We Are Here for You: EK-FF Response to Coronavirus and COVID-19
I don’t know if you’ve noticed, but the market’s been a bit bumpy lately, so I decided to send out my NewsLetter early to give you something to read other than financial pornography designed to scare the begeebies out of you.
FROM MY FRIEND ALEX
NICE TO SEE
Forbes catching up with the news. The headline of the article was “The Stunning Problem with the 4% Retirement Income Rule in One Chart.” The point of the article was that relying on average long-term returns (such as four percent) can be dangerous given that the timing of returns (known as “sequence of withdrawal”) can drastically change the long-term outcome. Well, that’s not a surprise; in fact, it was the whole point of my friend Bill Bengan’s classic article “Determining Withdrawal Rates Using Historical Data,” published in October 1994! Not bad. It only took 26 years for Forbes to discover this.
“Hedge Fund Outflows Neared $100 Billion in 2019, Most Since 2016,” Melissa Karsh Bookmark, January 23, 2020, 2:42 AM; January 23, 2020, 4:54 PM (Bloomberg) — Hedge funds suffered almost $98 billion in net outflows in 2019, the most in three years, as managers trailed the stock market rally.
According to the IRS, the periods of limitations that apply to income tax returns are as follows:
Keep records for three years if situations (4), (5), and (6) below do not apply to you.
Keep records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
Keep records for seven years if you file a claim for a loss from worthless securities or bad debt deduction.
Keep records for six years if you do not report income that you should report, and it is more than 25 percent of the gross income shown on your return.
Keep records indefinitely if you do not file a return.
Keep records indefinitely if you file a fraudulent return. [my favorite]
Keep employment tax records for at least four years after the date that the tax becomes due or is paid, whichever is later.
FOR MY GOLFER FRIENDS
MORE ON GURUS
From my friend, Larry Swedroe’s contribution to Advisor Perspective. Larry is one of the most thoughtful and insightful practitioners I’ve had the privilege of knowing and Advisor Perspective is the Rolls Royce of professional publications.
“There’s a large body of evidence demonstrating that stock market forecasts have no value (though they supply plenty of fodder for my writings) because their accuracy is no better than one would randomly expect. For example, David Bailey, Jonathan Borwein, Amir Salehipour, and Marcos López de Prado, authors of the March 2017 study, Evaluation and Ranking of Market Forecasters, covering 6,627 market forecasts (specifically for the S&P 500 Index) made by 68 forecasters who employed technical, fundamental and sentiment indicators, and the period 1998 through 2012, found:
Across all forecasts, accuracy was 48% – worse than the proverbial flip of a coin.
Two-thirds of forecasters had accuracy scores below 50%.
About 40% of forecasters had an accuracy score between 40% and 50%.
About 3% of forecasters fell in the left tail, with accuracy scores below 20%.
About 6% of forecasters fell in the far right tail, with accuracy scores between 70% and 79%.
The highest accuracy score was 78% and the lowest was 17%.
The distribution of forecasting accuracy by the gurus examined in the study looks very much like the common bell curve –what you would expect from random processes. That makes it very difficult to tell if any skill is present.
Evidence such as this led Warren Buffett to state, ‘We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.’ Remarking on the value of forecasts, Wall Street Journal columnist Jason Zweig stated ‘Whenever some analyst seems to know what he’s talking about, remember that pigs will fly before he’ll ever release a full list of his past forecasts, including the bloopers.’”
NATURE AT HER MOST UNIQUE
From my nephew, Ken
WHY YOU MIGHT WANT TO HAVE YOUR ADVISOR SIGN THE “OATH” (IT’S AT THE END OF THE NEWSLETTER)
FINRA SOCKS MERRILL, RAYMOND JAMES FOR $12 M
FINRA Orders Merrill Lynch, Pierce, Fenner & Smith Inc., Raymond James & Associates, Inc., and Raymond James Financial Services, Inc. to Pay More Than $12 Million in Restitution to Customers for Supervisory Failures Involving 529 Plan Share Classes
“The Office of the Comptroller of the Currency has banned Wells Fargo’s former CEO from the industry and fined him and six other executives in connection with the bogus account scandal at the company’s retail bank, according to news reports….
Stumpf had resigned from the firm in October 2016 following revelations that thousands of its employees opened millions of fake debit and credit accounts with customers’ knowledge. The $185 million fine Wells Fargo paid that year was only the beginning of regulatory scrutiny that has since extended to most of the company’s business divisions, including its wealth management unit.”
$100 BILLION UP FOR GRABS
According to Barron’s, “There’s Nearly $100 Billion in Missing Money, and It’s Easier Than Ever to Claim. Here’s How.” The story links to websites used to search for unclaimed funds.
I just got $119 back!
The CNBC headline sounds pretty positive, but I see a different story.
I read that 59% of Americans could not cover a $1,000 emergency with savings. When I add to that a Bankrate survey that found the average unexpected expense was $3,500 and that last year 28% of people experienced a financial emergency, the news is pretty depressing.
SMART NOT BRILLIANT
Asset allocation works
From JP Morgan’s always excellent Guide to the Markets (12/31/2019)
SOME AMAZING PICTURES
From my friend Judy
FOOD FOR THOUGHT
Also, from JP Morgan’s Guide to the Markets (12/31/2019):
A very thoughtful piece my friend Katharina shared with me:
Not enough credit is given to the painful process of saying goodbye to stuff, be it papers, letters, a childhood toy, a broken lamp I intended to fix, a hooked rug I never finished, a dress I will never fit into. All so very painful.
I am not a hoarder or an avid collector; I pity those who are. I don’t allow stops at garage sales and I have strict rules about shopping, one piece in — one piece out. This does not, however, exempt me from the constant struggle of saying goodbye to stuff.
