Rank #1: Jeffrey Brown: Saving for Retirement 'Only Half the Puzzle'
Our guest on the podcast today is Dr. Jeffrey Brown, the Josef and Margot Lakonishok Professor and the Dean of the University of Illinois Gies College of Business. A key focus of Dean Brown's research is how to create sustainable retirement income, including the role of annuities, Social Security, 401(k)s, pensions and long-term care planning. He's a research affiliate at the National Bureau of Economic Research, a faculty affiliate of the Institute on Government and Policy Affairs, and a fellow at the TIAA Institute. He also serves as a trustee for TIAA. In addition, he served on the Social Security Advisory Board under President George W. Bush and was also a senior economist at the White House Council of Economic Advisers. He has published extensively on the topic of retirement security and public and private insurance markets, and he has received numerous awards for his research as well. He holds a Ph.D. in economics from MIT, and a master's in public policy from Harvard.
Background
Jeffrey Brown bio
Jeffrey Brown C.V.
Jeffrey Brown publications and working papers
Defined Contribution (DC) Plans
Defined contribution plan definition
Defined benefit plan definition
“A Brief History of the 401(k), Which Changed How Americans Retire,” by Kathleen Elkins, CNBC.com, Jan. 4, 2017.
“The Disappearing Defined Benefit Pension and Its Potential Impact on the Retirement Incomes of Baby Boomers,” by Barbara A. Butrica, Howard M. Iams, Karen E. Smith, and Eric J. Toder, Social Security Bulletin, Vol. 69, No. 3, 2009.
“What Killed Pensions,” by Mary Beth Franklin, Kiplinger, Oct. 6, 2011.
“Public Pensions Are Still Marching to Their Death,” by Jeffrey Dorfman, Forbes.com, Sept. 11, 2014.
“House Passes SECURE Act to Ease 401(k) Compliance, Promote Savings,” by Stephen Miller, SHRM.org, May 23, 2019.
“How the SECURE Act Would Impact Your 401(k),” by Simon Moore, Forbes.com, June 25, 2019.
“Annuities in 401(k)s Won’t Solve the Retirement Crisis. Here’s Why,” by Mary Romano, Barron’s, June 28, 2019.
“What Does It Mean to Annuitize?” by Justin Pritchard, Thebalance.com, Jan. 21, 2019.
“Crash Course Needed: Four Out of Five Americans Fail When Quizzed on How to Make Their Nest Eggs Last,” by The American College for Financial Planning, Dec. 3, 2014.
“401(k) Nudges and Course Corrections,” by Kimberly Blanton, Squared Away blog, Oct. 24, 2017.
“Thank Richard Thaler for Your Retirement Savings,” by Ben Steverman, Bloomberg, Oct. 10, 2017.
“Plan Quality Varies Significantly by Industry,” by John Manganaro, PlanAdviser, March 20, 2017.
“Corporate Profits and 401(k) Plan Performance Go Hand in Hand: T. Rowe Price,” by Michael S. Fischer, ThinkAdvisor, Sept. 17, 2018.
“The Conundrum of State-Run Retirement Plans,” by Terry Dunne, InvestmentNews, May 8, 2017.
“Reasons to Be Wary of State-Run Retirement Plans,” by Jeffrey Brown, Forbes.com, Feb. 10, 2014.
Multiple Employer Plan (MEP) definition
“How Hard Should We Push the Poor to Save for Retirement?” by Andrew G. Biggs, The Journal of Retirement, Spring 2019.
Annuities
“Use Annuities to Protect Yourself from Yourself,” by Jeffrey Brown, Forbes.com, May 22, 2014.
“Income Annuities Provide Retirees Longevity Protection,” by Wade Pfau, Investment News, Sept. 28, 2019.
“Why Don’t People Insure Late-Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle,” by Jeffrey R. Brown, Jeffrey R. Kling, Sendhil Mullainathan, and Marian V. Wrobel, National Bureau of Economic Research, January 2008.
Equity-indexed annuity definition
Deferred payment annuity definition
“The Main Types of Annuities Made Easy,” by Clair Boyte-White, Investopedia, July 27, 2019.
“Annuities and Inflation Risk,” by Robert Bloink and William H. Byrnes, ThinkAdvisor, Sept. 3, 2011.
“Lifetime Income for Women: A Financial Economist’s Perspective,” by David F. Babbel, Wharton Financial Institutions Center Policy Brief, Aug. 12, 2008.
“Jeff Brown Tackles Tough Annuity Questions,” by Michael Finke, ThinkAdvisor, Sept. 29, 2014.
“Annuities and Individual Welfare,” by Thomas Davidoff, Jeffrey Brown, and Peter Diamond, The Center for Retirement Research at Boston College, May 2003.
“Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing,” by Jeffrey R. Brown, Arie Kapteyn, Erzo F.P. Luttmer, Olivia S. Mitchell, and Anya Samek. National Bureau of Economic Research, Oct. 11, 2019.
Intertemporal choice definition
Long-Term Care
“Does Medicare Cover Long-Term Care?” Medicare.com
"Insuring Long-Term Care in the U.S.," by Jeffrey Brown and Amy Finkelstein, National Bureau of Economic Research, September 2011.
“The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market,” by Jeffrey R. Brown and Amy Finkelstein, National Bureau of Economic Research, October 2004.
“Can Increasing The Long-Term Care Insurance Elimination Period Make Coverage Appealing Again?” by Michael Kitces, Nerd’s Eye View, Jan. 7, 2015.
Long-Term Care Financing Project
“Hybrid Long-Term Care Policies,” by Wade Pfau, Forbes.com, Jan. 21, 2016.
“Is the LTC Cost Guarantee of Today's Hybrid Life/LTC or Annuity/LTC Insurance Policies Just a Mirage?” by Michael Kitces, Nerd’s Eye View, Oct. 16, 2013.
“Life-LTC Hybrid Sales Level Off: LIMRA,” by Allison Bell, ThinkAdvisor, July 22, 2019.
Social Security
Social Security Trustees’ Summary Report, 2019.
“How Would You Fix Social Security?” The Center for Retirement Research at Boston College.
“How the Latest Report on Social Security’s Solvency Changes Your Retirement Plan,” by Bob Carlson, Forbes.com, May 24, 2019.
Nov 27 2019
55mins
Rank #2: Charles de Vaulx: Why Value Investing Has Slumped but Will Rebound
Our guest on the podcast this week is Charles de Vaulx. De Vaulx is chief investment officer and portfolio manager at International Value Advisers, where he is also a partner. With his colleague Chuck de Lardemelle, de Vaulx manages the IVA International and IVA Worldwide strategies. Before joining IVA in 2008, de Vaulx had been the portfolio manager of First Eagle Global, First Eagle Overseas, First Eagle U.S. Value, and First Eagle Variable. For his accomplishments, Morningstar has recognized de Vaulx several times in the past, awarding him and his comanager our International-Stock Manager of the Year Award in 2001 and nominating them for the same award in 2006. De Vaulx began his career at Societe Generale Bank as a credit analyst in 1985. He graduated from the Ecole Superieure de Commerce de Rouen and holds the French equivalent of a master's degree in finance.
Background
IVA Worldwide IVWIX
IVA International IVIOX
References
Modern monetary theory (MMT) definition
Herfindahl-Hirschman Index (HHI) definition
Creative destruction definition
A History of Interest Rates, by Sidney Homer and Richard Sylla; 2007
"The Irresistible Charm of the Family Factor," by Credit Suisse, Sept. 27, 2017
"The Superinvestors of Graham-and -Doddsville," by Warren Buffett, Columbia Business School, May 17, 1984
Berkshire Hathaway 2013 shareholder letter, Page 20
Superforecasting: The Art and Science of Prediction, by Philip E. Tetlock and Dan Gardner, 2016
Nov 20 2019
58mins
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Rank #3: The Best of The Long View Podcast: Conversations with Financial Advisors and Retirement Researchers
On this week’s episode of The Long View, we’ll recap some of our favorite moments from the podcast so far.
Since the podcast’s launch in May 2019, we’ve had the chance to talk to some of the best portfolio managers, retirement researchers, and financial planners and advisors in the business. It’s been a treat to spend an hour each week chatting with them, and we’ve learned a great deal from each of the interviews.
Last week’s episode included highlights from our interviews with portfolio managers. This week, we’ll feature some of our favorite clips from interviews with financial planners, advisors, and retirement researchers.
