Journal of Personal Finance Tools, Techniques, Strategies, and

130 Pages·2009·0.58 MB·English

Journal of Personal Finance
Tools, Techniques, Strategies, and Research
to Aid
Consumers
and
Professional Financial Advisors
Volume 7, Issue 2
The Official Journal of the International Association of
Registered Financial Consultants
2 Journal of Personal Finance
CONTENTS
EDITOR’S NOTES .....................................................................................10
PRACTICE MANAGEMENT
Identifying and Developing High Potential Leadership Talent ............13
John A. Ruggiero, RFC, CSA, Director of Operations
Benson Botsford, LLC
As a planner, you have choices to make as you approach retirement- an
internal succession plan or a sale to a third party? The question we ask our
clients should be the same question we should ask ourselves: Do you get
better value selling to a partner or employee as part of your succession plan,
or from a pool of qualified, competing peers who want what you have, as part
of your transition plan? This article explains that succession planning is not a
short-term strategy; it needs to start at least 5 years before the execution of
the plan. This shouldn’t be a problem for an industry of professional planners,
but ironically, it requires planning that too often doesn’t occur. This failure to
plan is more an issue of the lack of planning tools than negligence. The tools
provided in this article are applicable to your own transition plan and that of
your clients.
Equity Index Annuities .........................................................................34
® ®
Dr. Geoffrey A. VanderPal DBA, MBA, CFP , CLU, CFS, RFC , CTP
President, Elite Financial Planning Group of America, Inc.
The popularity of Equity Index Annuities (EIAs) during the past 5 years has
provided an alternative to investors seeking a market-linked return without
market risk. EIAs have various dynamic features that an advisor needs to fully
understand to assure that it is the correct savings vehicle for a client. This
article discusses the various features of an EIA and how to analyze them.
Survivorship Life Insurance May Cost, Not Save a Family Money ......44
®
Benjamin A. Geber, CFP
The Benjamin Financial Group, Inc.
For high net worth clients, survivorship life insurance is often recommended
as an estate planning tool. This article challenges that assumption by offering
several other scenarios supported by alternative earnings and cost projec-
tions. Survivorship life actually may not be the least expensive solution for
meeting multiple estate planning issues.
©2008, IARFC All rights of reproduction in any form reserved.
Volume 7, Issue 2 3
RESEARCH & THEORY
An Inter-fund Analysis of Bank Loan Mutual Funds ........................... 49
Kam C. Chan, Ph.D., CFA, Page Professor of Finance
Department of Finance
Gordon Ford College of Business
Western Kentucky University
Leo Chan, Ph.D., Assistant Professor of Finance
College of Business
Delaware State University
William J. Trainor Jr., Ph.D., CFA, Associate Professor of Finance
Department of Finance
College of Business and Technology
East Tennessee State University
Although the issuance of bank loans has exceeded new high yield debt issues
for the past 10 years, it is only within the last 5 years that the mutual fund
industry has dramatically expanded into this sector. This study calculates the
risk-adjusted performance of these mutual funds. Findings suggest there are
major performance differences across funds as well as significant performance
persistence among bank loan funds. For individual investors, results suggest
investors should look for no-load funds in this category that have low
expense ratios, high turnover, larger than average asset size, and a history of
excess performance relative to the category average.
Will a Deflating Housing Bubble Derail the Financial Plan? .............62
Michael Devaney Ph.D., MAI, CFA, Professor of Finance
Donald Harrison College of Business
The increase in house prices appears to have been accommodated by easy
credit, a relaxation in underwriting standards and an increase in regulatory
costs that has limited development in the least affordable metropolitan
markets. Some economists predict that housing prices will continue to decline
with the largest corrections occurring in markets that experienced the greatest
appreciation. Declining prices could have serious implications for the
financial plans of those nearing retirement.
