Was Benjamin Graham a Great Stock Picker?

Why should investment advisers (or investment managers) seek to pick individual stocks for their clients (or fund shareholders)?  The goal should be simple - to outperform the stock market, or the particular asset class, net of fees, costs and taxes.  History shows that there are a few great stock pickers - some for shorter periods of time (e.g., Peter Lynch, Bill Miller) and others for longer time periods (e.g., Benjamin Graham, Warren Buffet).  This blog post asks - how great was the "greatest" of them all - Benjamin Graham?

By way of background, Benjamin Graham was an influential investment sage for several decades.  He was a proponent of "value investing" long before statistical analysis was applied to vast volumes of data to reveal the value effect.  (The value effect is, simply put, a statistical probability, with a 80% to 90% (approx.) certainty over any 20-year period of time, that a highly diversified basket of "value stocks" will outperform "growth stocks.)  His writings (including his consumer book, The Intelligent Investor, as well as his influence on investment sages - including Warren Buffet - should not be underestimated.

Benjamin Graham believed in thorough analysis of a company and its underlying business, in order to calculate the value of the underlying business.  Then, the investor should purchase large company stocks that are deeply discounted to the calculated value.  The depth of the discount provides a cushion against errors in the analysis.  His core principles included (but were not limited to): (1) Each business has an underlying value independent of its stock price. (2) The market can be overly optimistic or overly pessimistic. (3) The higher a price you pay for a stock, relative to its underlying value, the lower your long-term returns. (4) NEVER OVERPAY for a stock.

Even then, Benjamin Graham acknowledged that the perspective of the investor must be very, very long in order to invest in equities, given the wide and often prolonged fluctuation in value of the overall stock market.  For example, Benjamin Graham noted that it took 25 years for GE and the Dow Jones Industrial Average to recover the ground lost in the 1929-1932 stock market downturn.  Benjamin Graham correctly noted that the major benefit of investing in common stocks - protection of the investment portfolio against inflation (over most time periods, not all) - was lost if the investor overpaid for stocks.

Benjamin Graham sought out, as an investment manager, stocks with low price-to-book ratios, low price-earnings ratios, and companies in a strong financial position with the prospect that earnings will be maintained over the years.  He was not an advocate of frequent trading ("the more you trade, the less you keep"), and he acknowledged that it could take many, many years for an undervalued ("unpopular") stock to attain its true value.


How did Benjamin Graham do, in applying this methodology?  Quite well.  As manager of the Graham-Newman Corp. portfolio from 1936 to 1956, his portfolio earned 14.7% (gross of taxes), compared to an average annualized return for the S&P 500 (S&P 50, at one point) Index of only 12.2%.

But, just as bank trust departments who run individual stock portfolios for their clients today often compare their investment results to the S&P 500, we must question whether those who compared Benjamin Graham's returns utilized the right index in the comparison.  Running a "value portfolio" is not without risks.  For example, in the Great Depression, value stocks took a far bigger hit than growth stocks - reflective of the fact that value stocks are often undervalued for a reason (often relating to their ability to withstand economic stresses, should they occur, over the long term).


Hence, a more accurate method of comparing Benjamin Graham's stellar 14.7% return would be to compare it against a "large cap value" index.  Of course, back in Benjamin Graham's days, such an index did not exist.  However, Professors Eugene Fama, Sr. and Kenneth French have assembled their Fama-French Large Value Index (ex-utilities).  How did this index do - over the same time period (1936 to 1956)?  15.2% annually - a small but still significant improvement over Benjamin Graham's 14.7% annual return.

(Small cap value stocks, using the Fama-French Small Value Index, ex-util, did even better over the same time period, providing a 16.9% average annualized return - but that would be an unfair comparison, given the different risk characteristics present for this asset class.)

The comparison of Benjamin Graham's portfolio to that of a research index of large company value stocks seems appropriate, with some caveats.  For example, Benjamin Graham's portfolio of stocks typically did not possess more than 30 individual companies at any one time; as a result, in comparison to a broad index containing many more (and perhaps hundreds) of stocks, Benjamin Graham's portfolio did not minimize, as greatly, "specific company risk."  However, given Benjamin Graham's investment philosophy of investing in financially stable companies, with a long history of growing earnings, it might also be inferred that Benjamin Graham's stock portfolio may not have possessed as "deep" a dive into value stocks as the index created by Professors Fama and French (more analysis on this point would be required, assuming the data is available).

What about now?  Can investment managers duplicate Benjamin Graham's efforts - beating the overall market, even if he did not beat a large value index over the same time period?  Yes, and no.

Yes, in the sense that an investment manager can track one of many large cap value indices which exist today.  Many index funds, or other passively managed investment vehicles, exist which provide this type of exposure to the U.S. large cap value asset class with broad diversification and very low total fees and costs.

No, in the sense that selecting a portfolio of only 10-30 stocks likely brings with it risks which Benjamin Graham likely did not have to endure.  These risks result from the many complexities of corporations today, with often diverse operations spread out over the several continents, compounded by corporate accounting rules which contain far too many loopholes.  Time and time again we hear, today, of "aggressive" accounting techniques, even to the point of liabilities being transferred off the balance sheet through the use of affiliated subsidiaries.  The adjusted book value of a corporation's assets is much more difficult to determine, given the presence of risk-taking (or risk-hedging) techniques such as the use of derivatives, and either the application or non-application or misapplication of "mark-to-market" accounting.  The "composite balance sheets" and "composite income statements" presented in the financial reports of the modern-day corporations, which often possess multiple divisions, often frustrates the analysis of a company - applying Benjamin Graham's principles.

And, of course, intentional fraud regarding financial statements seems far more prevalent today, despite reforms attempted by Sarbanes-Oxley.  While the quantity of financial information available today, and the speed at which it is transmitted, is greater, it appears (at least to this observer) that greater "specific company risk" is present due to shoddy accounting practices which have become embedded into the financial reporting system, as well as a corporate culture which focuses on short-term profits, thereby engendering excessive risk-taking and/or fraud.

Many investment managers have tried to duplicate Benjamin Graham's techniques, and yet the majority (net of fees and costs incurred) have failed to outperform the broader market.  When compared to large cap value indices, very, very few have succeeded over the long term.

Despite this, I love active stock pickers.  By their collective tens of thousands of decisions which weigh the valuation of stocks on a daily basis, they make the stock market more "efficient" - in terms of the value of an individual stock relative to other stocks.  This is not to say that the stock market is perfectly "efficient" - but discerning anomalies in the pricing of an individual stock (relative to its peers) is very, very difficult - and likely not worth the added costs incurred.

This is not to say that their are not dimensions of risk that should be explored or utilized in portfolio construction.  The value and small cap effects are just two examples of such risk attributes.  Nor do I mean to say that the stock market, while "efficient" in valuing stocks relative to their peers, is not at times (as Benjamin Graham's "Mr. Market" would say) at times "manic" or "depressed" (i.e., irrational, as to overall valuation levels).

In conclusion, Benjamin Graham was a wise sage.  His shorter book, The Intelligent Investor, is required reading in the intermediate investment planning class this author teaches.  But, having said that, it seems that the best way to replicate Benjamin Graham's portfolio (if that is the desire), in this modern era, is imply to invest in a low-cost, broadly diversified, low-turnover large cap value index fund.  And, as good as Benjamin Graham was during his time, perhaps with the benefit of 20/20 hindsight and the modern evolution of indices his performance - more accurately judged - was perhaps not "stellar" but rather just "good."

Connect the Dots ... Renewable Energy, Innovation, Capital Formation, U.S. Economic Growth, and The American Spirit

The future of America can be bright.  With the right leadership it will be bright.  Why do I think this is so?    Permit me to share with you my thoughts on "connecting the dots" ... renewable energy, capital formation, innovation, the future of the U.S. economy, and the American Spirit.

Why Is Renewable Energy So Important to the U.S. and Its Economic Growth?  I often write about (and keep up to date with) developments in renewable energy, which is so important to the U.S. and its future economic prospects.  Why is this so?

   (1) If we continue to import oil in large quantities, we will continue our huge trade deficit and, in turn, export our wealth overseas. (This leads to other adverse effects, such as trade imbalances).

   (2) Low-cost energy fuels the U.S. economy; if we don't secure and maintain low-cost energy sources - not just in the U.S. but worldwide - inflation will be more robust.

    (3) Lower-cost energy solutions deployable not only in the U.S. but also in all other countries of the world can fuel everything from clean water solutions to the enhanced use of computer technology, increased communications for knowledge and idea sharing, and - in short - provide the fuel for a worldwide economic boom.

   (4) Renewable energy solutions in the U.S. offer the prospect of U.S. jobs - it takes many man hours to manufacture, deploy and maintain renewable energy plants.

The "Big Four" Renewable Energy Technologies.  What are the major potential sources of renewable energy?  Several current technologies offer a great deal of promise for low-cost energy.

   (1) Wind, at least at present; costs for production of energy through wind have only come down modestly.  Great costs are also involved in transmitting energy from the "windy" states of the Midwest to the population centers.  But, ever-larger turbines offer promise for greater efficiency.  Also, more widescale deployment of "offshore" wind platforms (closer to major population centers, but out-of-sight and out-of-hearing distance) offer promise, as well.

   (2) Solar, especially Solar PV systems, for which the cost per KW hour continues to fall, and in which continued research is increasing efficiency each year. The unprecedented drop in the costs of solar modules over the last three years has led to solar energy being in parity with coal and gas in areas where electricity pricing ramps up during daytime hours.

  (3) Hydropower.  As this article points out (http://cleantechnica.com/2012/01/31/water-power-out-with-the-new-in-with-the-old/) only a small fraction of existing dams generate electricity.  And micro-hydropower offers a solution for cost-efficient, though small, electricity generation in some canals, streams.

