MAR 09, 2017 | BY TAYLOR BOYD
For many Americans, Wall Street is perceived as a confusing and mysterious world of fluctuating stock prices, complicated fiscal equations and, most importantly, incredibly high risk.
And why shouldn’t this be so?
After all, portfolio management is not something taught in mainstream scholastic curriculum, and the topic of money and financial matters are often shied away from in the home. After years of working towards a comfortable retirement, many pre-retirees would prefer to avoid investing altogether out of fear of losing their hard-earned retirement dollars. In fact, many Americans have a mutually exclusive view of risk: Either it’s invested and risky or in cash and safe. There are, however, many varying scenarios, and a properly diversified portfolio can focus on mitigating risk and increasing return.
When evaluating whether to invest or avoid the markets, most people — and the markets themselves — are subconsciously driven primarily by two emotions: fear and greed. When investors compete to buy a possibly scarce resource such as a specific market commodity, prices rise sharply with greed in control. On the other hand, when fear is the dominant force due to uncertainty over future outcomes, people cash out in haste or stop investing altogether, which causes markets to dive and crash. This all-or-nothing attitude almost makes Wall Street feel like a giant gambling casino, where one can win big or lose big, without any possibilities in between. But what about winning small? Or medium? With a much broader spectrum of winning and losing, every investor would do well to focus instead on developing a portfolio where the potential volatility is within an accepted comfort range. This minimizes the chance — through any market cycle — of becoming anxious and going to cash, which over the long-term reduces the probability of meeting retirement goals.
For a financial advisor, evaluating the client’s tolerance for risk is one of the first hurdles to clear when strategizing a financial plan for any portfolio. Higher risks yield higher returns but carry the weight of potential high losses, while low-risk investing offers less return but invariably more peace of mind. The volatility of a portfolio can be measured using standard deviation, or the measure of dispersion of a set of data points from its mean. For example, a volatile small cap stock may have a high standard deviation, while the deviation of a stable large company stock is generally lower.
Here are a few tips to consider:
The bottom line is that no one needs to go at it alone. Particularly for investors who don’t have the time, energy or desire, or don’t feel that they can keep their emotions out of the decision-making process, hiring a professional will help them navigate their financial future — and stay sane. It’s important to review an advisor’s background and credentials and request a list of references, all of which will help with the due-diligence process. It’s also essential to feel comfortable sharing thoughts and concerns and, above all, enjoy the process. Investing for retirement doesn’t have to feel as if it’s a game of chance, like the spin of the roulette wheel or the roll of a dice. It should be well thought out, organized and calculated, with the estimated cost of retirement at the core. By identifying long-term income needs based on an intended lifestyle, an experienced advisor can help anyone at any level develop a sound investment strategy that is realistic and on target to land on the right numbers.
*Past performance does not guarantee future results.
In yesterday's newsletter, CEO of Americans for Annuity Protection, Kim O'Brien states:
"As you undoubtedly know, on Friday it was widely reported from a circulated draft of a memorandum the White House intended to submit to the Secretary of Labor pushing back the April 10 implementation deadline by 180 days (See Section 1 (c)). We cautioned it was a "draft and could change" which was prescient because IT DID! No sooner had reporters' fingers finally stopped typing with dozens of articles posted announcing the delay, then we receive word from our inside sources that the final memorandum DID NOT include the delay language...." Read more below
“Congress gave the DOL broad discretion to protect investors”, according to Judge Barbara M.G. Lynn who ruled in favor of the Labor Department on Wednesday.
Lynn had promised a ruling by Friday. The nine plaintiffs, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute, sued the DOL over its fiduciary rule in a Texas court.
The nine plaintiffs in the Texas case are represented by former Labor Department solicitor Eugene Scalia, who’s now a partner in Gibson, Dunn & Crutcher’s Washington office and a son of deceased Supreme Court Justice Antonin Scalia The risks of committing a prohibited transaction could be significant, and may include litigation, audits from the DOL and Internal.
In a joint statement, the co-plaintiffs stated: "We continue to believe that the Department of Labor exceeded its authority, and we will pursue all of our available options to see that this rule is rescinded." President Donald Trump's recent directive to the Department to review the rule, is "reflecting well-founded, ongoing and significant concerns about the rule, is a welcome development.”
