Financial Planning 2011-01

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2011 INVESTMENT OUTLOOK

January 2011
Financial-Planning.com
CIOs, like Aspiriants

Jason Thomas, are
surprisingly upbeat.
Story begins on p 56.
Vol. 41/No.1
worldmags
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C2_FPJan11 2
12/15/2010 11:55:27 AM
TH
TO
ALL
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TO A BETTER BROKER/DEALER.
dy to
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C3_FPJan11 3
12/15/2010 11:55:21 AM
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How do you prepare for the Tax-Efcient Frontier?

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into a whole new dimension.
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Read it carefully before investing. The summary of product features is not intended to be all-inclusive. Restrictions may apply. The contracts have exclusions and limitations, and may
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024_FPOct10 13
9/13/2010 4:51:20 PM
Downlo
Or call
charges and
564 Option 2.
ons, and may
al Securities
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Achieving The Efcient Frontier

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025_FPOct10 14
9/13/2010 4:51:21 PM
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005_FPJan11 4
12/13/2010 12:04:29 PM
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006_FPJan11 1
12/14/2010 10:27:01 AM
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TABLE OF CONTENTS JAN.11
photographs by lou mora
VOl. 41 NO. 1
David Wright,
sierra Core retirement Fund
56 Investing Outlook 2011:

A Modest Proposal
Even if economic expansion remains sluggish, corporate profits

might increase enough to keep stocks rising. Although uncertainty
remains, will a third year of growth be on the horizon?
By Donald J. Korn
Financial Planning (ISSN 0746-7915) is published monthly (12 times a year) by SourceMedia, One State Street Plaza, 27th Floor, New York, NY 10004-1505.
Subscription price: $99 for one year in U.S.; $129 for one year in all other countries. Periodical postage paid at New York, NY and U.S. additional mailing offices.
POSTMASTER: Send address changes to Financial Planning/SourceMedia, P.O. Box 530, Congers, NY 10920. For subscriptions, renewals, address changes or delivery service issues, contact Customer Service at (800) 221-1809. Send subscription orders to: Financial Planning/SourceMedia, P.O. Box 530, Congers, NY 10920.
Please direct editorial inquiries, manuscripts or correspondence to: Financial Planning, One State Street Plaza, 26th Floor, New York, NY 10004-1505. Back issues,
when available, are $10 each, prepaid. Financial Planning is a trademark used herein under license. Copying for other than personal use or internal use is prohibited without express written permission of the publisher. 2011 Financial Planning and SourceMedia, Inc. All rights reserved. www.Financial-Planning.com.
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007_FPJan11 1
January 2011 Financial Planning
12/10/2010 3:58:14 PM
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TAX-FREE INCOME
THE ROCHESTER WAY:

PROVING THAT UNRATED BONDS
CAN
Fixed income investing entails credit and interest rate risks (when interest rates rise, bond/fund prices generally fall). A portion
of a municipal bond funds distributions may be subject to tax and may increase taxes for investors subject to federal alternative
minimum tax. Capital gains distributions are taxable as capital gains.
Shares o
or any ot
Oppenheimer Rochesterr municipal bond funds include below-investment-grade securities (junk bonds) that may be more at risk
of default and subject to liquidity risk. Funds can maintain a relatively high portion of their portfolio holdings in particular segments
of the municipal securities market, such as tobacco bonds or real-estate-related securities. Funds may invest substantially in U.S.
territories, commonwealths and possessions and could be exposed to their local, economic and political conditions. State-specific
muni bond funds may also invest in a limited number of issues within a single state, which can further increase volatility and
exposure to regional developments. Fund holdings are subject to change.
worldmags
008_FPJan11 5
12/13/2010 12:04:49 PM
Careful
and if a
1-800-2
careful
2011 O
NDS
A portion
ernative
re at risk
egments
y in U.S.
-specific
ility and
worldmags
CAN BE SMARTER INVESTMENTS

THAN HIGHLY RATED ONES.
Why did a school bond with no credit rating look appealing?
Why did our research team give it high marks?
What convinced us that it could deliver a great tax-free yield?
Get the full story and more from a Rochester fund manager at
ROCHESTERWAY.COM
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC
or any other agency, and involve investment risks, including the possible loss of the principal amount invested.
Carefully consider a funds investment objectives, risks, charges & expenses before investing. For a prospectus,
and if available, summary prospectus containing this & other fund info., contact your advisorr, call us at
1-800-225-5677 or go to oppenheimerfunds.com. Read the prospectus, and if available, summary prospectus
carefully before investing.
2011 OppenheimerFunds Distributor, Inc.
HEAR FROM OUR FUND MANAGERS

From your iPhone or Android, visit any QR Code reader site.
Download & install the app. Scan the code to the left to watch
videos. Data charges may apply. Experiences may vary.
Follow us on Twitter @Rochesterfunds
worldmags
009_FPJan11 6
12/13/2010 12:04:52 PM
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TABLE OF CONTENTS JAN.11

THE CLIENT
COLUMNS
71 Fading Minds
As Americans age, more planners
are working with clients with
dementia. They need to protect
their clientsand avoid lawsuits.
By Ingrid Case
29 Team Building
Look for experts who will work
with you to provide comprehensive
service for your clients.
By John J. Bowen Jr.
33 Professional Adventures
What if the SEC regulated the
medical profession instead of
financial services? By Bob Veres
75 Q&A: Roth IRAs

As the 2011 tax season begins, here,
some questions your clients may
ask about their Roth IRAs. By Ed Slott
49
38 Fostering Change
Successful leaders know that before
they can implement a culture of
change, they need intellectual and
emotional buy-in from their staff.
By Glenn G. Kautt
THE PORTfOLIO
79 Measuring Stick
If you dont understand the
assumptions behind return figures,
mutual fund measurement may
be misleading. By Craig L. Israelsen
INDUSTRY
41 Spreading the News

The CFP Board oversees a plethora of
seasoned, educated and ethical
planners. Now it wants the rest of the
country to know it.
By Donna Mitchell
67
THE DaTa
86 Strong Finish
Investors closed out 2010 on a
positive note. But how will
high unemployment in the U.S.
and economic uncertainty in
Europe affect the year ahead?
By Donna Mitchell
46 Fund Manager Profile
HIGH NET WORTH
49 Keeping the Faith

With a little ingenuity, advisors can
draw up an estate plan that reflects a
clients religious beliefs.
By Martin M. Shenkman
MY WORD
96 Winners Circle
Have you put together a trusted
group of employees and peers
that will help you improve your
leadership decisions?
By Christopher I. Franklin
53 Practice Profile
THE PRaCTICE
63 Get in Shape
Make a resolution to measure and
monitor your business waistline.
By Stephanie Bogan and Natalie Doss
67 Joining Forces
To fuel growth, established RIAs are
recruiting breakaway advisors.
By Jonathan Beatty
83 True Value
Value funds bested their growth
counterparts this decade, despite
the late-term collapse of financial
stocks. By Donald Jay Korn
79
83
IN EaCH ISSUE
14 FPWhats Online
16 Editors Letter
21 UpFront
88 CE Quiz
10 Financial Planning January 2011
worldmags
010_FPJan11 2
12/10/2010 3:58:14 PM
worldmags
From our perspective,

its all about you.
J.D. Power and Associates ranked Commonwealth:
Highest in Independent Advisor Satisfaction

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The industrys leading advisors work hard every day to satisfy their clients, and were honored to
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Commonwealth Financial Network received the highest numerical score in the independent advisor segment in the proprietary J.D. Power and Associates 2010
Financial Advisor Satisfaction Study.SM Study based on 2,863 total responses and measures overall financial advisor satisfaction among advisors registered with
the Financial Industry Regulatory Authority (FINRA) investment firms. Proprietary study results are based on experiences and perceptions of financial advisors
surveyed in FebruaryJune and JulyAugust, 2010. Your experiences may vary. Visit jdpower.com.
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011_FPJan11 1
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worldmags
013_FPJan11 8
12/13/2010 12:04:49 PM
worldmags
FINANCIAL-PLANNING.COM
Top Funds
In January, Financial-Planning.com will feature
profiles of some of the top mutual fund performers
from 2010. What can their success teach us, and
how do they plan to repeat their success in 2011?
Tech Trends
With all the noise
around iPads,
Twitter and social
media, Lee Satlow of
Cabot Money
Management
stopped by to chat
with AdvisorTV
about whats
happening in the
tech world.
Highs and Lows

In early January, check out
our website for short
features on what worked
and what didntin 2010.
WE ASK, YOU ANSWER:
18%
Commodities
Q. What asset classes do you plan to

overweight for your high-net-worth
clients as 2011 begins?
3%
13%
30%
U.S. and other

developed markets
equities
Alternative
investments
10%
Cash and short-term

maturity bonds
15%
Emergingmarket
equities
Investmentgrade bonds
13%
High-yield & emergingmarket bonds
The Rally of a Lifetime?
Join the conVERESations
In a video interview with AdvisorTV, Craig

Callahn of ICON Advisors said 2010 saw the rally
of a lifetime. But what sectors will be hot in 2011
and beyond?
Columnist Bob Veres has launched a new online blog

called conVERESations. In it, he initiates discussions with
other planners on some of the industrys hot topics,
including the fiduciary standard and the future of the
advisory industry. Check out his blog and join the chatter!
CE CREDITS
You can earn up to 12 hours of free
Continuing Education credits online.
A new quiz, accepted by the CFP
Board of Standards, is posted each
month. Take this months test at
www.nancial-planning.com/ce_quiz.
FINANCIAL PLANNING DAILY

Our e-newsletter oers a roundup
of major news and events from the
industry. See why 60,000 advisors rely
on it. To get it emailed to your desk,
go to www.nancial-planning.com/
e-newsletters.
ARCHIVES
Youll nd the most comprehensive
online archives of news and features
about nancial planning. Search by
specic issues of Financial Planning
magazine, or by subject or company
name for news reports.
Join the industrys most active discussion boards, where youll nd your peers in lively, informative discussions of key topics.
Go to www.nancial-planning.com/forums/.
worldmags
014_FPJan11 1
12/10/2010 4:02:58 PM
worldmags
Go farther.
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committed to our disciplined investment process, across every product,
to help deliver the performance your clients deserve.
To learn more, call our advisor-dedicated sales desk at 877-33JANUS.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a
prospectus containing this and other information, please call Janus at 877-33JANUS (52687) or download the
file from janus.com/info. Read it carefully before you invest or send money.
Past performance is no guarantee of future results. Visit janus.com/advisor for current month-end performance.
Janus Triton Fund T Shares for the period 9/12/09-8/31/10. To qualify for an S&P U.S. Mutual Fund Excellence Award the fund must be
open to retail investors with a minimum initial investment of $25,000 or less. Analyzed weekly, the fund must have had an overall S&P
ranking of five-star with positive indications for Performance Analytics, Risk Considerations and Cost Factors. Funds that are sector or
regional focused along with Target Date funds were not considered for awards. Three funds with the highest consistency score in each
award category were declared Gold, Silver and Bronze.
As with all investments, there are inherent risks that individuals would need to address.
Funds distributed by Janus Distributors LLC (11/10)
worldmags
015_FPJan11 2
12/13/2010 12:54:10 PM
worldmags
INDUSTRY
RESEARCH
MADE SIMPLE
EDitors LEttEr
Dont Assume Anything
Dont be surprised if there are more than a few surprises
in the New Year.
THE FINANCIAL-PLANNING.COM
WHITE PAPER LIBRARY
Browse a wide range of industry
reports and white papers
on the latest market research
and trends within the
investment advisor community.
Its another New Year. Most experts are expecting a modest improvement in
future economic conditions and consulting advisors to act accordingly.
The Federal Reserve is forecasting 3% to 3.6% growth this year, Donald
Jay Korn reports in our Outlook 2011 cover story (page 56). Stocks, after a
couple of strong years, are expected to continue to make gains. Inflation is
supposed to remain in check. And any concerns about a double-dip recession
have dissipated. Hopefully this years results will skew more toward boom
than gloom, he writes.
But as we know, the future is a funny thing: It never turns out the way you
think it will. Most of the time, well-educated, well-intentioned people make
assumptions that, because of any number of factors, prove false.
Korn writes in True Value, that if you look over the last Decade of Disappointment, value funds, on average, outperformed growth funds (page 83). The
results, he says, may seem a bit surprising, especially considering that the most
recentand steepestmarket slide, from the fall of 2008 to the winter of early
2009, included a debacle for financial companies, the darling of value funds.
If financial funds flopped so spectacularly, how did value funds post
superior numbers for the trailing 10 years? The short answer: [T]hey held few
technology stocks and emerged from the bursting tech bubble with a lead they
held thoughout the decade, according to Michael Breen, associate director of
mutual fund analysis at Morningstar.
Another assumption: Temma Ehrenfeld notes in Pricing Risk, that while
it might appear investing in the stock markets of growing countries might see
the best results, the opposite turns out to be true (page 21). Between 1971 and
2008, the developed countries in the MSCIs indexes whose economies were
growing, after inflation, produced stock returns six basis points lower than
those countries where the economy shrunk.
And Craig L. Israelsen points out in Measuring Stick that nailing down
expected returns on an investment can be surprisingly complex (page 79).
Assumptions are made about tax rates, inflation and reinvestments that dont
completely simulate the reality of investing.
For instance, he writes, very few people make a single lump-sum investment. On the contrary, those who have 401(k) retirement plans through their
employers invest on a regular basis. The fact that most investors contribute via
an annuity pattern create an immediate disconnect with the lump-sum figures
supplied to investors to help them gauge the success of their investments.
What happens is that the return one might expect can be significantly different
depending on when a contribution is made.
Indeed, making assumptions can be costlyunless, of course, your assumption is to have a good backup plan.
Happy New Year!John McCormick, editorial director
worldmags
016_FPJan11 1
12/14/2010 1:55:09 PM
worldmags
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worldmags
055_FPDec10 10
11/10/2010 2:18:25 PM
worldmags
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worldmags
018_FPJan11 1
12/14/2010 12:08:04 PM
worldmags
our ratings
remain the same.

and thats what makes us different.
Jackson financial strength ratings

consistent for the past eight years and reaffirmed in 2010.*
A+ (Superior) - A.M. Best financial strength rating, the second highest of 16 rating categories
AA (Very Strong) - Fitch Ratings insurer financial strength rating, the third highest of 19 rating categories
AA (Very Strong) - Standard & Poors insurer financial strength rating, the third highest of 21 rating categories
A1 (Good) - Moodys Investors Service, Inc. insurance financial strength rating, the fifth highest of 21 rating categories
Find out why choosing Jackson is Long-term Smart.
www.jackson.com
* Ratings current as of 9/30/10. Financial strength ratings do not apply to the principal amount or investment
performance of the separate account or underlying investments of variable annuities.
Jackson is the marketing name for Jackson National Life Insurance Company (Home Office: Lansing, Michigan)
and Jackson National Life Insurance Company of New York (Home Office: Purchase, New York).
Jackson National Life Distributors LLC.
DMC4396 11/10
worldmags
019_FPJan11 4
12/13/2010 12:54:17 PM
worldmags
worldmags
020_FPJan11 2
12/14/2010 10:27:13 AM
worldmags
UP FRONT
THE BIG IDEA
Pricing Risk
Chasing growth can have some unexpected consequences. By Temma Ehrenfeld
ife would be much easier

if we could predict the
future. But even with their
collective knowledge and
wisdom, investors as a groupthe
marketcant predict the future.
You can take comfort in knowing that you do have a reliable
indicator of how risky a stock or
bond holding is. Just check its
price. Now studies by Marlena Lee,
a research associate at Dimensional
Fund Advisors (DFA), show that markets reliably price the chances that a
countrys GDP will grow.
At first, the result may seem
counterintuitive: Between 1971
and 2008, the developed countries
in MSCIs indexes whose economies were growing, after inflation,
produced stock returns six basis
points lower than those countries
where the economy was shrinking.
The outcome is logical if you
focus on risk. Investors already
knew that those countries had successful economies and considered
their stocks less risky, hence the
smaller returns. Less risk means
less return, of course. So the fact
that China and Brazil are growing quicklyand that everybody
knows itsuggests the returns in
their stock markets will be smaller
worldmags
021_FPJan11 1
than in a shakier economy.

Looking at emerging markets from
2001 to 2008, if you chose to put
your money in one that was lagging
behind, you could pick up an extra
Lee suggests that financial advisors think of low-growth countries

as similar to value stocks, which
grow more slowly than growth
stocks, but bring higher returns
over time.
Lee says that studies of developed economies going as far back
as 1900 reached the same conclusion, that faster economic growth
produces smaller stock returns.
Research that added up earnings
at all the companies in a countrys
Slow Growth, hiGh returnS

Stocks lagged in countries where GDP rose since 1971.
Developed Markets (1971-2008)
Average Annual Return
Average Annual Real GDP Growth
High-growth countries
12.90%
0.92%
Low-growth countries
13.52%
-4.02%
Emerging Markets (2001-2008)

High-growth countries
19.77%
2.52%
Low-growth countries
24.62%
-4.94%
Source: Dimensional Fund Advisors
4.8 percentage points in return.

On the other hand, the high
debt and deficits in the United
States dont make U.S. bonds a
bad investment at current yields,
which reflect the risk involved.
People fear that bond yields will
go up and returns will go down,
Lee says. But the information
about whenthe timingis in
todays yield curve. So theres
really no way to use the information to predict where the yield or
return is going.
The U.S. stock market is also not
a bad investment simply because
the economy is growing slowly.
stock market, rather than looking at GDP to measure economic

growth, also produced the same
results, according to the researcher.
So what does Lee suggest for
advisors clients? Most are overweighted toward U.S. stocks,
Lee and Weston Wellington, vice
president for investment strategies at DFA, argue for a diversified
global portfolio, but not because
countries abroad will grow faster
than the United States. The reason
is to spread your risk. Says Lee,
Why not just hold the whole basket of countries and not be overexposed to one?
FP
January 2011 Financial Planning 21
12/10/2010 3:59:42 PM
worldmags

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worldmags
038_FPNov10 7
10/21/2010 2:25:52 PM
worldmags
UP
FRONT
PERSON OF INTEREST
Know Thyself, Know Thy Client

Michael Kay says really listening to others starts with self-examination.
hat do you do when

your client is weeping
in your office? Michael
Kay, the president of
Financial Focus, believes planners
must be comfortable with emotions
and know their clients well. To do this,
they must achieve their own emotional
clarity, balancing their business and
personal lives. Here, some excerpts,
from a stimulating conversation with
the Livingston, N.J.based planner:
We always ask, What must happen

for you to feel satisfied and successful?
And what are you willing to do to get
there? If what they say must happen is
impossible, I tell them. Im really good
at naming the elephant in the room.
We are not therapists. Were more
like financial diagnosticians, identifying the problem.
The key is trustnot the trust that
you can create dazzling flowcharts but
that you understand who they are and
that you are not sitting in judgment.

The essential elements of successful communication are not easy or
natural You need to do what you say
youre going to doconsistently. Listen
more than you talk, and listen fully and
actively. Be aware that people process
information differently. Think before
you speak. Speak and act in a nonjudgmental manner. Ask questions. Be
direct. Remember and understand why
youre there. Provide your clients with
a sense of control over the process.
Be respectful. The magic is creating a relationship with clients where
theyll tell you the truth.
Balancing act
MICHAEL
KAY
Financial Focus
You need to take
the time to talk
to someone,
listen and not
look at them
with dollar signs
in your eyes.
worldmags
023_FPJan11 1
Its amazing how many people I meet

who are exhausted by the endless race
of numbers in their lives. I get it. That
was my life, toountil I began learning
to help my clients clarify what is most
important to them and guiding them
through transitions.
Before I could help my clients,
though, I had to help myself. I decided
I could no longer use the Wall Street
method of picking stocks nor could I
actively manage mutual funds. Instead
I went to a fee-based model where I
picked Dimensional Fund Advisors
index funds through a turnkey asset
management program. I simplified
my business model and began working with a coach. I went from working
on my own to having a staff, and Im
much less frantic now.TE
12/10/2010 4:01:51 PM
worldmags
Theres nothing passive

about how you invest.
Youre continuously fielding opportunities, adjusting allocations,
managing risk and most importantly, realizing your clients financial
objectives. So how do you bring it all together?
Access ETFs or mutual funds that track S&P Indices.
Act on your ideas, knowing that S&P Indices transparent
methodology supports your choices.
Core solutions. Build core strength with widely traded investments
that are linked to a time-tested lineup of domestic and global
equity indices.
Tactical solutions. Pinpoint tactical opportunities across broad
sectors, narrow industries and regional exposures with precision,
speed and agility.
Income solutions. Shape diversified income strategies that
capture investment-grade municipal bonds, preferred stocks or
high yield equities.
Real asset solutions. Diversify with global commodity indices
that give easy access to real assets through commodity futures
or common stocks.
S&P Indices is your source for a full spectrum of solutions
that get ideas moving.
www.spindices.com/financialadvisors
This information does not constitute an offer of services in jurisdictions where Standard & Poors does not have necessary licenses. Standard & Poors receives compensation
in connection with licensing its indices to third parties. It is not possible to invest directly in an index. Exposure to an asset class is available through investable instruments
based on an index. There is no assurance that investment products based on an index will accurately track index performance or provide positive investment returns.
Standard & Poors does not sponsor, endorse, sell, promote or manage any investment fund or other vehicle that is offered by third parties and that seeks to provide an
investment return based on the returns of any of our indices. For more information on any S&P Index and any further disclosures please go to www.standardandpoors.com.
Copyright 2010 Standard & Poors Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. STANDARD & POORS and S&P are
registered trademarks of Standard & Poors Financial Services LLC.
worldmags
63B)LQ3ODQB'HFB)$LQGG
024_FPJan11 4
30
12/14/2010
10:27:11 AM
worldmags
UP
FRONT
hot topics
RecoveRy in GivinG
Americans might be trying to be more
optimistic in 2011, but charitable organizations are little more guarded, according to findings from a recent study by the
Nonprofit Research Collaborative. The
national survey found that 36% of charities reported an increase in donations in
the first nine months of 2010, compared
with only 23% in the same period of
2009. On the flip side, 37% of charities
reported a decrease in giving, a significant drop from the 51% that reported
similarly in 2009. Still, charities have a
long way to go if they hope to return to
the same levels of giving they saw three
or four years ago, says Patrick M. Rooney,
executive director of the Center on Philanthropy at Indiana University, which
collaborated on the study. Indeed, the
2011 outlook is mixed for charitable
organizations. Forty-seven percent plan
budget increases, 33% expect to maintain their current spending level and
20% anticipate a lower budget.
TaRGeT-DaTe FunD PRoPosals
In late November, the Dept. of Labor
(DOL) proposed rules to help workers
understand the essential elements of

the target-date funds offered through
their workplace-sponsored retirement
plans. Some of those basics include how
the fund allocates its holdings between
stocks and bonds, how that mix changes
over time and the date when the mix is
slated to become most conservative. In
another big move, the DOL says each
company should explain what the term
target-date fund actually means, and
clarify each funds interpretation of that
phrase. If advisors want to weigh in on
the rule proposal, they have until Jan. 14
to email their comments to e-ORI@dol
.gov, attention TDF Amendments.
alTeRnaTive sTRaTeGies
It seems like everyone is interested
in alternative investing these days,
including generous clients who manage their charitable giving through the
Fidelity Charitable Gift Fund. One of
the countrys largest donor-advised
fund programs, the Charitable Gift
Fund expanded its investment program to enable financial advisors to
invest a portion of the gift funds charitable assets in alternative investments
such as hedge funds and private equity
funds. Fidelity is acting on strong interest from its affiliated advisors and their
clients. The Boston-based financial
services company found in its 2009
Fidelity Investments survey that 82%
of financial advisors view alternative
investments as important to their clients investment goals.
Web Help
Aite Group asked 402 advisors which common features of online brokers they
wished their firms would make available to them and their clients. Online trading
(28%) and mobile access (22%) led the wish list.
Social networking features

