Plan Today, Retire Tomorrow

Roddy MarinoRoddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

One essential consideration, whether you’re retiring next month or 50 years from now,  is that you ensure that your savings are aligned with your investment goals. With 33% of U.S. employees not adequately saving to fund their retirement1, this is a good opportunity to look at your own plan today and address any gaps.

While we know that there are behavioral impediments that we must overcome as we prepare for retirement, there are also some certainties that we need to account for:

  1. You’ll need cash.
  2. The amount you spend impacts how long your savings will last.
  3. Money that is not set aside for spending should be invested wisely.
  4. You’ll fare better when you know where you stand. Don’t just wait for your quarterly report to see how you’re doing—have regular check-ins with your financial advisor.
  5. Markets are volatile and can at times be a bumpy ride; but it important to stay the course.

A financial professional can help to guide you through the ups and downs of the market and work with you to create a retirement plan that meets your needs.  While longevity, medical expenses and taxes are among some of the elephants in the room that may be keeping you from planning for retirement, those who begin early develop formal plans and have little to fear.  Retirement resources are growing as quickly as our lifespans—oftentimes you simply just have to ask!

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Source:

1Retirement Confidence Survey 2015, Employee Benefit Research Institute

Wisdom, Not Just Wealth

John_SolomonJohn Solomon, Executive Vice President, Wealth Advisory

When it comes to passing assets down to the next generation, many parents worry heirs are ill-equipped to handle sudden wealth. In a recent survey, 80% of Americans said they planned to transfer their wealth, but only 45% actually had a plan in place (State Street Global Advisors). For those with a plan, the focus seems to be on the technical aspects of the transfer—wills, trusts and other estate planning strategies.

Wills and trusts, when prepared correctly, can help transfer wealth efficiently and effectively. They help provide direction on how to divvy out assets and can even give guidance to heirs about how to manage this new wealth. An ethical will, on the other hand, aims to transfer intangibles like life lessons, core values, aspirations, and wisdom.

Ethical wills, also known as legacy letters, are not legally binding, but they present a way to talk about values and beliefs pertaining to wealth and help to share personal lessons you have learned along your journey. Most importantly, it helps you articulate what it is about money that is important to you; how your wealth fueled your passions and enabled you to support the ones you love. It’s a place to talk about your past financial successes and failures.

shutterstock_240954376Money has long been considered a taboo topic because it is emotional and highly revealing. How you handle your money and the thought-process you use for spending and making investment decisions speaks to your core values and the inner force driving your actions. An ethical will can help you describe your relationship with money, explain how you used your wealth to bring your hopes and aspirations to fruition, and how you would like your wealth to serve the next several generations. It also gives you an opportunity to provide historical perspectives and references and bring to light past financial successes and failures. You can explain how your wealth was initially created and if it was even passed down through the generations prior. The goal in sharing your family’s financial ancestry is to emphasize family values and the profound impact they have made in your life.

Communication is the key element of successful wealth transfer. An ethical will gives that one last opportunity to punctuate what truly matters to you about the wealth your heirs will inherit.

The Brinker Capital Wealth Advisory team delivers exceptional service and support to meet the unique wealth management needs of high-net-worth and ultra-high-net-worth investors, family offices, institutions, and endowments.The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Guiding Your Child to Financial Independence

John_SolomonJohn Solomon, Executive Vice President, Wealth Advisory

Good money management is a fine example of a skill best learned young. The earlier your child gains control over their financial world, the more time your child has to make thoughtful decisions that bring them closer to financial freedom and the fulfillment of their life goals.

You can guide your child towards financial independence by imparting these valuable lessons:

Promote Him/Her to Account Manager

The best way to encourage financial responsibility is to make your child responsible for their financial decisions.

When your child is young, you most likely make all of the financial decisions for them. You probably opened their first bank account when he or she was just an infant. You instruct when to make a deposit and when money should be withdrawn.