4 Journal of Personal Finance
Money Market Funds: Gross Returns, Net Returns And Expenses .... 71
®
Richard Kjetsaa, Ph.D., CFP , Professor of Economics and Finance
Fairleigh Dickinson University
Maureen Kieff, M.A., M.B.A., Assistant Professor of Quantitative Analysis
Fairleigh Dickinson University
Securities law regulations and the efficiency of money markets combine to
render money market mutual funds as commodities, resulting in similar rates of
return. Costs are the dominant factor explaining variation in returns. Inves-
tors have a high probability of foretelling the best-performing money market
funds by being alert to a critical signpost of identifying winners—funds that
levy below-average financial intermediation expenses.
Are Financial Education Programs Meeting the Needs of
Financially Disadvantaged Consumers? .............................................. 84
Yunhee Chang, Ph.D., Assistant Professor
University of Mississippi
Angela C. Lyons, Ph.D., Associate Professor
University of Illinois at Urbana-Champaign
This paper uses data collected from a retrospective pre-test to investigate
how participants’ initial levels of financial competency are related to the
impact that financial education has on their level of financial competency
following the program. Specifically, we compare program impact across
participants with varying levels of financial competency prior to the program
and examine whether the program is meeting the educational needs of those it
was designed to target – namely, financially disadvantaged consumers. The
findings show that the program benefited all of the participants and the
greatest improvement in financial behavior was observed for those who
reported lower levels of financial competency prior to the program. The
findings offer important practical information to financial professionals and
educators.
BOOK REVIEW
Credit Cards And The Law, 3rd Ed. .................................................... 110
Publisher: Oxford University Press, 2007
Author: Margaret C. Jasper
Reviewer: John D. Cross, JD, MSFS, CPCU, CLU, Chfc
Faculty—California State University, Fullerton University Of Phoenix—
Online And Southern California Campuses
©2008, IARFC All rights of reproduction in any form reserved.
Volume 7, Issue 2 5
Financial Success For Young Adults And Recent
Graduates—Managing Money, Credit, And Your Future .................. 114
Publisher: Rowman & Littlefield Education, 2006
Author: Janet C. Arrowood
Reviewer: John D. Cross, JD, MSFS, CPCU, CLU, ChFC
Faculty—California State University, Fullerton University Of Phoenix—
Online And Southern California Campuses
It’s Not About The Money: Unlock Your Money Type To Achieve
Spiritual And Financial Abundance ................................................... 118
Publisher: Harpercollins, 2008
Author: Brent Kessel
Reviewer: John D. Cross, JD, MSFS, CPCU, CLU, ChFC
Faculty—California State University, Fullerton University Of Phoenix—
Online And Southern California Campuses
Retire Retirement: Career Strategies For The
Boomer Generation ........................................................................... 122
Publisher: Harvard Business School Press, 2008
Author: Tamara J. Erickson
Reviewer: John D. Cross, JD, MSFS, CPCU, CLU, ChFC;
Faculty—California State University, Fullerton University Of Phoenix—
Online And Southern California Campuses
Journal of Personal Finance
Guidelines for Authors ...................................................................... 126
6 Journal of Personal Finance
SUBMIT AN ARTICLE TODAY!
Practitioners, this is your opportunity to contribute to the profession by
sharing your ideas and insights with others. Academicians, this is your
opportunity to add to the body of literature in personal financial planning
through a rigorous peer reviewed process. Our goal is to give every
researcher, consultant/coach or practitioner the opportunity to share their
expertise with others committed to financial planning! The Journal of
Personal Finance is always accepting manuscripts and columns for
publication in future issues.
The Journal of Personal Finance is a unique, practitioner-oriented publica-
tion– articles must have real-life implications to inform those practicing
financial planning as well as those who are studying financial planning
through research or in the classroom. Each issue features practice manage-
ment articles as well as empirically-based academic research articles. Articles
based on both qualitative and quantitative research methods are welcome. A
blind peer review process is used to evaluate each manuscript.