Product screenings
Other
Self-help tools

Email and text alerting
Online bill pay

Online statements
Research tools

Online planning tools
Efficient customer sign-ups
Mobile access
Online trading
Source: Aite Group
worldmags
025_FPJan11 1
7%
8%
13%
14%
16%
16%
17%
18%
19%
20%
22%
28%
ON THE MOVE
Allianz Global Investors
has formed an academic
advisory board to help
promote its Allianz Global
Investors Center for
Behavioral Finance. The
members of the board are:
Nicholas Barberis, Yale
School of Management; Kent
Daniel, Graduate School of
Business at Columbia
University; Daniel Goldstein,
London Business School
and Yahoo Research; Noah J.
Goldstein, UCLA Anderson
School of Management;
and John W. Payne,
Fuqua School of Business
at Duke University.
Fiduciary360, the
Pittsburgh-based fiduciary
education and training firm,
appointed Duane Thompson
as a policy analyst. In that
role, Thompson will help
coordinate fi360s work with
legislators and regulators in
Washington. Thompson will
also provide analysis and
commentary on the most
pressing fiduciary issues of
the day. Thompson was the
managing director of the
FPAs Washington office and
the organizations lead
lobbyist. He was with the
industry group for 14 years.
Peng Chen, president of
Morningstars Ibbotson
Associates unit, has been
named president of
Morningstars global
investment management
division. In that role, he will
oversee the companys
investing, consulting,
retirement advice and
investment management
operations in North America,
Europe, Asia and Australia.
12/10/2010 4:03:22 PM
worldmags
advisorChoiceSm
TradiTional EmployEE
indEpEndEnT EmployEE
indEpEndEnT ConTraCTor
indEpEndEnT ria
Bank & CrEdiT Union
RemembeR how good

things used to be?
we can top that.
ah, the good old days when the gleam
really good. 92-consecutive-quarters-of-
was fresh in your eye, your clients couldnt
profitability good. The kind of good that
wait to get going and your firm
has
was behind you every step
raymond James makes me
of the way. you were happy.
feel like i did when i first
you were successful. and the
started out only stronger
possibilities seemed endless.
and wiser. and thats one
nostalgia its understandable
Some things and ways of

doing them are timeless.
our
advisors
saying,
of the most unique things

youll find here alongside a
at a time when so much in our

industry has changed. But you wont find
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many wistful faces at raymond James,
dedicated support, youll discover a place
because the days here are still good
to remind you of just how good it can be.
j o i n r ay m o n d j a m e s . c o m
866.618.8065
2010 raymond James & associates, inc., member new york Stock Exchange/SipC 2010 raymond James Financial Services, inc., member Finra/SipC 10-pCGaC-0160 ml/Jd 11/10
worldmags
026_FPJan11 5
12/14/2010 10:27:10 AM
UP
FRONT
calenDar
January
6 | Life Planning Mastery
Kinder Institute of
Life Planning
Boston
(978) 486-8053
www.kinderinstitute.com
13 | Complete Course
in Risk Management
CFA Institute
Washington
(800) 247-8132
www.cfainstitute.org
20 | Investment Roundtable
for Senior Professionals
CFA Institute
Greenwich, Conn.
(800) 247-8132
20-12 | Energy
Investment Forum
Opal Financial Group
Austin, Texas
(212) 532-9898
www.opalgroup.net
27 | Impact Investing &
Responsible Investment
Strategies
Financial Research Associates
New York
(800) 280-8440
www.frallc.com
31 | OneVoice2011: FSI
Broker-Dealer Conference
Financial Services Institute
Phoenix
(888) 373-1840
www.financialservices.org
February
6-8 | Fourth Annual Inside
ETF Conference
CFA Institute
Hollywood, Fla.
(800) 247-8132
worldmags
027_FPJan11 1
7-8 | Consultants
Conference
Investment Management
Consultants Association
New York
(303) 770-3377
www.imca.org
15 | Investing in the
Developing World
CFA Institute
New York
(800) 247-8132
24-25 | AML Conference
Florida International
Bankers Association
Miami,
(305) 579-0086
www.fiba.net
28 | Active/Passive
Investor Summit
Information Mgt. Network
New York
(212) 768-2800
www.imn.org
28 | Investment
Education Symposium
Opal Financial Group
New Orleans
(212) 532-9898
www.opalgroup.net
March
3-5 | Business Solutions
Financial Planning Association
Boston
(800) 322-4237
www.fpa.net
7 | Fixed Income Conference
Financial Industry
Regulatory Authority
New York
(212) 858-7000
www.finra.org
10-11 | Compliance
Conference
Investment Adviser
Association
Arlington, Va.
(202) 293-4222
www.investmentadviser.org
Destination
worldmags
WHAT: Technology Tools for Today

WHEN: Feb. 16 -19, 2011
WHERE: Weston, Fla.
HOW: via Fort Lauderdale-Hollywood
International Airport
HOW MUCH: Conference: $275 to $400;
Hotel rate: $189 per night
WHY:
To hear from featured speakers:
Bill Crager, president of Envestnet; Julien Mordecai,
co-founder AllBackOffice Consulting; Peter Montoya,
founder of Peter Montoya
To learn from sample sessions:
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Financial Planning and Asset Allocation; Whats
New in Financial Planning Software?; Tackling Social
Media Compliance and Risk Challenges; Issues When
Dealing with Technology Service Providers
For coverage of hot topics:
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issues with institutional technology partners,
outsourcing PMS, post-recession planning,
straight-through processing and eSignatures,
touchscreen technology, iPad productivity
To hear from featured speakers:
At least 400 financial services professionals are
expected to attend
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Contact: (866) 320-0861, ext. 4
www.virtualofficenews.com
14-15 | Distressed
Investment Summit
Information Mgt. Network
Huntington Beach, Calif.
(212) 224-3248
www.imn.org
12/10/2010 4:03:08 PM
worldmags
The Rewards of Pursuit.

Finding investment opportunity isnt easy. It never was. Now though,
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challenged and analyzed to help ensure that the best ideas win.
Our teams are among the most tenured in the industry, with
many having worked at Columbia Management for more than
a decade. Along with deep experience, they bring a strong sense
of accountability to each and every client.
All of which means we never lose sight of our guiding principle:
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Discover what our broad array of investment solutions can do

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worldmags
028_FPJan11 6
Financial Plannings*ANUARY
12/14/2010 10:27:23 AM
worldmags
E L I TE A DV I SOR BY
JOHN J. BOWEN JR.

Team Building
Look for experts who will cooperate to provide comprehensive service for
your clients.
orking with expert teamsprivate client attorneys,

insurance specialists and other professionalsis a
way to stand out and provide truly comprehensive
service to your clients (see Team Player, December
2010). Unfortunately advisors sometimes stumble when it comes
to choosing their team members. Your goal is to build a close-knit
group, team players who work well with your clients and provide all
the skills you and your clients need.
Dont worry about getting everything perfect on the first try.
Many people have the necessary expertise; you dont need to find
the person with the most expertise when you are building your
team. Other valuessuch as their congeniality and openness to
working with other professionalsare
also important.
lawyer, followed by a life insurance specialist.

But always tailor your team to your practice.
For example, Larry Palmer of Morgan Stanley Smith Barney in Los Angeles serves mainly
officers, directors and founders of public and
private companies. When his clients started
asking for help with mergers and acquisitions
and related concerns about five years ago, he
began building a team of valuation specialists, M&A attorneys and other experts. I saw
that I should know the top people in all these
areas and be a financial concierge for clients,
he says.
Step 2: Make a list of candidates.
Once you have a clear idea of the expertise your clients need, gather a pool of
potential team members. You are most
likely looking for one person in each
area of expertise, but should consider
more than one candidate for each area
while building your team.
One good source of referrals is
financial firms from which you already
obtain services or products. You might ask
for names from other advisors who work
with clients like yours. Another approach is
to ask your clients for experts they trust and
approach them for a discussion about the client. Although they may not be available, they
have the expertise to know who to trust in
their fields.
Palmer found referrals through clients
especially helpful. Say you have a client who
loves his accountant. We tell that accountant
wed like to talk about our mutual clients situation and find out more about the accounting
practice, he says. During that meeting, we
Strategic alliance
partners can take
a long time to
develop, and you
must build your
expert team now.
HOW TO DO IT
Ideally, the experts on the team you
assemble will have a strong chemistry with one anotherand you. Some
advisers believe that the members
of their expert teams must also be
strategic alliance partners. However,
those alliances can take a long time to
develop, and youll need to build your expert team now. Heres a
step-by-step process to get started.
Step 1: Determine clients needs. To choose your experts and
which services to offer, you need to know what your affluent clients
need today and may need tomorrow. So be aware of red flags that
often signal the need for solutions provided by an expert:
An estate plan more than five years old;
Significant growth in personal net worth since the purchase of
life insurance;
A strong charitable inclination combined with a haphazard giving pattern;
Concentrated stock positions; and
The desire to sell a business in the near future.
Its highly likely that your primary need will be a private client
worldmags
029_FPJan11 1
12/9/2010 10:23:58 AM
worldmags
elite a dv i sor
Choosing ExpErts for Your CliEnts
What does a compatible candidate look like? During an interview, ask

him or her questions about each of the bubbles below.
areas of
expertise
professional
contacts
compensation
teamwork
financial
issues and
product
issues
financial
advisors
the
professional
the
person
practice
management
practice
goals and
objectives
clients
Source: CEG Worldwide
ask the question, If we couldnt hire you, who is the person out
there you most respect that you would refer your clients tosomeone whom you really admire? The good guys know who the other
good guys are, and they always give you a name.
Step 3: Rank the candidates. Research every candidate online,
scrutinize their websites and look up their publications. Check out
Seek professionals with high personal

integrity and a strong desire to succeed in
the ways you value.
lawyers through Martindale-Hubbell (www.martindale.com) and
CPAs at www.cpadirectory.com. Bear in mind that you want top
expertise that is also tailored to your clientsnot just top expertise,
but the right expertise.
Step 4: Meet the candidates in person. You need to get a sense
of your personal rapport and whether each candidate is open to working closely with you and the team as a whole. Seek professionals with
high personal integrity and a strong desire to be more financially successful or enhance their lifestyle without decreasing their income.
To probe for these dynamics, start by describing how you work
with clients one-on-one and how you will bring together a team
of professionals to meet specific client needs. Next, methodically
develop a clear picture of the candidate by covering each area on the
chart above (see Choosing Experts for Your Clients).
If you have a specific client challenge in mind, see if the expert
has the necessary skills. Cover all the candidates areas of expertise.
The practice. Ask about the experts current clientele, client
management practices and practice goals.

Look for details on how they work with clients, including compensation arrangements.
What financial services and products do they
ordinarily use?
Teamwork. Of course, its critical to
understand the experts views on working
with financial advisors and explore any experiences theyve had working with advisors in
the past. You are looking for professionals
who will see working with you as a real business opportunity.
The network. Ask the candidate about
his or her professional contacts. One of the
best ways to expand the services your team
can offer will be through the contacts of your
team members. How strong is the candidates
professional network?
Cover all the bases on the chart with thorough questioning. That will show you if
potential candidates would actually be good
partners, if they have a genuine interest in
sending leads your way, and if theyre true
specialists, Palmer says.
Step 5: Do a trial run. Once youve narrowed the field to one expert with specific
skills for each area of expertise, present a
current case and explore solutions and ideas
together. Assuming the candidates ideas
make sense, move ahead through the process
of presenting them to the client and implementing them, if appropriate. This is a true
trial run. As you go through the process, youll
have ample opportunity to decide how well
you work together and whether to invite the
candidate to work with you and your team on
future cases.
Finally, dont fall into the traps that keep
advisors from moving ahead. Your goal is to
be able to deliver comprehensive solutions
to your clients. You should not delay building your expert team. Locate people with the
expertise you needand then get to work. FP
John J. Bowen Jr. is founder and CEO of CEG
Worldwide, a global training, research and
consulting firm dedicated to helping advisors and the institutions that serve them
become more successful.
worldmags
030_FPJan11 2
12/9/2010 12:39:39 PM
worldmags
The Pacific Life Experience

A Consultative Approach to Retirement Solutions
I focus on my CLIENTS.
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Operations
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These are our guiding principles. We believe in providing you simple, straightforward retirement
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distributed by Pacific Select Distributors, Inc. (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company,
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worldmags
031_FPJan11 5
12/13/2010 12:54:20 PM
worldmags
Ready...to move your clients from accumulation to distribution?

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worldmags
013_FPMar10 3
2/18/2010 1:21:16 PM
worldmags
i ndustry i ns i ght BY
bob veres
Professional Adventures
What if the SEC regulated the medical profession instead of financial services?
hen Janice and Ralph arrived at the medical healing

center, they were met by a confusing scene. Men and
women wearing white coats were walking around in all
directions, many of them talking with patients or doing
what appeared to be complicated medical evaluations.
Ralphs eye caught one who had a long line of patients waiting to
talk with him. The sign said, Free Evaluation and Professional Recommendations. Free? He jumped in line and waved Janice to join him.
The practitioner was a pleasant man who, oddly enough, was wrapping the blood pressure device around his patients ankles. When he
pulled out his stethoscope, he would apply it thoughtfully to the
patients forehead, nodding with a wise expression on his face.
THE SAME DRUG
Much of the text

was indecipherable,
but it looked
like they were
prohibited from
suing in a court of
law, no matter how
bad the advice.
Stranger still, no matter what the

patients symptoms were, he always
prescribed the same drug. An elderly
woman was told that a yearly payment
plan for Lunagra would cure her bunions. A gentleman learned that a nightly
dose of Lunagra would help him recover
from his heart attack. A person with a
high fever, who complained of vomiting and diarrhea, was also prescribed a
lifetime supply of Lunagra.
While the practitioner applied the blood pressure device to Ralphs
ankle, Ralph nervously ventured a question.
How much is this visit actually going to cost me?
Nothing, the practitioner replied cheerfully.
Nothing? Ralph could hardly believe his ears.
When Im your practitioner, the advice is free, he said with a
friendly smile, pausing to glance at the blood pressure reading. 337
over eight and three quarters. It definitely looks like youre going to
need some Lunagra.
What about my health insurance...
You may have to dig into your wallet with some of the white
coats around here, the healing practitioner said with a snort. But
here, we believe in free service. You just go right over there and
worldmags
033_FPJan11 1
sign up for monthly payments for your...

But Im not sure I need anything, Ralph
protested weakly.
Ralph, youre being difficult, Janice broke
in quickly.
Im not sick. As far as I can see, all he does
is recommend one drug, no matter what the
problem is. I dont understand how he can feed
his family if all he does is sit here and treat people for free.
Oh, I get paid, the practitioner said. I
make a darn good living. Whenever I sell you
some Lunagra, the drug company
pays me half of what you pay for it in
the first year.
What?! I didnt come here to get
sold something! Ralph cried out.
What if it turned out I needed some
other kind of medication?
Im not licensed to sell you those,
the practitioner sulked.
Maybe we should look for somebody whos a little more professional,
said Ralph. He stalked off, Janice following in his wake.
THE FINE PRINT
That man looks nice, Janice ventured as she

noticed a second practitioner. And he seems to
have a very busy practice.
Ralph looked over. There was a long line of
would-be patients. At the front, the practitioner
was applying the blood pressure system to a
patients upper arm.
Maybe youre right, he said as they claimed
a place in line.
Ralph and Janice were relieved to see that
each patient in this line was given a different
12/9/2010 12:56:12 PM
worldmags
industry i ns i ght
prescription. As they moved up the line, they were given a lengthy

document, which they had to sign before the practitioner would speak
with them.
It looks like a lot of legalese, Ralph ventured, scanning the document with growing perplexity.
See? Look here, on page seventhe recommendations the practitioner makes might not be in our best interest. Why would something
important be all the way back on page seven?
Later, he noticed a provision that said that the practitioner owed
his primary loyalty to his employer, a firm that manufactures medical
products and drugs. Some other manufacturers of medical products
and medicines might have paid fees and other considerations for the
privilege of being on the practitioners shelf.
There was also a clause stating that you couldnt sue in a court of
law no matter how bad the advice turned out to be; the dispute had
to go to an arbitration hearing in a venue where the majority of the
arbitrators would be industry representatives, and there could be no
possibility of punitive damages. Much of the rest of the legal language
was indecipherable, but it looked like a blanket apology and disclosure
in advance for acting on conflicts of interests. By the time they had
The practitioner was a pleasant man

who, oddly enough, was wrapping
the blood pressure device around his
patients ankles.
finished reading it, Ralph and Janice were startled to realize they were
at the head of the line.
What can I do for you today? the practitioner in the white coat
said with a friendly smile.
Im wondering about this document, Ralph began. Can you
explain it in plain English for me?
Id like to, the practitioner said with a warm smile. But the company lawyers wont allow it.
Okay, Ralph said. Is it all right if you do your professional evaluation without us signing this document?
No.
Just sign it, Janice urged. All the other patients didnt seem to
have a problem with it.
We had a bad experience with the last healing practitioner we
talked to, Ralph continued doggedly. Can you at least tell me how
much this is going to cost us?
Nothing, the practitioner said.
Nothing? Janice said.
Ill take my compensation from the drugs that I recommend. The
company will pay me.
But youre going to recommend whats best for whatever our medical problems are, wont you? Janice asked, sounding agitated.
Maybe you should take a deep breath,

Ralph suggested mildly.
You take a deep breath, Janice answered
hotly. I want to hear what this jerk has to say.
Ill recommend whichever of my companys
drugs most closely fits your medical condition,
the practitioner said cautiously. We subscribe
to a fair dealing regulatory structure here, which
means whatever we recommend has to be plausibly related to whatever is ailing you. Were
actually much more highly regulated than
those so-called fee-only professionals; there are
a lot more rules that we have to follow when we
sell our companys products and services.
But what if we need something that your
company doesnt manufacture?! Janice fairly
screamed at him.
Oh, there are a lot of other drug manufacturers who have paid us shelf space fees or signed
revenue-sharing contracts...
Maybe we should go, Ralph said nervously,
pulling Janice away from the practitioner before
her fingernails could find his throat. Thank you
for your time, he called out over his shoulder.
Didnt he say something about fees? Janice
said after a moment.
D
r
w
o
A THIRD WAY
Yes, Ralph said shortly. He was looking at

another person in an identical white coat,
whose sign said that he was fee-based. What
about him? he said to Janice.
Lets give it a try.
They took their place in another line,
and watched as the patients in front of them
appeared to be thoroughly examined. The recommendations were many and varied. They
stepped forward with confidence.
What brought you here today? the healing
practitioner asked them.
Were really looking for somebody to handle our healthcare needs going forward, Ralph
said. We may have some health problems we
dont know about, but mostly were here to find
somebody we can trust. I shudder to think that
we might have spent years working with one of
those other two people, throwing our money
down the drain. You arent like that, are you?
Im a comprehensive practitioner, the fee-
worldmags
034_FPJan11 2
12/9/2010 12:56:27 PM
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worldmags
worldmags
4200_2910_5_FiPl_79x105_MOL.indd
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035_FPJan11 6
12/9/10
1:59 PM
12/13/2010
12:54:32
PM
worldmags
industry i ns i ght
based advisor said smoothly. Lets have a look.

