Archive for the ‘Uncategorized’ Category

I’m no fan of binding arbitration in the securities industry or elsewhere. It’s unfair to consumers and subverts the judicial process, which is a foundation of the constitution.

Unfortunately, it is a reality, though the situation has been improving somewhat over the past several years. Another sign of movement within the status quo to at least provide more of an appearance of fairness may be in the works.

Investment News reported yesterday that FINRA may decide to tighten standards around who can serve as a “public” arbitrator in a securities case. This is a move in the right direction, because a public arbitrator is supposed to be someone who is independent without an agenda or bias towards either party in a securities case.

Currently, former securities industry attorneys, brokers and others who have been affiliated with the industry can serve as arbitrators, it illustrates just how broken the system is. Pending a favorable outcome on the FINRA vote tomorrow, this system will get a bit more fair.

I’m hopefully, perhaps naively so, that the SEC may take steps to strike down or severely restrict the use of binding arbitration in securities disputes and allow Americans to access the justice system to pursue claims against the brokerage industry. That’s ultimately the only just forum to hear disputes between some of the world’s largest financial services corporations and others and consumers.

It could actually serve to level the playing field, and give consumers a chance to be heard and receive some justice. Stay tuned…

In the financial advisory industry, there is a push towards advisors identifying their ideal client type. It makes sense, because it is a vital part of branding and helps a firm define itself versus the competition and figure out what types of clients the advisors can best serve.

Unfortunately, the answer can all too easy default to the lowest common denominator: rich people. Hey, who doesn’t want rich people as clients? I don’t think there are many financial advisors — or any business owners, in fact — who would object to having rich people as clients.

Seriously, there are several problems with casting a net that wide:

  • Too broad: Rich people are a huge group and by trying to be everything to everybody, it is more likely your firm will end up representing nothing to anyone.
  • Too unfocused: Related to the above point, when your marketing and branding efforts lack focus, they are more apt to fail because there is no way to know what types of messages through which specific platforms will most appeal to your audience.
  • Too slippery: Even it was a legitimate ideal client type, who exactly are rich people? People with net worth over $1 million? 2 million? What about people who make $1 million a year?

So to my point, the more time you spent up front developing your ideas about an ideal client type, the more productive your marketing, client acquisition and client retention efforts will be on an ongoing basis.

What I suggest to advisors who I work with is that they spend some time not only analyzing their current client base demographically, by AUM, occupation, marital status, etc., but that they also think about the clients that they are most happy to work with. That’s because the clients that your data reveals may not be your ideal client type, they just may be the types of clients that you’ve acquired over the years and who you happen to be working with right now.

This quest isn’t entirely data-driven, though data can certainly play into it. Instead, think about the names on your schedule and which people you are the most happy to see. These may be clients who are a real pleasure to work with or those whose situations and problems you feel bring out your best skills and experience or both.

That’s where to start. It’s a process well worth undertaking because when you figure it out, you can deliberately craft a marketing and client acquisition strategy to find more of these people and, before you know it, you work day may be filled with people who bring out the best in you and who you want to be with, rather than one headache after another.

It’s taken more than six years after the beginning of the last financial crisis for the US to finally implement some of the regulations that became glaringly necessary when the financial system began to implode at that time. The Volcker Rule, along with Dodd-Frank legislation, are a start towards the kind of systemic regulation the financial system here requires to keep it in line.

Unfortunately, the regulations are too limited in scope to keep problems in the U.S. from reaching crisis proportions, let alone spreading overseas. As Gordon Brown points out in an Op-Ed in the New York Times, the lack of regulations to restrain global financial corporations operating overseas and markets in the developed and developing world all but ensures that we will visit Global Financial Crisis 2.0.

I wrote about this more than four years ago for the New York Society of Security Analysts in a piece entitled Mending the Seams: International Regulatory Reform. In the intervening years, a few things have changed, but not much. On a global basis, rules governing everything from systemic risk to derivatives to accounting standards to hedge funds vary widely as does enforcement of those rules.

Even if the rules were consistent, financial services companies can escape regulation by moving certain operations to different jurisdictions. There’s still the propensity of the right hand to have no clue what the left hand is doing, as alleged “rouge” traders engage in mind bogglingly risky behavior.

What is the scariest is the risks that we don’t even know about. The last crisis proved that the lack of foresight into risky activities was endemic, from the ones that seemed, in hindsight to be the most obvious, to other obscure risks that few even comprehended were risky.