At some point, well before the child reaches the age of maturity and can legally take independent action on the account, you should begin to cede some control. The child should start to take on the responsibility that comes with managing the account, getting comfortable with the decision-making needed to guide financial growth. After all, this is the money that will fund future whims.

Once children feel ownership over some pool of money, it should be the source of funding for non-essential items. As the account manager, the child then must decide whether he or she wants something badly enough to take money out of their account. If money is spent from the account, your child will have to figure out how to replenish it. Discretionary purchases exceeding the amount available in the account should be discouraged, to emphasize the notion that money is a limited resource.

Let Consequences Teach

There comes a time in a young adult’s life when they must live with the consequences of their decisions and circumstances. For example, often young drivers fail to consider insurance, fuel, and routine maintenance when they calculate how much they can afford to spend on a car. Increased expenses are a natural consequence of car ownership. Sometimes, these overlooked costs dawn on the teen only after the uninsured car is in the driveway, with an empty gas tank. This is a prime time for natural consequences teach the lesson. If you swoop in to protect your child from a painful lesson, they learn an entirely different lesson. They learn that when their money runs out, they simply need to tap into yours.

Encouraging Surfing

Before your child makes a purchase, insist upon comparison shopping. Encourage your son or daughter to surf the internet to explore the best deals available.

Make Them Honor Financial Commitments

Teenagers can come up with all kinds of creative excuses for not following through. Backing out of commitments, especially financial commitments, should be non-negotiable. If your child asks you to float them some money for an impulse purchase, make them pay you back. If your child agrees to shovel a driveway or babysit a neighbor, make sure they show up, on time and ready to work.

Set Guidelines

Before your child receives his or her first paycheck, you should talk about the importance of saving for both short- and long-term goals. Set the expectation that each a certain percentage of pay period should go towards meeting those objectives.

Give Incentives

Some children seem hardwired to spend their money as quickly as it is earned while others save every penny. To encourage saving, consider providing financial incentives. For example, you may deposit $10 for every $100 your child puts in the bank.

Give Them a Peek

Many families don’t talk about money. Parents often worry their child will misconstrue the information, share it with others, become complacent, or endure an unnecessary burden. When you explain certain aspects of your financial life to your child, however, it provides context and clarity to your decisions. It also allows you to talk about what money means to you. Nothing makes an example clearer for a child as when you explain trade-offs you have made in your life, like buying a smaller house closer to work, so you spend less time commuting and more time with the family.

The Brinker Capital Wealth Advisory team delivers exceptional service and support to meet the unique wealth management needs of high-net-worth and ultra-high-net-worth investors, family offices, institutions, and endowments.The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Five Answers for the Voices in Your Head

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes

Many investors are waking up this morning to the unsettling realization that trading was halted in China last night after another precipitous market drop. When paired with rumors of hydrogen bomb testing in North Korea, the recent acts of domestic terrorism and a long-in-the-tooth bull market, it can all be a little frightening and overwhelming.

It’s at a time like this that it’s best to temper the catastrophic voices in our head with some research-based truths about how financial markets work.

For each of the rash, fear-induced common thoughts below (in bold), we have countered with a dose of realism:

“It’s been a good run, but it’s time to get out.”
From 1926 to 1997, the worst market outcome at any one year was pretty scary, -43.3%; but consider how time changes the equation—the worst return of any 25-year period was 5.9% annualized. Take it from the Rolling Stones: “Time is on my side, yes it is.”

“I can’t just stand here!”
In his book, What Investors Really Want, behavioral economist Meir Statman cites research from Sweden showing that the heaviest traders lose 4% of their account value each year. Across 19 major stock exchanges, investors who made frequent changes trailed buy-and-hold investors by 1.5% a year. Your New Year’s resolution may be to be more active in 2016, but that shouldn’t apply to the market.

