Working Together Professional Financial Advice by lq9323

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									Working Together: Professional Financial Advice
John J. De Goey, CFP Senior Financial Advisor Burgeonvest Securities Limited

STANDUP for Professionalism

STANDUP for Professionalism

S.T.A.N.D.U.P.
Scientific Testing and Necessary Disclosure

Underpin Professionalism

STANDUP for Professionalism

Becoming a Profession
• Change has been slow • Everyone has a role to play • Consumers can help by rewarding STANDUP Advisors with their business

STANDUP for Professionalism

“The great enemy of the truth is not the lie- deliberate, contrived and dishonest- but the mythpersistent, persuasive and unrealistic.”
-John Fitzgerald Kennedy

STANDUP for Professionalism

CSC is Incomplete
• In my opinion, course text is incomplete regarding market efficiency education. It presumes that fundamental and technical analysis add value without balanced reference to market efficiency theory. • What about creationism vs. evolution? Teach both and advocate neither. • Content needs to be fair and to be “seen to be fair”.

STANDUP for Professionalism

Speaking of “Truth”…
• The subtitle of my book is “How the Financial Services Industry Hides the Ugly Truth” • Believe there are parallels to Al Gore‟s book and movie “An Inconvenient Truth” • Evidence and (lack of) disclosure go hand in handglobal warming, cigarettes, active management…

STANDUP for Professionalism

What does Paul Samuelson say?
“Ten thousand money managers all look equally good or bad. Each expects to do 3% better than the mob. Each has put together a convincing story. After the fact, hardly 10 out of 10,000 perform in a way that convinces an experienced student of inductive evidence that a long-term edge over indexing is likely”. Samuelson won the Nobel Prize in Economics in 1970

STANDUP for Professionalism

What does Ben Graham say?
Shortly before his death in 1976, Mr. Graham said:

“I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago when the (Security Analysis by) Graham and Dodd was first published; but the situation has changed… (Today) I doubt whether such extensive efforts will generate sufficiently superior selections to justify their cost…. I‟m on the side of the „efficient‟ school of thought”.

STANDUP for Professionalism

Cost Matters
If I could show you how to save between $100,000 and $500,000 in costs over the course of your lifetime and all you would have to do is use cheaper products while applying Nobel Prize winning research, is that something that would interest you? John Bogle says: “You get what you don’t pay for”

STANDUP for Professionalism

STANDUP for Professionalism

Jellybeans, Poker and Jeopardy!
• Are you an above average driver?
• Overconfidence is a major investment challenge- as are loss aversion, tax optimization, proper estate planning, hindsight bias…

STANDUP for Professionalism

Does Active Management Add Value?
• Maybe; maybe not. What‟s the difference…? • Better performance is often realized by taking more risk- there‟s no “free lunch” • Most active managers lag their benchmarks in the long run- and those that don‟t can‟t be reliably identified in advance • Is it prudent and professional to advise consumers to frequent casinos?

STANDUP for Professionalism

Embedded Compensation
• Aim for no conflict caused by compensation, so that it aligns interests between advisors and clients
• Unbundling pays the advisor to do nothing when nothing is the right thing to do (!) • Consistent with the paradigm of professionalism • Transparent and “up front”

STANDUP for Professionalism

Professionalism Achieved By:
• Using both Passive and Active Products (client choice) • Getting sign off on an IPS based on a purposeful questionnaire

• Charging the client a direct fee- and disclosing it in writing beforehand
• Documenting the terms of the engagement

STANDUP for Professionalism

What do people want and need… and what works?
• • • • • • • A relationship with a qualified professional Reasonable Costs- better “value proposition” Potentially Deductibility- 20 (1) (bb) of ITA Real Customization- not boilerplate solutions To be rid of Conflicts- truly independent advice Greater Tax Efficiency Process; not Product

STANDUP for Professionalism

Necessary Disclosure
• Letter of Engagement is required for all CFPs • Compensation Disclosure is a best practice • Investment Philosophy Disclosure is a best practice • Investment Policy Statement usage is a best practice

STANDUP for Professionalism

Letter of Engagement
• The obligations of both the client and the advisor • What will be done- services, meeting frequency, etc. • Some advisors use a binder to promote process and comprehensiveness and to improve organization/ record keeping • Confidentiality

STANDUP for Professionalism

Compensation Disclosure
• What are fees if using fees? • What are commissions if earning commissions? • Trailers are commissions

STANDUP for Professionalism

Investment Philosophy
• Value or growth; small or large? • Percentage of equity vs. income • Active trading or buy and hold? • Security selection or asset class investing? • Degree of (in)efficiency • Choice or obligation? STANDUP for Professionalism

Investment Policy Statement
• Based on a questionnaire • Asset classes to be used • Asset allocation (normal weightings) • KYC objectives- time horizon, growth, income or security • Sign off with annual review

STANDUP for Professionalism

Three Things to Look For
• Education- CFP (or other) • Ethics- Letter of Engagement, Compensation Disclosure, etc.

• Execution- How does advisor do business? Consistency, Congruency, Chemistry

STANDUP for Professionalism

“It is difficult to get a man to understand something when his salary depends on his NOT understanding it.”
-Upton Sinclair

STANDUP for Professionalism

It‟s never the wrong time to do the right thing!
• Accountability is a two way street • Ask more questions- help your advisor to help you • If you are compelled by a professional paradigm, ask your advisor how you can work together more effectively • www.burgeonvest.com, www.johndegoey.com

• STANDUP for Professionalism!

STANDUP for Professionalism

Disclaimer
• The views expressed are those of John DeGoey and are not necessarily shared by Burgeonvest Securities Limited. Debate regarding Market Efficiency, Fundamental and Technical Analysis, Active versus Passive Management and the Efficiency of Fee Payments is ongoing. To-date, no side of these debates has been able to claim an unchallenged victory.

STANDUP for Professionalism


								
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