The Journal’s Research Policy Board is committed to publishing timely
original contributions that offer readers personal financial planning tools,
techniques, and strategies. Contributors are encouraged to submit papers
corresponding to the following topic areas:
9 Client Relationship Management
9 Financial Planning Trends
9 Technology Issues
9 Planning for Special Needs
9 Regulation and Compliance
9 Ethics of Financial Planning
9 Practice Management Techniques
9 Planning Tools and Techniques
9 Financial Products, Features, Selection and Decision Management
9 Marketing Methods
9 Attitude and Behavioral Measurement
9 Book Reviews and Professional Opinions and Tips
9 Financial Planning Client Profiles/Cases for Instructional Use
The audience for the Journal consists primarily of practicing financial
planners, insurance advisors, other securities industry professionals,
consultants, academicians, and students. Empirically-based research
©2008, IARFC All rights of reproduction in any form reserved.
Volume 7, Issue 2 7
submissions should provide a clear and useful description of the methodol-
ogy and analysis, as well as a detailed discussion of findings that are directly
related to practitioner implications and implementation.
For a publication to survive, it takes the concerted efforts of those who are
willing to write and to review. There are no paid journalists on staff!! Will
you contribute? Volunteer to write a book review that would enable others to
benefit from the author’s wisdom, even for those time-starved individuals too
busy to read the entire book? Agree to write a short column on a practice
management or client relationship “tip” that you could share with new or old
practitioners or with students learning the craft? What research findings
have implications for practitioners and the clients they serve? And, to every
reader – what do you have to share? What have you personally been
studying or observing that you would like to write about and share with
others? To advance the profession of financial planning, it is important to
promote successful practices both among seasoned professionals and
newcomers.
If you are a new author, or just thinking about the idea of writing for the first
time, please feel free to contact Ruth H. Lytton, Editor
8 Journal of Personal Finance
JOURNAL OF PERSONAL FINANCE
VOLUME SEVEN, ISSUE TWO
EDITOR
Ruth H. Lytton, Ph.D. RFC
EDITORIAL COORDINATOR
Jennifer King
EDITORIAL ADVISORY BOARD
Steve Bailey, RFC, LUTCF, CEBA Jerry Mason, Ph.D., CFP®, RFC
HB Financial Resources Edelman Financial Services
Christopher M. Becks, RFC Mike Massrock
Strategic Financial Consultants, Inc. Western Reserve Life and ISI
Joyce Cantrell Robert Moreschi, Ph.D., RFC
Kansas State University Virginia Military Institute
Michael S. Finke, Ph.D. Edwin P. Morrow, RFC, CFP®, CLU,
Texas Tech University ChFC
Charles Hatcher, Ph.D. Financial Planning Consultants
University of Wisconsin Barbara O’Neill, Ph.D., CFP®, AFC,
So-Hyun Joo, Ph.D. CHC, CFCS
Financial Planning Standards Board, Rutgers Cooperative Extension
Korea David Pankiw, AIF, RFC
Karen Eilers Lahey, Ph.D. Spire Investment Partners, LLC
University of Akron Anthony Sorrentino, RFC
Rich Landsberg, RFC, J.D., LLM National Financial Services
Nationwide Financial Services Philip J. Statz, RFC
Mike Lemieux, RFC Insight Financial Group, Inc.
U.S. Worldwide Financial Services, Inc. Patrick A. Strubbe, ChFC, CSA, RFC
Jean Lown, Ph.D. Preservation Specialists, LLC
Utah State University William J. Trainor, Jr., Ph.D.
Burnett Marus, RFC East Tennessee State University
Burnett Marus Associates Jing Xiao, Ph.D.
University of Rhode Island
Mailing Address: IARFC
Journal of Personal Finance
The Financial Planning Building
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Web Site: http://jpf.agecon.vt.edu/Index.htm.