  (4) Geothermal - which is an excellent source especially for newly constructed buildings and homes.

Battery Improvements - In High Gear.  Of course, battery technologies (for batteries both big and small) continue to improve.  Some preliminary research released over the past year or two, if such results can be commercially applied (within the next few years), offers encouraging signs of the ability to increase energy density in batteries by a factor of 10 (or perhaps even greater).  These innovations will assist not only small battery packs in delivering power to vehicles, but also utility-scale batteries (needed because the wind does not blow constantly, nor does the sun always shine).

Other Energy Technology Solutions.  Many other solutions exist - biomass for fuel, tidal uses of hydropower, and many more.  Some of these solutions require ongoing development, while other solutions (fusion power, for example) are in need of breakthroughs.

Greater deployment of nuclear (fission) power is a possibility, as well,  But the all-in costs of new plants, together with the risks involved, seem to eclipse the costs of other emerging technologies.

Regardless, the solution to our future energy needs is unlikely to come from a single solution.  Rather, cost-benefit analysis will show that, in tapping the world's diverse energy resources, some solutions will be better in  some local areas than others.

Ever-Better Conservation.   Key to our energy future is our usage of energy, as well.  Investments made by homeowners, commercial building owners, and others - in everything from increased insulation to double-pane windows to LED light bulbs (which continue to fall in price) reap very near-term rewards, with paybacks for some deployments occurring within only 1-4 years.  And, of course, increased auto mileage standards, and continued deployment (and advancement) of hybrid and electric vehicles, will assist to a great deal.  However, it would be nice to see select tax incentives in this area extended, and for greater leadership at the national level as to touting energy conservation.

Low-Cost Natural Gas, Improved Oil Drilling.  I'm not ignoring these areas ... natural gas prices have rapidly fallen with new technologies (including fracking - very controversial) being employed.  In fact, with new drilling and recovery technologies, our domestic and natural gas resources may be far greater than we previously imagined.

Still, I accept the conclusions that burning of fossil fuels has led to increased carbon dioxide in our atmosphere, which in turn largely drives climate change.  Hence, I'm not one to tout the increased burning of long-sequestered carbon and putting more CO2 into our atmosphere - even if the relative cost is lower.  It seems to me that we will need carbon-based fuels for many decades to come, as energy demands increase worldwide.  But it also would seem to me that it would be absolutely great if we never built another natural gas energy plant, coal-consuming energy plant, or oil refinery.  There is simply no need for half of Florida's population, NYC, Boston, and many other of population centers to be underwater in the decades to come; but this requires us to think far ahead - as we look for energy solutions now.

Scientific Discovery, Innovation, Computer Technology, Communications Enhancements - The "Fuel" for Future U.S. Economic Growth.  Often I hear from clients (and others) that America's best days are behind it. I disagree.  Perhaps our "easy days" are behind us.  And soon we will no longer possess the world's largest economy.  But as long as we, as a nation, embrace education in the sciences and technology, foster research at our colleges and universities which lead to new discoveries, foster technological innovation and deployment of new technologies through appropriate incentives, continue to embrace the computer revolution (which still has a long way to go), and continue to embrace the need to communicate new discoveries among scientists, engineers, and providers of capital - our country can prosper.

The Challenges are Solvable.  I'm not saying that tough challenges don't lie ahead for America, and Americans.

We have a mismatch between the jobs people want (and are qualified for), and the jobs which are available.

Competition from abroad will be robust - we cannot ignore it, nor place up shields from it - but we can respond to its challenges appropriately.

We need to invest in our educational systems, restore and improve upon our infrastructure, and encourage the continued development and employment of emerging technologies which offer long-term enhancements to our way of life without substantial adverse effects on the environment.

We need to restore the faith of our citizens in our financial services industry, in order to promote the capital formation needed to fuel economic growth.  Transforming Wall Street from institutions that take from the people to institutions to serve the populace, and possess fiduciary duties toward our fellow citizens, will take both courage and tenacity.

And we need to do all of this while "living within our means" - both respect to ourselves as individuals and through our governments.

Leadership and Innovation, Plus Tenacity, Equals a Bright Economic Future.  With the right leadership, and resolve, this nation can and will prosper.  For America has so many fine attributes.

America's great heart is reflected in our ability to come together to tackle great challenges.

America's great mind is reflected in the scientific discoveries and technological innovations flowing from colleges, universities, small businesses, and larger research centers.

America's tremendous courage is reflected in the entrepreneurial spirit of its citizens - always willing to take risks in order to attain a better world for all.

America's great soul is reflected in the character of its people - their respect and tolerance for one another, our capacity to care for each other, and our capacity to forgive.

America's future is bright for all of these reasons.  While it has been several years since economic times were viewed as "good," and while many challenges facing our country have received great attention during this time, let us not despair.  Rather, let us realize that there is much that is good and right and prosperous - that lies ahead.

Leadership.  Let us not, however, be complacent.  Let us seek out leaders who embrace our core values as a nation, and who possess the courage to tackle our challenges.  Let us seek out leaders who are honest with us about the challenges we face, and who are willing to work with all parties to fashion the appropriate solutions.

Self-Examination.  If failure does occur, the failure will lie with us - each one of us.  In permitting our political leaders (and future leaders) to make false promises which will not be kept.  In tolerating (and not challenging, at every step) those politicians who say anything to get elected.  In not casting dismay upon those politicians who raise large sums of money from special interests, pretending that such contributions don't influence their votes on major issues, while "winking" at their donors at the same time.

In short, it is we that must demand more from those who seek to serve our nation.  Let us resolve to embrace our responsibilities as citizens to hold our leaders accountable to their words, to not tolerate those who do not mean what they say, and to search for great leaders - the ones who love our country more than they love their elected positions.

In the end, the future of America is in our hands - each and every one of us.  It is our responsibility - now - to foster a great future for our children, grandchildren, and great-grandchildren.  As the election season of 2012 continues to evolve, let us fulfill our duties to those we love.  Let us fulfill our duty to the America we love.  Let each one of us contribute in this process, each in our own ways, but all of us in some way.

I believe America can, and will, restore itself to economic vitality.  The American Spirit is too strong and too robust to hold back, as long as we do not become complacent.  The American Spirit is the source of our strength, our vision, and the enabler of our future success, as long as we don't take it for granted.

Let us - each and every one of us, in our own way - embrace the American Spirit and act to ensure a prosperous future for us all.

Thoughts on Succession Planning

Practitioner Concerns on Succession Planning.  In taking a group of students to a Financial Planning Association chapter luncheon today, I encountered several financial planners concerned about succession planning.  Two common concerns were: (1) the time (and money) spent to train new financial planners to a firm - often 2-3 years before a high level of productivity; and (2) the risk of a possible departure of a financial planner after being trained - and taking clients with him or her at the time.

As to the first concern, it is my experience that there are few experienced financial planners out there.  Those who seek to leave one firm to join another are often low in production - either lacking in technical skills through lack of dedication to ongoing learning, or lacking in relationship building, or both.  Of course, some financial planners will leave one firm and seek out another for other good and valid reasons - but again, finding good and experienced talent is rare these days.  Also, some of the "training" may have to be "undone."  The need to combat preconceived notions of workflows and client service philosophies can sometimes be daunting, especially when a person moves from a non-fiduciary culture to a fiduciary platform.

Hence, in my view, many firms should seek to hire new talent emerging from undergraduate programs.  (Admittedly I have a bias here, as a professor, but hear me out.)

The hiring process should begin with an internship.  Preferably one in which enough pay is granted to cover the intern's living expenses during the period of the internship.  But, even barring that, an internship is the perfect way to begin the hiring process.  Why?


Primarily, the leveraging of an advisor’s time is possibly the most important short-term benefit of hiring an intern. With more time – your most valuable commodity – you are able to focus on things many have neglected for a long time -- things such as your own personal life, your health, or tackling the things you need to do to evolve your  practice into a more efficient, viable,  and sustainable business (including process improvement and documentation, marketing, and succession planning).  But the benefits don't stop there ...


Understand The Potential Benefits.  The uses of an intern (aside from providing a well-rounded experience to the intern) include:

• Utilize interns to get to projects that have lingered for far too long
• Develop and/or update “total client profiles” for all of your clients utilizing mind-mapping or CRM software
• Verify beneficiaries on IRA and other accounts
• Review and ensure clients’ estate planning documents are obtained and properly filed and indexed
• Use technology-savvy interns to assist in implementing new CRM, PMS, financial   planning, or other software
• Have the “connected” generation spur on  your marketing efforts, especially through      the implementation of social media

Aside from projects like those mentioned above, consider these benefits:

• As discussed above - leverage your time - your most important commodity
• Facilitate “getting your feet wet” before committing to hiring permanent staff
• Try out a future potential employee … you can discern a lot more from 3-4 months than you will see in a one-hour interview, or even a series of interviews
• Show off you firm as a great place to work … interns bring back their experiences to their colleges, and to peers through FPA NextGen, NAPFA Genesis and other programs
• Give back to this emerging profession … enable an intern to discover the benefits of a fee-only practice, and encourage appropriate stewardship from the next generation

Plan the Experience.  Key to a good internship is setting reasonable expectations, for both the firm and the intern.  Here's a few tips about a possible process to follow.

