Implementing 'personal balance sheet' key to diversified retirement portfolio

Moshe Milevsky urges advisers to add human capital to the equation

Investment News
By Mark Bruno April 5, 2009, 6:01 AM EST
Financial advisers need to begin re-evaluating traditional portfolio construction techniques, and they can start by measuring an individual's "human capital" if they want to create truly diversified retirement portfolios for their clients.
Admittedly, it is an abstract concept for many advisers, said Moshe Milevsky, associate professor of finance at York University in Toronto, …
Only after this value is ascertained will advisers have a complete picture of a client's potential assets and liabilities, "and then they can start considering ways to allocate their financial capital and meet their long-term liabilities," he said. …
[Jeffrey Gitterman, founder and chief executive of Gitterman & Associates LLC, a financial planning firm in Woodbridge, N.J., and the author of "Beyond Success: Redefining the Meaning of Prosperity" (Amacom Books, 2009)] noted that by calculating a client's human capital, an adviser can clearly show an individual just how much of his or her total capital is directly aligned with his or her job.
"If the next 30 years of your income could come from one company, in one specific sector, you have to start thinking about ways to hedge against that," he said. "That's the only way to really be diversified."
Photo by arnoldadler.com
Moshe Milevsky: Advisers need to put more emphasis on clients' current and future earning power.
CAREER WEALTH
Mr. Milevsky pointed to the examples of firms in the financial services sector that have either disappeared altogether or declined significantly in value during the last year. Many of the executives and rank-and-filers at these companies had significant portions of their personal wealth tied to their firms — wealth that has now essentially vanished.
In such a case, when a client is in a particularly volatile line of work and his or her net worth is concentrated in that industry, advisers should suggest that they place the vast majority of their tangible assets in stable investment vehicles, such as fixed income. …
Their actual assets, or financial capital, should be used to balance out any of the risks to their human capital, he said. This strategy is designed to generate consistent and somewhat predictable returns.
At the same time, a client in a steady profession with little career risk — a teacher, for example — has "bond-like human capital," Mr. Milevsky said. He suggested that this client's assets be invested entirely in equities, at least at first.
"Over time, our human capital decreases and we're forced to rely more on our financial capital as a result," Mr. Milevsky said "That must be accounted for early on in the process."
E-mail Mark Bruno at mbruno@investmentnews.com.

Four Simple Ways to Make Your Employees Happier

HarvardBusiness.org

Anthony Tjan

11:23 AM Tuesday July 21, 2009

There is a very simple secret to long-term employee loyalty and retention and it is not money, perks, or stock options. It's giving them meaningful roles.

This is not an idealistic motherhood-and-apple pie dream, but rather a basic condition of human behavior and psychology that many businesses and leaders often forget: people are driven as much or more by intrinsic meaning as they are by extrinsic rewards. …

…It comes down to balancing the intrinsic with the extrinsic rewards. The former is the heart and soul of an organization and a person's reason for working there. The latter is the practical mind and wallet. Here are four design points towards unlocking the secret of long-term employee loyalty:

1. Help her create a meaningful role. Ask in an interview what she would be doing if she had all the money she needed; explain and remind the employee why her role is critical and how it fits into the bigger picture. This is the foundation and most critical component of long-term retention.
2. Give feedback. Do so regularly, with both honesty and thoughtfulness.
3. Offer professional development. Keep her larger career path in mind; ask what she wants most to learn. People want to know where they are heading and that you care in helping them get there.
4. Say thank you. This means both intrinsic and extrinsic recognition — that is, reaffirm your appreciation for their role (a simple hand-written note or verbal thanks from time to time goes a long way) and pay them fairly.

Making people happy at their jobs is not as hard as it seems.

Majority of Sponsors Don't Know What SPDs Cost Them

PLANSPONSOR.COM

July 28, 2009 (PLANSPONSOR.com) – Eighty-five percent of human resources managers surveyed by HighRoads, a provider of summary plan descriptions, consider SPDs to be both compliance and communications documents.

However, according to the press release, the study found that as many as 65% of those not using SPD management technology do not know how much it costs to create, store and distribute SPDs in their organization.

Of the 200 HR managers surveyed, 74% expect to update their SPDs and 77% expect to streamline their SPD process within the next year. …

The press release said half of respondents are still issuing Summaries of Material Modifications (SMMs) whenever they have a change to their benefits, but 20% are reissuing SPDs instead.