William Bernstein: 'If You've Won the Game, Quit Playing'
Allan Roth: 'I Embrace Dumb Beta'
Josh Brown: 'Standardize the Process, Personalize the Advice'
Carolyn McClanahan: 'There's More to Money Than Just Numbers'
Sheryl Garrett: 'The Industry Thought I Was Nuts'
David Blanchett: 'If You're Retiring Now You're in a Pretty Rough Spot'
Dec 30 2019
31mins
Rank #4: Michael Kitces: The Model Has to Change Again
Our guest on this week's podcast is Michael Kitces. Michael is a partner and the director of wealth management for Pinnacle Advisory Group, a Columbia, Maryland-based wealth management firm that advises on about $1.8 billion of assets. In addition, he is a co-founder of the XY Planning Network. As the host of the Financial Advisor Success podcast and the publisher of the popular financial planning industry blog Nerd's Eye View, Michael has established himself as one of the most prolific and insightful commentators on the financial advice business. A fixture on the speaking circuit and in the media, Michael often addresses key trends and innovations in the way advisors serve their clients; our interview with him focused on the future of the financial advice business.
Show Notes and References
Background and Professional Development
Michael’s formative years: “The only thing I really think I figured out by the end of college was … that I didn’t want to do psychology, theater, or medicine” (0:59-2:51)
- Michael’s bio
- Pinnacle Advisory Group
- XY Planning Network
- Financial Advisor Success podcast
- Nerd’s Eye View blog
Dad’s old life insurance policy: How a wedding gift led Michael down a path to a career in the financial services industry (2:52-4:21)
“He was just a really different guy than everybody else”: Michael’s recounts his breakthrough realization that he wanted to be a financial planner (4:22-6:07) ·
How Michael used his pre-med training to overcome a crisis of confidence that he didn’t know what he was doing: “I probably shouldn’t be giving them advice; I’m going to hurt someone” (6:08-7:31)
Going deep to differentiate: “I’m going to get really good at these annuity benefit riders” (7:32-8:45)
- Leveraging a Mini-Specialization to Gain Experience and Get More Client Referrals” by Michael Kitces (Aug. 16, 2018; Nerd’s Eye View blog)
- Variable universal life insurance—a short explainer
- The Advisor’s Guide to Annuities (5th Edition) by Michael E. Kitces and John L. Olsen
Behavioral Finance in Practice
Where behavioral finance falls short: Practicality (8:46-11:40)
Persuasion: Using psychology and coaching to help clients overcome their biases (11:41-13:01)
- “Why Evolutionary Psychology May Be Better Than Behavioral Finance Research to Understand Financial Behaviors” by Dr. Derek Tharp, lead researcher for Kitces.com (Jan. 16, 2019; Nerd’s Eye View blog)
- Influence: Science and Practice (5th Edition) by Robert Cialdini
- Advice that Sticks by Dr. Moira Somers
“Most of us just don’t want to say that about ourselves”: Clients don’t hire us to save them from themselves, but to get on a better path and save time (13:02-16:37)
- “Do Clients Really Value Getting Help Managing Their Behavior Gap?”; transcript of episode 5 of “Kitces and Carl” video series
“Zoom the camera out a little bit”: The key to helping clients through difficult times is being available, clearly communicating, and setting context (16:38-18:18)
“There’s very little research at all about what you’re actually supposed to do about this stuff” (18:19-19:56)
Financial Advice: Evolution and Great Leaps
“Disturbingly like clockwork”: Technology’s role in propelling financial-advice from stock-brokering to the mutual-fund era to asset-allocation models (19:57-22:14)
- “How May Day Remade Wall Street” by Jason Zweig (May 1, 2015; Wall Street Journal; Total Return Blog)
- “So Easy a Baby Could Do It” E-trade commercial
Computers disrupted the stock-broker model and the internet disrupted the mutual-fund model. Michael on why he thinks software will disrupt the fee-based asset-allocation model (22:15-24:06)
An S&P 500 index fund just for you: “Technology is going to allow us to completely disintermediate not just mutual funds but most of the ETF complex as well” (24:07-25:36)
- “Indexing 2.0: How Declining Transaction Costs and Robo-Indexing Could Disintermediate Index Mutual Funds and ETFs” by Michael Kitces (May 28, 2014; Nerd’s Eye View blog)
- “Global Fund Flows Report” by Morningstar
The Future of Advice
“If we can do that with medicine and we can do this with clothing, we can do this with at least large portion of financial advice as well”: Michael on delivering advice virtually (25:37-30:25)
- “How Video Conferencing Can Put the Face-to-Face (Back) into Distance Financial Planning Client Relationships” by Michael Kitces (July 27, 2015; Nerd’s Eye View blog)
“(Saying) ‘Oh no one’s ever going to want to work with an advisor virtually; it’s all in person’ … is like clothing stores insisting that Amazon was no threat to them 20 years ago” (30:26-32:56)
- “The Future of Financial Planning in the Digital Age,” a presentation by Michael Kitces to FPA Georgia (May 24, 2017)
- “Is Digital Search About to Replace Referrals for Finding a Good Financial Advisor” by Michael Kitces (June 3, 2013; Nerd’s Eye View blog)
Technology leaps like robo-advice are less of a threat to the financial advisor than to the the back- and middle-office that supports them (32:57-33:54)
- “The Advisory Firm Jobs That Robots Really Do Threaten” by Michael Kitces (May 10, 2018; Nerd’s Eye View blog)
The great inversion: In the future, advisors will charge for financial-planning services and give away investment management for free (vs. today where the opposite often holds true) (33:55-35:36)
- “Pricing Models for Financial Adviosrs and the Power of 'Free' Financial Planning” by Michael Kitces (Aug. 10, 2015; Nerd’s Eye View blog)
Best Practices for Delivering and Paying for Advice
“We still have a huge industry gap”: Not even 30% of financial advisors have achieved a baseline financial-planning designation—the CFP mark (35:37-39:20)
- “3 Reasons Why the Financial Advisor Market Size Isn’t Actually Shrinking” by Michael Kitces (Nov. 15, 2018; Nerd’s Eye View blog)
- “The Long Tail, the Big Head, and the Dangerous Middle of Financial Advisory Firms” by Michael Kitces (Aug. 27, 2018; Nerd’s Eye View blog)
- FINRA Series 6 exam
- FINRA Series 63 exam
- FINRA Series 7 exam
- FINRA Series 65 exam
A question of when, not if, more exacting financial-advice standards will arrive: “The U.S. has become a laggard on fiduciary and competency standards” (39:21-43:21)
- Australia’s Financial Adviser Standards and Ethics Authority (FASEA)
- The Fiduciary Standard
- “Is Financial Planning an Industry or a Profession?” by Michael Kitces (Dec. 15, 2016; Nerd’s Eye View blog)
We can’t do financial advice for young people? Michael on why that’s ridiculous and how flat-fee or subscription-based advice will come to fill that void (43:22-46:51)
- “How the Financial Planning Process Differs for Young Clients: Not Simpler, but Different Complexities” by Michael Kitces (Apr. 17, 2019; Nerd’s Eye View blog)
- “Introducing AdvicePay and the Automation of Billing Financial Planning Fees (without Custody)” by Michael Kitces (Jan. 22, 2018; Nerd’s Eye View blog)
- “The New 1% Advisory Fee: 1% of Income, Instead of 1% of Assets” by Michael Kitces (Feb. 11, 2019; Nerd’s Eye View blog)
“I don’t … see anything wrong with the AUM model”: Why charging a percentage of assets-under-advisement makes sense for some clients, but will become less common in the future (46:52-48:56)
- “How to Profitably Price Fee-for-Service Financial Planning” by Alan Moore, co-founder XY Planning Network (May 21, 2018; Nerd’s Eye View blog)
When it does and doesn’t makes sense to pay for financial advice by the hour (48:57:51:47)
- “The Opportunities in Providing Hourly As-Needed Financial Advice for the Middle Market with Sheryl Garrett” by Michael Kitces (Jan. 23, 2018; Financial Advisor Success podcast)
About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.
About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research in Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.
To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com
Jun 05 2019
54mins
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Rank #5: The Best of The Long View Podcast: Conversations with Portfolio Managers
On this week’s episode of The Long View, we recap some of our favorite moments from the podcast so far.
Since the podcast’s launch in May 2019, we’ve had the chance to talk to some of the best portfolio managers, retirement researchers, and financial planners and advisors in the business. It’s been a treat to spend an hour each week chatting with them, and we’ve learned a great deal from each of the interviews.
This week’s episode includes highlights from our interviews with portfolio managers and investment strategists. Next week, we’ll feature some of our favorite clips from interviews with financial planners, advisors, and retirement researchers.