• Submit recruiting information and the job description to colleges and universities
• Interview, undertake appropriate background checks, and make job offers — typically 2-8 months before the internship will start
• Assist interns with housing, if needed
• Have all staff members contribute to the formulation of a project list for the intern
• Some work that is all about the firm (e.g., updating databases, re-organizing files, etc.)
• Some work that is all about the intern (e.g., mentoring, education, etc.)
• Ideally, a lot of work that is both a genuine help to the firm and genuine learning (e.g., supporting updates to financial plans, gathering information from clients, taking notes during client conferences, preparing total client profiles, assisting with marketing and promotional efforts)
• Assign a mentor for each intern — to develop agenda for and to coordinate training, ensure  appropriate prioritization of projects to be  assigned, and to provide periodic feedback
• Have an “expectations meeting” with the intern, and with senior advisors and the assigned mentor present, when the internship commences
• Encourage staff to meet with interns over lunch and in appropriate social settings
• Conduct an exit interview

The Permanent Hire - The Roadmap.  If the intern performs well, and you are ready to bring them into the firm, you should have a clear roadmap on how the intern is trained in all aspects of the firm and moves from new hire to licensed junior advisor to senior advisor to principal of the firm.  Having a S.M.A.R.T. plan in place - with specific assignments for which the new hire (and the new hire's mentor) are responsible to achieve - is essential.  Semi-annual goal-setting and evaluation conferences are recommended, as part of this overall process.

Incentive Compensation.  Depending upon the new advisor's function, establish appropriate incentives (within regulatory requirements).  I'm a big fan of incentive-based compensation, whether it be at the firm level, the team level, and/or the individual level.

The Difficult Issues.  The second concern expressed by practitioners, as noted in the first paragraph of this post, deals with the potential loss of clients should an advisor depart the firm.  As set forth below, protection of intellectual property through non-compete, non-solicitation, and trade secrets clauses is an imperfect solution.  But I suggest a better way.

Nonsolicitation and Noncompete Agreements.  Thorny issues arise when preparing covenants to protect your firm.  First a background on the issues, and then I offer a suggestion.

Non-compete agreements generally prohibit a person who departs the firm from working within a reasonable geographic area.  This might be a number of miles radius from the firm's existing location, or within a specific town, city, or county, etc.  These agreements must be reasonable both in terms of geographic scope (typically 15 miles radius or less from where work was previously performed, although exceptions apply) and in terms of time (typically 2-3 years).  The problem, of course, is that persons in today's connected world can easily work out of their homes, or even in a somewhat distant office, and still serve clients in your geographic area.  Another problem is that courts don't like to enforce non-compete agreements, for they are a restraint on competition.  In some states non-compete agreements are not enforceable at all against financial planners; in other states they are enforceable.  The key to having a good non-compete agreement (despite its limited utility) is to have local counsel research and carefully prepare the document.

More common in financial services are non-solicitation agreements.  These typically state that specific acts of solicitation of the firms' clients cannot be undertaken by a departing advisor for a reasonable period of time - again, typically 2-3 years.  However, these types of agreements don't bar an advisor from being contacted by the client.  Nor can they prohibit the advisor from engaging in general advertising - such as by placing an ad in a local newspaper announcing that he or she has opened a new office, or joined a new firm, etc.  And - the protocol many broker-dealer and investment advisory firms have joined further limit the utility of this technique.  Still, and again, a well-drafted non-solicitation agreement can offer some protection to the practice.

A third, but often overlooked, aspect of the protection process is the protection of "trade secrets."  These might include information about the clients (see Reg S-P for the list of the limited information a broker/adviser may take when departing a firm), processes used by the firm in serving clients, marketing strategies, etc.  Again, a well-drafted trade secrets clause offers some protection.  As do copyright rights and trade name rights (both essential to protect).

A Better Way to Deal with Departing Advisors?  If you have a clear career path laid out for an advisor, with appropriate incentives, and you implement this path properly, the chance of an advisor departing the firm is much lower.  But it is still a possibility.  The best advisors tend to also be entrepreneurial, and want to own their own firm (or, over time, co-own the firm they've joined).

Rather than trying to tie the hands of an advisor solely through non-complete, non-solicitation, and trade secrets clauses - all of which can often be wholly ineffective - is there a better way.  I think so.

First, always have 2-3 team members serve each client.  If one team member departs for any reason, this leads to continuity for the client (and non-loss of the client, in most instances).  Of course, an entire team might choose to depart the firm.  And one departing team member may have such a deep relationship with the client that the client chooses to sever the relationship with the team members who remain with the firm.

Another way begins with recognition that both the firm and the advisor have a stake in the client relationship.  If the advisor undertook significant efforts in securing the relationship with the client, the advisor's interest in that relationship can be great.  If the advisor was "handed" an existing relationship of the firm, at no cost to the advisor, the advisor's quantifiable interest in the client might be less.

Of course, the firm has an investment in each client.  Numerous persons in the firm - from support staff to compliance personnel to vendors (paid for by the firm) - render services to the client, especially during the first year of any engagement.

So, why not recognize that both the firm and the advisor should "co-own" the relationship with the client.  And, if the advisor should depart the firm (for any reason), why not have one party "buy out" the other party's relationship, over time.

The value of each relationship can be quantified, using valuation measures common in the financial services industry.  For fee-only investment advisory firms, often the value is 2x annual revenues of that client, or even higher.  For commission-based relationships with clients, the multiple is usually far less.

Whatever the value assigned, both the firm and the advisor can "co-own" that relationship.  For example, for a client acquired by the firm, but assigned to an advisor, perhaps the advisor only "owns" 10% of the value of that client after serving the client for a year, then 20% after serving the client for two years, etc. - perhaps up to a maximum value of 50%.  The remaining percentage is owned by the firm.

For a client acquired largely through the advisor's marketing and promotional efforts, perhaps up to 50% of the client relationship is "owned" by the advisor, with the remaining part owned by the firm.

Then, if the advisor leaves, wherever the client lands - i.e., with the advisor or with the firm - the agreement can be that the party retaining the client will pay the other party that party's value of the relationship.  Typically this payment occurs over time - perhaps in quarterly installments over a five-year period (with interest at a reasonable rate).  [Whether to tie the amount of the payment to the continued retention of the client (and revenue from the client) is a subject of debate.]

Again, having a well-drafted legal agreement containing such terms is essential.  Research by the attorney as to the efficacy of this arrangement - i.e., purchase of an interest of the other party, and the enforcement mechanisms associated with same - is essential for each jurisdiction in which this arrangement is attempted.  Agreements with clients may have to be modified (as well as Form ADV Part 2A disclosures) to reflect the sharing of client information upon the departure of an individual client - or specifying that the client has a period of time to choose who to retain.  The tax implications of the purchase of a client relationship should also be known, when such an agreement is drafted (i.e., what are the tax consequences to the purchaser, and to the seller, of a partial interest in a client).

Also important is the ongoing documentation of who owns the relationship - and in what percentage.  Disagreements over ownership of a client relationship, whether between the firm and the advisor, or between advisors themselves, could be submitted to a person designated to resolve such disputes, whether inside or outside the firm.

Advisor Solely Owns the Relationship?  There are many advisors in the financial services industry who believe that the advisor should always own the entirety of the relationship.  This is a 180 degree swing from the traditional wirehouse model, in which the wirehouse owned the entirety of the relationship.  Again, I don't believe either perspective is entirely correct; both firms and their advisors have interests in client relationships.

The Co-Ownership Model:  A Path for Succession Planning?  Rather, as stated above, I believe both the firm and the advisor have legitimate interests to protect, as to the client relationship.  The key, in my view, is to acknowledge these competing interests, and to structure a fair and reasonable arrangement to address these interests.

If properly done, significant litigation need not occur when an advisor departs a firm.  And, in this way, a firm that desires to expand by hiring new financial planners can protect its interest, while ensuring that the efforts and contributions of its new employees are also respected.

Any thoughts on this?  I'd love to hear your opinion .... - Ron

Examining DFA Funds: Are the Right Measures Being Utilized?

An article appearing on CBSMoneyWatch on Jan. 17th, "Should You Invest in DFA Funds," located at http://www.cbsnews.com/8301-505123_162-57357831/should-you-invest-in-dfa-funds, led me to make this comment.  (I encourage you to read the article first, before reading my comment thereon.)

This article makes me question whether "risk-adjusted performance" as applied to individual stock mutual funds is a valid measurement criteria.  It depends on the use of the fund, of course, in connection with an overall portfolio.

Risk-adjusted performance seems more appropriate to apply to an entire portfolio, rather than to particular funds.  Especially if such higher-volatility funds are utilized to form a portfolio which has less volatility.  This could be done, for example, by including Dimensional's funds for their higher probability of long-term (15 years or greater) out-performance in the portfolio's allocation to equities(due to the value and small cap effects, and the ability of these funds to capture such effect).  Then, the investment adviser could lower the overall allocation to equities in the individual client's investment portfolio by 10% to 15%.  This would likely achieve a similar long-term return, but with far less PORTFOLIO-LEVEL volatility than a portfolio which has a "balanced" equities portfolio - especially during most stock market downturns.

I would note that Modigliani risk-adjusted performance (M2 or RAP) is a measure of the risk-adjusted returns of investment portfolios. It measures the returns of the portfolio, adjusted for the deviation of the portfolio (typically referred to as the risk), relative to that of some benchmark (e.g., the market).

I would also question the implied conclusion that holding cash in a mutual fund portfolio is a bad thing.  Holding cash represents an opportunity cost to investors.  I always perceived large cash holdings in stock mutual funds as a negative for individual investors, who should be "fully invested" in my view in equities, fixed income investments, or other asset classes.  Settling for funds which often hold 6% to 12% (or more) in money market funds, and settling for the drag on returns resulting from such holdings, seems problematic - or at the minimum a factor which must be taken into account when forming an asset allocation for the overall portfolio.  (If this was done, then a greater allocation to equity mutual funds would be undertaken - if those equity funds had high cash holdings.  Again, this means the individual funds may have lower risk-adjusted returns, but to compensate for the cash holdings within the funds the overall portfolio could have greater exposure to equities - and hence the same - or higher - risk-adjusted returns at the portfolio level.)

