Don't Be Controlled By The Calendar
As Tax Day approaches, we are reminded of the power of the
calendar.
April 15 is a date all responsible citizens are required to
respect. However, all too often, wealth advisors
become slaves to the calendar and allow vital elements of their business to be
ruled by it.
It’s a question worth examining because there’s no real
reason for it.
In truth, the calendar is a convenient organizing principle,
but it is in no way the optimal one for taking care of wealth management
clients in the 21st century.
Three Areas Where the
Calendar Currently Rules
Through their investment consulting, wealth advisors add
value for clients in three ways. All of these have been under the thumb of the
calendar.
The first is rebalancing a client’s investment portfolio.
Most wealth advisors wait until the end of the year. That’s the way it’s always
been done. However, some do take up the task more frequently, usually at
quarter-end.
With the recent volatility in the markets , intra-quarter
portfolio rebalancing driven by a rules based system based on the client’s IPS
is a better approach. Why should clients have to wait for the calendar to
initiate something that should be done when it’s needed?
The second area dictated by the calendar is tax-loss
harvesting. This also has been a year-end ritual. However, one of the best
wealth managers we know has been implementing tax loss harvesting throughout
the year – whenever the opportunity
presents itself. That’s absolutely the right approach. It’s also proven very
successful for his clients.
The third area where the calendar has disproportionate
influence is in selecting money managers based on 3, 5, 7 or 10-year investment
performance.
Recently, five-year
manager performance has caused a buzz because the negative returns from the financial
crisis are now rolling off. It’s a new day for investment managers who were
hammered by the events of March 2008.
Relying on any calendar time frame for picking managers is particularly
perilous. A manager can go from a poor performer to a top performer in just one
day. We all know that’s not right, but
those are the vagaries of the calendar.
In fact, money manager diligence should be more qualitative
than quantitative. Qualitative due diligence needs to be an operational core
competency of a wealth management firm – one that never ceases.
The Breakaway
Calendar
The calendar has also controlled when breakaway brokers move
from wirehouse to wirehouse. Historically, wirehouse brokers would move on a
three-day weekend, which offers the maximize time to get organized and inform
clients.
That may soon change.
The Wealth Consigliere
believes that FINRA’s
recent recommendation that brokers disclose the recruiting checks they
receive when switching firms is likely to slow down the movement between Wall
Street firms. The SEC will almost certainly make FINRA’s recommendation the law
of the land.
* * *
There’s an old saying that a stock doesn’t know you own it.
That might be expanded to say the calendar doesn’t know anything about wealth
management.
But you do.
Reminder - pay your taxes.
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