Bill Nygren: 'A Stock That Doesn't Look Cheap on the Surface Might Be One of the Cheapest'
Rob Arnott: Don't Sleep on Value Investing (Especially Emerging-Markets Value)
Rupal Bhansali: FAANG Stocks Are 'Extremely Risky'
Dan Ivascyn: Building a Portfolio to Bend but Not Break
Ben Johnson: Index Funds Are Not 'Zombie Investors'
Dana Emery: You're Not Getting a Valuation Discount for Free
Dennis Lynch: 'Have a Growth Mindset and Be Willing to Learn New Things'
Charles de Vaulx: Why Value Investing Has Slumped but Will Rebound
Dec 23 2019
41mins
Rank #6: Maria Bruno and Joel Dickson: 'Building a Better Retirement'
Our guests for the latest installment of "The Long View," Maria Bruno and Joel Dickson, are both veterans of investment behemoth Vanguard.
Bruno is the head of U.S. wealth planning research at Vanguard, leading a team responsible for conducting research and analysis on a wide range of retirement, wealth planning, and portfolio construction topics. She also contributes to the oversight of the investment philosophy, methodology, and wealth management strategies supporting Vanguard's advisory products and services. Bruno is a Certified Financial Planner, and she's a fount of wisdom on many subjects, but especially retirement planning.
Dickson has worn many hats at Vanguard during his long career there. In his current position as Vanguard's global head of advice methodology, he oversees all investment methodology development for Vanguard's advice programs whose end consumers are individual investors.
The transcript for this podcast can be found here.
Background Information
- Maria Bruno bio
- Joel Dickson bio
- "The Planner and the Geek" podcast series
- Vanguard Research and Commentary Archive
How Retirement Savers Can Play Catch-Up
"It's the 'how much?' But then also how do you actually direct those savings?" (1:30-2:56)
"It's such an idiosyncratic or individual sort of consideration from a planning standpoint; there are plenty of people that have little wealth but high income." Whether traditional tax-deferred accounts are automatically better than Roth for people playing catch-up on retirement savings. (2:57-5:53)
"It's a little bit simpler when you're younger and accumulating." How basic savings and investing habits, combined with plan defaults, make the accumulation period much simpler than decumulation. (5:54-8:24)
'Off-Label Uses': Ways Supersavers Can Maximize Their Investments Aftertax
401(k): What it is and how heavy savers can take advantage of it. (10:41-12:55)
- After-Tax 401(k), Bogleheads Wiki entry
- "Should You Make Aftertax Contributions to Your 401(k)?" Morningstar.com article
- "Aftertax 401(k) vs. Taxable Account? Evaluating Options for High-Income Savers," Morningstar.com article
- "Heavy Savers, Meet the Mega-Backdoor Roth," Morningstar.com article
Backdoor Roth IRA: How it works, who should consider, and potential pitfalls to be aware of. (12:56-16:34)
- "IRA Insights: The Benefits of a Backdoor Roth," Vanguard research
- "Backdoor IRAs: What You Need to Know," Morningstar.com article
"There's more and more focus on minimizing income taxes during one's life than there is about avoiding estate taxes." Using a 529 as an additional tax-advantaged savings vehicle. (16:35-21:26)
- Navigating College Savings episode from The Planner and The Geek podcast
Decumulation
"How do I meet my goals today but then also make sure that I'm protecting myself down the road?" Why setting spending rates can be so tricky. (21:27-24:26)
- "Determining Withdrawal Rates Using Historical Data," research paper by William Bengen
- William Bengen bio
- "How to Put a Dynamic Retirement Spending Strategy in Place," Vanguard research
- "Spending Trends Boost Safe Withdrawal Rate for Retirees," Morningstar.com video
- "The 4 Percent Rule Is Not Safe in a Low-Yield World," research paper by Michael Finke, David Blanchett, and Wade Pfau
"We're telling people to, on average, oversave and underspend." Balancing longevity, sequence risk with spending and quality of life. (24:27-28:35)
- "Is There an Upside to Sequence of Return Risk?" Morningstar.com video
- Exploring the Retirement Consumption Puzzle, research paper by David Blanchett
"At the end of the day you still kind of get to the same end result." How bucket portfolios may not look very different from traditionally allocated retirement portfolios. (28:36-31:30)
"Retirees could be overexposed to equity risk." Whether retirees aren't derisking their portfolios. (31:31-32:41)
- "Best Practices for Portfolio Rebalancing," Vanguard research paper
- "Generations: Key Drivers of Investor Behavior," Vanguard research paper
"The rules of thumb just don't work as well." Why managing taxes during retirement is necessarily an individualized process. (32:42-36:24)
- "Spending from a Portfolio: Implications of Withdrawal Order for Taxable Investors," Vanguard research paper
"Here you're actually looking at strategies that could accelerate income taxes." How the post-retirement/pre-RMD years are a prime time to control future tax bills. (36:25-39:41)
• "An IRA Conversion Sweet Spot," Morningstar.com video
• "Age Is Just a Number: Start Thinking About RMDs Now," Vanguard blog post
• "Strategies for Annual Roth Conversions," Vanguard research
• "But What If I Don't Want My RMD?," Vanguard research
• "What to Do With RMDs You Don't Need," Morningstar.com article
Building Portfolios
"You have human capital risk at the same time you have investment risk." How investors should think holistically about risk when building their portfolios. (39:42-44:37)
- "Vanguard ETF Strategic Model Portfolios," Vanguard research paper
- "Global Equity Investing: The Benefits of Diversification and Sizing Your Allocation," Vanguard research paper
"Focus on the things that you can control." What to do if investment returns are muted in the future. (44:38-46:23)
- "What Fed Projections May Mean for Longer-Term Stock Returns," Vanguard research
- "Vanguard Economic and Market Outlook for 2019: Down but not Out," Vanguard research
- "Experts Forecast Long-Term Stock and Bond Returns: 2019 Edition," Morningstar.com article
ETF Landscape
"Investors that were more likely to trade chose the ETF." Are ETFs being used for long-term investing or trading? (46:24-49:28)
- "ETFs: For the Better or Bettor?," Vanguard research paper
- "Morningstar's 2018 Fee Study Finds That Prices Continue to Decline," Morningstar.com article
"98% of the DNA is the same." Whether the benefits of ETFs relative to traditional index funds been overstated. (49:29-51:27)
- "ETFs Versus Mutual Funds: A Comparison," Vanguard research
- "Traditional Index Fund vs. ETF Cage Match," Morningstar.com article
Vanguard's Personal Advisor Service
"The most important part of the financial planning process is the goal discovery." Why Vanguard's service offers a combination of human and automated advice. (51:28-56:17)
- "Helping Vanguard Personal Advisor Service Clients Understand the Anatomy of Our Methodology," Vanguard research
- The Robo-Advice Market Is Growing, but Changing, InvestmentNews article
About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.
About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research for Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.
To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com
Jul 24 2019
58mins
Rank #7: Josh Brown: 'Standardize the Process, Personalize the Advice'
Our guest on this week's episode of the Long View is none other than Josh Brown, CEO of Ritholtz Wealth Management. Brown's story is unique and inspiring. He began his career as a broker but grew disillusioned with the industry's skewed incentives and practices, eventually pursuing a career as an independent Registered Investment Advisor. Along the way, Brown managed to author an acclaimed book, Backstage Wall Street, and build an enormous following around his blog, "The Reformed Broker," as well as his twitter handle, @reformedbroker. Now he oversees Ritholtz's day-to-day operations in addition to his other duties, which include serving as a regular contributor on CNBC, as a member of fintech firm BrightScope's advisory board, and most recently as a technical advisor on the Showtime hedge fund drama Billions.
Introduction and Background
- Ritholtz Wealth Management
- Josh Brown bio
- The Reformed Broker
- Josh Brown @reformedbroker
- Backstage Wall Street: An Insider’s Guide to Knowing Who to Trust, Who to Run From, and How to Maximize Your Investments by Josh Brown
- BrightScope
- Brown's appearance on Showtime's Billions
Origin Story
"A personal crisis." Josh describes the epiphany he had in leaving the brokerage industry for the advice business after 10 years (1:20-3:41).
"It worked immediately." How the Reformed Broker blog was born and led to a chance meeting with Barry Ritholtz, which gave rise to an RIA (3:42-5:21).
- Barry Ritholtz bio
- Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy by Barry Ritholtz
- "How I Met Barry" by Josh Brown, The Reformed Broker blog
The Advice Business
"If they haven’t figured it out by now, they probably don’t want to." Observations on how the advice business has changed (5:22-7:29).
- "Understanding Mutual Fund Classes" by Finra
- SEC Regulation Best Interest
- Definition of a nontraded REIT
"Brokerages in name only." Why wirehouse clients aren't necessarily being ill-served by the system (7:30-8:09).
- Morgan Stanley First Quarter 2019 Earnings Results
- James P. Gorman, chairman and CEO of Morgan Stanley
Lending: The key difference between a fee-based account at a Wall Street wirehouse and a fee-based account at a traditional RIA (8:10-10:34).