© Copyright 2008. International Association of Registered Financial
Consultants. (ISSN 1540-6717)
©2008, IARFC All rights of reproduction in any form reserved.
Volume 7, Issue 2 9
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Disclaimer: The Journal of Personal Finance is intended to present timely,
accurate, and authoritative information. The editorial staff of the Journal is
not engaged in providing investment, legal, accounting, financial, retirement,
or other financial planning advice or service. Before implementing any
recommendation presented in this Journal readers are encouraged to consult
with a competent professional. While the information, data analysis method-
ology, and author recommendations have been reviewed through a peer
evaluation process, some material presented in the Journal may be affected by
changes in tax laws, court findings, or future interpretations of rules and
regulations. As such, the accuracy and completeness of information, data,
and opinions provided in the Journal are in no way guaranteed. The Editor,
Editorial Advisory Board, the Institute of Personal Financial Planning, and the
Board of the International Association of Registered Financial Consultants
specifically disclaim any personal, joint, or corporate (profit or nonprofit)
liability for loss or risk incurred as a consequence of the content of the
Journal.
General Editorial Policy: It is the editorial policy of this Journal to only
publish content that is original, exclusive, and not previously copyrighted.
Subscriptions: The Journal of Personal Finance is mailed automatically to
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Journal of Personal Finance
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10 Journal of Personal Finance
EDITOR’S NOTES
Whether you are a seasoned professional or recent graduate seeking
your first job, you may be asked to complete a psychometric test. Or, if you
are considering growth within your firm, you may want to consider the costs
and benefits of a more extensive assessment beyond your current hiring
protocols. Psychometric tests include a variety of assessments that measure
knowledge, abilities, attitudes, and personality traits. As background,
consider the Big Five constructs that are common to nearly all personality and
psychological tests. They include openness, conscientiousness, extraversion,
agreeableness, and emotional stability (or neuroticism). Regardless of the
perceived success of the interview process or the applicant’s credentials,
those who adhere to the benefit of these assessments rarely proceed against
the results. The assessments described below are commonly used by financial
professionals, although the wirehouses and broker-dealers may prefer others,
and frankly, an analysis of your handwriting is not out of the question! What
follows is a very brief description and some insight into what the potential
employer may be hoping to discover about your personality, typical behav-
ioral responses, or competencies.
Caliper. The Caliper approach is based on the principle of “job
matching,” with the applicant’s personality profile of strengths, limitations,
motivations and potential compared to a “standardized” profile of success for
the position. The latter profile is generated from the Caliper Profile database
of needed qualities for position success as well as firm-specific data on the
culture, management style and job responsibilities. The Profile assesses 25
personality traits, and results may be used for hiring selection, individual and
team performance coaching, and team building. The assessment takes about
90 minutes to complete on paper on on-line. Globally, over 2 million assess-
ments have been conducted.
The Caliper Predictor assesses an applicant’s personality relative to a
successful profile associated with nine Job Families. The employer, in
conjunction with Caliper consultants, develops a job profile that is matched to
one of the nine, which is then used for applicant comparisons. Results from
the 30-minute assessment are interpreted on a Position Fit index, which
compares the applicant to a profile for position success. The Caliper First
Step for Sales or First Step for Service assessments are used to screen
applicants for the basic personality traits required for success in sales
(particularly the insurance or auto industries) or service, respectively. To
learn more, visit http://www.caliperonline.com/aboutus.asp.
DiSC. Reportedly influenced by the work of Carl Jung and originally
developed by William M. Marston and most recently interpreted by Dr. John
Geier, this behavioral assessment profiles an individual on the dimensions of
Dominance, influence, Steadiness and Conscientiousness. Based on four
recognized dimensions of behavior, Dominance relates to control, power and
assertiveness, while influence explains behavioral styles related to social
situations or communication. Steadiness, originally denoted by submission,
©2008, IARFC All rights of reproduction in any form reserved.