HighRoads found that companies are moving to electronic distribution, with 75% distributing SPDs to employees either entirely online or both online or on paper. However, only 45% of respondents have gone entirely electronic, with 35% of respondents citing lack of participant access to a computer as the reason they could not eliminate paper.

… A third of respondents indicated that they would like to shift to predominantly electronic distribution within the next year.

Rebecca Moore editors@plansponsor.com

Paying employees to lose weight

Employee Benefit News

By Kathleen Koster

July 28, 2009

Employers are upping the ante to their wellness programs as the average cash incentive has increased from $204 in 2008 to $329 in 2009, finds a recent study on incentives in corporate wellness programs.

The study, an online survey, involved 372 small, medium and large U.S. companies employing 1.8 million workers.

The value of incentives range from $1 per pound for weight loss to annual premium reductions, the most commonly used incentive, valued at more than $1,500. …

Smaller companies may have limited resources compared to their larger counterparts, but that doesn’t mean they’re skimping on health incentives. …[Some] organizations with as few as 210 employees are offering incentives valued at $1,450 per year, well above average, the study found.

Companies of all sizes are further including spouses and dependents into the fitness fold, with more than half of the 372 companies interviewed offering wellness or disease management benefits to spouses and dependents.

In addition, two out of three companies offer a health risk assessment to employees, and nearly three out of four of those have set up incentives, which range up to $300 annually, with approximately 10% to 15% exceeding $300.

“… Employers are taking control of health care costs by creating smart, effective new strategies to keep employees healthy, and to keep employees at work,” says Katherine H. Capps, president of Health2 Resources, a Virginia-based health communication firm that sponsored the study with the National Association of Manufacturers.

Moreover, employers are measuring the results from these programs with greater consistency and are finding promising results. In 2007, only 14% of employers measured the ROI of these programs, but two years later 73% are monitoring their results.

Of those measuring, 83% say the programs return better than 1:1 on their investment. …

Study: Obesity accounts for 9.1% of medical spending

South Florida Business Journal

The price of that burger and fries is not only impacting Americans’ waistlines, but also is taking a huge toll on health care spending.

In fact, spending on conditions associated with obesity, such as diabetes, has doubled in the last decade, as obesity rates grew 37 percent between 1998 and 2006, according to a study published Monday.

Obesity now accounts for 9.1 percent of all medical spending, up from 6.5 percent in 1998.

The report found that per-capita medical spending for obese people was 42 percent – or $1,429 – higher per year than for someone of normal weight.

Spending on prescription drugs was the largest cost driver. Costs on prescription drugs for an obese Medicare beneficiary was $600 more per year than for prescriptions used by a normal-weight beneficiary, according to the study.

“The medical costs attributable to obesity are almost entirely a result of costs generated from treating the diseases that obesity promotes,” said the study’s lead author, Eric Finkelstein, director of the North Carolina-based RTI’s Public Health Economics Program, in a news release.

The U.S. Centers for Disease Control is discussing the study’s findings, along with new recommendations designed to prevent and reduce the impact obesity has upon communities at the “Weight of the Nation” conference, a three-day meeting of public health experts, policy leaders, and researchers being held this week in Washington, D.C.

IMHO: “Right” Minded

PLANSPONSOR.COM

…Yes, picking the best provider for a retirement plan is one of the most important decisions a plan sponsor can make—both in terms of fulfilling their fiduciary obligation and in what might affectionately be called job sanity. That said, many plan sponsors really don't have the time—or the expertise—to pick the best provider (much less monitor that performance), and so, the smart ones do what ERISA requires—they hire the expertise to pick (and monitor) the best provider. And that's where the retirement plan adviser comes in.

The "Right" Adviser

However, in my experience, it's no less challenging to find the "right" adviser/consultant than to find the right provider. …

Here are seven things that I’ve told plan sponsors that they should know before they engage an adviser’s services:

(1) Know what you want to accomplish with the adviser/why you want an adviser. Is this for a one-time consultation, or are you looking for an ongoing relationship?

(2) Know where the adviser will be. Do you care if they are geographically proximate…? How often will they visit? How often will they visit without charging?

(3) Know what the adviser has done for others. Get references—in fact, if you can get references first, and then call the advisers, so much the better.

(4) Know how the adviser is going to go about doing what they say they will do. Get that in writing—and hold them accountable.

(5) Know where the adviser stands on the issue of being a fiduciary to your plan. Know the size and strength of the organization that stands behind that commitment. Know that hiring an adviser who will be a fiduciary to your plan doesn’t diminish your responsibility as a fiduciary.