- "The Rise of Rich Man's Subprime" by Josh Brown, Fortune magazine
- Securities-based lending, explained
How to Provide Financial Advice
Telling the client "no." The difference between pushing product and offering advice (10:35-12:16).
- "When Fund Companies Pay to Play, So Do You" by Leslie Norton, Barron's
"It's recreation; it's not a necessity." Helping clients to scratch an itch without putting their financial plans at risk (12:17-14:53).
"Financial planning is the highest calling within our profession." Ensuring clients get past the firm's public persona and truly buy into its plan and approach (14:54-16:46).
An ensemble approach to delivering advice to clients: The anti "eat what you kill." (16:47-18:58).
- Michael Batnick bio
- Michael Batnick's "The Irrelevant Investor" blog
- Ben Carlson bio
- Ben Carlson's "A Wealth of Common Sense" blog
- Blair duQuesnay bio
- Blair duQuesnay's "The Belle Curve" blog
- "Consider Firing Your Male Broker" by Blair duQuesnay, The New York Times op-ed
How to Build an Advice Firm
"Barry and I don't spread out a map like Napoleon and start sticking thumb-tacks in it." How Brown thinks about strategically expanding the firm (19:04-20:45).
"If somebody comes to us in a rush, it's probably a bad situation, and we don't want anything to do with it." The advisor recruitment and weeding-out process (20:46-24:23).
Portfolio Construction and Asset Allocation
"You're going to lose money. It's gonna happen. There's no way around it." The firm's approach to allocating assets and setting client expectations (24:24-27:33).
Tactical asset allocation's role in their process: "We don't believe in investment alpha using tactical." (27:34-29:33)
"What if you had a tactical model that almost never did anything?" How they built their tactical-asset-allocation overlay to help manage client behavior (29:34-33:13).
"I hope it underperforms, because most of our clients' money is not invested in tactical." (33:14-35:03)
"Every client is different, but their needs are not." Implementing a scalable asset allocation (35:04-37:08).
"You want to be wrong in such a way that it's not going to be catastrophic for the end client." How Ritholtz sets capital-markets expectations (37:09-38:41).
Managing Client Assets
How Ritholtz approaches assets that clients bring in with them: "You've got a human being with their own issues." (38:42-40:58)
"The longer I'm doing this, the more stuff I want to take out, not add." Brown explains why they err on the side of excluding various types of investments from client portfolios (40:59-42:33).
"Our clients are here because they want us." Brown says fee pressure hasn't been an issue for the firm (42:34-44:22).
- Wealth/Stack Conference
- Nerd's Eye View blog (Michael Kitces)
The Future of Advice
"You're being judged on the portfolio, you should get paid on the portfolio you recommend." Brown is dubious of clients who aren't willing to pay for advice as a percentage of assets under advisement (44:23-46:50).
- "What People Will Pay For" by Josh Brown, Reformed Broker blog
How a chocolatier's success reinforced the importance of consistency in client interactions: "Standardize the process, personalize the advice." (46:51-50:25)
Jun 26 2019
53mins
Rank #8: Jeff Levine: Cracking the New Retirement Code
Our guest this week is tax and retirement planning expert, Jeffrey Levine. Jeff is director of advisor education at Kitces.com, home of the popular Nerd's Eye View blog. He's also the CEO and director of financial planning for BluePrint Wealth Alliance. Previously, Jeff served as chief retirement strategist at Ed Slott and Company. He has authored several books including, The Baby Boomer's Guide to Savvy IRA Planning, The Financial Advisor's Guide to Savvy IRA Planning, and The Definitive Guide to Required Minimum Distributions for Baby Boomers. Jeff is a frequent public speaker and media commentator, and he maintains a high profile on social media and on the Nerd's Eye View blog, where he readily shares tax and retirement planning insights.
Background
Jeffrey Levine on Twitter: @CPAPlanner
SECURE Act: Stretch IRA
“SECURE Act And Tax Extenders Creates Retirement Planning Opportunities and Challenges,” by Jeffrey Levine, Kitces.com, Dec. 23, 2019.
“Navigating the Secure Act: What Retirement Savers Need to Know to Optimize Their 401(k)s and IRAs,” by Reshma Kapadia, Barron’s, Dec. 20, 2019.
“New Retirement Law Throws IRA Heirs a Curveball,” by Mark Miller, Morningstar.com, Jan. 21, 2020.
“Inheriting a Parent’s IRA or 401(k)? Here’s How the Secure Act Could Create a Disaster,” by Alessandra Malito, MarketWatch, Jan. 9, 2020.
“Who Should Consider a Roth Conversion Under the SECURE Act?,” by Liz Weston, MarketWatch, Feb. 1, 2020.
“The Stretch IRA Strategy Is Largely Gone. Here Are 5 Alternatives to Consider,” by Cheryl Winokur Munk, Barron’s, Feb. 8, 2020.
SECURE Act: RMD Age Change
Required minimum distribution definition
IRA Required Minimum Distribution Worksheet
“How Required Minimum Distribution (RMD) Changes Under The SECURE Act Impact Retirement Accounts,” by Jeffrey Levine, Kitces.com, Jan. 8, 2020.
“Why the SECURE Act Makes 2020 the Year of Missed RMDs from IRAs,” by Jamie Hopkins, Forbes.com, Dec. 18, 2019.
“Could Later RMDs Lower Your Tax Bill?” by Christine Benz, Morningstar.com, Feb. 3, 2020.
“Updated Life Expectancy and Distribution Period Tables Used for Purposes of Determining Minimum Required Distributions,” (proposed rule by the IRS), IRS.gov, Nov. 8, 2019.
SECURE Act: Qualified Charitable Distributions
“How to Reduce Your Taxes and AGI by Giving to Charity,” by Mark P. Cussen, Investopedia.com, Jan. 16, 2020.
“Coordinating QCDs with Post 70 1/2 IRA Contributions Under the SECURE Act,” by Jeffrey Levine, Kitces.com, Jan. 22, 2020.
Adjusted gross income definition
SECURE Act: Traditional IRA Contributions After 72
“The Kaye Bailey Hutchison Spousal IRA Receives Congressional Agreement,” by Beverly DeVeny, irahelp.com, Aug. 9, 2013.
SECURE Act: Open MEPs
“Could Multiple-Employer Plans Be a Game Changer for Retirement Security?” by Aron Szapiro, Morningstar.com, Dec. 19, 2019.
“Secure Act’s MEP Changes Are a Game Changer for 2020,” by Robert Bloink and William H. Byrnes, ThinkAdvisor, Jan. 8, 2020.
“The New American Retirement Plan,” by John Rekenthaler, Morningstar.com, Jan. 14, 2020.
“Replacing 401(k) Plans: Further Thoughts,” by John Rekenthaler, Morningstar.com, Jan. 21, 2020.
SECURE Act: Annuities in Company Retirement Plans
"What the SECURE Act Means for Annuities," by Jamie Hopkins, InvestmentNews, Dec. 17, 2019.
“Security Act’s 401(k) Annuity Options: The Pros and Cons,” by William H. Byrnes and Robert Bloink, ThinkAdvisor, Jan. 14, 2020.
Feb 12 2020
56mins
Rank #9: Morgan Housel: No One Hires a Luck Manager
Our guest for this week's installment of The Long View podcast is Morgan Housel. Morgan is a partner at the Collaborative Fund, a venture capital firm that makes investments in firms that in its words are "at the intersection of for-profit and for-good." A former columnist at The Motley Fool and The Wall Street Journal, Morgan has become one of the most prolific and insightful writers on the investment decision-making process, as evidenced by his impressive body of work on the Collaborative Fund website's blog.
Morgan joined us in this live recording of The Long View from the 31st annual Morningstar Investment Conference in Chicago. Our interview covered a lot of ground, from how Morgan found his way into the finance world, to the role he plays at Collaborative Fund, to a host of other personal and behavioral finance topics that draw on his work.