“If I time this just right…”
As Ben Carlson relates in A Wealth of Common Sense, “A study performed by the Federal Reserve…looked at mutual fund inflows and outflows over nearly 30 years from 1984 to 2012. Predictably, they found that most investors poured money into the markets after large gains and pulled money out after sustaining losses—a buy high, sell low debacle of a strategy.” Everyone knows to buy low and sell high, but very few put it into practice. Will you?

“I don’t want to bother my advisor.”
Vanguard’s Advisor’s Alpha study did an excellent job of quantifying the value added (in basis points) of many of the common activities performed by an advisor, and the results may surprise you. They found that the greatest value provided by an advisor was behavioral coaching, which added 150 bps per year, far greater than any other activity. At times like this is why investors have advisors so don’t be afraid to call them for advice and support.

“THIS IS THE END OF THE WORLD!”
Since 1928, the U.S. economy has been in recession about 20% of the time and has still managed to compound wealth at a dramatic clip. What’s more, we have never gone more than ten years at any time without at least one recession. Now, we are not currently in a recession, but you could expect between 10 and 15 in your lifetime. The sooner you can reconcile yourself to the inevitability of volatility, the faster you will be able to take advantage of all the good that markets do.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this, but we are focused on providing investment solutions, like the Personal Benchmark program, that help investors manage the emotions of investing to achieve their unique financial goals.

For more of what not to do during times of market volatility, click here.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

A Reliable Partner Dedicated to Delivering Better Outcomes for Advisors and Investors

Widger 4_v2Charles Widger, Founder & Executive Chairman

By now, many of you are aware of Curian Capital’s decision to exit the fee-based business to focus on the core activities of Jackson National Life Insurance Company.  I am sure there are many strong, global, corporate considerations that led them to this determination; nonetheless, it does not alleviate the disruption to impacted financial advisors and investors.

This situation reminds me of the motivations that led me to create Brinker Capital 28 years ago.  When our original parent company, Mutual Benefit, floundered in 1991, it was part of an unfortunate reoccurrence taking place in the financial service industry.  Venerable names like E.F. Hutton, Kidder Peabody and Prudential Bache were also falling by the wayside.  I was determined to make Brinker Capital different.

That is why I built an organization with the laser focus of helping advisors and investors succeed by delivering a premier investment experience that would allow them to achieve the outcomes that they were seeking.  I surrounded myself with professionals who were committed to this same vision, and I’m proud that six of the eight founders are still here today and further, that over 40% percent of my employees have been here for over 10 years.

Brinker Capital is 100% employee-owned. That has allowed us to make thoughtful, long-range decisions without outside ownership staring over our shoulder.  We are proud of our independence and will continue to be independent. Independence empowers Brinker Capital to continue to build this great organization that for 28 years has, and always will, put the advisor and investor first.

I, along with my colleagues, will continue to provide the best in investment management and advisor support.

For more information, please click here to read our latest press release.

Brinker Capital, Inc., a Registered Investment Advisor

Managing Emotions During Life’s Disruptions

Sue BerginSue Bergin, President, S Bergin Communications

It seems like a new survey comes out daily revealing how ill-prepared Americans are for retirement. Well, to reference one, now there is a study that shows two-thirds of those who have saved for retirement may still fall behind.

TD Ameritrade’s 2015 Financial Disruptions Survey shows that unexpected events have cost Americans $2.5 trillion in lost savings. [1] Typical scenarios involve unemployment or having to take a lower-paying job, starting a family and/or buying a home, assuming a care-taking role, experiencing poor investment or business performance, suffering an accident/illness or disability, divorce, separation, or becoming a widow or widower.

No surprise that any one of these events would cause stress. As explained in the best-selling book, Personal Benchmark, Integrating Behavioral Finance and Investment Management, stress triggers a move away from a rational and cognitive decision-making style in favor of an effective style driven by emotions. Research also has suggested that we experience a 13% reduction in our intelligence during times of stress, as valuable psychophysiological resources are shunted away from the brain in service of our ability to fight or flee. [2]

When under stress, emotional decisions tend to be myopic. We privilege the now and forget about the future. Decisions made under stress are also reactive. Since our body is being signaled that something dangerous is imminent, we tend to react rather than reason. Reacting is great for swerving to miss a car, but not such a great impulse to follow when it comes to setting a course that will traverse the next five years.