(6) Know what kind of background/expertise the adviser has. What kind of education, honors, and/or designation(s) do they have? How do they stay current on market and regulatory developments—and how will they keep YOU current?

(7) Know how much—and how—you will be asked to pay for the adviser. More importantly, know how much—and how—the adviser is paid for the services provided to your plan. Be sure that they aren’t compensated in a way that unduly influences (or could be seen to influence) their objectivity. …

Of course, ultimately, the choice of the "right" adviser will be a combination of personal chemistry, professional acumen, relevant experience, and—perhaps the most element—trust.

---

P.S. I’m sure that, in the interests of focus and brevity, I have overlooked things. If so—or if you just want to tell me you agree—drop me a note at nevin.adams@assetinternational.com

Nevin E. Adams editors@plansponsor.com

It's time to rethink retirement plans

Most investors would fare better if plan sponsors were responsible for investment decisions

Investment News

By Blaine F. Aikin July 12, 2009

An investment fiduciary's duty of loyalty demands that the investor's best interests guide the decision-making process. …

For participant-directed portfolios, such as most 401(k) plans, the investment fiduciaries are detached from the execution of investment decisions. They are not able to modify individual portfolios directly, even when circumstances suggest changes are needed to serve the investors' best interests. …

But, as the legal and regulatory evolution of 401(k) plans amply demonstrates, there is no simple formula that will reliably equip participants to make good investment decisions in preparation for retirement. Following the debut of 401(k) plans in 1980, the inability of participants to manage their own accounts effectively became clear.

In 1992, the Department of Labor introduced the 404(c) safe harbor, whereby plan sponsors can avoid liability for participants' investment decisions, as long as the sponsors provide investors a sufficient range of appropriate investment choices and adequate information to make informed judgments. …

The tinkering continued, as Congress created another safe harbor in the Pension Protection Act of 2006 to shield plan sponsors from liability associated with the advice given to individual plan participants by a professional fiduciary adviser. …

Even without safe harbors, cost and complexity are inherent concerns for participant-directed plans. Because a participant holds a separate account, rather than an interest in a commingled aggregate portfolio, the costs of participant-directed plans can be higher than they are for sponsor-directed portfolios.

Additionally, plan participants are likely to pay more of these costs than the plan sponsor, thus reducing plan sponsors' incentive to control costs. In fact, fees have become such an issue that participants have filed several lawsuits alleging breach of fiduciary responsibility by plan sponsors for being inattentive to fees in the selection of service providers and the specific investments included in the plan.

So, despite the tinkering of regulators and legislators, and the best efforts of most plan sponsors, participants continue to be generally ineffective in their investment behavior. …

Centrally administered portfolios, like those of foundations, endowments and defined benefit plans, are less complicated. Investment fiduciaries have direct control of the process and are accountable from design to execution. The investment committee or chief investment officer, usually with the support of professional advisers and money managers, makes asset allocation decisions, directs the investments, and can change the portfolio composition as needed.

Plan sponsors and their advisers should consider whether a fundamental change in their approach for 401(k) and other defined contribution plans from participant direction to investment committee or trustee direction of the assets would better serve the best interests of the investors they work for.

Blaine F. Aikin is president and chief executive of Fiduciary360 LP in Bridgeville, Pa.

Sharing The Wealth

Financial Advisor Magazine

June 2009 issue

The key to growth and firm longevity is offering ownership opportunities to valuable employees.

By Roy Diliberto

Earlier this year, I was having a conversation with the only surviving partner of what was once a quality, high-service boutique accounting firm. The business had recently merged with a large national firm (a better description was that it had been taken over) and it wasn’t long before my firm noticed a difference in the service proposition ….

The partner acknowledged that things were far different now, and that while it was positive to have the financial backing of a large firm, it certainly changed the relationships his firm now had with its clients. I asked him the obvious question: “Why, if things were going so well, did you decide to merge?” He told me that they really had no choice. The firm had four partners and all except him were getting ready to retire. There was no way, he said, that there would have been enough money to pay the other three and maintain the business. …

Why, I asked, weren’t ownership opportunities offered to those young accountants the firm had hired over the years—many of whom had left? He didn’t really have an answer, but it seems obvious to me that the major reason was that the four partners simply did not want to dilute their ownership….