Show Notes
The accidental writer: Morgan's background and how he came to write about financial topics (0:55-3:04)
"The ability to write a check is no longer a competitive advantage": What Collaborative Fund does, why Morgan was drawn to it, and the role content plays in its strategy (3:05-5:05)
Authorial license: "It's really important to write what … you yourself would find interesting" (5:06-5:58)
Transparency and impact: "We're looking for companies whose ability to do good is their competitive economic advantage" (5:59-8:21)
Public vs. private investing: "If I made a Venn diagram of public and privates, the overlap is much greater than I ever thought it would be" (8:22-9:19)
Theory vs. practice: How private-market "lock-ups" can make sense for individual investors but are still inappropriate for the vast majority (9:20-10:24)
The future of public-private investing: "There's some liquidity in private markets but it’s not very efficient" (10:25-11:16)
Be honest with yourself: Don't try to fight behavioral biases which can't be eliminated anyway; work around them (11:17-13:13)
"That's what works for me": How Morgan reckons with his own behavioral biases (13:14-13:44)
Financial advisors' job one? Don't allow events or emotions to interrupt compounding (13:45-15:52)
History and psychology: "The most important intersection in investing" (15:53-18:24)
Scarred, not complacent: Investors are still licking their wounds from the global financial crisis (18:25-20:12)
You can't shake investors out of their experiences; it takes a new generation to come along (20-13-21:17)
"There’s no other industry in the world where the rewards are as big as in finance": How big paydays can distract focus from everyday work (21:18-23:42)
How fee arrangements can impact portfolio managers' risk and reward calculations (23:43-24:26)
Avoiding confirmation bias and bringing in diverse perspectives: "Find someone who you admire their thought process in one aspect of thinking … but you disagree with them about something else" (24:27-26:10)
A crank whose views Morgan respects--"Jake" on financial Twitter (@econompic) (26:11-26:45)
"No one hires a luck manager": Morgan explains how investors tend to account for risk, but not luck, in their decisions (26:46-29:17)
"Investing isn't the study of finance. Investing is the study of how people behave with money." Morgan explains why he doesn't read investing books (29:18-30:03)
How people deal with uncertainty and opportunity: The importance of content aggregators and of ditching bad books (30:04-31:14)
Perishable: Morgan's favorite non-investing book of the last few years is about how much things can change, on average, in everyday life (31:15-33:03)
"You're not proven until you've survived a calamity": Why it’s so hard to distinguish skill from luck (33:04-35:16)
Good advice (that Morgan doesn't follow himself): Carry a little bit of debt to hone your focus (35:17-36:56)
"You have to pay the fee": How thinking of volatility as an ongoing price for the opportunity to grow capital can help investors put risk in the right context (36:57-38:56)
Are investors giving up on investment skill? Yes, but that’s probably OK (38:57-40:41)
The importance of financial planning: Telling clients the truth (i.e., that they're not on a path to a secure, comfortable retirement, not matter how much they want to believe otherwise) (40:42-43:09)
On Jack Bogle: "The biggest undercover philanthropist of all time." (43:10-44:48)
What matters is how well you behave: The psychology of investing (44:49-45:41)
References
The Collaborative Fund blog
Morgan Housel’s collected works
Morgan Housel, bio
“You Played Yourself” by Morgan Housel (Apr. 24, 2019)
“You Have to Live it to Believe It” by Morgan Housel (Apr. 9, 2019)
“Useful and Overlooked Skills” by Morgan Housel (May 1, 2019)
Jake (@econompic) and Econompic
Patrick O’Shaughnessy, “The Investor’s Field Guide”
Abnormal Returns
“The Big Change: America Transforms Itself 1900-1950” by Frederick Lewis Allen
Books recommended by Charlie Munger
“Origins of Greed and Fear” by Morgan Housel (Jan. 31, 2019)
George Soros
“A Man in the Mirror” by William H. Gross (April 2013)
10-year Treasury Rate
“Counterintuitive Competitive Advantages” by Morgan Housel (Mar. 13, 2019)
“Fees vs. Fines” by Morgan Housel (Apr. 2, 2019)
“Statement of Principles” by Jason Zweig
“When You’ll Believe Anything” by Morgan Housel (Apr. 15, 2019)
Jack Bogle
Morgan Housel’s tweet about Jack Bogle
About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.
About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research in Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.
To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com
May 22 2019
47mins
Rank #10: Michael Finke: Here’s What Makes Retirees Happy
Our guest on this week’s episode of The Long View podcast is nationally renowned retirement researcher Dr. Michael Finke. Michael is Professor of Wealth Management and Frank M. Engle Distinguished Chair in Economic Security at The American College of Financial Services. He joined the College in June 2016 having served since 2006 as a professor and PhD coordinator in the department of personal financial planning at Texas Tech University. From 1999 through 2006, he served as the Director of Graduate Studies at the University of Missouri. Michael has published more than 50 peer review articles with a focus on the value of financial advice, financial planning regulation, investments and individual investor behavior. He was named to the 2012 Investment Advisor IA 25 list and the 2013 and 2014 Investment News Power 20. His research conducted with Wade Pfau, questioning the 4% rule was published in the Journal of Financial Planning and won the 2014 Montgomery-Warschauer award for the most influential article in the publication. He had previously won the award with Thomas Langdon in 2013. He was also selected to present his research on financial literacy and aging at the 2015 MIT Center for Finance and Policy Conference.
Background
Michael Finke, PhD, CFP bio
Finke CV
2013 Investment Advisor IA 25 profile
2013 Investment news Power 20 profile
Montgomery-Warshauer Award
Withdrawal Rates
Health and Cognitive Decline
Retiree Spending
Asset Allocation in Retirement
“An Old Friend: The Stock Market's Shiller P/E” by Cliff Asness; AQR; November 2012
Daily Treasury U.S. Real Yield Curve Rates; U.S. Department of the Treasury
Oct 02 2019
55mins
Rank #11: Rob Arnott: Don't Sleep on Value Investing (Especially Emerging-Markets Value)
Our guest on the podcast today is Rob Arnott. Arnott is partner and chairman of the board of Research Affiliates, a firm he established in 2002, following stints at First Quadrant and Salomon Brothers. He also runs several prominent mutual funds, including PIMCO All Asset. In addition to these duties, Arnott is an accomplished thought leader, having published more than 100 articles in professional journals. Among other plaudits for his work, he has received seven Graham and Dodd Scrolls, awarded by the CFA Institute to the top financial analyst journal articles of the year. An innovator, Arnott popularized the concept of fundamental indexation, which some refer to as smart beta.
Background Information
- Rob Arnott bio
- Research Affiliates website
- Research Affiliates smart-beta interactive tool
- Research Affiliates asset-allocation interactive tool
- Financial Analysts Journal website
- PIMCO All Asset PAAIX
- "Fundamental Indexation," by Robert D. Arnott, Jason Hsu, and Philip Moore (2005, Financial Analysts Journal)
Related Links
Research Affiliates Forecasts
Research Affiliates Research
- "Are Valuations Now Irrelevant?" by Rob Arnott (2019 Research Affiliates Advisor Symposium)
"If Factor Returns are Predictable, Why Is There an Investor Return Gap?" by Jason Hsu (November 2015, Research Affiliates)
"Buy High and Sell Low With Index Funds!" by Rob Arnott, Vitali Kalesnik, and Lillian Wu (June 2018, Research Affiliates)
- "Too Big to Succeed," by Rob Arnott (June 2010, Research Affiliates)
- "The Incredible Shrinking Factor Return," by Rob Arnott, Vitali Kalesnik, and Lillian Wu (April 2017, Research Affiliates)
- "How Can 'Smart Beta' Go Terribly Wrong?" by Rob Arnott, Noah Beck, Vitali Kalesnik, and John West (February 2016, Research Affiliates)
- "To Win With 'Smart Beta' Ask if the Price Is Right," by Rob Arnott, Noah Beck, and Vitali Kalesnik (June 2016, Research Affiliates)
- "Rob Arnott: 'I Want the Quant Community to Get Its Act Together," by Alex Steger (Feb. 28, 2019, Citywire)
- "What Risk Matters? A Call for Papers!" by Rob Arnott (September/October 2003, Financial Analysts Journal)
- "Who Is on the Other Side of the Trade?" by Jason Hsu (December 2013, Research Affiliates)
Other Research Referenced
"Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk," by William F. Sharpe (September 1964, The Journal of Finance)- "Mind the Gap 2019," by Russel Kinnel (Aug. 15, 2019, Morningstar)
- "Alpha and the Paradox of Skill," by Michael J. Mauboussin and Dan Callahan (July 15, 2013, Credit Suisse)
About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.
About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research for Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.
To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com
(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decisions.)
Aug 21 2019
53mins
Rank #12: John Rekenthaler: Fund Manager Financial Incentives Are Irrelevant
Our guest this week is John Rekenthaler. Rekenthaler is a director in Morningstar Research Services and a feature contributor to our platforms, including Morningstar.com. A lucid thinker and brilliant writer, his popular "Rekenthaler Report" column has become a must read among investors, financial advisors, fund industry participants, and beyond.
Rekenthaler began his career at Morningstar in 1988 and has worn a number of hats, including leadership roles in our research and investment management divisions. Among other achievements, Rekenthaler has been a key player in developing some of Morningstar's best-known tools, including the Morningstar Rating for funds and the Morningstar Style Box. He holds a bachelor's degree in English from the University of Pennsylvania and a master's degree in business administration from the University of Chicago Graduate School of Business.