There are some very low-cost (web-based) advisors who provide access to DFA funds.  Some charge a very low percentage fee, or even a flat annual fee.  Other advisors charge higher fees, but usually throw in a lot of additional services (financial planning, wealth management) for such higher fees and personal service.

I look forward to Thursday's column.  However, and regardless of whether the result you ascertain is a positive or negative for Dimensional's funds, I would caution that taking a "snapshot" of returns of funds at any one point of time often comes up with incorrect results.  If funds have been around for 20 or more years, why not measure them over rolling 10-year time periods, or rolling 15-year time periods, or over the entire time period?  Since funds and indices rarely have the same exposures to book-to-market and market cap-driven factors, "starting points" and "ending points" over any 5-year or 10-year period can lead to poor analyses.  For example, did a significant overvaluation or undervaluation of large cap stocks vis-a-vis small cap stocks, or value stocks vis-a-vis growth stocks - exist at either the beginning or the end of the period chosen to be viewed?  This could really skew results over a discrete time period - even 10 years.

Since some sector indices have been around for 30+ years (i.e., Russell), comparing long-term returns of a fund (which has been around a long time) relative to indices may be a better indication of the fund's performance.  Yet, rolling 10-year time periods for a fund which has been around a long time can be useful.  It can be helpful as a means to weed out funds which may have possessed exceptional performance as a small starter fund, for example, but only mediocre performance thereafter.

Lastly, I would note that even Morningstar has admitted that fees and costs are a more significant factor in predicting future returns than its own ratings.  Since Dimensional's funds - especially its micro-cap and "core equity" funds - either have very low internal transaction costs, or add to returns through block purchases of (small-cap, mid-cap) stocks at discounts, or add to returns through securities lending practices (possible for a passive and diversified fund), these positive cost/fee attributes should show up in the long-term performance data.

LACK OF TRUST = LACK OF CAPITAL = POOR U.S. ECONOMIC GROWTH

A recent article in ADVISORONE noted the ongoing flow of hundreds of billions of dollars into direct deposit accounts in banks, savings & loans, and credit unions.  See  http://www.advisorone.com/2012/01/13/investors-flee-stocks-and-bonds-stuff-cash-in-matt?utm_source=weekendreview11412&utm_medium=enewsletter&utm_campaign=weekendreview

Why is so much cash flowing into bank accounts, and not into the stock and bond markets, here in the United States?  It all comes down to a LACK OF TRUST.

No longer do major investment bankers adhere to only dealing with quality products.  The financial world, already much more complex than just a few years ago with its plethora of new investment products and different tax rules, is more “dangerous” than ever.  And more costly – as product manufacturers and their distributors find more and more ways to divert from investors the returns of the capital markets.

WITHOUT TRUST - investors won't deploy cash into the capital markets. We could end up being like Greece ... Lots of money in bank accounts, very little money available for use as capital.

Our policymakers must realize that restoring trust in all aspects of our financial system will require mandatory principles of conduct.

One major part of the solution to this complex and (for individual investors) dangerous financial world is to enable consumers to TRUST their financial advisor.  And that can only be done if a bona fide fiduciary standard of conduct is imposed upon all providers of financial advice.

The product sales business model can still exist – but product sellers must be prohibited (as regulators have done in some other countries) from furnishing ADVICE.  Once advice is provided, the consumer RIGHTFULLY HAS THE EXPECTATION that he or she can TRUST his or her financial advisor.

The future of capital formation in the United States is at stake.  And with it, future economic growth.  And the financial security of hundreds of millions of individual Americans who both want and need a trusted financial advisor.

The many issues relating to the regulation of investment and financial advice, among different business models and across different regulatory regimes (and different regulatory agencies) are complex. But the ANSWER to questions posed is quite simple and direct ... impose a true fiduciary standard upon all providers of investment and financial advice.  Educate advisors and consumers on such standard.  And stand back and watch such a principles-based regulatory scheme work its magic to restore investor confidence in our financial markets system, thereby providing the fuel for capital formation and the resulting new era of U.S. economic growth.

My 2 cents ... I hope our policymakers share the same views.

Thoughts on the Undergraduate Personal Financial Planning Program Degree

The Certified Financial Planner(tm) designation has become the most recognized designation in the minds of consumers who are seeking financial advice.  This is not to take anything away from other designations.  For example, the CFA certification requires extensive study and the passage of three exams, and is widely acknowledged to be a tougher (albeit different) certification to achieve.  The AICPA (CPA/PFS), IMCA (CIMA, etc.), and other groups also offer worthwhile designations.

To obtain the CFP(r) certification has, for several years now, required (generally speaking) a 4-year college degree, completion of certain coursework in the topical areas of financial planning, three years of experience in financial services, and passage of the CFP(r) exam.  There are various other requirements, and exceptions to the requirements, which are detailed on the CFP(r) web site.

If one already has a 4-year college degree, many CFP(r) certificate programs exist which provide the requisite course work (7 courses, if one includes the financial plan requirement recently adopted) necessary to sit for the CFP(r) exam.

But if you don't possess a 4-year college degree, there is a real opportunity available to you - obtaining a Bachelor's Degree in Personal Financial Planning.

There are some commonality of the college programs with the various "certificate" programs.  They both seek to accomplish all of the learning objectives established by the CFP Board, for example.  Some of the textbooks utilized are the same.  But there, largely, the similarities end.

Each four-year college program has its own emphasis.  Some programs, for example, focus on the theory which underlies financial planning.  Others appear to possess a focus on investments.  Still others focus on "client counseling" skills.

To a large degree each program reflects the faculty who teach there.  Lead faculty who enter teaching directly after graduate school, with Ph.D.'s in hand, are likely to be well versed in the theory of financial planning, or they may emphasize knowledge of consumer issues which arise in the financial planning area.  Lead faculty who possess a background in psychology or related disciplines are more likely to emphasize client counseling in their curriculum.

At Alfred State College, one of the "Technology" colleges within the SUNY system, nearly all of the professors in the Business Department have worked in the business world.  As a result, they emphasize not only attainment of the learning objectives for the curricula in which they are involved, but also the relation of that knowledge to "real-world" scenarios.  For students of financial planning, in my view, this is a decided advantage.

I have often heard practitioners remark that students emerging with undergraduate (or Master's) degrees in financial planning often are not trained in real-world applications.  I have sometimes heard professors respond with their view that "our job is to train them in the theory, the practitioner's job is to train new practitioners as financial planners."  Or professors may take the view that "my job is to train them to think, and to instill basic (or fundamental) knowledge in them."  There are nuggets of truth in these views, but I have another view.

I believe that, at certain colleges (such as Alfred State College) the mission of the program can be to prepare students for the "real world" - as well as to achieve a base level of knowledge in all areas of financial planning.  In this regard, the largest benefit of having professors who have worked (and continue to work) as financial advisors, such as Professor Stolberg and myself, is that we can bring our current experiences into the classroom.  We are better able to see the connections between the knowledge and "what's really important" to clients.  We bring in readings, and forms, and literature, which are actually used or seen in our own practices, to supplement the standard materials.

Also, since four-year colleges such as Alfred State have eight semesters of time with the student, much more can be taught in related disciplines.  For example, at Alfred State students receive all-important instruction in macro- and micro-economics, as well as how our monetary system works.  In addition, the advanced investment planning course and Capstone course touch upon counseling clients who are concerned about the macro-economic environment.  All of these courses are mandatory, and go well beyond the CFP(r) curriculum's base requirements, due to our view that most clients of financial planners will need - from time to time - assurance of macro-economic conditions, and the financial planner of today should know how to explain economic concepts to clients (and temper clients' fears, in the process).

Other courses at Alfred State College emphasize (as electives) entrepreneurship, with the view that students, with a little experience, should be equipped to open their own financial planning firm within a few years after graduation, if they so desire.  Of course, running a professional practice requires much more knowledge that that taught within the CFP(r) core curriculum.

I often encourage financial planning students to take elective courses in public speaking, as well as psychology.  A Professional Business Seminar at Alfred State College seeks to enhance students' networking skills, as well as to prepare them for interviews.

And the enhanced education Alfred State College provides to its Financial Planning Program students does not just exist in the classroom.  Frequent field trips are undertaken to Financial Planning Association (FPA) Chapter luncheons and to local firms each semester.  Guest speakers - usually practitioners - are frequently invited to address students.  We are also scheduling visits to a one-day conference for practitioners put on by the Northeast Region of the National Association of Personal Financial Advisors (NAPFA). This Spring we hope to expand our visits to include two local Chartered Financial Analyst societies.

In addition, each Fall we hope to take Financial Planning Program seniors to a 2-3 day conference, where they connect with their future peers, learn of different approaches, and engage in interest discussions in the hallways and in the Hospitality Center for the conference.  This past Fall of 2011 ten students attended the NAPFA Practice Management and Investments conference in Brooklyn, NY, along with a subsequent visit to Merrill Lynch's downtown Manhattan main office, and presentations from their top wealth management team.  For many they learned that there are many varied perspectives about financial planning, the many benefits of discussing practice methodologies and marketing tips with practitioners, and so much more.  Needless to say, it was a very popular happening for the students.  Already we have our eyes set on an early Nov. 2012 3-day conference in Baltimore, for our students to attend.

Unlike many programs, Alfred State College requires each of its Financial Planning Program students to complete a one-semester full-time internship with a financial services firm.  With our faculty's substantial connections to alumni. financial planner organizations, and the greater financial services community, we are usually able to generate multiple opportunities for each student to choose from.  Being centrally located, we are about a day's drive from approximately 2/3rds of the U.S. population.

