E-Newsletters. It has a charming style that sets a good example for business-to-business writers communicating. 

Attracting readers to your blog
Some blogs do a great job of showing how to write copy that captivates readers. When I began blogging I regularly read Brian Clark's Copyblogger and Darren Rowse's ProBlogger. More recently, I've found some good ideas on Nicholas Cardot's SiteSketch. They're worth reading, although I enjoyed them more when their creators wrote more of the content.  


Grammar, punctuation, usage 
When I've got a grammar, punctuation or word usage questions, sometimes I'll just Google it. But I often don't trust the answers I find. This is when I mosey on over to Grammar Girl Mignon Fogarty's Quick & Dirty Tips for Better Writing or the Purdue Online Writing Lab. By the way, remember how I mentioned delivering content the way that readers like to receive it? Fogarty has been podcasting her blog posts for awhile. She's also on Twitter and Facebook. Plus she has published in old-fashioned print book format.  

Onlinestylebooks lets you search 42 style books at once. It's a relatively new site, so I haven't used it much.

For occasional tips, I follow APStylebook on Twitter. They're the folks who officially changed the spelling from "Web site" to "website" earlier this year. As you may have noticed, I was ahead of them in using "website," but I still respect them as a style setter.

Some other tweeps with useful style tips include EditorMark, Copyediting, and LawWriting. There are many more worth following. You'll find them if you're a Twitter devotee. 

Inspiration 
Jon Winokur's Twitter feed, AdviceToWriters, is great for inspiration. I like his book, also called Advice to Writers. 

Humor 
For word geek humor--yes, there is such a thing--follow FakeAPStylebook on Twitter.

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Copyright 2010 by Susan B. Weiner All rights reserved

Small-cap investing opportunities according to Artio's Dedio

"Opportunities in Smallcap Investing" was the title of the presentation that Samuel Dedio, head of US equities for Artio Global Management, delivered to the 2010 annual conference of the Financial Planning Association of Massachusetts. The growth of options trading was his most interesting theme, in my opinion. By the way, if you don't recognize the name Artio Global Management, it was formerly Julius Baer. 

Where the opportunities lie 
Dedio identified opportunities in financials sector, including regional banks, online brokerage companies, and insurance. He figures that "industry consolidation and stimulus spending may potentially benefit this area." 

Industrials and materials stocks will benefit from emerging markets' demand. For example, Dedio likes silver, where supply is not keeping up with demand. Compared with gold, silver has many more industrial applications, yet it trades at a discount to gold.

In healthcare, Dedio likes companies that can help implement cost savings. This means companies in diagnostics, medical technology, pharmaceuticals, and home healthcare providers.

The survivors of the 2009 shakeout in retailers will benefit in 2010. "We expect margins (and earnings) to recover more rapidly than in prior cycles," wrote Dedio in the consumer discretionary section of his handout.

Finally, in technology, Dedio focused on the undervalued importance of semiconductors. 


Options: Why online brokerage may thrive 
Dedio particularly likes online brokerage companies with exposure to options trading as a play on demographics and rising interest in making money through options. 

"The younger generation eats it up," said Dedio, referring to options trading. This is apparently tied to younger investors growing up with computers and to educational efforts by companies such as Think or Swim.

"Don't 85% of options expire worthless?" asked an audience member. That's exactly what makes options a great business, according to Dedio. Investors have to buy more options on an ongoing basis. 

Dedio displayed a graph showing that total monthly equity option trading volume has more than doubled since the year 2000. Monthly trading volume, which was under 100 million until January 2004, has been  200 million--and sometimes exceeded 350 million--during the period January 2008 to September 2009.

Dedio's one concern about options trading is pricing pressure. However, cost cutters are at a disadvantage in the options arena, where education remains critical. Education requires more robust margins than cost cutters manage.
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Copyright 2010 by Susan B. Weiner All rights reserved

Morgan Creek Capital's Yusko on investing

"Alternative Thinking About Investments" was the topic addressed by Mark Yusko, CEO and chief investment officer, Morgan Creek Capital Management, when he spoke at the annual conference of the Financial Planning Association of Massachusetts on May 7. Yusko's wide-ranging talk was provocative and entertaining, with some great one-liners that became tweets that I quote below.


Alternatives deserve more attention

Yusko thinks investors should put more into alternative strategies. A small allocation simply cannot have a big enough impact.

This is a lesson that target date fund (TDF) managers should consider, suggested Ryan Alfred, co-founder and president of BrightScope, in response to my tweet. As he explained,

Going back to Yusko, he also suggested that your clients should have at least one-third of their assets in illiquid investments because such investments "win" after recessions. He's assuming that your clients have plenty of money that they plan to pass on to others in their wills. Yusko didn't specify which illiquid assets he was talking about.


Provocative 
Yusko isn't fond of mainstream media. "Cancel your subscriptions to The Wall Street Journal and The New York Times. It's all wrong, it's all biased." He used the example of the war between Russia and Georgia to make his case, mentioning that Morgan Creek pays someone to read Russian newspapers for them. 

Yusko also spoke in favor of high fees. He seemed to suggest that fees rise along with the investment manager's ability to deliver performance.

Humorous Yusko 
In closing, here is some Yusko humor.

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Copyright 2010 by Susan B. Weiner All rights reserved