During the examination, the practitioner found a few minor issues
like Ralphs bad case of halitosis and Janices high blood pressure. He
evaluated their blood work and recommended a wellness program
where he would be paid quarterly based on whatever drugs they purchased. Then he recommended another medical contract that would
be paid for monthly.
What do we need that for? Ralph asked.
If you pay in yearly while youre young, when you get older, it will
cover some of your medical bills. There are a lot of really terrific bells
and whistles that mean that youre guaranteed to at least get all your
money back, plus 7% rate of return.
Does our quarterly fee cover that too?
No.
Do we pay you for recommending it?
I get paid a commission for selling it to you.
What?! Ralph was beginning to feel a sense of dj vu. I thought
you were recommending whatever was in our best interest.
Oh, that was just during the evaluation phase. Once I finished that,
I put on a different hat and became a salesperson of drugs and my own
e
e
During the examination, the practitioner

recommended a wellness program
where he would be paid quarterly based
on whatever drugs they purchased.
wellness program.
I didnt see you put on any different hats, Janice said in a confused tone of voice. You arent wearing a hat now, are you?
Its just an expression, the healing practitioner said nervously.
I dont get it, Ralph said, sitting down in the chair and wrapping
the blood pressure device around his head like a compress. Isnt there
somebody who simply evaluates our health and then prescribes what
we need, for a fair price?
There are people like that, but not very many, and they mostly
only work for rich people, the practitioner said.
What do you mean, rich people?
Well, they charge actual fees, and nobody but a rich person would
think of writing a check, just for the privilege of not being sick.
How are we supposed to tell you apart? Janice demanded. You all
look the same. We could have wandered in this maze for years, working
with one person after another, having them take our money and giving
us whatever they were told to recommend. Isnt there a regulatory body
in charge of all you medical practitioners?
Yes, the fee-based practitioner admitted. The person in charge
used to work for the brokerage folks over there, who are employed by
the product manufacturers. I saw you talking with one of them. They
have a lobbying and self-regulatory organization, and it paid her mil-
,
m
y
lions in retirement money before she took over

regulating them and the rest of us.
So is she going to help us figure out which
of you is which?
Her group did a study some years ago which
found out that people were confused.
Well, duh, Janice responded.
So they concluded there isnt any difference
between us, and we should all be regulated as if
we were selling stuff. You know, rules to make
sure we dont screw you when we make self-serving recommendations.
God in heaven, Ralph said. Isnt there
some kind of professional standard for what
you do?
Not really, the practitioner said cheerfully.
Theres an educational credential and a code
of ethics that goes along with it, which only a
handful of us bother to get, and a lots of other
credentials, some of which you can get in a
weekend that look just as impressive on the
business card. Meanwhile, the regulators are
studying whether we should all work on behalf
of the patients, but our trade organization has
joined with the product manufacturers in arguing that this is some kind of big government
power grab and would raise costs for consumers and small businesses. Their hope is that
all of us, including those do-gooders, will be
put under the regulatory arm of the organization that lobbies on behalf of the manufacturing firms, whose board of directors has a lot of
product and sales executives on it.
And that helps us... how? Ralph asked.
Could you just show us one of those holierthan-thou people? Janice said wearily.
Theres one over there, the healing practitioner said, nodding his head toward a middle-aged woman wearing a white coat that was
identical to every other one theyd seen. There
arent very many of them, the fee-based advisor added. Maybe, instead, youd be willing to
pay a discounted commission.
FP
Bob Veres is editor of Inside Information
(www.bobveres.com), a service which helps
advisors become more effective, efficient and
successful by identifying best practices in
practice management and client services.
worldmags
036_FPJan11 3
12/15/2010 11:50:14 AM
worldmags
It may surprise you that life insurance can do all this for
your clients. It doesnt surprise me that its from AXA Equitable.
the 800lb gorilla in the room
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AXA Equitable offers a wide variety of life insurance products. Loans and partial withdrawals will decrease the death benefits and cash value of your clients life
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For Financial Professional Use Only.
IU 57757 (9/10)
worldmags
103_FPNov10 14
10/21/2010 12:35:38 PM
worldmags
bus i ness consul ta n t BY
glenn g. kautt
A
W
E
b
q
d
w
w
i
Fostering Change
Successful leaders know that before they can implement a culture of change,
they need intellectual and emotional buy-in from each staff member.
s a result of the recent global financial crisis, media

pundits say change is necessary to recover and move
forward: change your organization, marketing, technology, and so forth. Thats nothing new, as the business
of business is change, but just how do you go about changing
your advisory firm?
In my September 2009 column, Forward and Back, I
described why a culture of change is so important in any advisory
firm. In this column, I discuss how that cultures working in our
firm and how our staff is buying in to change.
SOME DEFINITIONS
First let me take a moment to review a few important business
definitions. You are a successful
manager if you use defined job
responsibilities and organizational
systems, processes and procedures.
If you have a clear understanding of
your job and the jobs of those you
manage, implement organizational
rules and processes and appropriately use rewards for those you
manage, then you are considered an
excellent manager.
On the other hand, you are a successful leader if you create, foster
and implement change, innovation and shifts in structure, systems and processes. If you can execute timely, appropriate and
necessary change, then you are considered an excellent leader.
The dual skills of managing and leading are necessary in every
successful organization; both functions must be executed well in
order for a firm to grow and prosper. Unfortunately, most small
business ownersincluding financial plannersdont work hard
to build leadership skills.
So in this column I focus on change leadership and how its
working in our practice. Well talk about management skills in
future columns.
o
h
i
EMOTIONAL RESCUE
As I thought about actions that would help

our advisory firm reach new goals, I had
to determine what we could realistically
accomplish. To do this, I used a core leadership traitfoster the change that is appropriate for the organization.
This change did not require traditional
problem solving, planning or changing the
organization or staff. Rather, it required setting a direction, motivating and inspiring
others and aligning the staffs thoughts and
actions. Ultimately, I had to get emotional
buy-in from everyone.
Buying-in means accepting an
idea or goal and making it part of
your everyday frame of reference.
However, getting buy-in is not just
an intellectual exercise. It is equally a
matter of the heart, because feelings
ultimately drive people to do things
and change their behavior.
In an organization, all the emotional energy has to point in the same
direction. This can be difficult to do.
Unless everyone lines up and moves
in the same direction, you could end up with
the business equivalent of a train wreck.
How did I achieve buy-in from my colleagues and employees? Three things must
happen, the first of which may actually be
somewhat counterintuitive:
Capture peoples attention.
When they are paying attention, win
their minds.
When youve won over their minds, win
their hearts.
To keep the good

ideas front and
center, put hidden
agendas, naysayers,
delaying tactics
and anxious
peoples concerns
in a public forum.
worldmags
038_FPJan11 1
12/8/2010 12:28:43 PM
e
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worldmags
ATTENTION, PLEASE!
Why capture everyones attention first?
Experts suggest the average adult is bombarded with about 10,000 ideas, requests,
questions, suggestions, proposals and
demands each week in verbal, visual and
written form. Assume just 20 are good ideas;
what are the odds theyll be noticed in this
information tsunami?
Assume youre standing in front of someone having a conversation. Whats the chance
he or she is really listening to what youre saying, let alone ready to act on your idea?
To engage an entire organization, get
everyone it will impact in the same room,
literally, as you unveil your ideas to get
them on the same page. Heres where it gets
counterintuitive: You will inviteand even
encourageeveryone to express anxieties,
concerns, questions and even critical comments (leaders ideas get attacked too).You
will undoubtedly get their attention as you
get their push-back.
Leaders have to learn how to deal with
the objections to their ideas for change.
Unfortunately, this column cant delve into
how to overcome really bad pushback techniquesfear-mongering, delay, confusion
and even outright ridicule. Thats a subject
for a whole new column.
p
d
y
MINDS AND HEARTS

My goal was to engage all staff to increase
both our client base and gross revenues, so I
expected anxiousness, uncertainty and even
fear of something new. I started by asking
everyone questions, including what each
person wanted to accomplish financially in
the next year.
Once the conversations were focused on
what they wanted, I had their individual
attention. Then, we talked about how the
firm and I could help them reach their goals.
To reduce uncertainty even further, I set
up a voluntary training program that created
a guaranteed win; it paid staff to attend each
meeting. The training was on communication skills, goal setting, and management
and personal accountability.
a
s
s
s
h
worldmags
039_FPJan11 2
To make it more fun for employees, there was an attendance

multiplier. The better the attendance, the larger the year-end
bonus. I got everyones attention, and they were all emotionally
involved in the training, which could help everyone reach our new
client goals.
Am I dealing with a bunch of mercenaries? Absolutely not. At
the beginning of the program, I helped each staff member link the
financial rewards to his or her emotional goals. I removed pushbacks such as fear, confusion and delay by setting a three-month
time period where all they had to do was show up at meetings to
be rewarded with hundreds of dollars.
Once the training program started, I introduced required reading. I kept their attention by surprising everyone at a training session when I awarded cash to the first and second individuals who
had given me a requested book report. Their response told me
When you are working to create a

culture of change, building a sense of
urgency is crucial.
that the next time I recommended a reading assignment, there
would be an even higher level of compliance.
Finally, I created a sense of urgency by setting some deadlines
for the various contests and award programs. When you are working to create a culture of change, building a sense of urgency is
crucial to moving the project along.
Professor John Kotter, author of A Sense of Urgency, says it best:
It all starts when large numbers of people see a big opportunity and
develop a gut-level drive to get up each and every day determined
to do something, however small, to help exploit the opportunity.
NOW WHAT?
So what are you doing to exploit new opportunities? As a leader,
youll develop ideas and goals involving staff in new and different
ways. To keep these good ideas from getting buried, put naysayers, hidden agendas, delaying tactics and anxious individuals concerns in a public forum. This gets everyones attention and is the
most effective way to keep ideas from being shot to pieces behind
your back.
Then, get buy-in by involving everyone emotionally and intellectually in ways that align individual objectives with company
goals. You can lead change, watch change or wonder what has
changed. Use a buy-in strategy to lead your organization to the
next level.
FP
Glenn G. Kautt, MBA, CFP, EA, AIFA, is chairman of The Monitor Group in McLean, Va. For more information, email him at
kautt@themonitorgroup.com.
12/8/2010 12:28:51 PM
5
worldmags
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worldmags
040_FPJan11 8
12/14/2010 10:27:32 AM
worldmags
INDUSTRY
fUND MANAGER PROfILE > 46
PhotograPh by kelly davidson
Spreading
the News
Chair Robert J. Glovsky says the
new marketing campaign will give
people a better understanding of
the value of a CFP.
ere is the truth, the excruciating truth, about most

Americans perceptions
of financial planners: The
profession is populated by wolfish
financiers, specifically the type of figure personified by Gordon Gekko, the
greed is good villain from the movie
Wall Street, the CFP Board of Standards
found in a recent study.
For financial planners who pride
themselves on adhering to a fiduciary
standard of care when dispensing
financial advice, especially those who
have earned a CFP designation, this
can be hard to take. Fortunately a little
education appears to work wonders.
When Americans hear what goes
into obtaining a CFPthe requisite
three years of work experience, 10-hour
exam and continuing education study,
and the quality of service expected
from those that provide financial
advicetheir attitudes change. Suddenly financial planners are seen as
well-educated, ethical, client-driven
professionals who are good listeners
and operate with integrity.
worldmags
041_FPJan11 1
The CFP Board oversees a fleet of

seasoned, educated and ethical
financial planners. Now it wants the
rest of the country to know it.
By Donna Mitchell
After being educated about the
requirements for a CFP and the
approach these planners take in offering financial advice, consumers say
they are more likely to seek out a CFP
for help with managing their money.
These findings helped form the basis
for a national public awareness campaign that the CFP Board will kick off
next spring.
SPREADING THE WORD
The campaign will target affluent
Americans age 35 to 64 with investable assets between $100,000 and $1
million, a group that tends to look for
financial advice. The CFP Board aims
to get its message out via print, television and online media, says board
chair Robert J. Glovsky, president of
Mintz Levin Financial Advisors.
Digital media offers opportunities
for people to respond, is easy to track
and maintain and is popular with the
target market group, Glovsky says.
The campaign will also run advertisements on national cable channels and
in consumer magazines.
The CFP Board has authorized a

four-year campaign, costing $9 million
annually. It will fund the campaign
with $9.3 million from the CFP Boards
reserves$7 million for 2011 and $2.3
million for 2012as well as a certification fee increase of $145 per year, or $12
a month. The organization estimates
that based on the 62,000 current CFP
certificate holders, the fee increase
itself will raise about $9 million annually to fund the campaign.
The CFP Board surveyed 7,000
CFPs earlier this year and found a
vast majority support the public
awareness campaign, even knowing
it would involve a fee hike, the group
said. A full 72% said they would pay
the $12 a month to support a national
public awareness campaign sponsored by the CFP Board.
The campaign seems to have a lot
of road to cover, however. Most Americans today are almost completely
unaware of what a financial planner
does, why they might need one and
that there are planners who undergo
a rigorous certification process to
12/9/2010 2:02:51 PM
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004_FPJun10 1
5/18/2010 4:39:45 PM
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worldmags
industry
become qualified at what they do.

The public doesnt know the value
of the CFP certification, says Michael
Kitces, director of financial planning
at Pinnacle Advisory Group, a wealth
management firm in Columbia, Md.
When people are aware of what the CFP
mark represents, they tend to choose a
CFP for financial advice. They dont
make the decision at that conscious
level, but yes, it has an impact.
The group will evaluate the campaign as it goes along, with a formal
review at the two-year mark. The CFP
Board is still developing the set of metrics that it will use to judge the success
of the campaign, says Dan Drummond,
a spokesman for the board. However,
the group says it is willing to end the
campaign and the associated fees if it
does not deliver the desired results.
we get most of our new business.

Some advisors, like Jim D. Pinkston,
CFP, also a financial consultant at Gimbal Financial, believe the CFP Board
ought to promote the CFP standard
more rigorously at the academic level.
Make it something you could graduate
with, Pinkston says. If the Ivy League
schools offered the major, how many
other schools would follow?
Few college students know they
can study financial planning in college, says Vicky Hampton, a professor
in the division of financial planning
at Texas Tech University, in Lubbock,
Texas, which offers one of the largest academic programs in financial
planning in the country, including
bachelors, masters and PhD degrees.
According to the CFP Board, there
are 328 registered financial planning
cannot differentiate between the

qualifications and a fiduciary duty
[and suitability] and who is under it.
The campaign aims to educate consumers about CFPs, so that they can
start to tell the difference between the
menagerie of professionals offering
financial advice and show a preference for CFP holders.
RITE OF PASSAGE
Kitces and others say that the campaign will help financial planning
define itself as a full-fledged profession on par with accounting, law and
medicine. A profession has serious
requirements for obtaining a body of
knowledge, he says, and the campaign will demonstrate to Americans
that they need to hire someone with
the requisite knowledge to be a CFP.
Most Americans are almost completely unaware of what a financial

planner doesand why they might need one.
THE INTERNAL IMPACT
The campaignand its requisite fee
increasehas already made a noisy
impact on the profession. The increase
represents an 80% hike over the current $180 amount levied annually on
CFP holders. All told, CFP professionals will pay $325 beginning in July 2011,
when most renew their certification.
The raw numbers do not seem
like a lot in dollars and cents. A vocal
minority of the CFP Boards membership, however, took issue with the
steep run-up in their certification fee,
which seemed to happen overnight
and which some deemed unnecessary. We pick up 10 to 20 new clients
a year, says Keith A. Tyner, CFP, a
financial consultant at Gimbal Financial, a financial planning firm based in
Fishers, Ind. Our clients and suppliers refer business to us. That is how
collegiate programs. Of that number,

188 are certificate programs, 96 offer
bachelors degrees, 39 confer masters
degrees and five grant PhDs.
For its part, Texas Tech has many
financial planning students each
year. Im hoping well attract more
bright young people who want to do
this, because it is a great profession,
Hampton says.
Glovsky acknowledges the influence that academic programs have on
promoting financial planning as a profession and says the CFP Board is committed to highlighting them as well.
The public, however, is still largely
unaware of the services that are available to them from CFP holders, or of
the high standards that CFPs adhere to
on a daily basis.
There is confusion on the part of
the consumer, Glovsky says. They
Achieving parity with other professions isnt the campaigns primary

goal, Glovsky says, pointing out that
most professions took hundreds of
years to gain legitimacy. But the group
would, of course, be happy if advisors
gained more standing in the eyes of
the public.
Kevin Keller, CEO of the CFP Board,
says that four years ago he saw how
important it was to some industry
leaders that financial planning be recognized as a profession. The industry
has many of the ingredients already,
he says, including a body of knowledge, a code of ethics and a commitment to offering services on a pro bono
basis. Until the public recognizes that
we are a profession, I would suggest
were in the emergent phase of becoming one. The campaign is designed to
raise that awareness.
FP
worldmags
044_FPJan11 2
12/9/2010 1:41:29 PM
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045_FPJan11 8
12/13/2010 1:16:00 PM
worldmags
industry
F
b
FUND MANAGER PROFILE
Homegrown Harvest
Minnesotas Mairs and Power Growth Fund proves
the value of staying local. By Ilana Polyak
ou might think that an investment

fund that sticks close to the state of
Minnesota would produce a portfolio
of hometown favorites, but not many
stock standouts. You would be wrong.
To the uninitiated, Minnesota means the
Twins baseball franchise, the singer Prince
and too many Garrison Keillor jokes to count.
But the state has much to recommend it. It is
blessed with good schools, pristine wilderness
lakesand an entrepreneurial spirit responsible for creating some of the countrys premier
growth companies.
That provides ample opportunity for Mairs
and Power Growth Fund managers William
Frels and Mark Henneman to find promising
issues for their locally grown portfolio. Although
the $1.9 billion fund can venture afield in search
of stocks, Frels believes that the quality of firms
in the Midwest is nonpareil. I dont mean to
disparage places like Detroit or Cleveland, but
they dont have the technology companies and
the new company launches to the extent that
the Midwest does, says Frels, who is the companys chairman and CEO. The fund also stays
small, with just 45 holdings.
The strategy has yielded strong results for
the St. Paul firm since George Mairs Jr. founded
it 1931, when the Great Depression was casting
its long shadow over the investment world.
Today Mairs and Power Growth is up an annualized 2.4% over the last five years through Nov.
26, landing in the large-blend categorys top
18%, according to Morningstar. Over the past 10
years, the fund is up 6.5% a year annualized, in

the categorys top 2%.
A CERTAIN KIND OF GROWTH
Of course its not enough to be from Minnesota to make it as a holding in the growth
fund. Frels is looking for companies with consistent growthbut hes not willing to pay too
much for it. In the late 1990s, he and Mairs held
hardly any technology names; they couldnt
countenance the stocks sky-high prices and
minuscule or nonexistent earnings. The two
chose to stay with slower-growing stocks,
confident that those firms growth trajectories
were sustainable.
We had to undergo a self-examination a
number of times to see if what we were doing
would hold us in good stead, Frels recounts.
It did. By the early 2000s, Mairs and Power
was outperforming competitors with weaker
value disciplines.
The fund again showed its mettle during the
most recent downturn, largely because Frels
favors companies with strong management
teams and the competitive advantage known
as a wide moat. These businesses can weather
tough economic times and also make strategic
acquisitions when the price is right.
One example is hometown favorite Target.
Unlike Walmart, which strives for rock-bottom pricing, Target was seen as vulnerable as
shoppers began to pinch their pennies in the
recession. But historically Target has had better returns and a somewhat better growth rate,
William
Frels
Mairs and Power

Growth Fund
Age: 71
Credentials:
BBA in finance,
University of
Wisconsin, Madison
Experience:
Chairman, CEO and
director, Mairs and
Power (2000-present);
portfolio manager,
Mairs and Power
Growth Fund and Mairs
and Power Balanced
Fund (1992-present);
senior investment
officer, American
National Bank of St.
Paul (1990-1992);
portfolio manager, First
Trust Co. of St. Paul
(1972-1990); analyst
and research director,
First National Bank of
Minneapolis (1962-1972)
Ticker: MPGFX
Inception of fund:
November 1958
Style: Large-cap blend
Assets under
management:
$1.9 million
Three-year
performance as of
Nov. 26, 2010: 0.29%
Five-year performance
as of Nov. 26, 2010:
2.39%
Expense ratio: 0.71%
Front load: None
Minimum investment:
$2,500
Alpha:
3.75% vs. S&P 500
worldmags
046_FPJan11 1
12/9/2010 10:24:15 AM
i
2
2
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worldmags
Frels notes. Over the years theyve

become e a superior merchandiser.
Now Target is back. Although it
is trading near its 52-week highup
20.1% in 2010 on top of its 42% gain in
2009Target still sports a reasonable
12.8 forward price-to-earnings (P/E)
ratio, in the middle of its historical average. And at $56, Target is about 20%
below its five-year high.
Another stock for the rebound is
Walt Disney, a new position from distant California. We just felt that with an
improving economy, there will be more
discretionary spending, which would
benefit an entertainment giant like Disney, Frels says.
He also likes that the House of
Mickey has diverse revenue streams.
Disneys trailing P/E of 18 is higher than
the entertainment sector as a whole,
t);
rs
matically increased the profitability of

the enterprise.
As Toros fortunesand that of its
investorsrose, Frels trimmed the funds
stake, but not to zero. We typically dont
sell out of company just because of valuation, he says. With an average holding
period of 20 years, a stock must truly be
troubled for the managers to abandon
it. We would only sell if we felt that
the growth dynamics of a company had
changed, Frels adds.
Not all industrial names have been
as successful as Toro. Milwaukee-based
Briggs & Stratton, maker of gasoline
engines for lawn mowers, has struggled
recently after its acquisition of a manufacturer of snow blowers. Briggs is
down 3.7% this year, although analysts
expect next years earnings to increase
by 13.7%.
The companys multiple of nine times

projected 2011 earnings is well below
the market and the medical devices
industrys valuation multiples.
Still, Frels believes that an improvement in the economy will mean
healthier results for Medtronic. As the
unemployment rate drops and more
people are again insured through their
employers, he says, they will be covered
for Medtronics pacemakers and bone
grafts. Then the firm could be heading
back to fast growth. Investors will come
back quickly once Medtronic can show
that its a double-digit grower.
Johnson & Johnson (another rare
out-of-state holding located in New
Brunswick, N.J.) has a similar story. Its
a very well-managed company thats
had some bumps in the road recently
in the manufacturing area, Frels says,
Frels is looking for companies with consistent growthbut hes not

willing to pay too much for it.
rst
but its premier properties are worth a
lot, Frels insists. Walt Disney is kind of
a world unto itself, with its theme parks
and movies and ESPN, he says. There
really isnt a lot of competition.
The stake in Disney is an unusual
move for Mairs and Power, since portfolio changes are infrequent. The fund has
just a 3% turnover.
,
f
72)
nd
INDUSTRIAL STRENGTH
About half of Mair and Powers assets
are invested in industrial companies,
which have aided performance significantly in recent years. Landscape maintenance equipment manufacturer Toro
of Bloomington, Minn., for example,
is up 40.7% in 2010 on top of a 28.6%
advance in 2009.
The company really took off 10 to
12 years ago, and management became
more focused on profitability and the
bottom line, Frels explains. That dra-
nce
t:
worldmags
047_FPJan11 2
SEEKING HEALTHY RETURNS