For students transferring from community colleges with an Associate's degree in Business, our Financial Planning Program is structured so that often the transferring student can complete the program in only two more years.  (Of course, an evaluation must be made of each student's transcript; with certain community colleges Alfred State has established agreements which facilitate this process.)

An added bonus of Alfred State College is the relatively low tuition (even for out-of-state students), the fact that most students reside on-campus (thereby aiding in building a real campus community), the small class sizes, and the open-door policy and dedication of the faculty members.

In summation, I think the big advantage of a four-year program focused on "real world" instruction is not only that of time - the ability to provide a much more diverse education and more in-depth in many areas - but also of preparation to "hit the ground running."  Many other advantages exist, including better connecting with practitioners (including the many alumni who lend their time and wisdom in support of the program and its students).


If you:

• are in college now, or desire to enroll in college;
• are interested in pursuing financial planning as a career;
• have a strong desire to assist and counsel others;
• possess a passion for investments, retirement planning, tax planning, or other subject areas of financial planning; and
• you desire a "hands-on" education designed to enable you to hit the ground running as a financial planner,

then check us out, or drop me a line.  I can be reached by e-mail at RhoadeRA@AlfredState.edu.

I also encourage you to check out the resources found on:

• the Alfred State College Financial Planning Program web site:  https://sites.google.com/site/sevensecretsofinvesting/about-me/home; and
• the Alfred State College Financial Planning Program Facebook page:  http://www.facebook.com/groups/274572649241238/

Thank you, and enjoy the day.

Ron

Do Fund Complexes Dump Expensive, Poor Funds Into Target Date Funds?

Do fund companies which put together Target Date Funds include, from their internal funds, higher-cost and weak-performing funds?  "Yes" is the conclusion found in a paper presented today at the American Finance Association annual conference in Chicago, Dr. Vallapuzha Sandhya of Georgia State University explored "Agency Costs in Target Date Funds."  A complete copy of the paper is available at http://digitalarchive.gsu.edu/cgi/viewcontent.cgi?article=1018&context=finance_diss.

Among the points raised today in the presentation and subsequent review by the discussant:

• 88% of Target Date Funds (TDFs) are found in qualified retirement plan accounts at present.
• The Pension Protection Act of 2006 permitted TDFs to be designated as default options in retirement plans.
• Internal "fund-of-funds" TDFs underperformed single fund (stock/bond mix) TDFs, and underperformed balanced funds with similar asset allocations.  This underperformance exceeded 50 bps per year, on average, for the period studied (2001-2008).
• On average, internal "fund-of-funds" TDFs included from their fund families higher-annual-expense-ratio funds, and funds with weaker performance histories.
• The discussant observed that Fidelity, Vanguard and T. Rowe Price, who together dominant so much of the market, might be evaluated as to their TDF offerings separately.  It is possible that the underperformance of internal "fund-of-funds" Target Date Funds may be attributable to high-cost fund families, such as those found in many group annuity insurance contracts.

I observe ... Query as to whether plan sponsors or other fiduciaries to the plan may incur liability for permitting such a result to occur, if this data withstands scrutiny.  This paper seems to be an important contribution to research in this area; more research is desired (including, in my view, an analysis incorporating estimated transaction and opportunity costs arising with funds), in order to further explore this important area, and to guide our policy makers. - Ron

The Personal Economics of Cancer and Financial Planners

As a financial planner, I lost a client to cancer in each of the past two years.  Two of my other clients continue their (successful, thus far) cancer treatments.  So naturally, as part of my quest to assist them, I have sought out from time to time insights as to their medical conditions, and also illumination as to the effect of the cancer and treatments therefore on the accomplishment (or non-accomplishment, or delay) of each client's personal financial life goals.

Permit me to first observe that I am constantly amazed by technological innovation, particularly in the areas of materials science, renewable energy, and health care.  As to the area of health care, we can applaud the continued ability of medical research to fuel longer, healthier lives.  For example, new treatments for various forms of cancer have significantly increased cancer survivorship rates over the past two decades.

Yet, despite the important progress to date, especially in the past 40 years (after the enactment of federal legislation spurred on cancer research in the U.S.), cancer remains one of the world’s most serious health problems. In the United States, approximately 500,000 people still die from cancer every year, and the disease is expected to become the nation's leading killer in the years ahead. Worldwide, the number of new cancer cases is projected to rise from 12.7 million in 2008 to more than 20 million by 2030.

While hundreds of promising research endeavors are underway, transferring success from animal trials to human trials is often problematic.  Still, dozens of new advances or improvements in cancer treatment or therapy were approved or adopted in 2011.  Tantalizing early results offer hope for breakthroughs in treatments (or vaccines) not only for specific forms of cancer but also for broad ranges of various types of cancer.

Given the continued progress, it seems that at times our society inadvertently takes a step or two backward -and unnecessarily. The ongoing shortage of many long-available cancer drugs remains a troubling issue.  Some cancer patients die due to the inadequate manufacture of needed amounts of cancer therapies.  More troubling is the continued trend of excluding many expensive cancer treatments from health insurance policies.

It is amazing how many cancer patients suffer not only physical stresses, but severe financial (and emotional) stresses, after commencing treatments.  One telling indicator - cancer diagnosis is now a known risk factor as to the potential filing of personal bankruptcy.

As financial planners, we may be called upon to assist individuals with the often-dramatic adverse financial consequences of cancer treatments and other forms of medical care.  This may often require both our diligence and our creativity, in seeking out resources to ensure our clients will not miss out on care due to financial hardship, and in connecting our clients (and their families) with support organizations.

We can only hope, and pray, that the continued dedication of hundreds of thousands (if not tens of millions) of researchers, physicians, and the supporters of cancer research will soon lead to far-ranging breakthroughs in the "war on cancer." In the meantime, if - as financial planners - we are called upon to assist one or more clients in navigating the shoals (financial and otherwise) of cancer treatments, let each one of us take such matters to heart and apply our fullest capabilities to assist the client in need.

P.S. - One of my students, all of 20 years old, is also engaged in a difficult battle with cancer.  A talented kid with a great personality, his courage over the past several months is inspiring.

The U.S. Trade Deficit: Why It Matters … and Potential Solutions

Several years ago I wrote about three fundamental problems which posed significant long-term challenges for the United States, in terms of overall U.S. economic growth and the standard of living of its citizens. These challenges were:

· (1) Huge U.S. federal trade deficit … in effect transferring a good portion of our wealth overseas;

  (2) The annual budget deficits and the federal debt, in effect leveraging the future of our children and grandchildren in order to benefit us today; and 

  (3) The decline of the U.S. personal savings rate – with its serious

In this blog post I provide an update on the first of these challenges – the U.S. trade deficit – and suggest some potential solutions.

What is the U.S. Trade Deficit?

At $550 billion the projected U.S. trade deficit for 2011 remains an alarming number, and it is running about 10% higher than the 2010 U.S. trade deficit. The U.S. trade deficit is a calculation of the difference between the goods and services Americans sell to foreigners and the goods and services that Americans purchase from foreigners. Over the last 30 years the United States has run consistent and increasing trade deficits.

Why Does the U.S. Trade Deficit Matter?

Some economists like to recite evidence that several decades of U.S. trade deficits has not, according to the evidence, negatively impacted U.S. growth. But truths emerge when confronting the issue with a dose of basic common sense. Indeed, the enormous size of the trade deficits over the last several decades, and the very high size of the trade deficit over the past several years in particular, raises several crucial difficulties for the long-term health of the U.S. economy.

(1) First and foremost, the net outflow of U.S. dollars to purchase imports (net of exports) are offset each year by a net inflow of foreign capital to purchase U.S. assets. Sounds like balance? Not so. In essence, foreigners are purchasing our assets – whether it be debt issued by U.S. corporations or the federal government, stock in our corporations, and even real estate. With each purchase of an asset comes an expectation of profits. In other words, the greater the purchase of our assets, the greater the profits from U.S. assets flows overseas. This in turn boosts, over time, the U.S. current account deficit (the trade deficit plus the income earned by foreigners on their asset holdings in the country net of what the country's citizens earn on the assets they have invested abroad). In essence, any country that runs a current account deficit is borrowing money from the rest of the world. As with any loan, that money will need to be paid back at some point in the future … and until repaid will act as a drain from the debtor nation (i.e., the United States).

(2) A large trade deficit is a sign of an unbalanced economy. In the case of the United States, there is a mismatch with high levels of consumer demand for goods (discussed below) and the weak U.S. industrial sector.

(3) The large trade deficit eventually results in less economic output and less U.S. employment. This is because the transfer of wealth abroad represents a net leakage from the circular flow of income and spending. Workers who lose their jobs in export industries, or whose jobs are lost because of a rise in import penetration, often find it difficult to find new employment – especially at the wage levels they previously had.

(4) Additional potential economic problems can arise from the sources of financing for the U.S. current account deficit. Foreign investors may eventually take fright, lose confidence and take their money out. Or, they may require higher interest rates to persuade them to keep investing in an economy. Higher interest rates then have the effect of depressing domestic consumption and investment.

(5) There exists the possibility of a severe international economic crisis should foreigners begin to dump the dollars they hold in world currency markets. Not to mention the world political crises which might thereafter follow.

How Can the U.S. Trade Deficit Be Solved?

There are three potential broad solutions to the U.S. trade deficit. Neither works alone, and all must co-exist to solve this systemic economic threat to the long-term fiscal health of the nation.

Solution #1: Reduce Oil Imports Through Aggressive National Tax Policies.

First, we can reduce oil imports. In this regard, look no further for a fix to 70% of the trade deficit problem than imports of oil and petroleum products. The hope is that, with very encouraging developments in renewable energy technologies, we can substantially reduce oil imports over the next few decades.