I decided early in my career that I wanted to build a firm that could function and grow without me. To do so meant investing in quality people and offering them opportunities to grow and prosper. Some planners with whom I have spoken have expressed concern that diluting their ownership by offering shares to other professionals may affect their own income. …

I am sure that my own income has increased in time because of my partners and our additional shareholders—and also because this means I have a market for my shares. Perhaps most important is the fact that our clients know there will be no disruption in the quality of the services they have come to expect. … Because we have made it possible for the valuable people at our firm to acquire ownership positions, those valuable people have not left. This has been the growth model for successful law and accounting firms for years.

Another benefit of offering ownership opportunities is that these shareholders can serve as your loyal and stable management team. …

As I look back on my career in financial planning and the development of our firm, I can unequivocally say that the best decision I made was to invite key associates to buy shares in the firm and become partners. … When we hire new associates, they join us with the full knowledge that they can eventually become shareholders. …

Our system for buying shares is simple. We value the company, internally, as a multiple of gross revenue. … We chose simplicity, but it is the concept—not the formula—that is important. New shareholders are initially offered an opportunity to buy five shares, which currently represents 4.35% of the firm. As they continue to progress, more shares are offered to them. If they would like to buy shares, the company can finance the purchase over five years at market interest rates. …At meetings, we each have one vote, and that has made for a very healthy relationship among us. There are other significant advantages: • We each have a market for the shares we own. We have exercised a stock redemption plan that will assure us a fair value for our shares in the event of death, disability or retirement. • We have learned from each other over the years because of the broadened perspective that comes from having multiple owners. • Good people do not leave to establish their own practices or join other firms offering better opportunities. • Key duties are shared by all owners and are not left for one or two people to accomplish. • The incentive to grow the firm is intense. • Our shared values have created a philosophy throughout the firm that we should do what is in the best interest of our clients. • We are able to recruit associates of quality. • I am confident that the firm I helped build will continue without me and will be my legacy to the profession.

Wellness: Truth and Consequences

PLANSPONSOR 2009 Ultimate Buyer's Guide

We are seeing people move more toward ‘sticks' rather than ‘carrots,'" says Cathy Tripp, National Leader for Consumerism at consultant Watson Wyatt Worldwide, about how the economy has affected employers’ thinking on wellness programs.

Illustration By Fernanda Cohen

Before, an employer might have offered workers a gift card as an incentive to do a health screening. "Now, the employer may say that, if the health-risk assessment indicates you need to participate in a disease-management program and you do not, your deductible is going to be $500 higher. We even have seen some employers say employees have to do a health-risk assessment if they want coverage. In this economy, there is the latitude to push these things a little further."

As employers with wellness programs plan for 2010, “they are being much more aggressive” about their expectations, says Jay Savan, a St. Louis-based Principal at consultant Towers Perrin. …

A lot of the discussions Savan currently has with clients explore the idea of requiring or strongly encouraging participation in programs like biometric screening. “An employer might say, ‘I am going to offer you two medical plans. One is much higher in value than the other—however, to participate in that plan, we require you to complete a health-risk assessment, and if the risk assessment determines that you are eligible for case management or should be in a wellness program, you have to participate,” he says.

Or an employer may make its health savings account (HSA) contribution to an employee contingent on participation in a wellness program, says Jerry Ripperger, National Practice Leader of Consumer Health for the Principal Financial Group. …

Some employers also are looking at low-cost or no-cost wellness options, Tripp says … . "Some creative things can be done in a tight economy," she says. "It just takes energy, and you need champions within the company."…

Wellness programs' ROI is getting a closer look. Employers increasingly want not only to know what ROI their providers claim to have achieved, but also the methodology used to determine it, Tripp says. …

No industry standard currently exists for how to figure out wellness programs’ ROI, Tripp says, and methodologies differ. Some approaches measure only direct savings on medical claims, for instance, while others may take into account indirect benefits such as lower absenteeism and increased productivity.

“The biggest challenge to a wellness and prevention program is to identify the return on investment,” Savan says. “You are trying to gauge the impact of things that never happened.”

Even employers still offering “carrot” incentives are scrutinizing their effectiveness more closely. “… [An] employer may find that offering workers $100 off on their premiums is less effective than offering them $100 in cash to participate or that, instead of offering a gift card from one particular retailer, participation rises when employees get a choice of gift cards from 10 retailers.”

Companies trying to cut back on wellness­-program expenses may reduce the frequency of health-risk assessments from every year to every 18 months or two years, for instance, or they may increase employees’ contributions or deductibles slightly to help pay for a wellness program, Ripperger says.