Background
Morningstar Rating for funds methodology
Morningstar Style Box methodology
Investor Behavior
Morningstar's Mind the Gap study
Rekenthaler Report: "Mutual Funds: Where Fun Came to Die"
Rekenthaler Report: "3 Reasons Index Investors Deserve Perdition (or Not)"
Rekenthaler Report: "Up-Front Investment Fees Are (Almost) No More"
Incentives
Rekenthaler Report: "Give Performance Fees a Chance"
How John Invests
Rekenthaler Report: "What's in My Portfolio?"
Most and Least Popular Columns
Rekenthaler Report: "Enough with Revenue Sharing!"
Rekenthaler Report: "About that Rigging Claim"
Flash Boys: A Wall Street Revolt, by Michael Lewis, March 2014.
Compelling Academic Research
Rekenthaler Report: "Predicting Mutual Fund Returns With the Ownership Lens"
"Judging Fund Managers by the Company They Keep," by Randolph Cohen, Joshua Coval, and Lubos Pastor; NBER Working Paper No. 9359, December 2002.
The State of Retirement
Rekenthaler Report: "The Retirement Crisis That Isn't?"
"A Perplexing Tale About 401(k)s," by Scott Cooley; Morningstar.com, Nov. 26, 2015.
Rekenthaler Report: "The British Show How to Improve 401(k)s"
Best and Worst Innovations
Rekenthaler Report: "Why ETFs Succeeded for Retail Investors"
Rekenthaler Report: "Tactical-Allocation Funds: Even Worse Than Expected"
Jack Bogle
Rekenthaler Report: "Jack Bogle Strikes Back!"
Rekenthaler Report: "Jack Bogle's (Somewhat) Accidental Legacy"
Corporate Governance
"Anticompetitive Effects of Common Ownership," by Jose Azar, Martin Schmalz, and Isabel Tecu; Journal of Finance, May 2018.
Rekenthaler Report: "Are Index Funds Too Soft on CEOs?"
Rekenthaler Report: "The Latest Salvo Against Indexing"
Rekenthaler Report: "The Doctrine of Shareholder Value Has Indeed Helped Shareholders"
Albert J. "Chainsaw Al" Dunlap bio
What John Reads
Berkshire Hathaway shareholder letters
Reflections on Investing
Rekenthaler Report: "My Investment Howler"
Jan 08 2020
51mins
Rank #13: Rick Ferri: 'There Are No Average Investors'
Our guest today on The Long View podcast is Rick Ferri. Ferri is an hourly fee-only investment consultant at Ferri Investment Solutions; he's also a CFA charterholder. Prior to starting his new firm in April 2019, he was the founder and head of investing at a $1.5 billion advisory firm that specialized in low-fee asset management using index funds and exchange-traded funds. Prior to that, he worked for a brokerage firm, where he was an early adopter of inexpensive index products for client portfolios. Ferri is a Marine Corps officer and retired fighter pilot.
Ferri has written several books on low-fee investing, including All About Asset Allocation, The ETF Book, All About Index Funds, and The Power of Passive Investing. He has also authored numerous investment-related articles and research papers, including a research paper on index investing that won S&P Dow Jones Indices' third-annual SPIVA Award.
Introduction and Background
- Rick Ferri's bio
- Ferri's philosophy
- Ferri Investment Solutions
- Ferri's books
- Ferri's Forbes column
- "Bogleheads on Investing" podcast hosted by Rick Ferri
- "Ferri: 3 Keys to a Successful Investment Strategy," Morningstar.com video
"The conversation about asset allocation comes later, and the conversation about investments comes after that." Ferri discusses how his definition of value-add has changed over the past 10-15 years. (0:55-3:24)
"I've been through the whole gantlet." Transitioning from broker to Registered Investment Advisor. (3:25-5:14)
On clients who have needs that go beyond investment management. (5:15-5:56)
"You get the work done, you pay for the work." Why Ferri's new advisory practice charges clients by the hour, not by their assets under management. (5:57-9:44)
- "Rick Ferri, Back in Business, Drops Bomb on AUM Model," ThinkAdvisor article
- "Move Over 1% Advisor Fee: Change Is Here," Ferri's blog post on Forbes
"Advisors talk about how they add value behaviorally; I think a lot of that is created by the advisor and not so much by the client." The role of advisors in managing client behavior. (9:45-11:12)
Asset Allocation
- "Ferri: 3-Fund Portfolio the Simplest Way to Best Return," Morningstar.com video
- Ferri's Core-4 Portfolios
"There are no average investors." How investors of the same age can vary widely in their appetite for equity risk. (11:13-15:03)
"Those are the things that are going to add value to a client's portfolio." Focusing on keeping taxes and investment costs down, not trying to play factors. (15:03-18:21)
"There seem to be a lot of factor renters, rather than factor owners." Ferri is skeptical that factor investing will outperform in the future. (18:23-20:44)
- Factor investing defined
- Dr. Wesley Gray interview on factor investing, "Bogleheads on Investing" podcast
"I don't use anything that doesn't have an expected real return." Why Ferri sticks with plain-vanilla asset classes. (20:45-21:56)
How to go about making return assumptions for the major asset classes. (21:57-24:14)
"It depends on how much money the client has." A total bond market index as a one-stop option for fixed-income exposure. (24:15-27:20)
International bonds as a core asset class. (27:21-28:46)
- "Global Fixed Income: Considerations for U.S. Investors," Vanguard research paper
- "Six Advisors on Investing in International Bonds," OregonLive article
"I don't think they're pivotal." REITs as a direct allocation. (28:47-31:45)
- "REITs and Your Portfolio," Ferri's Forbes blog post
Decumulation
"The software doesn't seem to be very good at this." Decumulation is inherently more complicated and customized than accumulation. (31:46-34:19)
"There seem to be better ways of doing it than the classic way in which we've been taught." On whether the traditional declining equity glide path makes sense. (34:20-39:28)
Indexing and the Legacy of Jack Bogle
"It's been around forever." Direct indexing: the wave of the future? (39:29-42:09)
- "Could Direct Indexing Help Your Portfolio?" Forbes blog post by Simon Moore
"I don't see it as big of a threat as other people do." Should investors be worried about concentration in very few ETFs, and do index funds and ETFs own too much of the market? (42:10-44:07)
"I was having a real moral dilemma." How influential Jack Bogle was in shaping Ferri's career path. (44:08-46:08)
- "The Worth of a Man: A Tribute to John C. Bogle," Forbes blog post
- Ferri's interview with Bogle, "Bogleheads on Investing" podcast
- "Vanguard Founder Jack Bogle Passes Away," Morningstar.com article
Jul 03 2019
48mins
Rank #14: David Blanchett: If You're Retiring Now, You're in a Pretty Rough Spot
Our guest this week is David Blanchett, head of retirement research for Morningstar Investment Management. In his role at Morningstar, Blanchett works to enhance the Investment Management group's consulting and investment services and conducts research primarily in the areas of financial planning, tax planning, annuities, and retirement. He's also adjunct professor of wealth management at The American College of Financial Services.
Blanchett's research has been published in a variety of academic and industry journals, such as the Financial Analysts Journal, the Journal of Financial Planning, The Journal of Portfolio Management, The Journal of Retirement, and The Journal of Wealth Management. His research won the Journal of Financial Planning's 2007 Financial Frontiers Award, the Retirement Income Industry Association's 2012 Thought Leadership Award, the Journal of Financial Planning's 2014 and 2015 Montgomery-Warschauer Awards, and the Financial Analysts Journal's 2015 Graham & Dodd Scroll Award.
Background
David Blanchett's bio
David Blanchett's research archive
Quantifying the Value of Advice
Alpha, Beta, and Now ... Gamma
The Value of a Gamma-Efficient Portfolio
Capital Sigma: The Advisor Advantage
Reducing Wealth Volatility: The Value of Financial Advice as Measured by Zeta
Retirement
Annuities are Likely Coming to Your 401(k). Should You Use Them?
A Safe Harbor for Annuities Could Help Retirement Savers
Save More Today: Improving Retirement Savings Rates With Carrots, Advice, and Nudges
Nudge, by Richard Thaler and Cass Sunstein
Behavioral Nudges for Goals-Based Financial Planning
You Can't Fix What You Can't Measure, Aron Szapiro on The Long View podcast
I Don't Think the System Needs Nudges. I Think the System Needs Dynamite, William Bernstein on The Long View podcast
Man Bites Dog! Congress Is Writing Retirement Legislation!
