Newsletter - February 2018

IT WAS A BUSY YEAR
I know because American Airlines sent me a summary of my travels.

• 90 hours in the sky
• 1.5 times around the world
• 12 destinations

That didn’t even include the trips I took on carriers other than American (e.g., Cape Town).

WHO WOULD HAVE GUESSED?
From David, my #1 son, via the Wall Street Journal: U.S. Oil Output Expected to Surpass Saudi Arabia, Rivaling Russia for Top Spot

THIS WAS A BIT DIFFERENT
I’ve done a lot of interviews over the years, but this was a bit different. The interview was with “Goldstein on Gelt,” an Israeli radio show. I was certainly in good company as Mr. Goldstein has interviewed every living Nobel Laurent in Economics.

http://goldsteinongelt.com/podcasts/financial-planning-account-worst-case-scenario/

FOUR YEARS! THEY MUST BE KIDDING
From Barron’s:

Citigroup Must Pay $11.5 Million Over Ratings Glitches

“In a news release, the regulator says that from February 2011 through December 2015, the Citigroup brokerage unit displayed to brokers, retail customers and supervisors inaccurate research ratings for more than 1,800 equity securities. That’s more than 38% of those covered by the firms’ analysts.

In some cases, the firm displayed the wrong rating for securities its research team covered, saying, for example, that a stock was a “buy” when it really was a “sell.” In other cases, ratings appeared for stocks that CGMI analysts did not in fact rate.”

VERY PROUD!

SMART, NOT BRILLIANT
JP Morgan Guide to the Markets 1Q 2018

AVOID A SEAT THAT DOESN’T RECLINE!
If you fly, be sure to check out SeatGuru (www.seatguru.com). SeatGuru.com is a website that features aircraft seat maps, seat reviews, and a color-coded system to identify superior and substandard airline seats.

ROBOs — DÉJÀ VU ALL OVER AGAIN
July 1, 2016 Automated investment advisor Betterment suspended client trading amid Friday’s market turmoil.

February 6, 2018 The websites of two of the country’s biggest robo-advisers — Wealthfront Inc. and Betterment LLC — crashed on Monday as the S&P 500 Index sank. Complaints quickly spread across Reddit and other Internet sites from people who had trouble logging in to their accounts.

MORE PROUD
In its New Year’s letter, the Coral Gables Community Foundation very graciously highlighted the community efforts of our firm.

The Evensky & Katz / Foldes Financial Charitable Fund was created by David Evensky, Principal and Chief Marketing Officer of the Evensky & Katz / Foldes Financial firm based in Coral Gables. The Fund serves as the central source of the company’s philanthropic giving in the community.

The Fund is one of the most active and charitable at the Foundation. Evensky & Katz has made a positive difference throughout Coral Gables and Greater Miami by generously donating over $500,000 to a myriad of organizations and causes such as Big Brother Big Sisters of Greater Miami, St. Alban’s Child Enrichment Center, Coral Gables Art Cinema, Miami Children’s Hospital Foundation, Coral Gables Museum and many more.

This year, Evensky & Katz / Foldes Financial hosted the 13th Annual Charity Classic in partnership with the Foundation and the Coral Gables Chamber of Commerce to benefit local non-profit organizations. David Evensky and his team have been generous supporters of the Foundation for many years. Currently, Michael Walsh, a Financial Advisor at the firm, serves on the Community Foundation Board and David served on the Foundation Board from 2008 to 2012.

The Community Foundation commends David, Michael and the entire Evensky & Katz / Foldes Financial team for their commitment to service and philanthropy in our shared community.

I LOVE GURUS
January market predictions for the year end:

Goldman Sachs 2300
Credit Suisse 2300

Market close 12/29/17 2673.61

I’m still looking for the gurus who called the early February volatility; so far, I’ve had no luck.

FOOD FOR THOUGHT
Speaking of gurus, there is an interesting article in the Journal by Mark Hulbert. Mark is the author of the Hulbert Financial Digest that he founded in 1980. The Digest tracks the performance of investment advisory newsletters. It’s now owned by Dow Jones and is published as MarketWatch. In his recent column Mark wrote, “Consider the performance of a hypothetical portfolio that each January invested in the recommendations of the investment newsletter at the top of the previous calendar year’s performance ranking. According to a study by my company, this portfolio created from each year’s winners has lost almost everything [my emphasis] — incurring an 18.0% annual loss since 1991. So $100,000 invested in this portfolio back then would today be worth just $471 today.”
https://www.wsj.com/articles/the-years-fund-returns-are-in-do-they-matter-1515381420

BEST JOBS FOR THE FUTURE 2017
From Kiplinger:
https://www.kiplinger.com/slideshow/business/T012-S001-best-jobs-for-the-future-2017/index.html
I knew that. I’m pleased Kiplinger does also.