What we learn from the study is that the average length of the disruption was five years. These weren’t one-time events or blips on a radar screen. They were prolonged periods over that necessitated several financial decisions.

84% of those who suffered from disruptions indicated that prior thereto, they had been saving $530 per month for long-term financial goals/retirement. During the “disruption” savings were reduced by almost $300, which had a cumulative adverse impact on their long-term goal, on average of over $16,200.

Interestingly, the TD study asked how they could be better prepared for the unexpected. The vast majority focused on what authors of Personal Benchmark suggest in helping to manage emotions during stressful times, which is to focus on matters within their control. The top five responses included:

  • save more (44%)
  • start saving earlier (36%)
  • better educate self on investments (26%)
  • consult with a financial advisor (19%)
  • pay closer attention to investments (15%)

There are two key takeaways from this study. Expect the unexpected by doing as much advanced planning and saving as possible. And, when life does throw you a curve ball, manage your emotions by focusing on matters with personal significance and those that are within your personal control.

[1] http://www.amtd.com/files/doc_downloads/research/Disruptor_Survey_2015.pdf

[2] Dr. Greg Davies, Managing Director, Head of Behavioral and Quantitative Investment Philosophy at Barclays Wealth

The views expressed are those of Brinker Capital and are for informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Chasing Markets

Jeff RauppJeff Raupp, CFA, Senior Investment Manager, Brinker Capital

Back when I was in the U.S. Army, one thing I dreaded was the two-mile run as part of the Physical Fitness (PT) Test. I am not a runner. While most people would scoff at the notion of a two-mile run being intimidating, I looked at it as 13-14 minutes of pain. It was timed, and the better finishing times naturally resulted in a better score. Seemingly anything above 15 minutes resulted in a fail and, of course, more running.

One of the things I had the most trouble with was finding the right pace. I’d have instances where I’d try to run a balanced race only to end up having to sprint the last few hundred yards to reach my desired time. Then there were the times where I’d go out too hard and find myself stumbling into the finish line. The hills on the courses would complicate things – I’d kill myself trying to keep a constant pace uphill and downhill.

shutterstock_175699433After struggling with this for months, I came up with a better solution. We always ran as a group, and I found that I could usually find a few people that would consistently run around the same time I was looking for. Then my objective would be to keep up with them knowing that as long as I finished somewhere in their vicinity, I’d hit my goal.

The other day someone asked me whether investors’ financial goals should be to try to outperform the market, and with my response I thought there were a lot of similarities to my past running strategy.

An investor starts with an objective they’d like to get to, how much money they have, expected cash flows and their time horizon. From there it’s a matter of finding the right mix of asset classes that historically has shown a high probability of achieving the returns necessary to reach the objective(s). That mix can be thought of as your strategic plan.

Along the way, the market is a useful reference point. Investing isn’t a smooth journey, so when your strategy has drawdowns or grows faster than you expected, knowing how markets performed helps you determine if that’s just market volatility or if something may be wrong with your plan. Changing your strategic plan along the way can be dangerous, particularly at market extremes. If you’re always chasing the runner that looks the strongest at the moment, there’s a good chance you’ll burn out before the finish.

The views expressed are those of Brinker Capital and are for informational purposes only.

Two Ways Advisors Can Help Clients Reduce Financial Stress

Sue BerginSue Bergin, President, S Bergin Communications

While all of your clients are unique when it comes to financial outcomes, they are likely to share one unifying factor—money being the top cause of their stress.