For example, a substantial number of wind turbines continue to be erected. As wind turbines grow even larger, and equipment is developed to erect these larger turbines in places where nearby residents are not negatively affected (i.e., offshore and out-of-sight), efficiencies will take place which will further reduce the already-competitive price of wind energy. According to the latest edition of the U.S. Department of Energy’s “Wind Technologies Market Report,” turbine prices decreased by as much as 33 percent or more between late 2008 and 2010. More efficient U.S.-based manufacturing is saving on transportation costs, and technology improvements are making turbines better and more efficient. The U.S. Departments of Energy and Interior made several important announcements that moved offshore American wind power forward, including the unveiling of a plan to pursue the deployment of 10 gigawatts (GW) of offshore wind capacity by 2020 and 54 GW by 2030, the creation of high-priority “Wind Energy Areas” off the coasts of New Jersey, Delaware, Maryland, and Virginia. However, wind energy development remains dependent upon the federal Production Tax Credit (PTC), which expires at the end of 2012. A long-term extension of the PTC is required to stimulate investments in long-term, sustainable and more efficient wind farms.

In terms of technology development and reduced costs, solar energy has been the real story of 2011. Rapidly falling solar panel prices over the past two years (including a 30% price drop in 2011), along with predictions of further falling prices in the two years ahead, have the U.S. on course for some form of “grid parity” with solar energy.

Solar grid parity is considered the tipping point for solar power, when installing solar power will cost less than buying electricity from the grid. But, of course, “grid parity” is more complex than just a single measure, as differences exist depending upon the size of the solar installation, its location, and the costs of electricity. Also, the costs of existing electrical resources – already constructed and depreciated coal, gas or nuclear power plants that produce electricity for 3-4 cents per kilowatt hour – is vastly different from the costs of new power plants. The marginal cost for a utility of getting wholesale power from a new power plant is more likely around 10-12 cents per kilowatt hour (for coal, gas or nuclear energy installations).

Still, it is interesting to note that there are claims that “grid parity” has been reached already in some areas of the country where residential electric prices are high and solar energy is abundant. Indeed, the “levelized” cost of solar PV was projected to likely fall below 15 cents per kilowatt hour for most of the developed countries of the world and reach as low as 10 cents per kilowatt hour in sunnier regions like parts of southern California and Arizona (although by other measures the costs of most areas is more like 30 cents per kilowatt, and 21 cents for southern California). While there are debates about just how to properly compute the “levelized” cost of energy production, one thing is certain - there has been an explosion of solar energy installations over the past few years, especially in providing powers to residential users.

Significant financing occurred for new solar initiatives in the 4th Quarter of 2011, and this emerging industry (and driver of new jobs, many of them in the U.S.) will likely continue to attract large amounts of capital. And with significant developments which will likely further increase efficiency in solar photovoltaic cells over the next few years and/or substantially reduce manufacturing and installation costs, the outlook for solar power over the foreseeable future is … to use a pun … very “sunny.”

Battery technology is evolving, as well. New technological breakthroughs are permitting large utility-scale battery development (essential since solar power and wind power don’t provide energy all the time). There have been several research-related breakthroughs which could significantly increase energy density in auto and other batteries; however, commercial application of most of these recent research lab results is not yet certain.

In addition to current (though soon-to-expire) federal tax initiatives, many states have state tax incentives or impose other requirements which stimulate the use of renewable power. For example, many states have Renewable Portfolio Standards (RPS), which require electricity providers to generate or acquire a percentage of generation from renewable sources. Other states provide for Renewable Energy Certificates/Credits (RECs) as part of their Renewable Portfolio Standards. California, with its 40 million people, has through its Air Resources Board recently announced an ambitious goal of moving toward zero-emission vehicles within the next two decades. Energy executives, responsible for long-term planning of their utility companies’ fortunes, are also painfully aware that carbon credits – while stalled for the present – are likely within a decade. Hence, utilities are increasingly likely, from the standpoint of economic costs, to consider the development of large-scale renewable energy plants.

Energy conservation has also made waves, with the costs of LED lighting falling dramatically over the past two years, and with more price drops ahead. Federal fuel efficiency requirements for cars are expected to double by 2025 to a whopping 54 miles per gallon. Currently the average car or light truck sold in the U.S. averages 22 miles a gallon, and some estimate that the new fuel mileage standards will drive that average above 40 miles a gallon by 2025. Despite these positive developments, much more could be done in the area of energy conservation – by both consumers and by businesses.

Even with all of the foregoing “good news” on renewable energy technologies and energy conservation developments, oil imports are unlikely to substantially drop under current U.S. tax policy. Some savings in oil consumption will result from hybrid and electric cars, and natural gas cars, and developments in the fuel efficiency of gas engines. Other savings will come from the deployment of renewable energy technologies. However, in reality the growth of the U.S. economy will absorb these savings and keep the demand for oil imports at high levels.

Yet much more can be done to reduce oil imports, if the politicians possess the tenacity to act for the long-term good of the country. It requires the phase-in of taxes on gasoline purchases, year-over-year, and the corresponding use that tax revenue to provide for long-term tax credits in support of renewable energy deployment and in the continued support of research in the renewable energy area. Only then will we likely make a serious dent into the huge long-term fiscal problems posed by exporting hundreds of billions of beautiful U.S. greenbacks a year overseas in return for barrels of ugly crude oil.

Hence, this first solution relies not just on the important developments affecting the efficiency and deployment of renewable energy technologies, but also is dependent upon our leaders making some tough decisions which will, in the shorter term, be painful – but which will help reduce our demand for oil, and trade deficits, substantially in the decades ahead.

Solution #2: Increase the Personal Savings Rate, Reduce Personal Spending, and Cut Imports of Consumer Goods.

While decreasing imports for oil is a major part of the solution, we must also reduce our demand for consumer goods manufactured abroad in order to further reduce our trade deficit. In so doing, we can also increase the U.S. personal savings rate (thereby maintaining cash available for capital formation activities – essential to growth of the U.S. economy).

Of course, saying this and doing it are two different matters, altogether. Much more is needed from our leaders to combat “consumerism.” Not in terms of legislation, but in terms of education and persuasion.

There are lots of resources on the web on how to combat consumerism. Here are just a few to consider:

• Leading financial planners and colleagues Dave Yeske and Elisse Buie have put together a magnificent list, called “Live Big®.” It can be found at http://www.yebu.com/uncategorized/what-does-it-mean-to-live-big/. A nice BusinessWeek article about the list can be found at http://www.businessweek.com/careers/workingparents/blog/archives/2009/04/living_big.html. 
• Fifty Possible Ways To Challenge Over-Commercialism,” by Al Fritsch, S.J., located at http://www.earthhealing.info/fifty.htm
• Leo Babauta wrote a different list, “Simple Living Manifesto: 72 Ideas to Simplify Your Life,” found at http://zenhabits.net/simple-living-manifesto-72-ideas-to-simplify-your-life/. 

Solution #3: Promote a Weak U.S. Dollar Policy.

This solution is more controversial. In essence we possess a weak dollar policy currently, but the reason for this policy is to keep interest rates low in order to stimulate the economy and promote the creation of jobs. As the U.S. and global economies improve, central banks will likely raise interest rates. With each interest rate rise in the U.S., the U.S. dollar becomes more attractive to foreign investors. This in turn affects currency exchange rates.

But what if the U.S. Federal Reserve Bank did not raise interest rates as much over the next several years, by continuing its weak dollar policy (relative to that of other countries)? This would make the U.S. dollar less attractive, thereby weakening the U.S. dollar. This in turn would boost U.S. exports and (because of resulting price increases) likely decrease imports.

Of course, weak dollar policies don’t come “free.” The price to pay is the prospect of higher inflation. Hence, there is a difficult balancing act here. But one may argue that permitting a higher degree of inflation in the U.S. – above the 2% or so assumed target of the Federal Reserve – would also lead to serious economic difficulties over the long term.

What NOT To Do – Adopt Protectionist Policies.

The solution is not, however, the erection of barriers to trade. However, I’m all for aggressively enforcing treaties on trade, and seeking sanctions against countries who violate these treaties. And I’m all for increased pressure on China to float its currency. But raising tariffs or imposing other barriers to trade lead to far more long-term negative economic (and political) consequences than the problems sought to be addressed.

In Conclusion

Trade deficits are solvable – with the right adoption of policies and education of the American consumer. It will take a concerted effort, but this threat to the future of U.S. economic growth can be averted.

Investor Warren Buffett was quoted in the Associated Press (January 20, 2006) as saying: “The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil ... Right now, the rest of the world owns $3 trillion more of us than we own of them.” I concur with the wise sage of Omaha as to the severity of this threat. We must address it … not “next year” – but through policies adopted now.

Why is “Self-Control” So Important, and How Can It Be Improved?

“Self-control” is the ability to control one's emotions, behavior and desires in order to obtain some reward later.  In psychology circles, “self-control” is sometimes called “self-regulation.”  Why is learning (and practicing) self-control so important?  Self-control is significantly correlated with “success” in life – whether it is financial success, happiness, or adjustment or other various positive psychological factors.  Indeed, “self-control may be something that we can tap into to make sweeping improvements [in] life outcomes.” [Han-yu Shen, 2011].

MOST PERSONS HAVE PROBLEMS WITH SELF-CONTROL

Most persons (including college students) suffer from problems with self-control … whether it be in the achievement of the completion of a common college task (e.g., homework) or with regard to matters with huge long-term financial implications (e.g.., saving enough for the future).  “Previous research indicates that people indeed suffer from self-control problems – that is, they intend to make choices that carefully weigh both short-run and long-run costs and benefits, but in the decision-making moment they place disproportionate weight on immediate costs and benefits.”  [Beshears et. al., 2011].