If Bank of England economist David Miles is right, the next financial crisis will happen sooner than we think. He predicts one every seven years. It could happen, or not. The system could stumble along for another few years, fueled by loose money and a return to economic growth.

While the developed world and the global economy may be growing at a higher rate, one thing that hasn’t really changed is the lack of global stability. And that’s what’s going to come back to haunt us.

If you’re evaluating your financial advisor based on how your investments have performed during the past year, I have a thought for you. Stop right now.

Don’t! One year’s performance does not a track record make. Of course, it’s a good idea, as today’s Wall Street Journal suggests, to make sure that whatever benchmark you’re using is appropriate. Using a stock benchmark such as the S&P 500 to evaluate the performance of a portfolio that is likely diversified by asset type is a bad idea in the first place.

But the major mistake lies in examining one year’s performance in isolation. When I was a mutual fund columnist for Better Investing Magazine, I advised my readers to go at least five years, if not 10, when evaluating the performance of a mutual fund manager. Admittedly, it’s not as easy to benchmark your advisor’s performance as it is a mutual fund, but it’s certainly possible.

As the Journal suggests, look at a blended index and consider whether the performance of your investments is on track to meet your goals as you’ve constructed them with your advisor’s help. Of course, if the performance of your portfolio consistently lags a blended index and isn’t on track to meet your goals and you don’t feel confident in your advisor, it’s certainly a good idea to have a conversation or series of conversations and even look at other alternatives. That’s just common sense.

Here’s another issue — if you rely on your advisor for more than just investment management, judging his or her value solely based on investment management is another mistake. An advisor worthy of the name will offer many other services to help you manage the full gamut of your financial life, from financial planning to budgeting to retirement planning plus referrals to trusted sources for insurance and estate planning.

Judge the relationship on all of it’s merits and keep the lines of communication open. That’s the best way to evaluate performance on an ongoing basis.

Payday loans invade the workplace

Posted: December 16, 2013 in Uncategorized

Symbolizing two ugly trends in employment and finance, payday loans have invaded the workplace. In an article in today’s Wall Street Journal, Workplace Loans Gain in Popularity, the paper notes that more employers are offering “short-term” loans as a alleged benefit to their employees.

Such benefits carry fees that add up to an annual percentage rate of 100 to 165 percent. That’s a benefit? Give me a break. Usury is more like it.

To add insult to injury, employers who make these these loans available are also, apparently without any irony, offering online personal financial and budgeting tools to help employees. Really?

By calling these payday loans benefits and wrapping them in the mantle of education, employers are doing their employees a grave disservice. They are setting them up to be trapped in a cycle of payday loan hell, instead of doing the right thing, which is to pay them enough so that they don’t have so much trouble making ends meet.

American employers have benefitted greatly from increased productivity and higher profit margins during the past few years. Much of these gains have been at the expense of their workforce, which is losing ground, as wage growth is actually lower than inflation.

For those on the lower end of the employment spectrum, where most of the employees are whose employers are offering these payday loans, there isn’t much hope. When employers add payday loans to their slate of “benefits”, mount food drives for employees and encourage them to apply for public assistance, it’s pretty bad.

One bright spot for employees are the efforts of groups of employees of low-wage employers, such as fast food employees, who are organizing and holding one-day strikes around the country. One example is Fight for 15, a group of Chicago fast food and retail employees, who are fighting for a livable minimum wage of $15 an hour. I applaud their efforts and the efforts of others who are campaigning for wages that will allow people to not only pay their bills, but save for retirement and meet the other hopes embodied in the American Dream, which has become more out of reach for millions the longer the alleged economic recovery goes on.

Indexing run amok

Posted: December 11, 2013 in Uncategorized

Ask John Bogle, founder of the first index fund, what he thinks of the state of indexing today, and he doesn’t mince words — most of the products out there, specifically ETFs, “are not worth the powder to blow them to hell,” according to this article in Financial Planning magazine.

That’s because most ETFs, and many index mutual funds, are so narrowly premised on tiny market niches, that they aren’t index funds in the truest sense of the word, in the spirit of Bogle-inspired index investing. When he created the Vanguard 500 Index Fund in 1975, it was based on the idea that investing in a broad cross section of the market at a low cost would provide investors with returns that would keep pace with the overall market with the potential to out perform the vast majority of actively  managed funds.