As Americans age and pensions become a thing of the past, the value of good investment advice will only grow. Baby boomers, especially, could need more professional help as they plan for and enter retirement. You usually have to be a college grad to get on this career path. A bachelor’s degree in finance, economics, accounting, or a similar field would best prepare you for dealing with money matters, but most employers don’t specify a required major. Certification from the Certified Financial Planner Board of Standards — which requires you to earn a bachelor’s degree, have at least three years of relevant work experience and pass a rigorous exam on a wide range of financial issues — adds to your credibility. Licensing is required to sell certain types of insurance and investment products.

Personal Financial Adviser
Total number of jobs: 251,715
Projected job growth, 2016-2026: 23.8%
Median annual salary: $86,780
Typical education: Bachelor’s degree

Be sure and tell all your younger children, grandchildren, nieces, and nephews.

SICK WORLD
As my readers know, I’ve long been involved in the fight for a fiduciary duty for anyone providing financial advice. It turns out the battle is getting dirty. Here’s a report from FinancialAdvisor IQ

“A large proportion of comments criticizing the fiduciary rule seem to be fake, an investigation has revealed.

“The Department of Labor’s fiduciary rule purports to require retirement account advisors to put clients’ interests first. While it went into partial effect in June, the rule’s final implementation date, originally scheduled for next month, has been pushed back by 18 months. In the meantime, the DOL has been taking public comments on the rule to help the department understand the rule’s effect on advisors and investors.

“According to analysis by the Wall Street Journal and research firm Mercury Analytics, some 40% of supposed commenters didn’t write posts ascribed to them.

“For instance, Robert Schubert, a salesperson from Devon, Pa., supposedly wrote: “I do not need, do not want and object to any federal interference in my retirement planning.” But he tells the Journal the comment was a fraud and not only did he not post it, but also doesn’t agree with it…”

CLIENTS’ INTEREST FIRST?
Wonder why my friends and I are so passionate about regulators enforcing fiduciary standards?

Excerpts from an Administrative Complaint by the Enforcement Section of the Massachusetts Securities division of the Office of the Secretary of the Commonwealth.
https://www.sec.state.ma.us/sct/current/sctscottrade/MSD-Scottrade-Administrative-Complaint-E-2017- 0045.pdf

Scottrade, a Massachusetts-registered broker-dealer, has knowingly violated its own internal policies designed to ensure compliance with the United States Department of Labor (DOL) Fiduciary Rule by running a series of sales contests involving retirement account clients…. Prior to the Fiduciary Rule, Scottrade employed a firm-wide culture characterized by a gg re ssive sales practices and incentive-based programs. For example, between December 2015 and April 2017, Scottrade ran a series of call nights and sales contests, in part to drum up additional business in light of an upcoming merger with TD Ameritrade…

Notwithstanding the implementation of certain elements of the Fiduciary Rule on June 9, 2017, Scottrade launched two sales contests between June and September 2017 that ran in violation of its own internal policies designed to ensure compliance with the Fiduciary Rule. Scottrade launched the first of these two contests, the Q3 Win and Retain Sales Contest … on June 5, 2017. The Q3 Sales Contest came on the heels of predecessor sales contests, placed an explicit emphasis on generating net new assets, including retirement assets, and offered $285,000 in cash prizes. Almost immediately after the Q3 Sales Contest ended on July 31, 2017, Scottrade launched the Q4 Dials and Referral Contest … which was nearly identical in scope and structure….

Scottrade encouraged its customers to bring new assets to the firm, while failing to inform them of the conflicts arising from the sales contests. To appraise the performance of its agents, Scottrade frequently circulated internal metrics and rankings during the Q3 and Q4 Sales Contests. Under the Q3 Sales Contest, Scottrade required its agents to achieve a call penetration of at least 80% in order to qualify for particular prizes. Under the Q4 Sales Contest, Scottrade required its agents to make recommendations and referrals to its investment advisory program in order to qualify for particular prizes. These contests could reasonably be expected to cause Scottrade agents to make recommendations in their own best interests rather than the best interests of their customers, including those with retirement accounts.

MERE SALE ACTIVITY
Eugene Scalia, a partner with Gibson Dunn who represents the nine plaintiffs suing the Labor Department over its fiduciary rule, told the U.S. Court of Appeals for the 5th Circuit on Friday that Massachusetts’ action Thursday against Scottrade for allegedly violating the fiduciary rule’s Impartial Conduct Standards is “without merit,” and will spark “private plaintiffs ... to exploit the rule to concoct state law claims.”