THE CAPACITY FOR SELF-CONTROL CAN BE INCREASED WITH PRACTICE

The good news is that “practice makes perfect” – or at least lead to better abilities.  The repeated practice of self-control can improve the strength or capacity for self-regulation.  [Oaten, 2006.]

We must also be aware that self-control has limits, as to its ability to be successfully repeated one time after another after another.  There is substantial evidence that self-control is a limited mental resource, in the sense that once self-control is applied it becomes tougher to exercise self-control for a new task (even an unrelated one) immediately thereafter.  [DeWall, 2011.]

However, a number of studies support the notion that self-control is nevertheless a resource that can be increased through suitable exercise.  In fact, you may be aware of individuals who, through practicing self-control continually, develop an immense ability to exercise self-control, even when accomplishing many tasks requiring self-control in repetition.

But how does one begin to “practice” self-control?

UNDERSTAND HOW MOTIVATIONS DIFFER

One must first understand that goals and rewards which are abstract and likely to be achieved only in the future, such as “securing a good education, good grades, and landing a good job,” are likely to be de-valued relative to those goals or rewards which can be achieved in the very near-term and more concretely.  For example, “play video games” now, or “let’s go out for a beer,” while neither possesses a great long-term positive effect on one’s development, are much more concrete and near-term (and hence are more motivating) to a person than “read this chapter in order to do well on the final exam several weeks from now.”

Knowing that abstract and far-off goals have a perception of far less value in the brain enables us to first think through the choice with greater awareness.  In so doing we may be able to cognitively recognize that the longer-term, more abstract goal does indeed possess greater importance than the near-term alternative choice.

Also, we can then employ devices to change the motivations, to counter a lack of self-control.  Techniques can be employed which create incentives for a person to follow through on their intended course of action.

INSTRUCTOR-IMPOSED DEADLINES: EASIER TO OBSERVE, BUT ...

Some devices or techniques include those which are externally applied – such as homework assignments from a professor with a firm, near-term deadline attached to them.  For example, a professor may give a quiz for every chapter, knowing that this will motivate students to read the material now (and avoid the result of students who read all the material only the day or so prior to the exam).  Or a professor may require an outline or brief essay on each chapter or topic studied.

Externally applied techniques, such as firm deadlines set by a professor for the accomplishment of an assignment, are usually more effective than deadlines established by the person who is seeking to accomplish the task.  [Ariely, 2001.]  But life won’t always involve situations in which deadlines are imposed by others upon you; often in business (and in life) you will need to self-impose upon yourself your own deadlines … and learn how to stick with them.

CREATE PRECOMMITMENT DEVICES TO PROVIDE INCENTIVES FOR ACTION

Devices to assist with self-control can also arise as the result of internal application – i.e., the person who needs to undertake the desired act (or refrain from an act) employs a technique to provide a substitute near-term and more concrete incentive.  An example of this might be a person who adopts as a near-term reward for a goal: “If I finish outlining this section of the chapter, I will then be able to play video games for ten minutes.”  (It would be best if a timer is set for ten minutes, for playing the video game.)

Often such a technique is a “precommitment” device [Ariely, 2001], in which one puts the wrong choice beyond reach.  For example, a student who shops weekly for snacks for her or his dorm room might only purchase a week’s supply of 100-calorie snacks.  By eschewing snacks with higher calorie content the student does not have to confront the difficult choice of whether or not to eat an unhealthy snack.  And by limiting the number of snacks purchased to a week’s supply (even if a larger quantity purchase would result in discounts), the student becomes more aware that eating the 100-calorie snacks all in the first few evenings results in the prospect of no snacks later in the week.

This writer observed early in his life the deleterious effects resulting from alcoholism from distant family members.  Then, as a college student he became aware that if he had a few beers, the next evening he “craved” for more beer.  Realizing the dangers of addiction to alcohol, the author self-imposed a limit – no more than one beer a night, and never drink a beer two nights in succession; this was the only way avoided the “craving.”  A later further self-imposed restriction was to never drink (even one beer) and later drive.  Another form of precommitment was later adopted … “never buy beer to take home.”  This led this writer to lead a life where social alcohol drinking occurs at most once a month (on average) … with a life not torn down by addiction (thereby achieving a much better than the result seen by those in his family who did not adopt such precommitment devices).

REMOVING DISTRACTIONS; MAKING COMPACTS WITH OTHERS

Similarly, removing distractions and temptations that induce undesired actions – i.e., that interfere with self-control – is an equally important form of precommitment.  For example, many students study much better in the library or in other, more controlled, environments on campus – rather than attempt to deal with distractions which occur in the dorms.  Making a commitment to study in the library with a friend until a certain pre-established time is often even better, because one is much less likely to return to the dorm room early when a commitment has been made to a friend.

Turning off one’s smart phone (to eliminate interruptions from phone calls, e-mails, and text messages) is another way to avoid the distractions which often interfere with the accomplishment of a task.

Alternatively, one may make the “right choice” in advance.  For example, one might pre-order a healthy meal for a certain day (or choose to meet friends at an eating establishment that serves only healthy meals).  Making a commitment to meet a friend at a particular time in the gym, in order to exercise, is another example of a making an affirmative precommitment.

Practicing such precommitment devices – applied by the actors (students) themselves – is an essential part of learning.  Students will not always have instructors (or parents) who will impose externally implied deadlines.  And in the world of business few supervisors desire to deal with employees who need to be constantly provided deadlines in order to get projects accomplished.  In this regard, the ability to exercise self-control is a key factor affecting an employee’s retention and promotion within a firm.

Of course, practice is just that … practice.  You won’t always succeed in exercising self-control.  No one is perfect.  There will be lapses.  But, over time, and with continued practice, your capacity to exert self-control can substantially increase, leading to a much more fulfilling and rewarding life.

Professor Ron A. Rhoades, JD, CFP(r) teaches Business Law, Retirement Planning, Investment Planning, Employee Benefits Planning, Money & Banking, Insurance & Risk Management, and the Personal Financial Planning Capstone courses at Alfred State College, Alfred, NY. He is an EPLP Mentor, C.R.E.A.T.E. program mentor, serves as advisor to Alfred State's Business Professionals of America club, and serves as academic advisor to dozens of students.

Professor Rhoades is the author of "CHOOSE TO SUCCEED IN COLLEGE AND IN LIFE: Continuously Improve, Persevere, and Enjoy the Journey," a 10-week program for success in college (available for $2.99 in Kindle store at Amazon.com, or in paperback for $6.99). Professor Rhoades may be reached by e-mail at: RhoadeRA@AlfredState.edu.

REFERENCES:

Ariely, Dan and Wertenbroch, Klaus, Procrastination, Deadlines, and Performance: Self-Control by Precommitment (June 2001). Psychological Science, May 2002. Available at SSRN: http://ssrn.com/abstract=288297.  Also available online at http://duke.edu/~dandan/Papers/deadlines.pdf.

Beshears, John Leonard, Choi, James J., Laibson, David I., Madrian, Brigitte C. and Sakong, Jung, Self Control and Liquidity: How to Design a Commitment Contract (November 8, 2011). RAND Working Paper Series WR- 895-SSA. Available at SSRN: http://ssrn.com/abstract=1970039.

DeWall C. N., Baumeister, R. F., Mead, N. L., & Vohs, K. D. (2011). How leaders self-regulate their task performance: Evidence that power promotes diligence, depletion, and disdain.  Journal of Personality and Social Psychology.

Han-yu Shen, Henry, “The Irrationality of Organizational Escalation: The Danger of Spider-man & Overcommitment,” blog post May 2011 located at http://danariely.com/tag/self-control/.

Oaten, Megan & Cheng, Ken. (2006). Improved Self-Control: The Benefits of a Regular Program of Academic Study. Basic & Applied Social Psychology, 28(1), 1-16.

Ron's Top 10 Secrets for Personal Productivity

RON'S TOP 10 KEYS TO PERSONAL PRODUCTIVITY.  There are many theories about what makes some people more productive than others.  Some say it's the ability to multi-task, while others say productive people focus and don't multi-task.  Some say it's scheduling time to return e-mail, while others say return e-mail promptly as a means of enhancing communication.  I believe the keys to productivity may be different for every person.

Having said that, here's "Ron's Top Ten Keys to Productivity":

10.  KNOW WHAT'S IMPORTANT IN LIFE.  What are the long-term major goals in your life?  Then, how does what you are doing now relate to the accomplishment of those goals?  Once you've figured out your lifetime goals (which some may regard as discovering "the meaning in life"), you can then make day-to-day decisions much better.

9. FIND A WAY TO ENTER DATA - FAST.  Personally, I'm a very fast typist.  But most other professionals are not.  The solution for them is likely a dictation system (Dragon Naturally Speaking), or recording and then sending audio files off to be transcribed (there are many services available for this; some rely on software to transcribe, others cheap labor overseas).

The solution is NOT to forego entering data.  Financial planners and investment advisers MUST keep good notes.  And they SHOULD be summarizing conversations with clients - by having minutes prepared of meetings and telephone conferences, and then communicating such minutes to the client.  All of this requires a fast way to "dump the data" - i.e., take your notes and thoughts and either type them up quickly, or dictate them quickly.

8. DELEGATE, DELEGATE, DELEGATE.  If you are not skilled at properly delegating to others, they you are not properly skilled.

Have no one to delegate to?  In the early steps of one's career, it is o.k. to be a "delegatee."  As you gain experience, however, you need to focus on your "unique abilities" (as Strategic Coach founder Dan Sullivan) calls them.  You need to CREATE time for yourself through delegation.

Interestingly enough, as a professor this past semester I've found there is much I would like to delegate - but the delegatee options are few.  The solution for me is two-fold.  First, work smarter - by creating less work for myself that could be delegated to others.  Second, hire an assistant - something I will do this coming semester.  (What's more important ... the money I spend out of my own pocket for an assistant, or my time?)