The American Psychological Association, which releases figures on stress, documented in their final report for 2011 (published in 2012) that, “More adults report that their stress is increasing than decreasing. 39% said their stress had increased over the past year and even more said that their stress had increased over the past five years (44%). Only 27% of adults report that their stress has decreased in the past five years and fewer than a quarter of adults report that their stress has decreased in the past year (17%).”

The same report shows that the top source of stress is money (75%), with work coming in a close second (70%) and the economy getting the bronze (67%). These results were validated by another study in which 63% of survey respondents indicated that they had some financial stress and another 18% rated their stress level at high or overwhelming[1].

It has been well established that stress triggers a move away from a rational and cognitive decision-making style in favor of a style driven by emotions. As the book Personal Benchmark: Integrating Behavioral Finance and Investment Management states, “Research also has suggested that we experience a 13% reduction in our intelligence during times of stress, as valuable psychophysiological resources are shunted away from the brain in service of our ability to fight or flee.” Experts suggest that emotionally-charged decisions are myopic (nearsighted), reactive, and associative.[2] All three of these predictable responses to stress are powerful ingredients for disastrous investment results.

Advisors can help clients manage emotion and associate stress in two ways:

  1. Manage the volatility in their portfolio. As the highs and lows of investments are brought under tighter control, so too will the emotions of the investors that hold them.
  2. Refocus clients’ attention on the appropriate things, such as matters with personal significance and those that are within their own control. Far too often, clients worry about externalities that have no direct impact on them or their wealth but which create a sort of vague anxiety that can never be truly calmed.

“By managing volatility as a means for controlling emotional extremes and by focusing on germane financial matters within personal control, investors can reap the benefits of appropriate stress without the paralyzing effects of excessive worry” (Personal Benchmark).

[1] http://www.financialfinesse.com/wp-content/uploads/2014/05/Financial-Stress-Report_2014_FINAL.pdf

[2] Dr. Greg Davies, Managing Director, Head of Behavioral and Quantitative Investment Philosophy at Barclays Wealth

The views expressed are those of Brinker Capital and are for informational purposes only.

Be The Benchmark

Dr. Daniel CrosbyDr. Daniel Crosby, President, IncBlot Behavioral Finance

If you’re like so many Americans, you probably made a list of your goals for 2014 back in January on New Year’s Eve. Whatever form those resolutions took; whether the goals were physical, financial, or relational, they likely had two foundational elements: they were specific to you and they were aspirational.

More than half way into the year, you may or may not still be on track to meet your goals. But regardless of your current progress, they will stand as personal reminders of the person you could be if you are willing to do the necessary work. As silly as it may sound, let’s imagine goals that violate the two assumptions we mentioned above.

Can you conceive of measuring your success relative to a goal that had nothing to do with your particular needs? What about setting a goal based on being average rather than exceptional? It defies logic, yet millions of us have taken just such a strategy when planning our financial futures!

shutterstock_171191216There is a long-standing tradition of comparing individual investment performance against a benchmark, typically a broad market index like the S&P 500. Under this model, investment performance is evaluated relative to the benchmark, basically, the performance of the market as a whole.

Let’s reapply this widely accepted logic to our other resolutions and see how it stands up. The CDC reports that the average man over 20 years of age is 5’9 and weighs 195 pounds. If we were to use this benchmark as a goal-setting index, the same way that we do financial benchmarks, the average American male would do well to lose a few pounds this year to achieve a healthier body mass index (BMI). Should we then dictate that all American males should lose ten pounds in 2013? Of course not!

The physical benchmark that we used is disconnected from the personal health needs of those setting the goals. Some of us need to lose well more than ten pounds, others needn’t lose any weight and some lucky souls actually have trouble keeping weight on (I’ve never been thusly afflicted).

A second problem is that affixing your goals to a benchmark tends not to be aspirational. The goals we set should represent a tension between the people we are today and the people we hope to become. When we use an average like the benchmark for setting our financial goals, we are settling in a very real sense. No one sets out to live an average life. We don’t dream of average happiness, average fulfillment or an average marriage, so why should we settle for an average investment?