One area that hasnt helped the fund is
healthcare, as investors worry how new
healthcare legislation will affect companies. But Frels likes the sector because of
the aging population.
Case in point is Medtronic, the
medical devices outfit. The stock has
been in the portfolio forever Frels
says. Its the finest medical technology
company, with leadership positions in
pacemakers, defibrillators and other
devices, all of which we feel have superior growth prospects.
But Medtronic, which is based
in Fridley, Minn., has been hobbled
recently. Its down 20.3% in 2010, badly
trailing the S&P 500 and the medical
devices industry. Medtronic reported a
35% profit decline for the second quarter, ended Oct. 29, the result of lackluster
sales and a charge in connection with a
lawsuit over recalled defibrillator wires.
referring to recalls of Childrens Tylenol

and other over-the-counter drugs, along
with hip replacement devices and contact lenses. JNJ is working on improving
its manufacturing facilities.
Nonetheless, Frels believes that JNJs
activity in Asiawhere population and
economic growth are faster than the
United States or Europewill provide
the firm with increased demand in coming years. For the time being, JNJ trades
at a higher valuation than Medtronic,
although it too has taken its lumps in
2010. The stock is up just 0.70% this
year, giving it a 12.3 forward P/E.
Globetrotters take note: Investing
the Minnesota way pays off.
FP
Ilana Polyak is a regular contributor to
Financial Planning.
CEQUIZ
To Take The Ce Quiz online

go To finanCial-planning.Com
12/9/2010 10:24:25 AM
worldmags
The instant you realize that

T. Rowe Price makes sense
for your fee-based business.
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Call 1-888-756-3784 to request a prospectus, which includes investment objectives, risks, fees, expenses, and
other information that you should read and consider carefully before investing.
Morningstar FundInvestor, June 2010. Morningstar evaluated the 30 largest fund
groups (based on asset size) on the following measures: manager retention rates over
the last 5 years; fund management tenure (how long the portfolio managers have
managed their funds); fund managers investment in the funds they manage; 3-year
asset-weighted performance of all share classes; and Morningstar Stewardship Grades,
which evaluate a fund groups culture, fees, Boards of Directors, manager incentives,
and regulatory records. Data used were as of 5/31/10 except for manager retention,
which is through 12/31/09.
2010 Morningstar, Inc. All Rights Reserved. The information contained herein:
(1) is proprietary to Morningstar and/or its content providers; (2) may not be copied
or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither
Morningstar nor its content providers are responsible for any damages or losses arising
from any use of this information.
2
Large fund groups (those with assets of $34.5 billion or more) with at least 5 equity,
5 bond, and 3 mixed-asset portfolios that received Lipper Consistent Return scores as
of December 31, 2009, are eligible for an overall fund group award. Lipper determined
the large fund group awards by averaging the decile rank for the 3-year Consistent
Return scores for all of the firms funds (for funds with multiple share classes, Lipper
included the share class with the best Consistent Return score in the calculation).
1
The eligible fund group with the lowest average decile rank received the award. In
the case of a tie, the fund group with the lower average percentile rank received the
award. Funds in Lipper classifications with 10 or fewer unique portfolios with 3 years
of performance history were excluded from the calculation, as were money funds,
S&P 500 Index funds, ultra-short obligation funds, specialty diversified equity funds,
specialty miscellaneous funds, and variable annuity portfolios.
Lipper ratings for Consistent Return reflect funds historical risk-adjusted returns,
adjusted for volatility, relative to peers. These ratings are subject to change every
month and are based on an equal-weighted average of percentile ranks for the
Consistent Return metric over 3-, 5-, and 10-year periods (if applicable). A high
Lipper rating does not necessarily imply that a fund had the best total performance
or that the fund achieved positive results for that period.
Although Lipper makes reasonable efforts to ensure the accuracy and reliability of
the data contained herein, the accuracy is not guaranteed by Lipper. Lipper ratings
and Lipper Fund Awards are not intended to predict future results. This does not
constitute and is not intended to constitute investment advice or an offer to sell
or the solicitation of an offer to buy any security of any entity in any jurisdiction.
More information is available at lipperweb.com. Thomson Reuters Copyright 2010,
All Rights Reserved.
T. Rowe Price Investment Services, Inc., Distributor.

worldmags
028_FPNov10 3
10/21/2010 2:25:21 PM
worldmags
high net worth
PRACTICE PROFILE > 53
Keeping the Faith

With a little ingenuity, advisors can draw
up an estate plan that reflects a clients
religious beliefs. By Martin M. Shenkman
he vast majority of Americans

say religious values and customs are a significant part of
their lives. Surveys show that
more than 95% of Americans believe in
God or some higher being. Even many
who profess not to be actively practicing
any particular organized religion may
still feel an affinity toward, or find comfort and solace in, the faith of their family
or youth.
Yet when it comes to estate and financial planning, religious topics are rarely
discussed and almost never integrated
into planning. The most finely executed
rolling GRAT tax strategy may still leave
a family fractured beyond repair if religious disputes mar a parents final days
and funeral. If a clients personal beliefs
include strong feelings about avoiding
certain types of investments or making
certain types of expenditures, and these
are ignored, how can the investment
plan really succeed?
Religious issues have received considerable media attention. The tragic
last days of young Terri Schiavos life
became a media circus, undoubtedly
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049_FPJan11 1
magnifying the terrible pain for everyone involved. But financial planners
rarely concern themselves with the decisions in a clients living will and health
proxy (other than encouraging clients
to address these documents with their
attorney). So are there religious considerations that planners can and should
address with clients? Absolutely.
A COMPREHENSIVE PLAN
While some religious considerations
may be on the fringe of a planners
responsibility, they nonetheless remain
important to providing a surprisingly
large number of clients with a comprehensive estate plan. Planners do not
need to develop comprehensive religious knowledge or expertise, all they
need to do is raise the issues and use their
existing skill set a bit more creatively to
address religious concerns. Religious
queries should be viewed no differently
than other personal questions planners
routinely ask.
As advisors add clients religious and
other personal wishes to the planning
process, they often build a bond that will
expand the relationship beyond being

merely a planner to being a true family
advisor. The rewards of providing that
level of personal service will enhance
their practice and client retention. Following is an overview of how clients religious beliefs might affect some aspects
of estate planning.
General directions. If religious
customs or laws are important to a client, then advisors can tailor estate planning and documents to reflect these
religious wishes. For example, limited
liability companies (LLCs) and family
limited partnerships (FLPs) are ubiquitous among wealthy clients. The legal
documents governing a clients business or investment FLP can require that
business operations conform to general
religious precepts.
For example, a family real estate LLC
might include a prohibition against renting to tenants such as a bar, liquor store,
an adult bookstore or other businesses
that would offend the familys religious
views. Addressing these concerns early
can avoid conflict at a later stage.
A more specific approach would be to
12/8/2010 5:01:40 PM
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HigH net wortH
modify specific provisions to incorporate

religious requirements. For example, an
LLC operating agreement for a Muslim client could include a prohibition
against paying or earning interest based
on a prohibition of making a guaranteed
profit on capital. There are other ways to
structure many business transactions
to avoid charging interest. For example,
the operating agreement could mandate
that in the event of any dispute about
the application of Islamic investment
standards, the manager shall consult the
ISNA (Islamic Society of North America)
for further clarification.
Charitable giving. Every religion
advocates the virtues of charity, but
charitable giving can be tailored to reflect
the unique nuances of your clients faith.
While many religions mandate tithing of
income or assets to charity, others pro-
ally ignored these restrictions, they are

important for a meaningful number of
clients. Thus, in structuring an estate
plan transaction for a Muslim or Jewish client, advisors should be ready to
address how to recharacterize or avoid
interest charges, if asked.
Under Shariah (Islamic legal doctrines derived from the Quran, teachings
of the Prophet Mohammed and interpretations by Islamic scholars) Muslims may
not pay or receive interest, called riba,
for the use of money. While the term
riba may be translated as usury, tradition interprets the restriction to apply to
all interest payments.
This restriction will affect the documentation and structure of estate planning transactions. For example, instead
of charging interest on a financing transaction, the transaction could be struc-
on the client selling valuable assets or

business interests to a grantor trust for
a loan. For tax purposes, the loan must
bear interest at a minimum rate mandated under Internal Revenue Code Section 1274. With some ingenuity, these
techniques can be adapted to a family
whose religious beliefs prohibit interest
charges. Without this, either a great planning opportunity would be missed or an
important religious belief compromised
in the name of tax planning.
Selecting fiduciaries. If a client
wants to infuse estate planning documents with religious values or to transmit a particular religious heritage to
a child or other heir, one of the most
important decisions is the selection of
fiduciaries. These fiduciaries should be
knowledgeable about the particular faith
and sensitive to the specific needs of the
A special trustee could hold only religious veto powers. Should an

action violate the family religious mandate, the trustee could veto it.
vide more specific standards.
For example, charitable giving is an
essential part of the Bahai Faith as it
demonstrates devotion to Bahaullah
and represents the ideal of charity.
Bahais are expected to give a certain
percentage of their income and assets to
Bahai charitable organizations through a
mandatory donation. But proactive giving is often necessary to comply with the
requirements.
Planners neednt understand the
nuances of any particular clients religious mandates for philanthropy.
Instead they must merely inquire how
to coordinate techniques like charitable
lead trusts, bequests and insurance to
address religious charitable objectives.
Lending transactions. Several religious traditions place prohibitions and
restrictions on the charging of interest.
While modern commerce has gener-
tured as a sale to a third person, who

then resells the asset to the ultimate purchaser. The price the third person sells at
would include a profit that would be in
lieu of an interest charge. This structure
is referred to as Murabaha.
Jewish law also restricts the charging
of interest in certain transactions. For a
loan transaction for a Jewish client, a
side agreement called a Heter Iska can
be used to recharacterize what would
be deemed interest, called ribis under
religious law and for religious purposes,
recharacterize it as a return on a partnership with the borrower. This document
is intended to convert, under Jewish law,
the interest component to a noninterest
or profit component.
A common wealth-shifting planning
technique in todays low-interest rate
environment is the intrafamily loan.
Many large wealth transfers are based
heirs in light of religious objectives.

In many instances, the person that
fits these criteria will not be the person
best suited to handle investment and
other fiduciaries responsibilities. This
situation calls for two fiduciaries, an individual sensitive to religious concerns and
an institutional co-fiduciary.
Your clients selection of fiduciaries
will have a profound impact on his or her
ability to transmit values. Again, implementation might be simple. Sophisticated client trusts often designate a trust
protector with certain specified powers. A special trustee could hold only
religious veto powers. Should an action
violate the family religious mandate, the
special trustee could veto the action.
Disposition of assets. A secular will
may have to be modified to reflect the
Bahai, Jewish, Islamic or other religious
laws of inheritance. The Quran and Old
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050_FPJan11 2
12/8/2010 5:01:40 PM
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Testament include detailed provisions

describing how inheritance must be
handled. While there is some similarity,
they are typically addressed differently
when drafting wills.
Advisors need to coordinate these
provisions with tax, estate, financial and
succession planning advisors, and bring
up ethical issues as well. For example,
the Christian Orthodox believe that if
you do not provide for your family and
relatives, it is as if you have disowned
the faith.
Dispute resolution. Estate planning disputes of a religious or spiritual
nature are best resolved through mandatory arbitration before a designated
religious body, not a secular court. Both
Buddhism and the Bahai Faith, among
others, incorporate principles that affect
how disputes should be addressed.
The Buddhist theory of Karma provides that everything done in a particular life, as well as in past lives, influences
and affects future lives. If you disinherit
an heir out of anger, it can create a negative influence that may be carried on
through rebirth to the next life. Buddhism would advocate that you act out
of compassion.
Investment standards. The Prudent Investor Act governing any particular trust would not likely sanction
following social- or religious-oriented
investment goals if they are not expressly
permitted under the investment provisions of the governing document. So at
the minimum, planners should inquire
whether the family desires such modifications and ensure that counsel preparing the documentation tailors the provisions to permit a religious or socially
oriented investment strategy.
Religious considerations can affect
many parts of the comprehensive estate
and financial planning all planners
endeavor to provide their clients. With a
modicum of inquisitiveness and sensitivity, planners can help concerned clients
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051_FPJan11 3
better tailor their planning and achieve

important personal goals.
FP
Martin M. Shenkman, CPA, MBA, PFS,
JD, is an estate planner in Paramus, N.J.
He sponsors the Law Made Easy website at www.laweasy.com.
CEQUIZ

.Com
The leading online community for
independent financial advisors.
A one-stop shop for news, opinion,

expert advice, practical business building ideas
and interactive industry tools.
Come see for yourself!
www.financial-planning.com
12/14/2010 1:58:09 PM
worldmags
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12/14/2010 10:27:29 AM
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high net worth

practice profile
True Contrarian
To preserve his clients wealth, Steve Henningsen is staying out
of U.S. equities and buying gold. By Jim Grote
ost financial advisors like to

fancy themselves contrarians.
But Steve Henningsen, partner
and principal of the Wealth Conservancy in Boulder, Colo., really walks the talk.
He has avoided much of the downside in what
he considers a long-term secular bear market
by minimizing risks and buying enormous
quantities of gold and silver for his clients.
Henningsen started buying gold when it
was selling between $300 and $400 an ounce
in 2003; he is still buying it at $1,350. Aside
from exposure through some absolute return
and precious metals mutual funds, there are no
U.S. equities in his model portfolio. None.
The downside to not following the herd?
You have to be willing to look like an idiot,
he quips.
His function as chief investment strategist
for the Wealth Conservancy wont be found on
Henningsens business card. He eschews titles,
along with what passes for investment theory
these days. The fly in the ointment of rational
market theory is that people are rational, he
says, which is clearly not the case.
Fresh out of Amherst with a bachelors
degree in business and a double minor in economics and computer science, he worked as
a bank auditor for seven years, followed by a
few years as a financial advisor with American
Express. After a brief stint with a large wealth
management firm outside his hometown of
Boston, he joined the Wealth Conservancy in
2000. Today he spends much of his day readFinancial-Planning.com
worldmags
053_FPJan11 1
ing and monitoring current market conditions.

I just love information, he confesses.
DO NO HARM
The Wealth Conservancy specializes in coaching individuals with windfall wealth. Its clientele, primarily inheritors, also includes people
who have sold a business or been blessed by
some other liquidity event. With over $200
million in assets under advisement, the firm
serves 45 clients, primarily on a retainer basis; a
minority are billed an average of 60 to 70 basis
points on assets under management. The current client asset minimum is $4 million.
Henningsen sums up the firms mission:
We focus on wealth preservation for people
with a large pot of money that they do not
want to lose.
This emphasis on wealth preservation
simplifies Henningsens strategy. His initial
rule of thumb echoes the Greek physician Hippocrates: First, do no harm. That rule leads
directly to his second rule: Manage risk before
managing return. In practice, this means that
no matter how enticing a particular investment, Henningsen puts only so much into it
say, 3% of the total portfoliothat a total loss
of the investments value would not change
the clients lifestyle. Here he gleans his wisdom
from poker, advising clients, Dont bet more
than you can afford to lose.
Henningsens third rule of thumb? Ignore
recent history. He began buying gold and the
then-new PIMCO Commodity Real Return
Steve
HenningSen
The Wealth
Conservancy
Credentials:
BS, Amherst College
Assets under
management:
$200 million (firm)
My Opinion:
I will return to a
more normal equity
allocation when the
rotten foundation of
our financial system
has been fixed.
12/9/2010 10:24:35 AM
worldmags
HigH net wortH

Strategy fund in 2003, the same year
he started moving his clients out of
broad index funds. The traditional
index portfolio of 60% stocks and 40%
bonds was fashioned around the equity
bull market of the 1980s and 1990s, the
likes of which probably will not be seen
in the near future. Since the current
investment environment is unlike any
from the recent past, Henningsen reasons, chances are the future will look
different too.
One historically unique factor in
the current economic climate is the
unprecedented level of global debt,
particularly in the United States, Japan,
Britain and the so-called European
PIIGSPortugal, Ireland, Italy, Greece
and Spain. You simply cant borrow
yourself out of debt, Henningsen
observes. At some point we will hit the
debt wall. The easy money solution of
golda standard abandoned by Nixon in

1971 to prevent governments from printing and debasing currency at whim.
PLAYING DEFENSE
Henningsens model portfolio reveals
a highly defensive stance. Gold and
silver bullion make up 27% to 30%,
via the closed-end mutual fund Central Fund of Canada, which allocates a
60% gold and 40% silver bullion mix.
He also counsels clients to buy gold
and silver coins. Gold and silver equity
mining shares make up another 10% of
his portfolio and operate like leveraged
bullion, more volatile on both the up
and down sides.
With 40% in gold and silver, he
currently has a 20% stake in absolutereturn mutual funds. Many of these
include both long and short positions that allow them to make money
investment opportunities. In order to

diversify and hedge against a debased
dollar, Henningsen utilizes foreign currency exchange-traded funds (ETFs) as
well as the Merk Asian Currency Fund.
Any money left over is invested in
the Wealth Conservancys alternative
asset bucket, which is used to increase
or decrease exposure to various risks.
For example, the firm currently holds
positions in ETFs that sort the euro currency and various U.S. stock indexes.
Henningsen doesnt think much
of real estate investment trusts:
Although I have been wrong about
their recent performance, I wouldnt
put a dime in them, he says. Residential property prices are going to follow
the increasing number of foreclosures
down over the next couple of years.
And commercial real estate is simply
an accident waiting to happen.
The investment strategists three rules of thumb: Do no harm, manage

risk before return and ignore recent history.
the Fed only portends more disaster,
he believes.
In fact, in November, global and U.S.
markets were reeling from the budgetary and banking crisis playing out in
Ireland. The 50% drop in the price of
the average Irish bank cast doubt on the
viability of similar institutions in Portugal and Spain. And investors seemed
to have little patience for another bailout, believing that the European bank
stress-tests in July had put the issue to
rest for a while.
The long-term history of goldsay,
5,000 yearsshows the cycle of hard
currency followed by fiat currency
repeating itself endlessly. Investors
move into hard assets (commodities)
when they lose faith in their governments management of the currency.
Henningsen believes central banks
will return to currency systems backed
at least partially by hard assets such as
even in a down market. Some of his

preferred funds in this category are
Caldwell & Orkin Market Opportunity,
Hussman Strategic Growth and PIMCO
All Asset, All Authority.
Approximately 13% of his model
portfolio is invested in PIMCO institutional bond funds, including the Real
Return and Unconstrained funds. His
clients are totally out of the municipal bond market for the time being
because of the massive debt state and
local governments face. He accepts that
tax hikes may cause temporary interest
in municipal bonds, but believes the
default risks are not properly factored
into current prices.
Henningsen holds 4% to 5% of the
total portfolio in the Powershares DB
Agriculture Fund, which captures soft
commodities such as wheat, corn and
sugar. Another 15% to 20% is in cash,
including foreign currencies, awaiting
What about equities? I will return to

a more normal equity allocation when
the rotten foundation of our financial
system has been fixed.
Henningsen clearly identifies himself
with the Austrian school of economics
and its libertarian emphasis on free markets and individual rights. He sees the
current market as based more on artificial stimulants than on real economic
growth. The situation will not reverse
itself until the current credit-based
financial system is replaced by something more sustainable, he believes.
True to his aversion to titles, the
investment manager likens himself to
a weather forecaster, saying: You are
never going to be right all the time, but
you must always monitor current conditions nevertheless.
FP
Jim Grote, CFP, contributes regularly
to Financial Planning.
worldmags
054_FPJan11 2
12/9/2010 10:24:42 AM
worldmags
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Investors should monitor their ProShares holdings consistent with their strategies, as frequently as daily. For more on correlation,
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typically exhibit higher volatility. There is no guarantee any ProShares ETF will achieve its investment objective. Bonds will lose value when
interest rates rise. Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other
information can be found in their summary and full prospectuses. Read them carefully before investing. Obtain them from your financial
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NO LIABILITY WITH RESPECT TO PROSHARES.
worldmags
055_FPJan11 9
12/13/2010 12:54:30 PM
worldmags
Jason Thomas, CIO of Aspiriant,

says planners need to know
which economic worries are real
and which shouldnt keep them
awake at night.
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OutlOOk:
A Modest Proposal
Even if economic expansion remains sluggish, corporate profits might increase
enough to keep elevating stocks. By Donald Jay Korn Photos by Lou Mora
Nearly 400 years ago, French philosopher Ren Descartes wrote cogito ergo sum (I
think, therefore I am). If he were alive today and reporting in English, he might be informing the world,
I am writing an investment forecast for 2011, therefore the world hasnt ended. Two years after the
most widely publicized financial crisis in U.S. historyat least, until the next onefinancial planners
and clients can look at the coming year with a trace of optimism.
Judging from an informal survey, observers generally are upbeat. Talk of a double-dip recession
has just about disappeared, says Brian Gendreau, a Gainesville, Fla.-based market strategist with
Financial Network Investment Corp. Even though unemployment is sticking close to 10% in the
United States and the housing market is still searching for a firm foundation, modest growth is the
consensus forecast for 2011. After a very good year for stocks in 2009 and (as of this writing) further
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12/9/2010 1:44:45 PM
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gains in 2010, investors hope to keep climbing back toward

the twin peaks of 2000 and 2007.
For a successful ascent, planners need to know which
worries are real and which shouldnt keep them awake at
night. According to Jason Thomas, chief investment officer
of Aspiriant, a wealth management firm with offices in San
Francisco and Los Angeles, its safe not to fret over municipal
bond risk, inflation, and at least for 2011, higher interest rates.
Hes skeptical about the New Normal, the idea that were
about to witness a permanent reduction in economic growth.
What worries him are disruptions in the financial system, the
depletion of natural resources and geopolitical crises.
EYEING THE ECONOMY
As long as the United States and the global economy continue to grow, corporate profits may follow. Stocks may head
north, especially in sectors such as tech, energy and industrials that tend to benefit most from growing economic activity.
Some oil companies may do well if oil prices rise, says Quincy
Krosby, a Shelton, Conn.-based chief market strategist with
Prudential Annuities, which may happen if the United States
and emerging markets grow as projected, especially if European demand is up. On the other hand, a sputtering economy probably will drive investors from stock market risk to
the safety of cash, Treasuries and perhaps gold.
The Federal Reserve forecasts U.S. growth to be in the 3%3.6% range in 2011. But many observers are more cautious.
We anticipate lackluster growth in much of the developed
world, says Sarah Ketterer, CEO of Causeway Capital Management in Los Angeles. The United States, Europe and
Japan must shrink serious fiscal deficits.
Martin Murenbeeld, chief economist of DundeeWealth Economics in Toronto, forecasts that the American economy will
grow by 1.5%-2.5% next year. Given the makeup of the new
Congress, government consumption and investment cant be
counted on to add much steam, he says, and trade actually
subtracted from GDP this spring and summer. Without boosts
in exports, or spending by business or government, Murenbeeld expects the Federal Reserve to once again pump money
into the economy: QE2 could be followed by QE3.
SAILING ON THE QE2
Easy money policy began in late 2008 and 2009, with the
Fed buying hundreds of billions of dollars worth of mortgage-backed securities from large commercial banksQE1,
for quantitative easing. In the latest round, QE2, the Fed
will purchase $600 billion worth of Treasuries.
Sarah Ketterer, CEO of Causeway Capital