Don't have time to delegate?  STOP.  Schedule a FOCUS day (another Dan Sullivan task).  A day in which you spend the entire day prioritizing, creating systems that shift work away from you, training others, and/or delegating tasks.

7. CONTINUALLY INVEST IN YOURSELF - EDUCATION AND CONFERENCES.  Can you afford to attend a conference?  Can you afford to take a course for a certification designed to make you a better financial advisor?  Here's a better question ... can you afford not to?

Nothing beats going to conferences in person.  I bring a pad of paper, and by the end of the conference I have dozens of new ideas written down.  Most of these are from hallway conversations (or over lunch, or dinner) with colleagues ... a few are from the presentations themselves.  But then comes the next step. Narrow the list of ideas down to THREE (not more than three) items to accomplish.  These become Quadrant Two (see below) tasks, usually.

Local luncheons with FPA Chapters help ... but the major benefit there comes from networking (and learning insights over lunch or dinner).  For real in-depth exploration, attend major conferences ... those that last 2.5 to 4 days in length.

And don't just go to one conference a year.  Do two or three.  I always try to go to NAPFA National Conference.  I try to also attend a second and third conference each year.  For me, that second conference might be another conference from NAPFA, FPA, fi360, or TD Ameritrade.  But then I try to also try to attend a conference which is different - IMCA, American Economic Association (jointly held annual conferences with American Finance Association), Hecklering Institute on Estate Planning, a conference on tax law developments (when there are a lot of changes), etc.

Yes, conferences are expensive ... but if you to them with a purpose ... and come back with great ideas (and new knowledge), you really cannot afford to miss attending them.

Education does not being and end with formal schooling or with conferences.  If you are not reading five hours of professional material, relating to financial planning generally (or better yet, relating to your specialty within financial planning), then you'll likely never really master the craft of financial planning.

Even better - spend ten hours a week, for ten years, and you'll likely become "the expert" in a particular subject which others turn to.

6. FOCUS ON JUST ONE MAJOR PART OF YOUR LIFE, EACH DAY.  Don't try to work and accomplish three things from one list (as described below), then turn your attention and accomplish two things from another list.  For me, at least, it is far better to focus an entire day on a particular segment of my life.  Most days at this point the focus is on teaching.  But, at times (as will occur over the next two weeks) the focus returns to my financial planning practice (I serve a small group of select clients).  On other days I devote myself to research and writing.

Yes, there may be phone calls needed to be returned each day (as to those phone calls that can't be scheduled for another day).  But those should be rare.

Of course, this item #4 might be personal to me ... I have a hard time shifting gears from one segment of my life to another, mid-day, without coming up with an excuse to "blow off" the second segment.  So rather than fight this temptation, I just avoid it - by seeking to arrange each of my days around a different segment of my life.

Also, for me, I am most productive in the morning.  I try to get to work by 7am (and am often to work earlier).  I then will save some projects for late in the day that require less creative thought.  But again, that's just adapting my personal schedule to take advantage of personal traits I possess - rather than fighting against my personal tendencies.

5. HAVE "FREE DAYS."  Very essential.  This is another concept learned from the publications of Dan Sullivan (Strategic Coach).  These "free days" are the days when we focus on family and personal relationships.  These are the days when our passions take over - with a plan for doing so.

Want to have a REAL free day?  No cell phone.  No e-mails.  No internet browsing, related to any work activity.

That's not to say that the day is not planned out.  It may be a day for shopping, going to see a movie, going out to eat, walking, mowing the lawn, or reading a (fiction) book.  It might be traveling, or sailing, or kayaking, or playing tennis or racquetball, or several of these things.  It might be socializing with family and/or friends.  Whatever it is, the day's focus is entirely about these things.

The result?  Relaxation, as the day goes on.  And with relaxation comes greater creatively.  I'll frequently get ideas (work-related) as I relax ... but on these free days I just jot them down ... to consider further on another day.

4. HAVE A "TO DO" LIST AT ALL TIMES.  Revise it DAILY.  If you don't have 5-10 minutes to update your to do list each day, then you are out of control.

My "to do" list begins with this message at the top: "Make Each Day Count."

I've tried a number of software programs and different methods for keeping a to do list, but I keep coming back to a simple Word document.  It's easy to move items up, or down - add items during the days, etc.

(By the way, I use two screens while working - my laptop, and a larger 24" screen which usually has two open windows.  Outlook is open on my laptop screen.  Usually a Word document and reference material occupy side-by-side screens on my 24" monitor.  Having two screens enhanced my personal productivity about 20%.  Having the second screen be large enough to split into two increased my productivity another 10%.  And I think I could be even more productive with 5-6 screens (or 3 24" monitors, each displaying two windows) ... but that's a future goal.

I actually keep several to do lists (all on separate pages of a Word document).  One list of upcoming tasks for each class I teach.  Another for my financial planning practice.  Another for my professional growth and development.  Another for family/personal matters to attend to.  And yet another for each committee I serve on.

Part of keeping the list updated is to focus, at the end of each day, by highlighting the items to accomplish the next day.  From Covey's The Seven Habits of Highly Productive People, I focus on Quadrants 1 and 2 - and hardly ever on Quadrants 3 or 4.  There's a lot of good information on this four-quadrant approach, including some good instructional videos on YouTube.

Of course, reading Covey's book helps to understand the four-quadrant system.  Because when placing tasks into the quadrants, you need his first habit - "begin with the end in mind."  In other words, define the most important goals to accomplish.  Does this task facilitate the accomplishment of that goal?  If not, it's likely not a Quadrant 1 or 2 task.

3. MINIMIZE YOUR TIME WATCHING T.V.   This is a key about NOT doing something.  Let's see ... if one spends two hours watching t.v. a night, five nights a week ... that's 10 hours a week.  What was gained?  Sure, there are some shows which are educational in nature - and perhaps worth watching.  And I'm all for moments when one needs to "gel" or "escape."  (Walking is better for that, by the way.)  I've never had any client, tell me near the end of his or her life, that he or she wished they had watched more t.v.  Lots of other regrets, but none about missing a show, etc.

Best way to minimize?  Limit yourself to one or two series to follow.  Anything else you watch must be a one-time event - sports event, or movie, or an educational session.

Want to watch t.v. as a way to relax, just before going to bed?  Not the best idea ... reading is much better.  Part of the light emitted in t.v. signals acts to trigger your brain into thinking that it is daylight.  There are glasses you can wear to counter this ... or better yet, just listen to a t.v. program (with eyes under a pillow).  Or better yet, listen to the radio, or a collection of music.

2. PRACTICE SELF-CONTROL.  In the end, it all comes down to your ability to sacrifice the present in order to gain more in the future.  To get the (truly) important things done first, before doing other things - or goofing off.

Self-control can be taught - and it must be continually practiced.  If you go away on a vacation for two weeks, do nothing, and then come back to the "real world," it will take a while to "get back into the grove" - i.e., get back in the habit of self-control.  Is it worth it?  Probably not ... if you are trying to make a favorable impression.  Vacation should have "free days" - plenty of them - but those should be planned.  Having free days takes self-control, too!

Part of self-control is getting enough sleep.  A study (by Dr. James Maas) has shown that the average college student needs 9 hours 15 minutes of sleep every night.  Most persons over-estimate their abilities, even when it comes to how much sleep they need.  Not I.  I try (at my age) to get eight hours of sleep a night ... and often get nine hours of sleep.  If I'm drowsy during the day (even after lunch), it means I'm sleep-deprived, and I'm likely suffering a decline in personal productivity of 20%, 30% or greater at such time.

Of course, I'm by no means perfect at exercising self-control.  It takes continual practice.  It means doing things that are good for me ... such as working in my university office most days (not at home, where distractions are potentially many).  It means limiting who has my phone number (and encouraging e-mails as a means of contacting me, for most people).  And other tips to maintain focus, and avoid distractions.

1. HIRE A COACH.  As financial advisors we act as financial life coaches to our clients.  We each need one, too.  Hire a coach to assist you personally - or assist your practice.  Consider rotating coaches every year or two ... to get fresh perspectives.

Practice and personal coaches usually pay for themselves ... many times over, in terms of propelling you, professionally and personally, to greater and greater success.

Interested in these concepts, and want to learn more?  Try these web sites and/or publications:

• Dan Sullivan, How the Best Get Better - book and CD set: http://www.amazon.com/How-Best-Get-Better-book/dp/1896635296 
• Dan Sullivan, The Entrepreneurial Time System - overview on this 12-minute YouTube video: http://www.youtube.com/watch?v=oek3VqIQ7YU
• The 7 Secrets of Highly Successful People, by Covey -  http://www.amazon.com/Habits-Highly-Effective-People/dp/0671708635
• The Power of Sleep, by Dr. James Maas -  http://www.powersleep.org/

Professor Ron A. Rhoades, JD, CFP(r) teaches Business Law, Retirement Planning, Investment Planning, Employee Benefits Planning, Money & Banking, Insurance & Risk Management, and the Personal Financial Planning Capstone courses at Alfred State College, Alfred, NY. He is an EPLP Mentor, C.R.E.A.T.E. program mentor, serves as advisor to Alfred State's Business Professionals of America club, and serves as academic advisor to dozens of students.

Professor Rhoades is the author of "CHOOSE TO SUCCEED IN COLLEGE AND IN LIFE: Continuously Improve, Persevere, and Enjoy the Journey," a 10-week program for success in college (available for $2.99 in Kindle store at Amazon.com, or in paperback for $6.99). Professor Rhoades may be reached by e-mail at: RhoadeRA@AlfredState.edu.