Retiree Survey: Nearly All Say They Are Happy Though Many Are Financially Insecure
Estimating the True Cost of Retirement
Exploring the Retirement Consumption Puzzle
75 Must-Know Statistics About Long-Term Care: 2018 Edition
The 4% Rule Is Not Safe in a Low-Yield World
Simple Formulas to Implement Complex Withdrawal Strategies
Reducing Retirement Risk With a Rising Equity Glide-Path
Revisiting the Optimal Distribution Glide Path
Annuitized Income and Optimal Asset Allocation
Should Annuities Be Purchased From Tax-Sheltered Assets?
Careful With That Company Stock
About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.
About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research for Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.
To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com
(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decisions.)
Sep 18 2019
50mins
Rank #15: Gus Sauter: Efficient Markets Are a Good Thing
Background
Gus Sauter retirement announcement
Council on University of Chicago Booth School of Business
Jack Bogle bio https://en.wikipedia.org/wiki/John_C._Bogle
Search for Alpha
Growth, and Limits, of Indexing
Indexing and Price Discovery
Indexing and Corporate Governance
Private Markets and Alternatives
The Case for Indexing
Innovation
Dec 04 2019
1hr 1min
Rank #16: Meir Statman: 'We Are All Normal'
Our guest in the podcast today is Meir Statman, the Glenn Klimek Professor of Finance at Santa Clara University and a specialist in behavioral finance. Meir's research focuses on how investors and managers make financial decisions and how these decisions are reflected in financial markets. His work has been published in The Journal of Finance, The Financial Analysts Journal, The Journal of Portfolio Management, and many other publications. Meir has also received numerous awards for his research, including three Graham and Dodd Awards and the Matthew R. McArthur Industry Pioneer Award. His latest book, Finance For Normal People, was just released in paperback.
Background
Finance for Normal People by Meir Statman, Oxford University Press, 2017
What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions by Meir Statman,McGraw-Hill Education, 2010.
Investor Behavior
“The Expressive Nature of Socially Responsible Investors” by Meir Statman, January 2008.
“Money Flowed to the Cheapest Funds in the Third Quarter” by Tom Lauricella and Gabriel Dibenedetto, Morningstar.com, Oct. 2019.
“Morningstar Fund Flows Commentary” by Morningstar, August 2019.
Retirement Happiness
“Michael Finke: Here’s What Makes Retirees Happy” by Morningstar, The Long View podcast, episode 23, October 2019.
“To Compete with Robos, Advisors Must Become Financial Physicians” by Lauren Foster, CFA Institute blog, April 2017.
Retirement Spending
“Carolyn McClanahan: There’s More to Money Than Just the Numbers” by Morningstar, The Long View podcast, episode 5, June 2019.
“The Mental Mistakes We Make with Retirement Spending” by Meir Statman, Wall Street Journal, April 2017.
“The Bucket Approach to Retirement Allocation” by Christine Benz, Morningstar.com, February 2019.
Oct 30 2019
55mins
Rank #17: James Montier: 'How Do I Get Paid for Owning This Asset?'
Our guest on this week's installment of "The Long View" podcast is James Montier. Montier is a member of the asset-allocation team at Grantham, Mayo, Van Otterloo & Co. Before joining GMO in 2009, he was co-head of global strategy at Societe Generale. A prolific and incisive writer, Montier has authored several books, including Behavioural Investing: A Practitioner's Guide to Applying Behavioural Finance; Value Investing: Tools and Techniques for Intelligent Investment; and The Little Book of Behavioral Investing. He's also a regular contributor to GMO's library of white papers and research studies on topics ranging from productivity, strategic asset allocation, contrarianism, and more. In addition to his duties at GMO, Montier is also a visiting fellow at the University of Durham and a fellow of the Royal Society of Arts.
Background
Grantham, Mayo, Van Otterloo & Co.
Behavioural Investing: A Practitioner's Guide to Applying Behavioural Finance by James Montier
Value Investing: Tools and Techniques for Intelligent Investment by James Montier
The Little Book of Behavioral Investing: How Not to Be Your Own Worst Enemy by James Montier
Montier's articles in GMO's research library
Montier's Role at GMO
"My role is essentially to be difficult, and it turns out I'm quite good at that." Montier describes his role at GMO and how his contributions to the firm are measured. (1:10-3:11)
Fostering Debate at GMO
"We have never had a house view." Why debate and constructive devil's advocacy is welcome at GMO. (3:12-4:31)
"Investing is one of those fields where there is almost constant evidence that we are all wrong." How to foster humility and a diversity of views. (4:32-7:38)
Debating Jeremy Grantham on mean reversion: Montier gives an example of an issue the team has debated recently--how long it takes for markets to revert to their long-term averages. (7:39-9:36)
- Jeremy Grantham bio
- "This Time Seems Very, Very Different" by Jeremy Grantham (GMO Quarterly Letter, 1Q 2017)
- "The S&P 500: Just Say No" by Matt Kadnar and James Montier (Aug. 15, 2017)
Forecasting and Portfolio Construction
How the debate over mean reversion informs GMO's asset-class forecasts. (9:37-10:09)
- GMO 7-Year Asset Class Forecast (May 2019)
Corporate concentration and low interest rates: How GMO is reconsidering these variables and their impact on the asset-class forecasts it makes. (10:10-11:38)
"The Idolatry of Interest Rates, Part II: Financial Heresy and Potential Utility in an ERP Framework" by James Montier and Ben Inker (Aug. 11, 2015)
How GMO incorporates its asset-class forecasts into the multi-asset strategies it manages. (11:39-12:37)
- GMO Benchmark-Free Allocation III GBMFX
The appeal of a "robust" forecast that's meant to help portfolios withstand various potential outcomes. (12:38-14:15)
"Our portfolios look a little freakish." Montier explains why GMO is U.S.-stock-phobic and, conversely, why the firm is finding value in alternatives. (14:16-18:04)
- GMO Benchmark-Free Allocation II Fund's asset allocation
- Sir John Templeton: "If you want to have a better performance than the crowd, you must do things differently from the crowd."
Career risk: Where individual investors hold an edge over institutions. (18:05-18:55)
- "Career Risk Is Likely to Always Dominate Investing" by Jeremy Grantham (Dec. 24, 2014, Finanz and Wirtschaft)
Alternatives
Montier defines "alternatives." Different ways of owning standard risks--depression risk, inflation risk, and liquidity. (18:56-21:49)
- "The General Theory of Employment, Interest, and Money" by John Maynard Keynes
Montier presents two examples of alternative strategies that GMO employs--merger arbitrage and put-selling--to own standard risks in different ways. (21:50-25:49)
- Merger-arbitrage definition
- Put-selling definition
- "Is This Purgatory, or Is It Hell?" by Ben Inker (GMO Quarterly Letter, 3Q 2014)
"We should size them such that they cannot hurt the overall fund should we get something wrong." How GMO sizes its positions in alternative strategies. (25:50-27:33)
Alpha, beta, and decay: How GMO assesses an alternative strategy's vulnerability to being arbitraged away. (27:34-29:57)
GMO's Bearish U.S. Equity Forecast
"How do I get paid for owning this asset?" Key inputs to GMO's U.S. equity forecast--multiple, margin, yield, and growth. (29:58-32:08)
- "Back to Basics: Six Questions to Consider Before Investing" by Ben Inker (Nov. 8, 2010)
"A behavioral self-defense mechanism." How GMO's approach to forecasting helps to structure its thinking and anchors decision-making. (32:09-34:54)
"It's really valuation where we've been most wrong." Where GMO's U.S. equity forecast erred in recent years. (34:55-36:01)
"We have to wear that. We have to own it." Montier on steps that GMO has taken to introspect on its forecasting error and how that expresses itself in the way it makes decisions and manages money. (36:02-39:45)
Planning Amid a Dearth of Value
"A reach for yield in any way, shape, or form." Explaining the dearth of value. (39:46-41:43)
- "The Deep Causes of Secular Stagnation and the Rise of Populism" by James Montier and Philip Pilkington (March 22, 2017)
"We have always been pretty bad at (forecasting), and it's unlikely we're going to get a lot better." (41:44-44:37)
How should investors and advisors forecast asset-class returns and plan for the future? (44:38-47:25)
- "Investing for Retirement: The Defined Contribution Challenge" by Ben Inker and Martin Tarlie (April 5, 2014)
Capital Allocation
Montier on the folly of firms borrowing to repurchase shares: "The more stable the environment, the easier it is to take on leverage, but the greater the danger that taking leverage creates further down the line when you get some random shock." (47:26-50:49)
- "The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns" by James Montier (Dec. 17, 2018)
- "The Financial Instability Hypothesis" by Hyman P. Minsky (May 1992; The Jerome Levy Economics Institute of Bard College)
Jul 10 2019
53mins
Rank #18: Chris Mamula: What Young Retirees Need to Know
Our guest on the podcast today is Chris Mamula. Chris blogs on the website, "Can I Retire Yet?" and he has also cowritten a book called Choose FI: Your Blueprint to Financial Independence, which was published in 2019. Chris is loosely part of the FIRE, or Financial Independence Retire Early, movement, but he brings a fresh perspective to the concept. He retired from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, do-it-yourself investing, financial planning, early retirement, and lifestyle design.