Management, likes companies that can tap
global markets.
The goal is to spur economic growth, even at greater risk

of inflation. One supporter is Bob Turner of Turner Investment Partners in Berwyn, Pa., who points to a strong report
from the Philadelphia branch of the Fed, which produces an
annual survey he describes as the canary in the coal mine
for growth. Turner believes the Feds move will enhance this
recovery and is intended to result in rising prices and interest
rates. In short, a little inflation wouldnt be a bad thing.
In fact, few observers are seriously concerned about inflation in this country. Calling QE2 a bold move, David Hallman, vice president and director of research at United Capital Financial Advisers in Newport Beach, Calif., nonetheless
agrees that inflation isnt a major concern in 2011. In his
view, the Fed is trying to reinflate the economy, indicating
that it fears deflation more than inflation.
As Ketterer notes, businesses in the United States, Europe
and Japan all have excess capacity, so theyre unlikely to raise
prices for products. We do not expect any sign of consumer
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058_FPJan11 3
12/9/2010 2:05:43 PM
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price inflation in any of those three areas in 2011, given the

excess capacity in these regions, she says.
Wage inflation is also unlikely, as more industries shift.
With labor from developing countries increasingly able to
substitute for jobs in the developed world, broad wage inflation looks highly unlikely.
BEST BOND BETS
Low inflation typically means flat interest rates, normally
good news for bondholders. Be that as it may, interest rates
have come down so low that bonds arent attracting much
enthusiasm for 2011. Murenbeeld, in fact, sees cause for
alarm: The baby boomers have blown up the equity market
in 2000-01 and the housing market in 2007-08, he says.
Next, I expect a blowup in the bond-debt Treasury market
in 2011-12.
Planners should approach the bond market with care.
Thomas is using what he calls a barbell approach with his
high-tax bracket clients in municipals. On one end: highquality, low-duration municipal bonds. On the other: longterm, lower-quality but higher-yielding munis. A BBB-rated,
20-year municipal bond can have a yield three times as high
as a AAA-rated bond, he notes. Low tax revenues and expensive pension commitments may make municipals volatile,
but not necessarily risky over longer periods.
Its vital to distinguish between risk and volatility, he
says. Even Treasuries, which are considered extremely safe,
can have volatility, as weve seen in the past two years. We
think the yields to maturity in munis now are substantial
enough to justify the risk of actually losing money.
Among taxable bonds, corporate bonds have some backers. Among them is Jason Brady, a managing director with
Thornburg Investment Management in Santa Fe, N.M., who
k
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gently. Carney has bought cushion bonds, which might be

close to a call date despite a longer maturity. If the bond isnt
called, investors can get an above-market return.
STOCKING UP
Planners are bullish about stocks for the year, expecting at
least a repeat of this years gains. Murenbeeld has a rule of
thumb for periods of low yields: Generally, we think investors should be significantly overweight in selected equities
whenever 10-year Treasury yields are below 3%, he says.
He is focusing on natural resources and stocks that will benefit from investments in infrastructure (including expanding
bandwith) and alternative energy.
Others see broader stock market advances this year. We
expect another positive performance for most equity markets in 2011, Ketterer says. Monetary policy in much of the
developed world will remain accommodative, and liquidity
will support equity prices. The S&P 500 could gain as much
as 10% next year before the U.S. markets valuation fully discounts the likely near-term earnings growth, Ketterer says.
The stampede into emerging-markets equities will probably
continue, although the pace may slow as investors realize
that they can get some of that superior growth through less
expensive companies listed in the developed markets.
According to Ketterer, the most appealing companies
based in the industrialized world may be those that can tap
global markets. Debt repayment and fiscal austerity will
dampen prospects for government and consumer spending
in the large developed countries, she says. However, the
global corporate sector has plenty of financial strength and
the ability to spend on expansion. This bodes well for companies that can make value-enhancing acquisitions or invest
directly in more rapidly growing countries and regions.
U.S. companieS have enviable balance SheetS, and in fact, qUarterly

earningS have exceeded expectationS for Seven qUarterS.
s
s
g
likes bonds at the bottom of investment grade or those that

just miss it. Youre well rewarded from the extra risk, he
says, citing an extra two percentage points over Treasuries
on a BBB-rated bond compared with the 50 or 75 basis points
you might get on one rated AAA.
Investors can find pockets of opportunities in fixed
income now, reports Tom Carney a portfolio manager for
the Weitz Funds in Omaha, Neb., but only if they search dili-
e
e
r
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059_FPJan11 4
Thomas, too, is excited about global economic growth.

To participate in that growth, investors can own companies
that are headquartered in an emerging market, he says. Or
they can buy high-quality companies based in the developed
world that do lots of business in emerging markets. He cites
Nike, Caterpillar and IBM as companies that fall into the second category.
You have to go back to the Industrial Revolution to
12/9/2010 1:45:11 PM
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David Wright, lead portfollio manager of the
Sierra Core Retirement Fund, is bearish on the
economy through at least the end of 2011.
see what can happen when productivity skyrockets in a

short period of time, he says. The growth potential goes
beyond what we saw with Japan and the Asian Tigers in
recent times.
Therefore, 2011 shapes up as another year to reconsider
investments in developing nations. Most investors are
underweight in the emerging markets, but were overweight, Thomas says. Our clients generally have 15%-20%
of their equity holdings in emerging markets.
On the other hand, the situation in Europe does not look
so rosy. Krosby believes the sovereign debt problem in Ireland could easily spread to other nations, including Portugal and Spain. The markets are waiting for a comprehensive plan that can help limit contagion risks, he says. At
some point, investors may have to accept a restructuring
of the debt.
Krosby believes these events could strengthen the dollar
against the euro, causing an overall flight to quality as the
markets distinguish which U.S. banks have exposure to the
debt. In addition, an increase in Europes sovereign debt
problem would introduce more uncertainty into the global
economic landscape during a difficult period, Krosby says.
HOME RUNS
While developing countries are expanding, U.S. companies
have enviable balance sheets, and, in fact, quarterly earnings have exceeded expectations for seven quarters. The
key driver is not QE2, but QE7, Turner quips, adding, This
is the real story behind the recent stock price gains.
With record cash balances, record free cash flow and low
debt, some U.S. companies have begun to report record
earnings and will be using their cash to buy back shares,
raise dividends or buy one another, Turner predicts. U.S.
stocks currently trade at about 12 times expected 2011 earnings, according to his calculations, below the historical ratio
of 15, and theyre also cheap compared with Treasuries.
Finally, the relative lack of participation can prevent volatility. As Turner puts it, Sentiment toward stocks is subdued,
which should keep them climbing the wall of worry.
Tech and industrial stocks should lead the market, he
predicts, driven by cloud computing and the wireless
Internet. Some stocks on his list: Qualcomm, Apple, F5
Networks and Salesforce.com. Among consumer stocks,
which should profit from an improving economy, Turner
likes Google, Amazon, Coach and Starbucks. Materials and
energy stocks look good as well, but financials, healthcare
and utilities are regulated, slow-growth industries that he
expects to lag.
In these low-yield times, investors may well continue to
prize dividends as they did this year. Jeffrey Phillips, chief
investment officer of Rehmann Financial in Troy, Mich.,
argues that a tax increase on dividends will dampen that
demand. But theres a chance that the low tax rates on dividend income will be extended for at least some investors and
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either way, the companies may have admirers because of

their strong balance sheets.
The payout ratios may indicate that the dividends are
well-covered, Phillips says. Mature consumer goods
companies might be attractive dividend payers, and the
same can be true of selected large financial companies.
Thomas says that his firm doesnt necessarily seek dividend-paying stocks, but that his clients often hold such
issues because of his firms bias toward value. Our value
bias can lead to equities with significant payouts. That
includes REITs and master limited partnerships (MLPs),
which are durable parts of our clients portfolios. His firm
always recommends that clients hold some REITs, which
now may yield over 4%, and some MLPs, which typically
own energy-related ventures such as pipelines and now
might pay over 6%.
ALTERNATIVE APPROACHES
With or without current yields, real estate and natural
resources such as energy investments may be effective
ways to diversify clients holdings. Murenbeeld says
theres no quick money in U.S. real estate, but because
the Fed is working hard to keep prices up, longer-term
investors should see a buy,
Thomas clients hold their REIT allocations in 401(k)
plans or IRAs to defer the tax on the hefty dividends.
Thomas also recommends investing in a Goldman Sachs
exchange-traded note for exposure to commodities,
which he sees as critical for all clients. Investing in com-
w
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CONTRARIAN VIEW
Although the consensus outlook is for modest growth in
stocks this year, and perhaps superior performance in some
issues, not everyone believes the third year of this recovery
will be charmed. Our economic problems this time are structural, not a normal post-WWII cycle, says David Wright, lead
portfolio manager of the Sierra Core Retirement Fund. The
labor force grows about 1% per yearabout one million
workersand the U.S. economy will not grow fast enough
to reemploy the currently unemployed and underemployed
for at least five years. Job anxieties and reduced personal
income will continue to burden aggregate consumer spending, so the cycle appears likely to be the reverse of the virtuous cycle of the late 1990s, lasting through at least 2011.
This slowdown could be worldwide, according to Wright.
Despite the Feds efforts, we see domestic GDP growth slowing next year to less than 1% and possibly going into a recession. Higher growth is likely in emerging markets, perhaps
averaging 4%, but Europe and Japan will be moribund.
Why is Wright skeptical? He believes that the wind-down
of government stimulus programs is already showing up in
slower growth, inventories have mostly been built up and
investors will be disappointed when they compare corporate
earnings to previous years. The result could be a major disappointment. We expect the next 25% or greater move in the
Dow Jones Industrials or the S&P 500 to be down, Wright
says. An even larger cyclical decline would not surprise us.
If this forecast is correct, U.S. Treasuries would benefit in
the usual global flight to safety, mainly in the longer maturi-
With QE2, thE FEd is trying to rEinFlatE thE Economy, indicating

that it FEars dEFlation morE than inFlation at this point in timE.
e
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modities is a way to hedge against possible depletion of

natural resources. We really dont know what will happen
if oil fields decline, for example.
Of course, the alternative investment that caused
the most excitement in 2010 was gold, which reached
a record high of more than $1,400 an ounce. Further
increases might or might not be in store for 2011, but
some industry pros think it should be in clients portfolios. Kimball Brooker, associate portfolio manager for
First Eagle Funds, suggests gold for between 5% to 10%
of a portfolio; he believes a smaller amount wont accomplish much.
o
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061_FPJan11 6
ties. High-grade corporate, municipal and European bonds

would also perform well. Wright favors PIMCO Foreign Bond
(PFORX), which hedges against a rising dollar, and the Dollar
Index (a measure of the value of the U.S. dollar), available to
investors through mutual funds and ETFs.
Hopefully this years results will skew more toward boom
than gloom. Even so, planners might want to add a few safe
havens to clients portfolios in case the three-peat turns out
to be yet another 21st-century bear market.
FP
CEQUIZ
to takE thE cE Quiz onlinE go to Financial-planning.com
12/9/2010 1:45:46 PM
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PRACTICE
Breakaway Brokers > 67
Get in Shape
Make a resolution to measure and
monitor your business waistline.
By Stephanie Bogan and Natalie Doss
e have to admit that we

enjoyed this holiday
season with shameless
abandonment. If you
enjoyed it as much as we did, youre
probably making the same New Years
resolution as we areto shape up. In
fact, now is the time to make the resolution to measure and monitor your
waistline.Were not talking about fitting into your favorite pair of pants,
but rather about making the resolution to measure and monitor your
business waistline.
Through our work with advisory
firms around the country, we have
found that many practice owners
focus their energy on working in
their businesses instead of working
on their businesses. You have spent
time, effort and talent to build a business because you love your work and
because youre good at itnot because
you enjoy the process of building and
managing a business.
Often advisors are talented in
their field, but lack the time, drive
or background to attack the process
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063_FPJan11 1
of business management. It is natural to focus on tasks that you enjoy

and that best utilize your talents. As
your firms top executive, though, it
is essential to step back from doing
work in order to measure your firms
waistline periodicallyits financial
and business performancea process
we call benchmarking.
Much the same way a dieter monitors his or her waistline, benchmarking helps you understand how your
firm is performing, measures performance against your goals, provides
ongoing measurements for assessment and allows you to adjust your
business practices based on what
you learn. Its like getting on the
scale every quarter to see how you
are doing, so that you can recognize
which behaviors support your goals
and which ones do not.
BENCHMARKING BASICS
Reviewing your firms financials may
seem daunting, but with the right
tools, you can have a simple but powerful way to benchmark your firms
performance. Knowledge is power,

and knowledge of your firms performance will provide you with the
power to make informed decisions
about your business.
Benchmarking is a business
process that helps you make more
informed business decisions by providing personalized analysis on your
business and financial performance.
It helps you to:
Identify key financial and performance metrics. Specific measurements, or key performance metrics,
are the performance indicators that
gauge your business performance
across particular areas.
Measure and analyze performance metrics over time. Monitor
key performance metrics on a quarterly
basis to identify trends and direct your
focus to areas in need of improvement.
Adapt business practices to
improve your performance. Armed
with sound business intelligence,
you have the information you need
to adjust your business practices to
help you build a more productive and
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PR ACTI C E
more profitable advisory firm.

Think of the process in terms of
your everyday interaction with clients. Before you can help a client,
you need to obtain information from
him or her. Similarly, your first step in
benchmarking your firm is obtaining
information. At the most basic level,
your financial data should be used to
measure performance.
One quick and easy tool that we
employ with clients is the Economic
Model. This can be a powerful resource
in reviewing your firms financial
health, and its power is in its simplicity. As Einstein put it, If you cant
explain something simply, you dont
know enough about it. The same
applies to your practices finances.
HOW IT WORKS
The Economic Model shows the relationship between a firms revenue,
expenses and profit. In this model,
expenses and profit are described as
a percentage of a firms total revenue
with expenses separated into direct
and indirect expenses.
As shown in Modeling Success,
at right, direct expenses are those
that directly relate to a firms revenue
growth. These are classified as professional labor expenses, including owner
advisor and nonowner advisor compensation (all base salary, distributions,
commissions, benefits and bonuses)
and solicitor fees. Indirect expenses
are further broken down into staffing
expenses (all non-advisor compensation costs) and overhead expenses (all
remaining office expenses).
By reporting revenue less direct
and indirect expense, you will be able
to assess your profitability more accurately, the true measure of a business
waistline. As shown in the examples
in the chart, revenue is allocated to
direct expenses, indirect expenses and
operating profit, with each defined as
MODELING SUCCESS
This simple economic model shows the relationship between a firms revenue,
expenses and profit.
Total Revenue
$1,000,000
Direct Expenses
$ 400,000
Owner base compensation & benets

Owner bonus compensation
Nonowner base compensation & Benets
Nonowner bonus compensation
Solicitor fees
$
$
$
$
$
Indirect expenses
$ 400,000
Stang compensation, benets & bonuses

Overhead (oce) expenses
$ 200,000
$ 200,000
Operating prot
$ 200,000
175,000
100,000
85,000
25,000
15,000
100%
OwnerBase
Base
Owner
Compensation&&Bene
Benetsts
Compensation
$200,000
$175,000
90%
Direct Expense
$400,000
40% of Total Revenue
80%
Nonowner Base Compensation

& Benets, $85,000
70%
Nonowner Bonus Compensation, $25,000

Solicitor Fees, $15,000
60%
50%
Owner Bonus Compensation

$100,000
Total
Revenue
$1,000,000
Overhead (Oce) Expenses

$200,000
Indirect Expense
$400,000
40%
30%
Stang Compensation,
Benets & Bonuses
$200,000
20%
Operating Prot
$200,000
10%
Operating Prot
$200,000
0%
Total revenue
Operating prot
Indirect expense
Direct expense
Source: Quantuvis Consulting
a percentage of total revenue.

Many advisors do not separate
their advisor labor compensation
(the pay for performing the advisor
role) from their ownership profits (the
reward for risk taken). The result is
that advisors often take whats left,
masking an unprofitable business. As
consultants, we will not say that advisors must have a profitable business
(although it is highly recommended),
as we recognize how you run your
practice is a personal choice; however,
we do believe that the choice should
be an informed one. Knowing you are
not profitable and choosing to be so for
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personal or professional reasons is, in

our view, different than not knowing
whether your business is profitable.
For advisors who take some or all
of their wages in distributions instead
of W-2 wages, building an Economic
Model might seem difficult. However, there is a simple solution. Simply break down your total owner(s)
income (all compensation and profit
distributions) and allocate a fair wage
to owner advisor compensation and
the balance to profits.
For example, an advisor whose total
owner income in 2010 was $350,000
taken entirely in distributions (no W2 wages) might allocate $200,000 to
owner compensation direct expenses
to represent fair advisor compensation
for his advisor role, and the remaining
$150,000 to operating profits to show
with this more granular level of benchmarking gives you the information you
need to make better, more informed
decisions that help align your business
behavior with your goals.
One advisor, for example, had
firm revenue of $600,000 and a goal
of growing to $1 million. Hard as he
worked, he just couldnt seem to
generate the growth he wanted. In
reviewing his benchmarking reports,
he noticed that his revenue per client
and assets under management per client were half what he wanted them
to be, and that he spent the majority
of his time on less-than-ideal clients.
With this information, he realized that
continuing to take on these clients
was growing his top line incrementally, but was exponentially sapping
his time, and with it his ability to grow.
of your circumstances and decisions,

and keeps you keenly aware of what
you need to do or change to achieve
your goals.
Looking at your benchmarking
reports regularly is no different than
getting on the scaleits a mirror that
reflects the results of your behavior.
You did X, you got Y. If you dont like
Y, do something different. Do this consistently and you start to make more
informed, objective decisions about
how to run your business. Keep it up
and soon enough your business actually gets better.
What you focus on is what you get
more of. If you focus on background
noise, you get more of it, and if you
focus on running a better business and
growing that business, you get more
of that too. Benchmarking is a busi-
Many advisors do not separate their advisor labor compensation from

their ownership profits, thus masking an unprofitable business.
the firms true profits. His total income

remains the same, but internal reporting is now more accurate, supporting
better business management.
Review your Economic Model
against key benchmarkpast Economic Models, industry benchmarks
and specific goals. Doing so will allow
you to make informed decisions about
your business, particularly as it relates
to financial management.
s
,
r
,
d
e
r
THE NEXT STEP

Taking benchmarking a step further,
we recommend firms measure performance against more than just basic
financial data. Instead, firms should
also identify, measure and monitor
performance metrics such as revenue
per client, clients per advisor and operating profit per employee. Combining
financial performance measurement
worldmags
065_FPJan11 3
He called the next day to say he had

referred a small prospect to another,
younger advisor in his area, and he felt
fantastic because rather than taking
the easy money, he knew he needed
to focus on taking clients that would
help him achieve his goals.
This may seem too simple to be
true, but the magic of benchmarking is
its simplicity. Advisors are busy trying
to run the business, service the clients,
manage the staff, get their continuing
education, maintain their industry
knowledge, handle compliance and so
on down the list.
The real power of benchmarking
isnt the information it gives you (that
changes over time). Rather, its the
power to keep you aware of what matters in your business and what indicators have an impact (positive or otherwise). This heightens your awareness
ness tool that drives the most important thing of allbehavior. When our
clients benchmark their business and
review those benchmarks quarterly,
they are purposefully focused on managing their business better, and thats
exactly what seems to happen. Managing your business, just as with your
waistline, is easier when you have
clear goals, committed behavior and
the ability to monitor your progress
against your goals.
FP
Stephanie Bogan is the CEO of Quantuvis Consulting (Stephanie@quantuvis.com). Natalie Doss is the firms
research manager (Natalie@quantuvis.com). If you are interested in
learning more about business benchmarking, visit www.quantuvis.com
and click on the Benchmarking Available link.
12/8/2010 12:29:24 PM
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practice
Joining Forces
To fuel growth, established RIAs are recruiting
breakaway advisors. By Jonathan Beatty
he tumultuous environment
of the past few years has done
little to dampen independent
advisory firms optimism.
According to the 2010 RIA Benchmarking Study conducted by Charles Schwab,
84% of participating advisors plan to
grow moderately or aggressively over
the next five years.
One way a growing number of firms
are fueling that growth is by recruiting
team members from the stream of wirehouse advisors who have decided to
move toward independence but prefer
to join an established independent firm
instead of starting one from the ground
up. In fact, through the end of October
2010, approximately 35% of the advisors who have chosen independence
with Schwab Advisor Services joined
existing RIA firms.
The numbers are impressive. Cerulli
Associates recently predicted that wirehouses share of client assets under
management will fall from 40.5% today
to 33.4% by 2012. Aite Group found last
spring that only 15% of wirehouse advisors do not have a plan to break away.
worldmags
067_FPJan11 1
Moreover, the breakaway teams joining established firms are getting larger.
The average join team had $97 million
in assets under management, nearly
double the previous years $52 million.
Tiburon Strategic Advisors has predicted that some $200 billion in assets
will flow out of wirehouses in 2010 in
the hands of breakaway advisors.
BENEFITS OF BREAKAWAYS
The movement of wirehouse advisors to
RIAs will continue for some time. That
means existing firms need to consider
the pros and cons of taking in breakaway advisors. Beyond general growth,
they bring many benefits:
Diversifying revenues. The most
compelling advantage is to bring in
some of their loyal clientscreating
additional revenue while also diversifying your firms revenue stream across a
larger number of clients. Client retention for advisors who turn to independence tends to be strong. According to
a July 2010 report from the Aite Group,
50% of breakaway advisors from large
wirehouses take 75% to 100% of their
books of business with them.