In the subsequent decades, hundreds of billions of dollars in assets under management have poured into index funds, which have become the preferred alternative for millions of retail and institutional investors.

I couldn’t agree more with Bogle’s thesis that these new ETFs, which make an overt or covert claim as index type products, are perverting the thesis behind index investing and have the potential to be extremely damaging to the portfolios of individual investors. Investors who are attracted to and invest in these funds likely have very little or no understanding of what they are investing in and even in “normal” market conditions, let alone a financial crisis, could find their portfolios sustaining major losses.

So what’s the answer? As always, buyer beware. There is no shortcut to wealth in the markets. Speculative products, especially those that seem to combine the familiar (indexing) with the exotic (alternative investing) are more likely to provide the opportunity to get poor quickly, rather than the sought after alternative.

I’m not quite ready to throw a party about the unemployment rate dropping to 7 percent because there’s still too much evidence that the decline is driven less by genuinely robust job creation than by more of the long-term unemployed becoming so discouraged that they are dropping out of the employment market altogether. In addition, we’ve experienced such “false dawns” of higher employment and increased growth during the past several years, only to fall back into the overall anemic growth pace that has been characteristic of this recovery.

That being said, the New York Times posted some interesting stats in the Economix blog about the trajectory of employment recovery from financial crises through history, and there’s decent food for thought there. The fact is, recovery from the devastating job losses of the Great Recession is actually ahead of where we might be compared to other historical financial crises.

So, it could be worse — after the Great Depression, it took 10 years for employment to fully recover. Japan employment has yet to recovery from the deflationary spiral that began in 1992. Sweden, Norway, Finland and Spain experienced between 8.5 and 17 years of lagging employment following crises in the 70s, 80s, and 90s.

That’s the good news. The bad news is that millions will continue to suffer as the recovery plods through the decade. Many older and younger workers will likely never make up the wages and lost opportunities that the recession took from them. While female employment has rebounded, employment among men is still lagging, according to CNNMoney.

Finally, on a sobering note, the Brookings Institute estimates that it will take seven more years at the present average rate of job creation to make up for all the jobs lost during the recession. So, if you’re out of a job or underemployed, take heart, because you may be back where you were by 2020.

The successful attempts of big banks to manipulate LIBOR, a key interest rate benchmark, are in the headlines again as the European Union became the latest entity to fine miscreants in this sordid tale. This Wall Street Journal graphic provides a solid overview of allegations and files in this ongoing tale.

At this point, the facts are pretty well known and they aren’t the subject of my post. What I’m more interested in considering is will the fines and headlines make any difference to potential future scams around interest rates and with other financial instruments? And what does it say about our financial system that such headlines have become almost routine, not really prompting much outrage?

You can probably see where I’m going. First of all, I don’t think the fines are going to make any difference in terms of deterring future bad behavior. For the largest financial institutions, it seems to me that these fines have just become another cost of doing business. After all, it’s just money and they make plenty of it. And it’s easy enough for top brass to blame rouge employees, traders or whomever rather than take responsibility for the imbedded cultural attitudes that make this type of behavior the norm in just another day at the office. Their reputations aren’t great anyway, and it’s just another black mark that will be quickly forgotten as the news cycle moves on to the next Miley Cyrus video.

Secondly, I see this behavior as more typical than not of our financial system. As the most recent financial crisis showed, governments are willing to do just about everything and anything to keep the financial system up and running, even when it is demonstrably corrupt. Tough regulations, even when they are actually proposed, end up either being watered down so much that they don’t mean much or enforced with so little vigor that they might as well not be on the books. Financial institutions have been fined for so much bad behavior at this point, everything from this scandal to illegal foreclosures and so forth, that it just doesn’t mean anything.

Onto the next scandal…

American cities are toast

Posted: November 12, 2013 in Uncategorized


From The Wall Street Journal to the Pew Charitable Trusts, pundits are proclaiming what anyone who lives in or near a big city already knows: big cities are in a seemingly irreversible decline, and no one has the will or desire to do that much about it. Detroit, which is messily making it’s way through the municipal bankruptcy process, is just the tip of the iceberg.

The forces that are pushing big cities to the brink of — and into — financial insolvency, aren’t new, but they seem to be accelerating, putting more pressure on cities at a time when fewer resources are available. Here’s an overview:

  • Falling tax revenue
  • Rising pension and benefit costs
  • Cutbacks in state and federal aid
  • Cash flow issues
  • Declining revenue

Detroit was the first domino to fall, and it’s likely that due to the reasons above and others, we’ll see other municipal bankruptcies in coming years.