Background
Can I Retire Yet?
Choose FI: Your Blueprint to Financial Independence, by Chris Mamula, Brad Barrett, and Jonathan Mendonsa.
FIRE Movement
FIRE Movement
"Your Questions about FIRE, Answered," by Steven Kurutz, The New York Times, Sept. 11, 2018.
Lifestyle and Personal Considerations
"Nearly 2 Years into Early Retirement, Here’s All That I’ve Gotten Wrong," by Chris Mamula, marketwatch.com, Aug. 19, 2019.
“A Strong Marriage in Retirement,” by Darrow Kirkpatrick, Can I Retire Yet?, March 19, 2017.
"Does Fire Make Life Harder?," by Chris Mamula, Can I Retire Yet?, Dec. 10, 2018.
“A Week in the Life of a Fire Household,” by Chris Mamula, Can I Retire Yet?, Sept. 17, 2018.
Healthcare Coverage for Early Retirees
“Navigating ACA Tax Credits to Purchase Affordable Health Insurance,” by Chris Mamula, Can I Retire Yet?, Nov. 12, 2018.
“How to Qualify for Affordable Care Act (‘Obamacare’) Premium Subsidies,” by Mike Piper, Oblivious Investor.
“Are Health Care Sharing Ministries a Viable Alternative to Health Insurance for Early Retirement?” by Chris Mamula, Can I Retire Yet?, Nov. 19, 2018.
Health care sharing ministry, Wikipedia.
“Do You Plan to Retire by 50? Great, But Can You Cover Your Health Care?” by Janna Herron, USA Today, June 4, 2019.
Investing and Withdrawal Rates
Bogleheads website
Jim Collins blog
"The Safe Withdrawal Rate Series: A Guide for First-Time Readers," Early Retirement Now.
The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life, by J.L. Collins.
“Retirement Saving and the Empty Nest Transition,” by Michael Kitces, kitces.com, May 25, 2016.
"The Stages of Financial Independence," by Chris Mamula, Can I Retire Yet?, Sept. 23, 2019,
“The Problem with FIREing at 4% and the Need for Flexible Spending Rules,” by Michael Kitces, Kitces.com, July 23, 2019.
“The 25X Rule to Early Retirement,” by Rob Berger, Forbes.com, Feb. 23, 2017.
Human capital definition, Investopedia
“Going Back to Work,” by Chris Mamula, Can I Retire Yet?, July 22, 2019.
Mr. Money Mustache
Jan 15 2020
41mins
Rank #19: Moira Somers: How to Give Financial Advice That People Will Actually Take
Our guest on the podcast today is Dr. Moira Somers, a clinical neuropsychologist and professor. She’s also author of the book Advice That Sticks: How to Give Financial Advice That People Will Follow, published in 2018. Dr Somers’ expertise is in brain functioning, behavior change, and mental health, topics that she often discusses in the context of financial advice. She’s a frequent public speaker and also consults with advisors on improving their client outcomes.
Dr. Somers is a senior faculty member with the Sudden Money Institute, where she trains advisors and conducts research into the psychological factors at play during major life transitions.
Background
Somers, M. 2018. Advice That Sticks: How to Give Financial Advice That People Will Follow (London: Practical Inspiration Publishing).
Improving Client Adherence
Martin, L., Williams, S.L., Haskard, K.B., et al. 2005. “The Challenge of Patient Adherence.” Therapeutics and Clinical Risk Management, Vol. 1, No. 3, P. 189.
Somers, M. “Does Your Advice Stick?” Journal of Financial Planning, May 2018.
Stone, G.C. 1979. “Patient Compliance and the Role of the Expert.” Journal of Social Issues, Winter.
“Financial Jargon Your Advisor May Throw at You,” CNBC.com, Oct. 8, 2012.
Beerens, M. 2019. “Listening, Empathy and Personal Attention Go A Long Way in Client Acquisition and Retention.” Investors Business Daily, Nov. 4, 2019.
Lee, B.Y. 2018. “11 Seconds: How Long Your Doctor Waits Before Interrupting You." Forbes.com, July 22, 2018.
Jung, D. 2019. “Nudge Action: Overcoming Decision Inertia in Financial Planning Tools.” BehavioralEconomics.com, March 12, 2019.
Benartzi, S. 2017. “How Digital Tools and Behavioral Economics Will Save Retirement.” Harvard Business Review, Dec. 7, 2017.
Raihani, N. 2013. “Nudge Politics: Efficacy and Ethics.” Frontiers in Psychology, Vol. 4, P. 972.
Eisenberg, R. 2013. “To Solve the U.S. Retirement Crisis, Look to Australia,” Forbes.com, Aug. 19, 2013.
Frankenfield, J. 2019. “What Is a Robo-Advisor?” Investopedia.com, Oct. 1, 2019.
Dec 18 2019
50mins
Rank #20: Bill Nygren: 'A Stock That Doesn't Look Cheap on the Surface Might Be One of the Cheapest'
Our guest on this week's installment of The Long View is noted portfolio manager Bill Nygren. Nygren joined Chicago-based Harris Associates as an analyst in 1983 and later served as the firm's director of research. He has managed Oakmark Select OAKLX since 1996 and Oakmark Fund OAKMX since 2000 and has comanaged Oakmark Global Select OAKWX since 2006. In addition to these duties, Nygren serves as Harris' chief investment officer for U.S. equities. For his investing achievements, Morningstar recognized Nygren as its Domestic-Stock Manager of the Year in 2001, and his funds remain highly rated by Morningstar's manager research analysts. A frequent and insightful commentator on investing and markets, Nygren's shareholder letters are a must-read on the Street and beyond. In this far-ranging conversation, he discusses how his team's competitive edge has evolved, how traditional value metrics won't cut it in today's evolving economy, and the lasting lessons of the financial crisis.
Background Information
- Bill Nygren bio
- Bill Nygren's Commentary and Shareholder Letters
- Oakmark's Philosophy and Process
- Morningstar Analyst Report for Oakmark Fund
- Morningstar Analyst Report for Oakmark Select
- Morningstar Analyst Report for Oakmark Global Select
- "Morningstar Fund Managers of the Year 2001," by Russ Kinnel (Jan. 4, 2002, Morningstar.com)
Related Links
How Stock-Picking Has Changed and What Defines Value
- "Value Investors Are Vexed," by Ben Johnson (April 10, 2019, Morningstar.com)
- "Value Stocks Haven't Traded This Low Since the Dot-Com Bubble," by Justina Lee (July 23, 2019, Bloomberg)
- Generally Accepted Accounting Principles (GAAP)
- Shiller P/E Ratio
Portfolio/Risk Management
- "Do Concentrated Funds Outperform?" Alex Bryan and Christine Benz (May 8, 2019, Morningstar.com)
- "The World Cup and Investing," by Win Murray (July 16, 2018, Oakmark.com)
Portfolio and Holdings
- Oakmark Fund portfolio, June 30, 2019
- Oakmark Select portfolio, June 30, 2019
- Oakmark Global Select portfolio, June 30, 2019
- "Bank of America Plans to Boost Dividend 20%, Increase Pace of Stock Buybacks" (July 17, 2019, Marketwatch)
- "Famed Value Investor Bill Nygren on His New Stock Picks" (April 25, 2019, CNBC)
- "Value Investor Bill Nygren Gets Bullish on Tech" (Feb. 25, 2019, CNBC)
- "Value Investor Bill Nygren Likes Netflix, Saying It Won't Lose Subscribers on Price Hike" (Jan. 15, 2019, CNBC)
- "Nygren: A Lot of Value Still Out There" (May 28, 2009, Morningstar)
About the Podcast: The Long View is a podcast from Morningstar. Each week, hosts Christine Benz and Jeff Ptak conduct an in-depth discussion with a thought leader from the world of investing or personal finance. The podcast is produced by George Castady and Scott Halver.
About the Hosts: Christine Benz and Jeff Ptak have been analysts and commentators on investments and the investment industry for many years. Christine is Morningstar's director of personal finance and senior columnist for Morningstar.com. Jeff is head of global manager research for Morningstar Research Services, overseeing Morningstar's team of 120 manager research analysts in the U.S. and overseas.
To Share Feedback or a Guest Idea: Write us at TheLongView@morningstar.com
Aug 07 2019
57mins