When Hank McLarty, founder of
Gratus Capital Management in Atlanta,
recruited former wirehouse advisor
Brian Doe in early 2009, Doe came
with 85% of his clients. Brians assets
had a meaningful impact, especially
back then, when we were in the market
downturn, McLarty says.
Maximizing operational capacity. More clients and assets help advisory firms use existing operational
capacity better and make fixed costs go
further. This can boost profitability and
allow more reinvestment in the business. Thats what happened at Gratus.
Our team already had additional
capacity, so we didnt have to hire any
staff when we recruited Brian, McLarty
says. We added revenue without adding a nickel of operating cost, so all of
that revenue has gone directly to our
bottom line. Thats helped us invest in
a new trading system and an advanced
online planning tool.
McLarty says that since adding Doe to
the firm, Gratus has brought on another
advisor and plans to add more. The
12/8/2010 5:02:59 PM
worldmags
PR ACTI C E
added efficiency and talent have helped

an environment to flourish where advisors can focus on their clients and grow
their businesses.
Getting a jump on succession
planning. It is never too early to think
about a succession plan. But succession
planning should not be limited to older
firm principals already contemplating
retirement. Adding experienced wirehouse advisors can help principals line
up suitable successors.
By getting a succession framework
in place, advisors can put their clients at
ease, solidify the future direction of the
firm and create a more valuable practice.
In other words, succession planning can
serve as both a growth strategy for now
and an exit strategy for later.
Enhancing client services with
with any business initiative, it is important to evaluate carefully the decision to

add, based on your firms circumstances
and its short- and long-term objectives.
Here are a few key factors to consider:
Objectives and business strategy.
Hiring a breakaway advisor is worthwhile
only if he or she improves your firms
ability to meet its strategic goals and
serve clients. So your first step should
be to define your business strategy and
identify strengths and weaknesses.
For example, are there gaps in your
desired value proposition that need
to be filled? Do you need more experienced relationship managers to meet
the increasingly complex needs of certain clients? Is the lack of a particular
expertise or specialty preventing you
from taking full advantage of the growth
to take advantage of established operationseverything from technology

infrastructure to compliance. Part of the
process of evaluating a potential advisor
or advisor team should include examining the potential newcomers operations
and principles to determine whether it
can fold into yours without investing
substantial time, effort and money.
Some good questions: Can your firm
support a new advisors product mix,
such as block or high-volume trading,
or a commission-based business? How
does the advisor handle client information? Does your firm have the human
resources infrastructure to recruit and
integrate a new advisor or team of advisors? If you identify any gaps, analyze
whether the cost of adding an advisor
would be covered by the value that per-
Tiburon has predicted that some $200 billion in assets will have flown
out of wirehouses in 2010 in the hands of breakaway advisors.
new expertise. Recruiting a breakaway
advisor clearly adds assets and clients.
But it also adds expertise and experience in rainmaking, client relationship
management and other areas that can
enhance and diversify the suite of services available to clients. A breakaway
advisors skill set can build on capabilities your firm already possesses or fill in
gaps in your offering.
Gratus, for example, recently brought
on a new client in part because Doe was
able to help the investor with a particularly complex annuity she owned.
Whats more, Does reputation was
strong among several important CPAs
and attorneys who became more interested in doing business with Gratus.
CHECKPOINTS
While taking on a breakaway advisor or
team can bring a number of benefits, the
process is not without challenges. So as
opportunities your clients present?

Culture. Deciding whether to
recruit a breakaway advisor can be a lot
like deciding whether to get married.
Make no mistake: A new advisor will
be your new partner even if theres no
equity stake involved. So you need to
feel comfortable with that persons philosophy, attitude and overall approach.
To clarify their philosophy and culture, some firms develop presentations
that spell out exactly who they are. Others generate a list of truths that encompass the way they have decided to run
their business. One advisor I know even
decided to put his firms five truths on
its business cards. Whatever the process, these are tangible ways for firms
to assess themselves and any potential
additions to their team.
Operational capabilities. One big
reason breakaway advisors join existing
RIAs rather than start their own firms is
son would bring to the firm.

In todays changing market and economic environment, independent advisors face an increasing demand from
clients for hand-holding as well as complicated financial planning and investment management. But with these
challenges come significant growth
opportunitiesopportunities the addition of breakaway advisors or advisor
teams can help an RIA realize.
Finding these people and integrating them into your group can be complicated. But when done properly, the mix
can bring clients and assets plus experience and expertiseenhancing your
prospects for long-term success.
FP
Jonathan Beatty is a vice president and leader of Schwab Advisor Services sales and relationship
management. He can be reached at
Jonathan.Beatty@schwab.com.
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client
IRA Q&A foR 2011 > 75
Fading Minds
As Americans age, more planners are working
with clients who have dementia. They need
to protect their clientsand avoid lawsuits.
By Ingrid Case
rank Moore, the chief investment officer at Vintage

Financial Services in Ann
Arbor, Mich., remembers a
longtime client, a man in his eighties,
who announced that he had won the
Canadian national lottery. He wanted
to wire funds to a Canadian brokerage
firm in order to collect his prize.
I tried to preserve his dignity by
saying congratulations, that sounds
great, but let me check into this for
you, Moore says.
The lottery, of course, was a scam.
The client wanted us to send the
money anyway, and I told him flat out
that I wouldnt do it, Moore says, and
the client backed down.
Just six months later, Moore
noticed that he had been withdrawing
a lot of money. This time, hed won
the Australian lottery, Moore says
drily. We stopped him just before he
sent a sizable sum.
Moores client was in the early
stages of Alzheimers, a disease that
often first shows up when people fail
to understand financial concepts.
worldmags
071_FPJan11 1
Financial planners, who work closely

with clients, often for many years,
may be among the first to notice worrisome developments. In many case,
no spouse is at hand. Clients with
dementia are typically single or widowed; many are women whose husbands handled family investments
during their married lives.
In the best circumstances, families
tell planners when an older person is
no longer able to make independent
financial decisions. In less clear-cut
situations, where perhaps no one else
has noticed cognitive changes, planners are faced with the need to balance between respecting an adults
financial decisions and delicately, diplomatically intervening.
A clients financial security may
be at stake; the planner may also be
risking a lawsuit if a client is making
financial decisions without fully comprehending them.
EARLY SIGNS
To help professionals deal with clients who have trouble reasoning and
recalling, FINRA met recently with

financial service companies and with
the Alzheimers Association to create
guidelines. A sensitive planner will take
steps to protect everyone involved as
soon as the initial symptoms appear.
Some dementia victims might show
dramatic personality changes, going
from sensible to gullible, as Moores
client did, or from trusting to paranoid.
Others might show smaller changes.
One of the first things I see is
when a client who would typically be
able to make quick decisions about
portfolio changes is not so willing to
make those decisions anymore, says
Lea Ann Knight, a principal at Garrison
Knight Financial Planning in Bedford,
Mass. They say that theyre still thinking about it, but they cant articulate
what it is that theyre thinking over.
Some of those clients may move
slowly because theyre unable to
understand changes. Knight recalls a
widowed client whose financial life
changed substantially after her husbands death. She kept parroting the
details of his plan, even though it no
12/9/2010 1:29:20 PM
worldmags
CLI ENT
longer really applied, Knight recalls.
Others lack the short-term memory
necessary to recall new information. I
had a client who asked me a question,
wrote down the answer, then looked
up and asked me exactly the same
question. We did this five or six times.
It was clear that his short-term memory was gone, says Mimi Hackley,
director of financial planning for Sharkey, Howes & Javer, Inc. in Denver.
Still other early-stage dementia
patients continue the interests and
activities theyve always enjoyed,
but take them to a new, more intense
degree. People often go off the rails in
the same direction they were already
headed, says Kathleen Kuehl, a financial principal at wealth management
company Lowry Hill in Minneapolis.
ated a piece of paper that we give to

every client, Hackley says. It says,
If we notice any decline in your functioning or anything strange going on in
your account, who should we call?
By making the question routine,
Hackley says, her firm avoids suggesting that client is fading. Clients
are more likely to treat the question
as commonplace when its asked of
younger and older people, and if the
planner requests updates at every
meeting. Its also a good idea to discuss
the possibility of identity theft while
the clients are away on a vacation and
difficult to reach.
When its not possible to name an
adult child to contact, Hackley says
her firm pushes clients to pick someone else. Sometimes you get clients
the womans estate planning attorney,

though with some trepidation. I didnt
want to cause trouble in that relationship, she says. I said, look, here is my
concern, and I dont know what to do.
The kids dont seem to recognize this
as an issue.
In addition to her desire to protect
her client, Knight also wanted to protect
herself. I documented every conversation with her. I felt vulnerable as a planner continuing to provide any advice,
because I knew she wasnt making rational decisions. I thought it could have
come back and bitten me in the form of
a lawsuit from the adult children.
FAMILY MEETINGS
Even planners with contact information for a clients adult children and
Alzheimers often shows up for the first time when people fail to
understand financial concepts.
Kuehl recalls an elderly client who
had always listened to right-wing radio
and talk shows. Up to and after the
last presidential election, it got to the
point where she was sending out vitriolic emails and videos, recalls Kuehl,
who received three CDs. For me, that
was a tipping point. Shed always had
the idiosyncrasy, but now we were
going over into paranoia.
MAKE IT ROUTINE
When clients fail, its crucial to bring
another personperhaps the clients
grown child, attorney, accountant,
sibling, or close friendinto financial
decisions. Although planners arent
bound by the same confidentiality
expectations as an attorney or a physician, its still best to get permission to
talk to others.
Some planners now ask clients for
permission to consult others as part of
the routine sign-up process. We cre-
who are really reclusive, and we have

to insist that they indicate someone,
Hackley says. This is something we
feel is really quite necessary.
But what if the client hasnt given
permission? Knight faced just that
question when a widowed client with
six adult children began frequently
calling her office. She had a very simple financial portfolio and we werent
making changes, yet she was becoming more and more paranoid and agitated, Knight recalls. It became clear
that she had stopped paying her bills
and that she really didnt understand
what she needed to pay.
Knight contacted one of the womans adult daughters, but I didnt
know these adult children, and they
were initially very hands off, she says.
They were very reluctant to be their
mothers parents, because they still
thought of themselves as her kids.
Finally, Knight says, she contacted
trusted friends can use a few additional techniques when working with
impaired clients. Susan McCants, a
financial planner at Abacus Planning
Group in Columbia, S.C., encourages
family meetings for all her clients. She
particularly likes family meetings for
older clients, she says, because they can
serve a double purpose, making sure
that someone close to the client understands the discussion as well as educating an heir about the clients finances.
McCants schedules family meetings well ahead of time and gives
clients an agenda so that they can
gather their thoughts. She also provides a written summary of everything discussed at the meeting and
tries to offer other information in
writing as well.
Handled this way, McCantss family
meetings protect her firms planners
by offering a written record of discussions and decisions. They also build a
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ready-made support team in case the

clients cognitive skills decline.
Mark Ziety, a financial planner at
Shakespeare Wealth Management
in Pewaukee, Wis., has a clever way
to request a family meeting, one that
avoids any suggestion that a client is
deteriorating. I tell them that they
have a complicated financial situation, Ziety says. We acknowledge
that its not their fault that they cant
mentally keep track of their finances.
Often the client agrees that bringing someone else into the next meeting would be really helpful, Ziety
continues. When we approach it in
that matter, instead of as, Boy, youre
slipping, you need to get help, it turns
into a positive thing.
,
e
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think its important to look out for our

clients, and this is a way we can add
some value. And as human beings, we
couldnt stand by and watch scammers
take our clients.
FP
Ingrid Case is a financial writer based

in Minneapolis.
CEQUIZ

HELPING OUT
Once other professionals or family
members are involved, planners can
take extra steps to help everyone. We
make sure we know what resources
are available in the community and
pull those together for families when
necessary, says Kuehl, who has
helped clients continue to live independently or in their own homes.
Kuehl has also put credit freezes
on client accounts so that people cant
take out new credit. That protects
assets from clients who are deterioratingsuch as Moores lottery winnerand makes it more difficult for a
dishonest caregiver to steal a patients
financial identity.
Ziety encourages clients to let
trusted friends or family use viewonly access to the customized financial websites that every Shakespeare
client receives. Its better to have
two sets of eyes on something, to
help monitor a complicated situation, he says.
None of these planners charge
additional fees for helping older clients and their families. Its part of
our overall service, Moore says. We
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CLIENT
Q&A:
Roth IRAs
As the 2011 tax season approaches, consider
these questions your clients may be asking you
about their Roth IRAs. By Ed Slott
ast year, many advisors

worked with clients to
implement Roth conversions. But now that were
in the 2011 tax season, the questions
about the tax effects of conversions
will become more frequent. Advisors should be ready for a slew of new
tax-related questions about 2010 and
2011 Roth IRA conversions. Here are
some of the most frequent questions I
receive from financial advisors.
Has a conversion taken place
in 2010 or 2011? Check and see when
the funds were distributed from the
IRA or company plan. For example, if
the funds were withdrawn on Dec. 31,
2010, and not deposited into a Roth
IRA until Feb. 15, 2011 (must be within
60 days of the withdrawal), its still
qualifies as a 2010 Roth conversion.
The five-year Roth conversion
clock will begin on Jan. 1, 2010, even
though the funds did not get into the
Roth IRA until 2011. If this is your clients first Roth IRA, the five-year clock
for qualified distributions will also
worldmags
075_FPJan11 1
start on Jan. 1, 2010. In this case, there

really is only a four-year clock, since
one year will have already passed by
the time the funds are converted to a
Roth IRA.
Also, since this is a 2010 conversion, your client has the opportunity to split the conversion income
equally between 2011 and 2012,
even though the funds were actually
deposited in the Roth IRA in early
2011. On the other hand, if the funds
are not distributed until Jan. 1, 2011,
this becomes a 2011 conversion. You
do not have until April 15, 2011, to do a
2010 conversion.
How is the tax paid under the
two-year Roth conversion payout
provision? Financial advisors are
often confused about this question.
Its not the tax that is spread over
two years; its the Roth conversion
income. Therefore, the ultimate tax
burden will depend on a number of
items, including your clients income,
deductions, credits and exemptions,
as well as the income tax rates in the
years that your client includes the

conversion income.
For example, assume Jim converts
$100,000 to a Roth IRA in 2010. He
does not have to include any of the
$100,000 Roth conversion income in
2010. Instead, he can spread the conversion income equally over 2011 and
2012. Jim will report $50,000 of Roth
conversion income in 2011 and the
other $50,000 in 2012. If he uses this
two-year deal, the tax will be determined in part by the income tax rates
in effect in 2011 and 2012.
Jim also has the opportunity to
elect out of the two-year deal and
include the entire $100,000 Roth conversion income in 2010. This might be
to his benefit if the tax rates are lower.
If the tax rates for 2010 are
extended to 2011 and 2012 (meaning the tax rates will be the same for
2010, 2011 and 2012) then (all other
factors being equal) clients should
take the two-year deal since there is
no increased tax cost and they get to
hold on to their money longer (and
earn more interest) before they have
12/10/2010 4:03:38 PM
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CLI ENT
to pay the tax bill. In this case, the

only reason to opt out of the two-year
deal and include all the conversion
income in 2010 is if 2010 was a much
lower income year or the client had
high deductions or business losses to
absorb conversion income and lower
the tax.
Note that the two-year payout deal
is only for 2010 conversions. For conversions in 2011 or later years, all the
conversion income will be included in
the year of conversion.
Can clients include some of the
2010 Roth conversion income in
2010, some in 2011 and the rest in
2012? No. Either the Roth conversion
income is reported under the two-year
deal, half in 2011 and half in 2012, or
the entire amount is reported in 2010.
But there may be a way to simulate
reporting Roth conversion income
income over 2011 and 2012, if that

proves to be a better deal for them?
No. The choice to report all of the
2010 Roth conversion income in 2010
is irrevocable, but if the taxpayer has
filed an extension until Oct. 17, 2011,
the decision can be made then. In that
case, your client still should have the
right amount of tax paid in for 2010 by
April 15, 2011, in case he or she chooses
to report all of the conversion income
in 2010.
The extension is only an extension of time to file the tax return, not
to pay the tax. If the right amount of
tax is not paid in by April 15, 2011, your
client could be subject to estimated
tax penalties. On the other hand, if the
tax is paid in by April 15, 2011, and the
client decides not to report any 2010
Roth conversion income in 2010 but
instead to use the two-year option,
then any tax overpayment for 2010
no income limit on Roth conversions,

so your clients can move seemingly
unlimited funds to a Roth IRA, but
theres still an income limit on who
can contribute much smaller amounts
to a Roth IRA.
In order to contribute the maximum amount to a Roth IRA for 2011,
which is $5,000 (or $6,000 if age 50 or
older in 2011), income cannot exceed
$179,000 (married filing joint) and
$122,000 (single or head of household). These limitations can be easily
bypassed, however. Anyone with at
least $5,000/$6,000 of earned income
(wages or self-employment income)
can contribute the $5,000/$6,000 to
a nondeductible traditional IRA and
then convert those funds to a Roth
IRA, since there is no income limit for
Roth conversions. A word of warning
though, the pro-rata rule will apply if
your client has other IRA funds.
It seems odd; theres no income limit on Roth conversions, but theres

still an income limit on contributing smaller amounts to a Roth IRA.
over the three years if your client is a
married couple and they each have
IRAs or plan funds they converted
in 2010. Since IRAs are individual
accounts, each spouse can elect a different method. One spouse can convert an amount and elect to report all
of the conversion income in 2010 and
the other spouse can use the two-year
option. Since all of the Roth conversion income will be reported on the
same tax return (if they file married
jointly), they can simulate a three-year
payout this way.
Can clients who choose to
report all the 2010 Roth conversion
income in 2010 later change their
mind? Can they file an amended tax
return to spread the Roth conversion
can be either refunded or credited to

the 2011 return.
Are there any remaining restrictions on who can convert to a Roth
IRA in 2011? No. The $100,000 modified adjusted gross income (MAGI) eligibility limit was repealed after 2009
for all future years. The restriction
preventing married persons who file
separate returns from converting was
also repealed. Unlike the two-year deal
on Roth conversions, which was only
available for 2010 Roth conversions,
the repeal of the Roth conversion
income limit is permanent.
Is there still an income limit
on who can contribute to a Roth
IRA for 2011? It seems odd; theres
Can IRA beneficiaries convert

their inherited IRA funds to an
inherited Roth IRA? No. But beneficiaries who inherit funds from a company plan (a 401(k) plan, for example)
can convert those inherited funds to
an inherited Roth IRA. If they converted in 2010, they would have the
same payout options as anyone else
who converted in 2010 (all in 2010 or
the two-year deal).
Plan beneficiaries who converted
their inherited plan funds to an inherited Roth IRA could also recharacterize those funds back to an inherited
IRA just like anyone else. But if they
do that, they lose the option of ever
converting those funds back to a Roth
IRA because they now are an IRA beneficiaryand an IRA beneficiary can-
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076_FPJan11 2
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not convert inherited IRA funds to an

inherited Roth IRA.
If clients decide to undo
(recharacterize) their 2010 Roth
conversion in 2011, how soon can
they reconvert those funds back to
a Roth IRA? They must wait until the
calendar year after the conversion or
more than 30 days after the recharacterization, whichever is later.
For example, if Mary converted
$300,000 to a Roth IRA in 2010 and
she later changes her mind (maybe
because the value dropped or she
simply does not want to pay the tax),
she has until Oct. 17, 2011, to undo that
Roth conversion. If she recharacterizes
on Sept. 18, 2011, she can reconvert
,
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those funds after 30 days have passed

from the date of the recharacterization
(Oct. 18, 2011). The reason its 30 days
instead of the next year is that the conversion was a 2010 conversion and its
now 2011. Marys already in the next
year, so 30 days after the recharacterization is the later of the two dates.
If this were a 2011 conversion
and Mary decided to recharacterize
in August 2011, then she could not
reconvert those funds until 2012,
since that is the later of 30 days after
the recharacterization or the year
after the conversion.
I know that clients can do partial Roth conversions, but can they
do partial recharacterizations?
Yes. In fact it often makes sense not

to recharacterize the entire Roth conversion. Keeping some funds in the
Roth IRA, even a very small amount,
will start the five-year clock ticking
for qualifying distributions.
FP
Ed Slott, a CPA in Rockville Centre,
N.Y., is a nationally recognized IRA distribution expert, professional speaker
and author of several IRA books. He
has also created programs developed
specifically to help financial advisors
become recognized leaders in the IRA
marketplace. Visit his website at www.
irahelp.com.
CEQUIZ