The American Council of Life Insurers also released a statement about the decision. Executive Vice President and General Counsel Gary Hughes said the ACLI is, "disappointed with the decision from the U.S. District Court, Northern District of Texas on our joint legal challenge with the National Association of Insurance and Financial Advisors (NAIFA) to the U.S. Department of Labor’s fiduciary regulation
Lynn states in her ruling: "In contrast to the situations in the cases cited by Plaintiffs, in [the Employee Retirement Income Security Act] Congress did speak clearly, and assigned the DOL the power to regulate a significant portion of the American economy, which the DOL has done since the statute was enacted."
Congress, Lynn said, "gave the DOL broad discretion to use its expertise and to weigh policy concerns when deciding how best to protect retirement investors from conflicted transactions."
Lynn’s opinion “is a complete vindication of [former Labor Secretary] Tom Perez, Phyllis Borzi, and the rest of Obama’s Department of Labor,” said Tom Clark, of counsel with The Wagner Law Group, in a comment Wednesday.
“Even with the attempt to find a favorable venue in the Northern District of Texas, every district court to address these issues [has] now ruled in favor of positions taken by the previous administration. That being said, the current administration and the Department of Labor still have the ability to seek a stay in the applicability of the rule and to ultimately modify or repeal the rule,” Clark pointed out.
While Lynn’s ruling “might make that task harder and more politically distasteful, the new Department of Labor under Trump is still in the driver’s seat. However, I think it is fair to expect that opinions such as this one will embolden supporters of the fiduciary rule who will ultimately seek to challenge the new Department of Labor in court. It seems the situation will get messier before the industry has reliable clarity.”
Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles, agreed that even with Lynn’s ruling, “It is still possible that the Trump DOL will take a different political position and delay and modify or delay and kill the fiduciary rule. But, this is one less reason that they can use for that purpose.”
So, where are we? According to Reish, “We are still waiting to see if the DOL will delay the applicability date of the fiduciary rule. Once that happens, the next steps will unfold. I suspect that we will be watching this in slow motion for at least another year.”
Dear Annuity Broker,
We've been patiently and quietly following all of the news regarding the DOL Rule that is supposed to start April 10th. After weeks of seeing people counting down the days to the start date and trying to convince you to join them because they have applied for a "fiduciary status" we can't justify letting the "fear mongering" go on unanswered any longer. Therefore we have committed to providing you with a source of information that you can both trust and use to maintain your status as an"independent" broker.
DOL Fiduciary Update
HOW WILL THE RULE IMPACT INDEPENDENT BROKERS?
Most of us got in the sale of financial services products as a Career Captive Life Insurance Agent or Stockbroker. Either way, it didn’t take long to figure out that there was an independent system out there that offered more products, better service and higher compensation. If you are selling annuities and that is a large part of your business, the DOL Fiduciary Rule has brought out opportunists, large IMO/FMOs that want to make you captive again and take away your independence.
BE PATIENT…Don’t fall for the “FEAR’ tactics that many of these organizations are using to get you to sign up with their organizations. BE SMART…… Don’t lose your independence, once you sign up with one of them to place your Annuity business, they will require you to place ALL your other business with them as well…there goes your independence.
Because there is too much up in the air, our recommendation is that it is business as usual for now. Why are we telling you to be patient? Here's why:
• The 18 organizations that applied for Financial Institution (FI) status have been put on hold because the DOL does not have confidence those organizations can provide the oversight and supervision under the rule.
• The DOL realized they did not understand Independent Distribution and are now defining what will be “exemptions” that have yet to be published at this late date.
• President-Elect Trump has said that he would repeal laws that “overregulated” the financial services industry, such as Dodd-Frank and others, including the DOL Fiduciary Rule.
• Lawsuits are either pending or appealed in Washington DC, Dallas and Kansas City. While some of these cases have been heard, the outcomes are uncertain based on appeal.
• President-Elect Trump took office January 10, 2017, and the DOL Rule could be repealed, de-funded or changed substantially.
• Nothing happens until April 10, 2017. WHAT’S THE RUSH???
These IMO/FMO’s took a bet that Trump would lose. They made an investment to use the DOL Fiduciary Rule to make you captive again. Now they are losing money and need you to sign up with them. The next time one of these people calls you or solicits you to move your license under their hierarchy, remember how important it is to maintain your independence. Ask them if they will require you to do ALL your business through their contracts. If the answer is YES, politely tell them NO THANKS.
AMC Life Marketing and NBAgency, our national marketing group, have a solution for you as we approach April that allows you to remain independent. But don’t let this be a distraction. BE PATIENT, and write as much business as you can until we all know what is going to happen with the DOL Fiduciary Rule. Your family depends on you.