And where does my stuff come from? It seems to seep in through cracks, fly in through open windows and leap to a hiding place when I open the door to walk the dog. Despite my resolve, I still pick up a bargain, find a treasure, and optimistically hope to return a discarded object to its former glory.
The mail is also a culprit. At one time it brought the anticipation of personal correspondence. Now mail brings only requests for money and opportunities to spend. I am not immune to the solicitations. I put requests from charities on my desk to study, I lay catalogs near my chair to peruse. These, of course, will all need to be dealt with at a later date. Ah, that later date. M
ost of my friends are downsizing and going through the anguish of sorting and discarding. I scoff at their bag of mildewed children’s books, but don’t you dare suggest I toss the stuffed animal resembling my first dog.
When the necessity to say good-bye arises, I may ask myself if I will need it in the future, which family members I should give it to when I die, or when I will finish the project. The difficult questions are, when was the last time I used it, will my family members want it, will I ever finish it, whether it is a book, a craft, or a project. It all comes down to giving up dreams: the dream that I would use it, pass it down to the next generation, or complete it. Every object we say good-bye to is saying good-bye to a dream. No wonder it is such a painful process.
From Dominic Chu on Twitter
HERE’S THE ORIGINAL
From Ron Lieber’s most excellent article
SOME FUN STUFF
From my friend Peter
CREATIVE PHOTOS F
From my friend Peter
More from Larry. For many years he’s been compiling a list of predictions that so-called “gurus” had made for the upcoming year, along with some items he heard frequently from investors, for a consensus on the year’s “sure things.”
Here is how he ended 2019 with respect to the eight sure things he was tracking:
Our final 2019 score comes to four winners and four losers, a net score of 0. Here’s the historical evidence on my list of sure things. As you can see, only about one third turned out to be true. Apparently, sure things are not so sure. Keep this in mind the next time you are tempted to react to some forecast, either yours or anyone else’s.
MORE REASONS YOU SHOULD HAVE YOUR ADVISOR SIGN THE FIDUCIARY OATH
NICE ROUND NUMBER
From USA Today
CLIENT LOAN PRESSURES AT MERRILL MADE THIS FA JUMP SHIP
From Financial Advisor
“Jonathan Trusty says he and his FA team fled Merrill Lynch to escape the pressure they felt to shore up client loans if they wanted to maintain their prior year’s compensation levels. Trusty and his team — along with the $200 million in client assets at his Nashville, Tenn.-based firm, Southern Oak Wealth Group — moved to the Sanctuary Wealth RIA network in June last year.
At Merrill Lynch, members of Trusty’s team could qualify for the team’s top earners’ payout rates if 30% of their clients had loans — such as home equity loans, cash-out mortgage refinancing or margin borrowing — according to the compensation plan. Bolstering clients’ loans was not the only route for team members to win those higher grid rates, however.
“We did not feel a fiduciary partnership [with Merrill Lynch] when we were basically driven to do things that we didn’t feel comfortable doing,” Jonathan Trusty, Sanctuary Wealth Partners
Alternatively, the FAs could get the same payout result if at least 30% of their clients had taken out those loans or used the bank’s trust services or bought certain types of insurance coverage, Trusty says.
Under Merrill Lynch’s 2020 pay formulas, an FA’s primary compensation is based on a productivity grid that largely depends on the income produced for the firm and parent bank. That individual productivity grid is product-neutral.
There’s also a 2020 team grid that can boost an individual FA’s compensation. The FA receives an additional payout level based on the team’s highest producer.
The FA may become eligible for the team grid boost by voluntarily pursuing incentive goals, which include, as one option, having a pre-set minimum percentage of clients take out loans. At the same time, they must meet other metrics to receive the team grid boost — including adding to their professional accreditations and increasing their clients’ engagement with other Bank of America services.
If FAs do seek to meet the client lending goals, borrowing by multiple generations of their clients’ families helps the FAs meet the pre-set minimum.
A spokeswoman for the wirehouse says “an advisor and team’s growth goals are completely product agnostic and have been designed to encourage advisors to meet more of their clients’ needs.”
A ‘shitty’ loan
But during Trusty’s time at Merrill, his team perceived the loans as the only viable way for advisors at the earlier stages of their careers — who typically had clients who didn’t need insurance products or trust services — to achieve those results, he says.
Trusty says he and his team of FAs had an unenviable choice, which was, as he described it: either accept that some members would get a lower payout rate or get more of their clients to borrow. That would have likely meant helping clients take out margin loans, Trusty says.
“It’s a shitty loan,” Trusty says about the margin loans.
His team members approached Merrill Lynch’s management about what they characterized as a problem. After getting no answer for three months, the answer they finally got from management provided them with no relief, according to Trusty.
“We did not feel a fiduciary partnership when we were basically driven to do things that we didn’t feel comfortable doing,” Trusty says.”
At what investors can learn in one day.
Wall Street Journal March 4th
“The S&P 500 rose more than four percent, bouncing back after a steep drop as investors reacted to Joe Biden’s strong Super Tuesday showing.”
Wall Street Journal March 5th
“Stocks plunged more than three percent as investors predicted the economic damage from the coronavirus could be much worse than initially expected.”
No wonder I refer to this as financial pornography
AN ASTUTE OBSERVATION
By Bill Winterberg on Twitter
Monday: I’m a market-timing genius!
Tuesday: I’ve made a huge mistake.
Wednesday: I’m a market-timing genius!
Thursday: I’ve made a huge mistake.
VERY COOL. HOW DOES HE DO IT?
From my friend Peter
And a last-minute addition from Natalie
Yes! Very cool! It reminds me of the TV show “The Carbonaro Effect”
Hope you enjoyed this issue, and I look forward to “seeing” you again
Evensky & Katz / Foldes Financial Wealth Management
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