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PORTFOLIO
Value funds > 83
Measuring Stick
If you dont understand the assumptions
behind return figures, mutual fund
measurement may be misleading.
By Craig L. Israelsen
easuring the performance

of an investment is surprisingly complex. The
math isnt hard, but nailing down the assumptions behind the
reported returns can be. The total percentage return figures that are reported
everywhere (Morningstar, Lipper, etc.)
contain a variety of assumptions:
Single lump-sum investment at the
start of the period;
No additional investments and no
withdrawals during the period;
Reinvestment of interest, dividends
and capital gains;
No accounting for taxes; and
No accounting for inflation.
There is nothing wrong with these
assumptionswe just need to remember that they do not completely simulate the reality of investing. For instance,
very few people make a single lump-sum
investment. On the contrary, those who
have 401(k) retirement plans through
their employers invest on a regular basis,
usually monthly. The fact that most
investors contribute via an annuity pattern creates an immediate disconnect
worldmags
079_FPJan11 1
with the lump-sum performance figures

supplied to investors to help them gauge
the success of their investments.
This study examines the difference
in mutual fund performance when the
first two assumptions are considered.
Specifically, this study assesses the performance differentials in 40 of the largest mutual funds when three different
investing assumptions are implemented:
lump-sum investment of $1,000 into
the fund, annuity investment of $1,000
into the fund at the start of each year and
annuity withdrawal of $5,000 at the end
of each year from the fund assuming a
starting balance of $100,000.
THREE ASSUMPTIONS
As shown in The Top 40, on page 80,

the variation in return between the
three assumptions can be dramatic. For
instance, Fidelity Growth Co. had a 10year average annualized return between
Jan. 1, 2000, and Dec. 31, 2009 of -0.9%,
assuming a single lump-sum investment on Jan. 1, 2000. Under a different
assumption of a $1,000 investment at
the start of each year, Fidelity Growth
Co. produced a 10-year annualized

return of 3.5%. This annuity investment
return is more indicative of what actual
investors achievedat least those investors who were investing in that fund systematically over the 10-year period (such
as 401(k) participants and/or investors
who are using an automatic investment
plan).
For those in retirement, the third
measure of return in this analysis is
most salientnamely the performance
of a fund that is experiencing systematic withdrawals. In this case, Fidelity
Growth Co. generated an annualized
rate of rate of -2.9% over the 10-year
period assuming a $100,000 initial
investment on Jan. 1, 2000, and 10 subsequent $5,000 withdrawals at the end
of each year starting on Dec. 31, 2000.
The difference in performance over the
same 10-year period across three different investing assumptions is significant
and material.
Interestingly, mutual fund returns
that are typically published by data
providers assume a lump-sum investmentwhich is the most unlikely realJanuary 2011 Financial Planning 79
12/14/2010 4:42:43 PM
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P O RT FO L I O
world condition. As a result, investors

end up selecting funds on the basis of
their lump-sum performance despite
the fact that they intend to invest money
systematically or systematically withdraw money from that very same fund.
The measurement system used to evaluate mutual funds typically doesnt match
the intended use of the fund.
SEQUENCE OF RETURNS
Another fund in the Top 40PowerShares QQQdemonstrates big differences in the three measures of performance. QQQ failed to survive the entire
10-year period in the annuity withdrawal
analysis, producing an annualized return
of -13.6% by the time it hit a zero balance
in the ninth year.
So, how do we anticipate which
funds will perform better based on the
intended use? The sequence of returns
is the key. The timing, or sequence of
returns, does not affect lump-sum performance. In other words, the order in
which the annual returns occur does not
affect the ending balance (and therefore
the annualized percentage return) of a
lump-sum investment scenario.
On the other hand, the sequence
of returns can have a dramatic impact
on performance under the assumption of annuity investment or annuity
withdrawal (see The Right Sequence,
on page 81). For example, two different
funds, Janus Overseas T and Vanguard
Intermediate Term Tax-Exempt, end
up with a 10-year lump-sum annualized
return that is essentially identical (4.94%
vs. 4.96%). But, based on the sequence of
returns, Janus had a much higher annualized return under an annuity investment
scenario (11.8% vs. 4.5%) than Vanguard.
This is due to the extraordinary return of
78.1% in the last year of the time period.
An annuity investment return is a
dollar-weighted return, whereas a lumpsum return is a time-weighted return.
Over time, the growing balance of an
The Top 40
The performance of many of the 40 biggest mutual funds can vary widely
based on the investing assumption used.
Performance based on three different investing assumPtions

over the 10-year Period from 2000-2009
Fund Name
(Listed by Total Assets)
PIMCO Total Return Instl.
American Funds Growth Fund of America A
Vanguard Total Stock Market Index Inv.
American Funds EuroPacific Gr. A
Vanguard 500 Index Investor
SPDR S&P 500
Vanguard Institutional Index Instl.
Vanguard Total Bond Market Index Inv.
American Funds Capital World G/I A
American Funds Capital Inc. Builder A
Fidelity Contrafund
American Funds Income Fund of America A
American Funds Invmt. Co of America A
Franklin Income A
Vanguard Wellington Inv.
American Funds American Balanced A
American Funds Washington Mutual A
BlackRock Global Allocation Instl.
American Funds Fundamental Investors A
American Funds New Perspective A
Templeton Global Bond A
Dodge & Cox Stock
American Funds Bond Fund of America A
Vanguard Total Intl Stock Index Inv.
Vanguard Short-Term Investment-Grade Inv.
Fidelity Spartan 500 Index Inv.
Vanguard GNMA Inv.
Fidelity Diversified International
Fidelity Growth Co.
Vanguard Windsor II Investor
Davis NY Venture A
Harbor International Instl.
Fidelity Low-Priced Stock
Vanguard Interm.-Term Tx.-Ex. Inv.
Vanguard PRIMECAP Inv.
Thornburg International Value A
First Eagle Global A
Ivy Asset Strategy C
PowerShares QQQ
T. Rowe Price Growth Stock
Morningstar Category
Intermediate-Term Bond
Large Growth
Large Blend
Foreign Large Blend
Large Blend
Large Blend
Large Blend
World Stock
World Allocation
Large Growth
Moderate Allocation
Large Blend
Conservative Allocation
Moderate Allocation
Moderate Allocation
Large Value
World Allocation
Large Blend
World Stock
World Bond
Large Value
Foreign Large Blend
Short-Term Bond
Large Blend
Intermediate Government
Foreign Large Blend
Large Growth
Large Value
Large Blend
Foreign Large Blend
Mid-Cap Blend
Muni National Interm
Large Growth
Foreign Large Blend
World Allocation
World Allocation
Large Growth
Large Growth
Lump Sum
Annuity Investment Annuity Withdrawal
10-Year Annualized 10-Year Annualized 10-Year Annualized
Return
Return
Return
7.65%
2.34%
-0.27%
3.72%
-1.03%
-1.00%
-0.91%
6.06%
7.16%
7.31%
3.17%
6.01%
2.50%
7.78%
6.15%
5.68%
2.81%
8.88%
3.60%
3.97%
10.66%
5.65%
4.89%
2.29%
4.92%
-1.04%
6.23%
3.94%
-0.85%
4.16%
2.42%
7.26%
11.04%
4.96%
3.23%
6.48%
12.36%
9.46%
-6.41%
1.12%
7.31%
3.30%
1.72%
7.37%
0.86%
0.91%
0.97%
5.37%
7.82%
6.00%
5.05%
4.96%
2.69%
6.49%
5.76%
4.09%
1.78%
9.11%
4.54%
6.18%
11.31%
3.16%
4.02%
5.75%
4.56%
0.87%
5.65%
5.45%
3.53%
3.08%
2.46%
9.41%
8.43%
4.49%
5.15%
8.06%
11.37%
10.35%
2.68%
2.71%
7.74%
2.02%
-1.06%
2.38%
-1.80%
-1.78%
-1.68%
6.25%
6.98%
7.65%
2.53%
6.30%
2.44%
8.10%
6.26%
6.11%
3.12%
8.82%
3.30%
3.22%
10.49%
6.30%
5.14%
0.96%
5.02%
-1.82%
6.39%
3.45%
-2.90%
4.47%
2.41%
6.61%
11.62%
5.10%
2.57%
6.01%
12.58%
9.22%
-13.56%
0.54%
Source: Morningstar raw data. Calculations by author.
annuity investment is more sensitive to

the performance of the fund in the latter
years of the measurement period.
THE DOLLAR-WEIGHTED OPTION
The annuity investment scenario

involves $1,000 invested at the beginning of each year. Toward the end of
the investment period, the amount of
money at risk is growing due to each suc-
cessive annual investment.

In the case of Janus Overseas, the
large return of 78.1% in 2008 came at a
perfect time, when the account balance
was larger than it was at the start of the
10-year periodhence the term dollar-weighted return. In addition, Janus
had several significant losses in the early
years, which created a dollar-cost averaging effect in which the initial annual
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The RighT Sequence
Two funds can have the same lump-sum annualized return over a 10-year
period, but the sequence of returns can have a dramatic impact on performance
under other assumptions.
Performance based on three different investing assumPtions

over the 10-year Period from 2000-2009
Janus
Overseas (%)
Annual Returns
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
10-Year Results
Lump-sum annualized % return
Lump-sum growth of $10,000
Annuity investment annualized % return
($1,000 annual investment at the start of each year)
Annuity investment ending account balance
Annuity wthdrawal annualized % return
($100,000 starting balance, $5,000
end of each year withdrawal)
Annuity withdrawal
Ending account balance
-18.57
-23.11
-23.89
36.79
18.58
32.39
47.21
27.76
-52.75
78.12
4.94
$16,198
Vanguard Intermediate
Tax-Exempt (%)
9.24
5.05
7.91
4.46
3.23
2.24
4.43
3.43
-0.14
10.22
4.96
$16,231
11.82
4.49
$19,457
$12,834
2.07
5.10
$67,797
$101,252
Source: Morningstar data. Calculations by author.
investments of $1,000 were purchasing

shares at relatively low prices. Thus, poor
returns in the early years followed by a
very strong return in the last year create
ideal conditions for an annuity investment scenario.
Unfortunately, what is good in one
circumstance is often bad in another.
Despite excellent annuity investment
performance over this specific 10-year
period, Janus Overseas had dismal performance under annuity withdrawal
conditions (2.1% vs. 5.1%).
An annuity withdrawal scenario
places a large amount of money (i.e., the
retirement nest egg) at risk on day one.
As a result, if a portfolio experiences negative returns in the first several years of a
retirement annuity withdrawal simulation, the impact can be devastating. Such
was the case with Janus Overseas.
Vanguard Intermediate Term Tax-
e
a
e
e
s
y
l
worldmags
081_FPJan11 3
Exempt fared much better under the

assumption of annuity withdrawal. The
returns in the early years (2000-2002)
were positivethus preserving the nest
egg as the annual withdrawals began to
occur. Annual withdrawals have an erosive effect on a portfolioand this erosion
must not be magnified by market losses
(as was the case with Janus Overseas).
WHAT WE KNOW
We know that an annuity investment

portfolio (systematic investments) benefits by strong returns in the latter years
when portfolio balances are larger. Riskier funds with historically larger standard
deviations are likely candidates to produce the desired large return. However,
this is a two-edged sword. Such funds
could also deliver a large loss in the latter
years (like Janus Overseas in 2008).
Observing this, investors who are
approaching retirement might be

tempted to maintain positions in aggressive funds too close to the retirement
event in hopes of having a big return
near the end. This is unwise. Within
five to eight years of the transition to
retirement, an investor should begin to
ratchet down the risk of his or her portfolio because the amount of money at risk
is too large to be cavalier about it.
As a side note, this is the precise problem with nearly all target-date fundstoo
much risk near the stated target date
because the asset allocation is too heavy
in equities. As a painful reminder, the
average 2010 target-date fund lost 23.1%
in 2008. This is unacceptable for a person who was 63 years old in 2008 and
planning on retiring in 2010.
We know that a retirement annuity
withdrawal portfolio (systematic withdrawals) benefits from and is preserved
by avoiding negative returns. Avoiding
losses is important in the early years of
the withdrawal period. Early losses are
hard to recover from because the losses
are affecting the entire starting balance.
Funds with historically lower standard
deviation tend to be better candidates for
the withdrawal phase of a portfolio.
Finally, we know that conventional performance figures do not usually reveal the variation that can exist
among funds that may appear similar
when based on a lump-sum investment
assumption. It takes some time, but its
worth the effort to calculate the performance of a mutual fund under different
investing assumptions.
FP
Craig L. Israelsen, PhD, is an associate
professor at Brigham Young University, designer of the 7Twelve Portfolio
(www.7TwelvePortfolio.com) and author of 7Twelve: A Diversified Investment Portfolio with a Plan.
CEQUIZ

12/14/2010 4:43:21 PM
worldmags
worldmags
082_FPJan11 16
12/14/2010 4:17:34 PM
worldmags
portfolio
True Value
Value funds outperformed growth this
decade, despite the collapse of financial
stocks. By Donald Jay Korn
he first 10 years of this

century have been called
a Lost Decade for equity
investors. Indeed, between
the technology stock bust of 2000
ad the financial panic of 2008, investors have endured two of the most
severe bear markets on record.
The latest data from Morningstar (through Nov. 30, 2010) shows
the total return of the S&P 500 at
an annualized -0.02% for the last
10 years. Domestic stock funds
returned 1.4% a year, on average,
hardly what investors have hoped
for during the uncertain period.
Investors, of course, want to do
better than average. And its true
that investors prescient enough to
invest in the tiny Fairholme Fund
soon after inception would have
seen $10,000 grow to more than
$29,000, in the 10 years through
the third quarter of 2010. During
that same period, $10,000 invested
in then-huge Fidelity Growth &
Income would have dwindled to
less than $6,600.
worldmags
083_FPJan11 1
Still, gazing over the last disappointing decade, its vital to know
that value funds outperformed
growth on average, and why. Largecap value funds returned 2.9%
annually over the 10 years ending
Nov. 30, according to Morningstar.
Hardly exciting, but better than the
S&Ps 0.8% return or the 1.8% produced by all domestic stock funds
as a group.
Mid-cap value nearly matched
the S&P MidCap 400, 7.25% to
7.27%. Handily beating out the Russell 2000 return of 6.4%, small-cap
value funds ended the decade with
a 9.63% annualized return, on average, which in this context sounds
quite good.
These positive results may seem
a bit surprising, especially considering that the most recentand
steepestmarket slide, from the
fall of 2008 to the winter of early
2009, included a debacle for financial companies, the darling of value
funds, In fact, financials can account
for as much of 30% of some value
indexes, says Matt Norris, a portfolio manager at Waddell & Reed in

Overland Park, Kan.
But to some observers, the latest figures simply confirm wellestablished patterns. Value stocks
have outperformed growth stocks
in most 10-year periods, says Tim
Courtney, chief investment officer
of Burns Advisory Group in Oklahoma City. The primary determinant of your return from a stock is
the price you pay.
CHARTING THE CYCLES
If financials flopped so spectacularly, how did value funds post
superior numbers for the trailing 10
years? The short answer is that they
held few technology stocks and
emerged from the burstng tech bubble with a lead they held through the
decade, says Michael Breen, associate director of mutual fund analysis
for Morningstar.
The last years of the 20th century
saw one of the greatest bull markets
ever, one that was led by technolJanuary 2011 Financial Planning 83
12/10/2010 11:30:18 AM
worldmags
PORTFOL I O
ogy, media and telecom (including

dot-com) stocks. Those stocks were
largely held by growth funds and
sometimes shunned by value funds,
which lagged in that period. Then
growth-oriented funds were toppled when the tech bubble burst,
says Tom Roseen, Denver-based
senior analyst for Lipper, a Thomson
Reuters company.
From 2000 through 2002, the
S&P 500 plunged each year, losing
37%. Growth funds lost more than
40%, as calculated by Lipper. But
financial stocks did comparatively
well during those years, helping
value funds, which actually gained
in 2000 and 2001 and suffered
fewer losses than their growth counterparts in 2002. As a result, Lipper
figures show that value funds
including large-, mid- and smallcapemerged from the three-year
market slump with a total loss of
only about 3%.
After the tech bubble burst, investors were not encouraged to go back
to growth, Roseen says. So value
funds took over market leadership.
As the last bear markets have
amply demonstrated, large losses
make subsequent recoveries difficult to achieve. If a hypothetical
growth fund lost 40% in the 20002002 bear market, it would need
to gain nearly 67% to recoup those
losses. On the other hand, a value
fund with a 3% loss would make it
up with a scant gain.
In the bull market that followed,
value funds beat the broad market in
some years (2004, 2006), kept pace
some years (2003, 2005) and lagged
badly in 2007, thanks largely to
weakness in financial stocks. For the
five years, growth led value, but the
outperformance was modest. While
growth funds gained over 100% in
that period, value funds gained more
Value Trumps GrowTh

Over the decade, value beat growth
funds by almost three percentage points.

Year
Return (%)
Value Funds
2000
12.58
2001
2.58
2002
-15.75
2003
33.1 0
2004
16.07
2005
7.30
2006
17.42
2007
-0.45
2008
-36.96
2009
29.10
* 2010
9.28
10-Year
Annualized Return (%) 4.50
Growth Funds

-6.87

-16.26

-26.66

35.67

11.05

0 .33

8.43
14.46

-41.82

37.62

13.85

1.42
* Through Nov. 30, 2010

Source: Lipper, a Thomson Reuters company
than 90% by Lippers calculations.

The tech bubble is a familiar story
that bears repeating. At the end of
many economic cycles, investors
are all chasing a few stocks, Norris
explains. They pile into familiar
names. In 1999, the stocks everyone
wanted to own were some visible
tech stocks. Veteran investors also
will remember the Nifty Fifty, buyand-hold growth stocks of the 1960s
and 1970s.
As Courtney puts it, its simply
too easy for growth managers to
make picks that have future growth
already priced into the stock. The
time to buy Apple, for example, was
10 years ago, when it had a $10 billion market cap, rather than now,
when its market cap is around $200
billion. As always, too many people
bought the Apples too late.
The 2003-2007 bull market varied that pattern somewhat. Real
estate was the hot asset class, up
about 170% from 2003 through
2006, while growth funds enjoyed
only moderate outperformance.
The fall of 2007 marked a market
top that was followed by the disaster

of 2008 and the first quarter of 2009.
Growth funds lost nearly 42%. Value
funds actually led in 2008, if you can
call losing 37% leadership.
Some value fund managers might
have found it hard to find financials
they wanted to own, and others
dodged the category, Breen says.
Those that were light in financials
avoided the worst losses of 2008.
Putting it all together, value
funds have beaten growth funds in
each of the four bad years, plus the
bull market years of 2004 and 2006.
Minimizing losses has been the key
to long-term outperformance.
FUTURE FOCUS
Growth funds are leading value
again in the latest rally. But planners would do well to remember
that value funds seem to have provided some bear market protection.
Theyve done better in downdrafts,
Breen says.
Can value funds continue to
deliver such encouraging returns?
Value funds have good prospects,
says Peter Greenberger, manager of
mutual fund research for Raymond
James, in St. Petersburg, Fla. Many
good companies have fallen out of
favor, so they look attractive now to
value managers.
Norris, a value investor, agrees
that he sees plenty of opportunity
in todays market. We are looking
for double-digit free cash-flow yield,
assuming normal operations for a
company. There are lots of opportunities out there.
Hes finding those cash flow
yields in technology companies,
especially large-caps, and some
property/casualty insurers. Their
stocks might be off because return
on equity (ROE) is only 11%, say,
when its normally in the low- to
worldmags
084_FPJan11 2
12/10/2010 11:30:23 AM
m
c
u
t
h
s
m
n
h
p
d
i
f
t
i
v
V
b
a
i
b
o
i
B
W
f
t
n
b
b
s
p
t
i
l
m
2
h
worldmags
r
.
e
n
mid-teens for that company. In some

cases, we think the ROE will go back
up, and the stocks a buy for us.
Breen sees a favorable outlook for
the category as a whole. Managers
have been able to buy high-quality
stocks at good prices, he says. They
may be fallen growth stocks in technology, oil companies, financial or
healthcare companies.
Dividends are also coming into
play. Some value managers like
dividend-paying stocks, for their
income stream, while others prefer companies that are buying back
their own stock, Breen says.
As Americans age, dividend-paying stocks will add to the appeal of
value funds, says Lippers Roseen.
Value funds may get returns from
two sources, capital appreciation
t
s
s
.
s
e
n
e
.
y
e
r
.
1.8%, while Morningstars large-cap

value category returned 2.5%. DFAs
U.S. Large Cap Value, which uses a
passive but not a true indexing strategy, had an annualized return of
5.3% for the past 10 years.
Both active and passive value
funds, it turns out, can pluck talking points from the results of the
past decade. Our data shows that
actively managed value funds in
both the large- and mid-cap arenas
had approximately the same results
as their mirroring value indexes,
Greenberger says.
Small-caps appear to be the exception. The common claim that small
companies are lightly followed and
relatively inefficient, fertile grounds
for skilled active management was
borne out in the last decade among
might miss them if you had a concentrated fund.