The bulk of my current work is around addressing the irrationality of using everyone else as your financial North Star. Through a deep understanding of your personal needs, your advisor should be able to create a benchmark that is meaningful to you and your specific financial needs. After all, you have not gotten to where you are today by being average. Isn’t it time your portfolio reflected that?

Views expressed are for illustrative purposes only. The information was created and supplied by Dr. Daniel Crosby of IncBlot Behavioral Finance, an unaffiliated third party. Brinker Capital Inc., a Registered Investment Advisor

The Power of Purpose: The Benefits of Goals-Based Investing

Dr. Daniel CrosbyDr. Daniel Crosby, President, IncBlot Behavioral Finance

I recently had the opportunity to speak about how investor behavior is a driver of the future of the financial services industry and the impact that it has when working with clients at the 2014 FSI OneVoice conference in Washington, D.C.

Much of behavioral finance’s departure from traditional financial models centers on the respective approaches’ vision of what constitutes “rational” behavior. Traditional approaches take a simple, objective approach—rational behavior is all about optimizing returns. Through a behavioral lens, rationality takes on a more subjective view and could be construed as making decisions consistent with personal financial goals. The behavioral approach is constructivist, in that the client sets the parameters for rationality through the articulation of personal goals. But by drawing out the financial goals of their clients, advisors do more than simply highlight a finish line; they actually catalyze a positive behavioral chain reaction.

Consider the followings ways in which having deeper conversations about client goals might make your job easier and improve your clients’ behavior:

Crosby_PowerofPurpose_3.6.14Purpose increases influence – The reasons why successful advisors are highly compensated and most trainees burn out within a few years are one in the same–selling is difficult. All too often, advisors are selling the wrong thing, focusing on the “What?” instead of the “Why?” In his excellent TED talk, Simon Sinek suggests that most uninspired business transactions deal with the particulars of a product or service rather than the underlying motivation. Rather than providing your clients with a laundry list of your services, help them understand how your efforts will help them reach their “why.” As Sinek says, “People don’t buy what you do, they buy why you do it.”

Meaning brings clarity – One of the reasons why people fail to save in the now is that it is construed as a loss. In an environment where expensive trinkets can tempt us with each click of the mouse, it can be difficult to put off for a rainy day what could provide more immediate pleasure. Once again, a goals-based approach can help. We know we need to save for some distant date, but the picture we have of the future tends to lack color, which can making saving a burden. By articulating a series of future meaningful goals, advisors can ensure that their clients have this larger “yes” burning inside.

Crosby_PowerofPurpose_3.6.14_2Goals provide comfort in hard times – Viktor Frankl, the Austrian psychiatrist and Holocaust survivor, has written beautifully about the power of purpose in his classic, “Man’s Search for Meaning.” Frankl noticed early on that much of what differentiated hope from a failure to thrive among prisoners was a connection to something bigger than the here and now. For those rooted in the horror of the present, it was exceedingly easy to find reasons to despair. But for those able to look forward to something more, their pain was couched in terms of aiding their long-term goals, which provided them some succor.

While I am in no way trying to draw a straight line between Frankl’s experience and that of a worried investor in a time of market panic, the truth remains that focusing on purpose has a calming effect. Rather than being swept up in the pain of the moment, goals-based investors are better able to understand that they are enduring a momentary discomfort on the path to achieving the things that matter most to them. Are your clients sufficiently tuned in to their personal North Star to aid them when times get rough?

If behavioral finance has taught us anything, I hope it is that true wealth is more about a life well lived than achieving a particular rate of return. In a single act, advisors can improve relationships with their clients, get them excited about the investment process and provide them with a buffer against hard times. Why not?

Views expressed are for illustrative purposes only. The information was created and supplied by Dr. Daniel Crosby of IncBlot Behavioral Finance, an unaffiliated third party. Brinker Capital Inc., a Registered Investment Advisor