Scalia said that the Massachusetts’ complaint asserts that “Scottrade has failed to act in good faith to comply with the fiduciary rule,’” and argues that “this gives rise to multiple violations of state law.”

“As Appellants warned …, a fiduciary breach is alleged to have occurred through mere sales activity.” [my emphasis] http://www.thinkadvisor.com/2018/02/16/lawyer-fighting-dol-rule-blasts-scottradefiduciar?eNL=5a875975140ba0ce5d8b4645&utm_source=TA_BreakingNews&utm_medium=EMCEmail_editorial&utm_campaign=02162018

From my friend Ron Rhodes, here’s more on the “mere” sales effort

The facts are pretty damning. Internal-use materials instructed agents to target a client’s “pain point” and emotional vulnerability and training sessions lauded the use of emotion over logic in getting a client to bring additional assets to the firm. The firm distributed weekly net new assets reports and closely tracked progress during these sales contests. The firm used internal quotas that ranked agents during the contests. The firm frequently used performance metrics to rank the different branches and agents in order to incentivize them to make recommendations to retirement account clients.

One branch manager stated, “This … is honestly the most interested I have ever been in one of our contests. We are going to make a concerted effort to win this thing.” A Divisional Vice President stated in email, “The first week of the Q3 ‘RUN-THE-BASES’ contest is done, and we have a few regions off to a SCREAMING start! You certainly knocked the cover off the ball! Some would say you knocked it out of the park! Very soon, we will get an official count on how we did, and more exciting, a chance to see where we stack-up against our peers on our official scoreboard! […] Happy Selling.”

I’m obviously living in an alternative universe from Mr. Scalia.

SPEAKING OF A SICK WORLD
• Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.
~Oscar Am ringer, “the Mark Twain of American Socialism”
• I offered my opponents a deal: “if they stop telling lies about me, I will stop telling the truth about them.”
~Adlai Stevenson, campaign speech, 1952
• “A politician is a fellow who will lay down your life for his country.”
~Texas Guinan, nineteenth century American businessman
• “I have come to the conclusion that politics is too serious a matter to be left to the politicians.”
~Charles de Gaulle, French general & politician
• “Instead of giving a politician the keys to the city, it might be better to change the locks.”
~Doug Larson (English middle-distance runner who won gold medals at the 1924 Olympic Games)
• We hang petty thieves and appoint the bigger thieves to public office.
~Aesop, Greek slave & fable author
• “Those who are too smart to engage in politics are punished by being governed by those who are dumber.”
~Plato, ancient Greek Philosopher
• “Politicians are the same all over. They promise to build a bridge even where there is no river.”
~Nikita Khrushchev, Russian Soviet politician
• “Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.”
~John Quinton, American actor/writer

WONDER WHY RETAIL INVESTOR INTEREST COMES LAST?
From InvestmentNews via my friend Skip:
2016-2017 Campaign Contributions

ICI, NAIFA, SIFMA, IRI, FSI are all financial service firm organizations IAA and FPA represent fiduciary-oriented practitioners.

OK, OFF MY SOAP BOX
On to a more positive note, this week, my partner, Katie Salter, who is President of our Lubbock Rotary, arranged for a true American Hero to appear as the lunch speaker, Hershel Woodrow “Woody” Williams. Mr. Williams is a retired United States Marine Corps warrant officer who received the United States military’s highest decoration for valor — the Medal of Honor — for heroism above and beyond the call of duty during the Battle of Iwo Jima in World War II. He and three soldiers are the only living Medal of Honor recipients from that war. In addition, he is the only surviving Marine to have received the Medal of Honor during the Second World War, and is the only surviving Medal of Honor recipient from the Pacific theater of the war. To say his talk was inspiring is a gross understatement. You may recognize his picture as he tossed the coin at the Super Bowl.

ROBOS — DÉJÀ VU ALL OVER AGAIN
July 1, 2016
Automated investment advisor Betterment suspended client trading amid Friday’s market turmoil.

February 6, 2018
The websites of two of the country’s biggest robo-advisers — Wealthfront Inc. and Betterment LLC — crashed on Monday as the S&P 500 Index sank. Complaints quickly spread across Reddit and other Internet sites from people who had trouble logging in to their accounts.

John’s query:
I wonder if they sent robo-calls to comfort their clients?

Hope you enjoyed,
Harold Evensky
Chairman
Evensky & Katz / Foldes Financial Wealth Management

© Evensky & Katz / Foldes Financial Wealth Management

© Evensky & Katz / Foldes Financial Wealth Management

Read more commentaries by Evensky & Katz / Foldes Financial Wealth Management