VARIETIES Of VALUE
Financial planners who prefer active
management should realize that
value funds are not all alike. Some
of them invest in well-established
high-quality, dividend-paying companies that currently trade at low
price-to-earnings or price-to-book
value ratios.
Stock dividends help to compound
returns over long time periods. Moreover, some dividend-paying stocks
may be attractive in a period of low
yields to savers, and low tax rates on
dividend income might give them a
competitive advantage over interestpaying accounts.
Other value funds are managed
Value funds held few tech stocks and emerged from the bursting tech
bubble with a lead they held through rest of the decade.
o
?
f
d
y
f
o
and income, he points out. Older

investors may increasingly seek
both in one investment. The cachet
of Warren Buffett, a value-stock
investor, wont hurt, either.
BASIC DECISIONS
When advising clients on investing
for long-term goals, an allocation
to value funds seems essential. The
next steps, of course, are to make
basic decisions about choosing
between large-, small- and mid-cap
stocks, and whether to opt for stockpicking or indexing strategies.
Passive investors insist that
the low costs and low turnover of
indexes bring superior performance,
long term. The recent evidence is
mixed, however. Through November
2010, Vanguard Value Index Fund
had a 10-year annualized return of
s
y
g
,
a
-
w
,
e
r
n
,
o
worldmags
085_FPJan11 3
actively managed small value funds,

which outperformed their index on
average, according to Greenberger.
Small-cap value funds may hold
hundreds of stocks at any one time.
Courtney, whose firm tilts clients
portfolios toward value, using both
active and passive funds, argues that
the large numbers of holdings helps
diversify these funds, giving them
more chances to succeed.
Values historic outperformance
typically comes from a small subset of undervalued stocks, he says.
They start out as value stocks then
become growth stocks.
About one of out four companies
in a small- or mid-cap value index
migrates each year, Courtney says.
Youll want to own them, and youll
need a well-diversified fund to pick
up the ones that will migrate. You
by contrarians who buy troubled

companies where they see the
chance of a turnaround. The value
label can be applied to a wide variety
of funds. That includes funds that
will concentrate holdings in a few
companies or a few market sectors,
taking increased risk in pursuit of
superior returns.
The key, Greenberger, says, is to
look for value funds with a strong
long-term record, especially those
that have performed relatively
well in recent market meltdowns.
Even after all the recent carnage, it
appears that some traditional wisdom remains true: Investing in value
stocks and small stocks can serve
your clients well.
FP
CEQUIZ

12/10/2010 11:30:37 AM
worldmags
DATA
PE
Strong Finish
Investors closed out 2010 on a positive note. But how will stubbornly high
unemployment and economic uncertainty in Europe affect the year ahead?
By Donna Mitchell
fter enduring the ups and downs of 2010, exchange-traded

fund (ETF) investors were hoping to end the year in the
black. The market cooperated as the number of positive-performing ETFs, 68, far outstripped the eight funds that had
negative performance numbers, according to available Morningstar
data, through Nov. 30, 2010.
By early December, overall year-to-date ETF net assets stood at $40
billion. This represented a 27.5% gain, or $8.6 billion of new assets flowing into ETFs, according to the most recent data on money flows from
Select Sector SPDRs.
The best-performing sectors generally followed the script of an economic recovery too. According to Select Sector SPDRs, the consumer
discretionary category was up 26.3%, industrials were up 23.4% and
energy was up 16.1% year to date,
through Dec. 7. It was just a classic
recovery, when you look at what was
going on in the market, says Dan Dolan,
director of wealth management strategies for Select Sector SPDRs. Economically sensitive sectors took the lead.
says. The measure had not been finalized at

press time.
The technology sector, surprisingly, did

not join its higher-performing peers, Dolan says. That category posted a
positive year-to-date number, up 8.9%, and it was up almost 15% over
the last three months, but technology ETFs experienced two major periods of volatility throughout the year, including a very bumpy summer.
Traditionally defensive sectors, such as healthcare and utilities, did
not end the year well. Healthcare was down 0.3%, and utilities gained
just 0.5%, as investors shifted money to support other sectors.
Dolan says it was no surprise that healthcare ETFs did not share
in the year-to-date upswing, given the continuing uncertainty in the
sector. Utilities should have done better, however, because that group
of funds offers a dividend yield of about 4.07%, the highest among
ETFs. If President Barack Obama and Republican lawmakers decide
to keep the dividend tax at 15% instead of the higher ordinary income
rate, that might make the sector more attractive to investors, Dolan
Even ETFs linked to foreign stocks lost some of

their luster. Predictably, equity ETFs indexed to
European stocks were down 3.6%, as the European Union approved an $89 billion bailout for
the Irish banking system and rumors of a similar
remedy for Portugal began circulating.
Emerging-market bond ETFs were one
bright spot among global ETF bets, however.
That group was up 12.6%, and the Wisdom Tree
Emerging Market Local Debt Fund
(ELD), capitalized on the categorys popularity. Launched in early
August, the fund has already accumulated $374 million in assets
under management.
One of the hottest areas out
there is emerging-market debt,
explains John Gabriel, an ETF analyst at Chicago-based Morningstar.
Global debt is generally looking to diversify
away from the U.S. dollar.
Although ETFs exhibited signs of a broadbased recovery, analysts and investors alike
expressed caution. In early December, unemployment remained high, at 9.8%. If that keeps
up, says Dolan, it could endanger the consumer
discretionary categorys healthy performance.
For their part, investors continue to embrace
fixed-income investments. High-yield bonds
fared especially well, up 9.8% year to date. FP
CEQUIZ
To take online go to
financial-planning.com
worldmags
086_FPJan11 1
FOREIGN UNCERTAINTY
Equity ETFs indexed

to European stocks
were down, but
emerging-market bond
ETFs were a bright spot.
CAUTION ON THE TRACKS
12/10/2010 3:59:13 PM
ET
Sou
worldmags
NET CASh FLOwS FOR ThE

20 LARGEST ETFs
PERFORMANCE OF LARGEST ETFs

ToTal
reT. yTd
ToTal
reT. 1 yr.
ToTal reT.
ann. 3 yr.
neT asseTs
share class
SPDR S&P 500
7.73%
9.82%
-5.14%
$84,315,753,050
$84,315,753,050
($11,276,524,458)
SPDR Gold Shares
24.88
17.21
20.35
58,570,015,313
SPDR Gold Shares
58,570,015,313
6,172,114,217
11,124,919,238
8.44
12.62
-2.37
48,133,089,722
iShares MSCI Em Mrkts Idx
48,133,089,722
3,497,576,046
4,441,406,944
Vanguard Emer Markets Stock ETF
10.91
14.91
-2.80
43,840,760,813
Vanguard Em Mkts Stk ETF
43,840,760,813
18,158,452,245
9,005,517,617
iShares MSCI EAFE Index
-0.37
1.04
-10.08
36,255,493,820
iShares MSCI EAFE Index
36,255,493,820
(514,652,289)
(4,747,362,397)
7.81
9.89
-5.14
23,931,752,267
iShares S&P 500 Index
23,931,752,267
(445,861,143)
1,454,436,515
14.42
20.44
0.95
21,763,258,395
PowerShares QQQ
21,763,258,395
1,450,286,585
(280,262,879)
fund name
iShares MSCI Emer Markets Index
iShares S&P 500 Index

PowerShares QQQ
f
o
r
r
esT. class neT

cash flow yTd 2010
esT. class neT

cash flow 2009
($20,954,018,424)
iShares Barclays TIPS Bond
7.77
5.40
5.32
19,975,952,000
iShares Barclays TIPS Bond
19,975,952,000
149,244,316
8,423,934,996
Vanguard Total Stock Market ETF
9.75
12.88
-3.96
16,208,083,310
Vanguard Total Stk Mkt ETF
16,208,083,310
789,636,908
1,329,639,387
iShares Russell 2000 Index
17.43
26.85
-0.33
15,697,982,766
iShares Russell 2000 Index
15,697,982,766
(285,794,307)
237,983,165
iShares iBoxx $ Inv Grade Corp Bd
10.40
9.13
7.16
13,836,314,671
iShares iBoxx $ Inv Gr Cp Bd
13,836,314,671
(87,533,455)
4,332,670,070
iShares Russell 1000 Growth Index
10.41
13.81
-2.50
12,089,560,805
iShares Russell 1000 Gr Idx
12,089,560,805
(633,739,619)
(2,337,528,517)
iShares Barclays Aggregate Bond
7.45
5.73
6.23
11,917,282,024
iShares Barclays Agg Bond
11,917,282,024
(5,908,364)
1,212,028,473
iShares MSCI Brazil Index
-0.80
1.37
0.62
11,761,414,310
iShares MSCI Brazil Index
11,761,414,310
375,300,501
1,738,996,901
SPDR S&P MidCap 400
18.44
25.82
0.98
10,978,599,992
SPDR S&P MidCap 400
10,978,599,992
1,042,001,175
(412,620,978)
iShares Russell 1000 Value Index
6.86
8.73
-7.16
9,973,839,706
iShares Russell 1000 Value Idx
9,973,839,706
166,071,422
(1,591,661,784)
58.99
48.82
23.39
9,957,905,000
iShares Silver Trust
9,957,905,000
1,041,603,919
1,260,798,960
7.70
5.92
6.39
9,197,874,000
Vanguard Total Bond Mkt ETF
9,197,874,000
2,476,850,864
3,032,588,005
iShares S&P MidCap 400 Index
18.64
26.07
1.20
8,936,554,750
iShares S&P MidCap 400 Idx
8,936,554,750
701,639,542
1,172,841,941
Energy Select Sector SPDR
11.48
12.32
-3.59
8,594,464,316
Energy Select Sector SPDR
8,594,464,316
1,035,243,789
57,657,085
iShares Silver Trust

Vanguard Total Bond Market ETF
e
.
e
d
y
s
SPDR S&P 500
BEST- AND wORST-PERFORMING ETFs

BY 1-YEAR RETURN
ETF RETURNS BY CATEGORY

fund name
quarTerly
reT. 09-q3
T0Tal
reT. yTd
ToTal
reT. 1 yr.
ToTal reT.
ann. 3 yr.
US ETF Bear Market
-20.25%
-26.40%
-28.07%
-22.32%
US ETF Commodities Prec Mtls
26.03
43.06
31.51
21.11
US ETF Consumer Discretionary
ToTal
reT. yTd
fund name
BesT-performing
equiTy eTfs
neT asseTs/
share class
fund name
quarTerly
reT. 10-q3
ToTal
reT. 1 yr.
Direxion Daily Real Estate Bull 3X Shrs
43.96%
18.00%
74.43%
Guggenheim Airline
34.08
25.03
62.94
iShares MSCI Thailand Invest Mkt Index
51.36
14.50
61.79
ProShares Ultra Russell2000 Growth
34.47
52.22
58.01
24.84
30.79
2.64
12.12
13.04
17.66
-1.62
US ETF Diversified Pacific/Asia
12.58
8.23
11.69
-5.06
ProShares Ultra Real Estate
35.46
13.02
54.01
.
y
US ETF Emerging Markets Bond
0.73
12.65
12.48
8.94
iPath S&P 500 VIX Short-Term Fts ETN
-63.38
-43.17
-69.36
PowerShares Global Wind Energy
-40.85
-7.39
-41.20
First Trust Global Wind Energy
-37.23
-2.49
-36.82
e
s
r
.
e
s
P
worsT-performing
equiTy eTfs
25.55
US ETF Div Emerging Mkts
20.83
4.70
9.49
-7.53
US ETF Equity Precious Metals
26.15
36.71
28.63
9.45
US ETF Europe Stock
7.38
-3.62
-2.98
-12.96
iShares S&P Global Clean Energy Index
-32.24
-4.86
-29.01
US ETF Financial
8.42
2.66
3.64
-17.01
iShares MSCI Spain Index
-26.61
-6.89
-28.18
US ETF Foreign Large Blend
12.22
0.83
2.69
-7.83
Direxion Daily 7-10 Yr Trsy Bull 3X Shrs
38.82
-4.56
18.78
US ETF Foreign Large Growth
10.83
3.90
5.91
-8.93
SPDR Barclays Capital High Yield Bond
11.31
4.57
15.92
US ETF Foreign Large Value
7.18
-0.72
0.90
-9.44
iShares iBoxx $ High Yield Corporate Bd
9.79
3.95
13.21
US ETF Inflation-Protected Bond
1.38
7.89
5.51
5.33
PowerShares Emer Mkts Sovereign Debt
13.24
-0.65
12.73
US ETF Latin America Stock
18.52
21.37
27.46
5.49
iShares JPMorgan USD Emerg Mrkts Bd
12.05
-0.42
12.22
US ETF Long Government
-9.14
15.19
6.52
6.97
iShares S&P/Citi Intl Treasury Bond
-1.77
-1.40
-7.09
US ETF Pacific/Asia ex-Japan Stk
11.06
11.62
15.35
-1.93
SPDR Barclays Cap S/T Intl Treasury Bond
-0.96
1.89
-5.15
US ETF Real Estate
8.31
23.52
33.70
-7.02
Claymore U.S. Cap Mkts Micro-Trm F/I
0.02
-0.02
0.0
US ETF Short Government
0.42
1.93
1.31
2.19
iShares Barclays Short Treasury Bond
0.13
0.01
0.09
27.80
11.90
22.34
-1.10
PowerShares Active Low Duration
2.21
0.23
1.51
worsT-performing
fixed-income eTfs
US ETF Technology
BesT-performing
fixed-income eTfs
US ETF Equity Energy
Source: Morningstar. Trailing period returns through Nov. 30, 2010.
worldmags
087_FPJan11 2
12/10/2010 3:59:29 PM
worldmags
ce quiz jan.11
FROM hOMegROwn haRvest, On Page 46:
1. At the articles writing, what was the retailer Targets
share price, and how far below its five-year high was its
stock price?
a. $46, 20%
b. $66, 40%
c. $56, 20%
d. $36, 40%
FROM keePing the Faith, On Page 49:
2. If a Jewish client wants to avoid collecting ribis, or
loan interest, then the planner could draft a Heter Iska
agreement to recast the transaction as a return on a(n)
______ with the borrower.
a. investment
b. partnership
c. equity
d. none of the above
FROM OutlOOk: 2011, On Page 56:
3. Martin Murenbeeld of DundeeWealth Economics
believes U.S. economic growth will remain between __
and __ in 2011.
a. 1.5%, 2.5%
b. 1%, 3%
c. 2%, 4%
d. none of the above
4. Which regulated, slow-growth equity sector is
expected to lag the markets in 2011?
a. financials
b. healthcare
c. utilities
d. all of the above
FROM Fading Minds, On Page 71:
5. Clients suffering from early stages of dementia may
exhibit profound personality changes, with the exception of going from:
a. sensible to gullible
b. disorganized to methodical
c. trusting to paranoid
d. heedful to forgetful
FROM Q&a: ROth iRas, On Page 75:
6. The IRS restriction preventing married couples filing
separately from converting to a Roth IRA is still in force
for 2011.
TRUE
FALSE
FROM MeasuRing stick, On Page 79:
7. The timing, or sequence of returns, on the 40 largest
mutual funds does not affect _____ performance.
a. aggregate
b. lump-sum
c. basket
d. granular
FROM tRue value, On Page 83:
8. What level of losses did value funds incur during the
recent three-year market slump, according to Lipper?
a. 24%
b. 12%
c. 6%
d. 3%
9. DFAs U.S. Large Cap Value Fund had an annualized
return of 5.3% for the past 10 years, using a _____, not _____
a(n) strategy.
a. large-cap, active
b. true indexing, not passive
c. passive, true indexing
d. active, large-cap
FROM stROng Finish, On Page 86:
10. Wisdom Trees latest ETF, under the ticker ELD,
capitalizes on which categorys current popularity?
a. Emerging-market bond
b. Emerging-market real estate
c. Emerging-market large blend
d. Latin American governments
To earn one hour of continuing education credit with the CFP Board of Standards, please visit our website and answer the
questions above. You must get eight out of 10 questions correct to pass. Credit will count under CFP Board subject A: financial planning process/general principles. Deadline for participation is Mar. 24, 2011.
SPonSorED BY
Investment Management Consultants Association (IMCA) has preapproved this CE quiz for CIMA, CIMC, and CPWASM
non-IMCA-sponsored continuing education credit. A maximum of 10 hours of CE credit per two-year license renewal period
earned from industry publications is allowed. Participants must get 8 out of 10 questions correct to pass.
If you need assistance with the online quiz, please contact customer service at (800) 221-1809 or custserv@sourcemedia.com. Financial Planning offers its continuing education quiz exclusively online at www.financial-planning.com/ce_quiz/.
worldmags
088_FPJan11 1
12/10/2010 3:58:49 PM
worldmags
stepping stones revealed

worldmags
089_FPJan11 11
12/13/2010 12:54:41 PM

worldmags

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worldmags
090_FPJan11 1
12/13/2010 11:16:46 AM
worldmags

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worldmags
091_FPJan11 2
12/13/2010 11:16:34 AM
worldmags

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worldmags
092_FPJan11 3
12/13/2010 11:16:42 AM
worldmags

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worldmags
093_FPJan11 4
12/13/2010 11:16:55 AM

worldmags

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worldmags
094_FPJan11 5
12/13/2010 11:24:14 AM
worldmags

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worldmags
095_FPJan11 6
12/13/2010 11:24:39 AM
MY
worldmags
WORD
Winners
Circle
ithout a winners circle in leadership, an advisory practice will lag

behind its peers. Building a winners circle is just as important to
your success as market resurgence.
What is a winners circle? Its a group of employees, partners, associates and business alliances who have been or are associated with the
practice through its many ups and downs. Simply speaking, its people chosen to work together
and share ideas on projects for the common good
of the practice. The healthy debate and free flow
of ideas stimulate creative thinking and openmindedness. The leader can then choose the
best path to achieve overall project goals.
The commitment to build a winners circle
should be in vogue. A credible winners circle can
strengthen the decision-making process within
the leadership ranks in advisory practices. A winners circle can stand the test of economic time,
whether the times are good, bad or uncertain.
Establishing a credible winners circle breeds
accountability, humility, trust and transparency in the leadership ranks. Here is some practical advice for building your winners circle:
Be intentional. Every business relationship
either helps you stay on course or nudges you off
course from your core purpose and core values.
IllustratIon by rIccardo VecchIo
Have you put together a

group of employees and peers
that will help you improve your
leadership decisions?
By Christopher I. Franklin
Core purpose relates to why your financial practice exists, and core
values relate to what your financial practice stands for. For example,
educating others and independent thinking come quickly to mind.
Be patient. Recognize that building a winners circle takes time
and patience. You will need different teams for different endeavors,
which makes it important to recruit the right people.
Encourage debate. Debating ideas is crucial in a winners circle.
But after the debate has ended, be sure that your winners circle is unified in its vision, but diversified in its skills. The leader must identify
the strengths and weaknesses of each member of the winners circle.
Look for different points of view. Realize that the leader is not
the smartest person in the winners circle on every project or subject.
The winners circle will not achieve greatness on most projects if the
leader is always the one with the ideas.
Avoid choosing yes-men or yes-women. A yes-person cannot
help the winners circle grow, nor serve as a legitimate sounding board
for the groups ideas. It is already too easy for some leaders to fall in
love with their own ideas.
I encourage you to build a winners circle in your advisory practice.
A winners circle can have a huge impact on the direction of your practice in this ever-changing global environment.
FP
Christopher I. Franklin is the CEO of Titan Financial Services, a Washington, D.C.based financial management company that offers exclusive services to professional athletes, high-net-worth individuals and
celebrities. He can be reached at christopherfranklinonline.com.
worldmags
096_FPJan11 1
12/10/2010 1:37:51 PM
worldmags
BND
Vanguard Total Bond Market ETF

Are you Vanguarding your clients portfolios?
TM
BND has 17 times more index coverage than the industry average.*
Broader coverage can mean more accurate tracking. When you take a closer look at BND,
youll see that it has 4,384 holdings versus the industry average of 253 holdings, and that can
have a real impact on your clients portfolios. Visit advisors.vanguard.com/BND to learn more.
All investments are subject to risk. Vanguard funds are not insured or guaranteed. Investments in bond funds are subject to
interest rate, credit, and inflation risk.
To buy or sell Vanguard ETFs, contact your financial advisor. Usual commissions apply. Not redeemable. Market price may be
more or less than NAV.
For more information about Vanguard ETF Shares, visit advisors.vanguard.com/BND, call 800-523-8845, or contact your
broker to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information are
contained in the prospectus; read and consider it carefully before investing.
*Source: Morningstar as of 4/29/2010. Based on industry average bond ETF holdings of 253 and BND holdings of 4,384.
2011 The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 6,879,964 B2; 7,337,138. Vanguard Marketing Corporation, Distributor.
worldmags
C4_FPJan11 4
12/14/2010 1:51:16 PM
worldmags
The economy is in trouble.

The stock market is intimidating.
What should you do?
NOTHING.
Thats what were here for.
The Sierra Core Retirement Fund

Our investment strategies have been specifically developed for retirees, people approaching
retirement, and other conservative investors. During these turbulent times, we invite you to ask
us for details on our performance in both good times and Bear Market periods.
Contact us for more information:

SierraCoreFund.com or 877-738-0555
As of 011/30/2010
Year-toDate
One Year
Sierra Core Retirement

Fund Class R
+8.40%
Benchmark*
S & P 500*
As of 09/30/2010
Since Inception 12/24/2007
Annualized
Cumulative
Year-toDate
+9.56%
+11.56%
+37.91%
+8.00%
+6.12%
+7.12%
-2.66%
-7.62%
+7.86%
+9.94%
-5.63%
-15.65%
One Year
Since Inception 12/24/2007
Annualized
Cumulative*
+9.96%
+12.15%
+37.39%
+5.05%
+8.39%
-3.24%
-8.72%
+3.89%
+10.16%
-7.22%
-18.76%
The performance data quoted here represents past performance for Class R shares (symbol SIRRX), and are net of the total annual operating expenses of the Class
R shares (see below). For more current performance information, please call toll free 877-738-0555 or visit our website, SierraCoreFund.com. Current performance
may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The investment return and principal value
of an investment in the Fund will fluctuate, so that investors shares, when redeemed, may be worth more or less than their original cost. The Funds investment
adviser has contractually agreed to reduce its fees and/or absorb expenses until at least February 28, 2012, to ensure that net annual operating expenses of the
Class R Shares will not exceed 2.25%, subject to possible recoupment from the Fund in future years. Without these waivers, the Class R total annual operating
expenses would be 2.29%. Please review the Funds prospectus for more information regarding the Funds fees and expenses, including other share classes.
* Cumulative performance from inception is the total increase in value of an investment in the Class R shares assuming reinvestment of dividends and capital
gains distributions. Benchmark is the average of the mutual funds in Morningstars World Allocation category managers who like Sierra can invest in the
U.S. and globally, stocks and/or bonds, currencies, physical commodities etc. The S&P 500 Index, a registered trademark of McGraw-Hill Co., Inc., is a marketcapitalization-weighted index of 500 widely-held common stocks.
The Fund invests in mutual funds, closed-end funds and ETFs (underlying funds). The Fund indirectly bears the investment management fees and expenses of the
underlying funds in addition to the investment management fees and expenses of the Fund all of which however are fully reflected in the above performance
information. In some instances it may be less expensive for an investor to invest in the underlying funds directly. There is also a risk that investment advisers of
those underlying funds may make investment decisions that are detrimental to the performance of the Fund. Investments in underlying funds that own small- and
mid-capitalization companies may be more vulnerable than larger, more established organizations to adverse business or economic developments. Investments in
underlying funds that invest in foreign equity and debt securities could subject the Fund to greater risks including, currency fluctuation, economic conditions, and
different governmental and accounting standards.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Sierra Core Retirement Fund. This and
other information about the Fund is contained in the prospectus and should be read carefully before investing. The prospectus can be
obtained on our website, SierraCoreFund.com, or by calling toll free 877-738-0555. The Sierra Core Retirement Fund is distributed by
Northern Lights Distributors, LLC, Member FINRA.
1804-NLD-12/2/2010
worldmags
C5_FPJan11 5
12/14/2010 12:15:10 PM

Financial Planning 2011-01

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FP0111_cover_Javier2.

2011 INVESTMENT OUTLOOK

CIOs, like Aspiriants

IF YOURE DOING ALL

A Registered Investment Advisor, Member FINRA/SIPC

THE WORK, ITS TIME TO DELEGATE

How do you prepare for the Tax-Efcient Frontier?

Achieving The Efcient Frontier

conventional VAs. And before we

Think VAs are too expensive for

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TABLE OF CONTENTS JAN.11

photographs by lou mora

56 Investing Outlook 2011:

Even if economic expansion remains sluggish, corporate profits

January 2011 Financial Planning 

THE ROCHESTER WAY:

CAN BE SMARTER INVESTMENTS

HEAR FROM OUR FUND MANAGERS

Follow us on Twitter @Rochesterfunds

TABLE OF CONTENTS JAN.11

75 Q&A: Roth IRAs

41 Spreading the News

46 Fund Manager Profile

HIGH NET WORTH

49 Keeping the Faith

10 Financial Planning January 2011

From our perspective,

Highest in Independent Advisor Satisfaction

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Highs and Lows

WE ASK, YOU ANSWER:

Q. What asset classes do you plan to

U.S. and other

Cash and short-term

High-yield & emergingmarket bonds

The Rally of a Lifetime?

Join the conVERESations

In a video interview with AdvisorTV, Craig

Columnist Bob Veres has launched a new online blog

FINANCIAL PLANNING DAILY

Janus Triton Fund

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