Cities are on the ropes due to several macro trends, which include:

  • Flight of the affluent and well-educated to the suburbs.
  • Fragmentation of municipal and county government systems in most states, including my home state, Pennsylvania
  • Globalization, which has savaged the industries that once made their homes in cities such as Erie, PA, my home for the past 14 years
  • The 2006-2009 housing bust and financial crisis.

Let’s take a poll. How many of you reading this live within the borders of a major city? Not me — I was unwilling to entrust my children’s education to the mercies of the city school system and squeamish about higher property taxes. I live in the biggest city outside of Erie, PA, Millcreek Township, which is beginning to experience some spillover of the problems endemic to Erie.

Erie isn’t included in the Pew Report because it isn’t big enough, but it’s problems are typical of its larger cousins. As industry drained from the city due to globalization and the suburbs beckoned the more well-to-do, Erie became the home of the poor and the non-profit hospitals, colleges as well fulfilling its role as the seat of city and county government.

The large non-profit organizations, while taking up at least some of the employment slack of the former industries, are by nature exempt from taxes. The city has made deals with a number of them to make payments in lieu of taxes to help offset the costs of fire and police protection, among other municipal services, but those payments fall far short of what a for-profit entity would pay in taxes. I’m sure this is a story that is repeated throughout the country.

Fragmentation of government is a plague in many states. In Pennsylvania, there are countless cities, towns, townships and boroughs. Each one has it’s own set of elected officials, municipal departments, etc. and citizens with their own self-interest. In Erie, although the region’s cultural resources are predominately located in the city, it’s extremely difficult to get other neighboring municipalities to support the Zoo, the Symphony, etc. even though everyone in the greater metro area benefits. This is just one example of how municipal fragmentation hurts cities.

Globalization and the financial crisis have wreaked havoc. Industry has moved offshore and as the housing market has fallen, property tax receipts are in decline. Governmental austerity on the state and federal level has led to cutbacks in aid to cities. And the promises made to municipal workers are increasingly difficult to fulfill and sustain, because cities simply do not have the resources to make good on or extend these promises.

As voters and beneficiaries of the cultural resources of cities, we need to do what we can to stem the decline of our cities before it’s too late. To that end, we need to encourage and actively support efforts at municipal consolidation and press elected officials in our suburbs to do more to fiscally support our ailing neighbors.

The 9 Lives of Content Marketing

Posted: October 26, 2013 in Uncategorized



There are many ways that content marketing is uniquely suited for the age of the internet and the fragmentation of the mass media. It provides anyone interested in building a platform with the means to establish thought leadership in an area of expertise, potentially attracting clients and customers via a wide variety of distribution methods. 

What I find the most appealing facet of content marketing is the leverage it provides — the nine lives, if you will. When you create a piece of content marketing, whether that’s a commentary, white paper, case study, blog, article, video, podcast or whatever, you’ve fashioned content that yields a multiplicity of uses beyond that original piece. A more complex white paper or commentary could have four, five or even nine lives beyond the original, while a blog post might just have two or three.

The exact number of potential uses for original content is only limited by your imagination. For example, a 2,000 word white paper could be rewritten and repurposed in the following ways:  

▪   Blog posts

▪   Videos or podcasts

▪   Slideshows using stock photos

▪   Social media campaigns in LinkedIn, Facebook, Twitter or Pinterest

▪   Email marketing campaign

▪   Newsletter

And that’s just one white paper. If you map out a content marketing strategy around a specific area of thought leadership, you can create a plan for several white papers, articles or commentaries related to each other that can build on a specific service, product or area of expertise your company possesses, and emphasize the unique value proposition that you bring that differentiates you from your competitors. 

Such a strategy, when executed in a disciplined manner, can build on itself and increase hits on your website, the numbers of social media followers, subscribers to your blog and newsletter as well as your search engine rankings. Rome wasn’t built in a day, and it will take time to design, create and execute a leveraged content marketing strategy, especially if you’re starting from scratch, but it’s well worth the effort. 

Content can live forever and by creating content marketing campaigns around specific objectives and areas of thought leadership, that content can be leveraged, crafting lasting marketing that is ultimately bigger than the sum of its parts.