Working Together by rt3463df


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

      STANDUP for Professionalism
STANDUP for Professionalism
   Scientific Testing and

   Necessary Disclosure

 Underpin Professionalism

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     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 myth-
  persistent, persuasive and
                           -John Fitzgerald Kennedy

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            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”.

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         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 hand-
  global warming, cigarettes, active management…

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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

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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”.

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                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”

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         Jellybeans, Poker and
• Are you an above average driver?

• Overconfidence is a major investment challenge- as are
  loss aversion, tax optimization, proper estate planning,
  hindsight bias…

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  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?

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    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”

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   Professionalism Achieved By:
• Using both Passive and Active Products (client choice)

• Getting sign off on an IPS based on a purposeful

• Charging the client a direct fee- and disclosing it in
  writing beforehand

• Documenting the terms of the engagement

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       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

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         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

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          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

• Confidentiality

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      Compensation Disclosure
• What are fees if using fees?

• What are commissions if earning commissions?

• Trailers are commissions

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         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?

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   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

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      Three Things to Look For
• Education- CFP (or other)

• Ethics- Letter of Engagement, Compensation Disclosure,

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

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

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  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


• STANDUP for Professionalism!

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• 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.

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