In any case, the payoff does not come immediately. “Generally, you are looking at the second half of the second year before you start to see returns,” he says. “It takes time to change behaviors, and to see the impact of that on participants’ health status.”

Judy Ward editors@plansponsor.com

Susan Wilson Solovic: Chances of Getting SBA 7(a) Loan for Your Small Business: Slim to None!

Huffington Post

So Why Does the Obama Administration Want to Give SBA TARP Funds?

…I'm fed up with listening to the sound bites … espousing feigned concern and commitment to helping small businesses survive …. I'm also tired with the headlines that mask the real problem. "TARP Funds will Boost Small Business Growth'. Beyond the headline is a plan to give TARP money to the SBA and the 7(a) program, a system that is broken and broken badly. …

The SBTV.com editorial team and I have done extensive reporting on the SBA's failures during this downturn. …SBA lending specialists as well as sources inside the SBA … reveal a common theme: A small business owner's chances of getting an SBA 7(a) loan are slim to none. The restrictions are absurd, and the application process beyond reason. The only business owners who qualify for loans are the businesses that don't need them. According to the SBA's own statistics, loans are down 60 percent so far this year. …

When you approach the small business problem with small business innovation, it becomes clear that giving more money to an institution that doesn't know how to get the money to the people it's intended to help is a huge mistake. … It's time the media start digging for the real stories, and stop offering coverage that masks the real issue.

Here's a recommendation for the Obama Administration and Congress. If you really want to help small businesses quickly and effectively, utilize the powers of the SBA's Disaster Loan program which allows the agency to provide direct loans to small businesses in designated disaster area. Congress has the power to declare certain areas of the country disaster areas for the purpose of this program. While this isn't a panacea for the long-term, it will help place funds in the hands of hundreds of thousands of small businesses so they can truly be the economic engine that helps drive our country's economic recovery.

Our government acted quickly to provide direct assistant to businesses that failed because of poor management, judgment and greed. Why not support the business leaders who are the real victims of this recession -- small business owners who create jobs and find innovative solutions that give our country a competitive edge?

Follow Susan Wilson Solovic on Twitter: www.twitter.com/susanSBTVcom

How to Get a Grip on Stress in a Stressful Economy

BNET

by Alice Chen

If you haven’t lost your job, you worry that you will. And while you wait, you’ve seen your workload increase, your downtime vanish, and your duties expand beyond your expertise (and any conceivable 40-hour week). If all that’s not enough to make your blood pressure rise, a new Florida State University business school study shows that bosses have become more demanding, and that politicking, sucking up, and backstabbing in the office are on the rise. …

Things you will need:

• Time: Start setting aside enough hours for a full night’s sleep, plus extra time each week for tension-relieving activities and self-reflection.
• Social Support: Single out a few good friends and family members to lean on. Research shows that when lonely people are stressed, they experience higher blood pressure and more insomnia than those who have a strong social network.
• Self-Awareness: Don’t avoid the problem. That will only make it worse. Failure to change your surroundings or manage your stress level can contribute to long-term health issues like clinical depression, anxiety disorder, and heart disease.

Understand Stress

Goal: Pinpoint where the anxiety is coming from.

A certain amount of daily stress is normal. Stress, after all, is simply your reaction — either positive or negative — to change, according to the Gale Encyclopedia of Medicine. … Continually high levels of stress can wreak havoc on the digestive and nervous systems, leading to irritable bowel syndrome, recurrent headaches, and heart attacks. The psychological symptoms often come in the form of burnout (losing interest in work) and depression. The tips below are designed to help you prevent stress from taking a serious toll on your health — and your career.

There are two leading, complementary perspectives on the sources of workplace stress. Understanding the difference between the two is the first step in learning how to cope.

Internal: Stress comes from how you perceive your situation. The very thoughts you have can worsen your stress reaction, says Dr. Jeff Brantley, director of the Mindfulness Based Stress Reduction program at Duke Integrative Medicine. …“Your mind starts spinning a catastrophe, and it’s enough to trigger your body to go into a stress reaction,” Brantley says. Coping strategy: You may not be able to eliminate the stimulus, but you can learn to change your response and calm your mind. Start keeping a list of everything in your day that causes stress. … Pinpoint how every item on the list makes you feel and then ask yourself, “Is my reaction appropriate or over the top?” This step is key, because once you understand where your emotions are coming from, you can find a healthier way to deal with them.

External: … Common characteristics of stress-inducing environments include authoritarian or noncommunicative supervisors, socially isolating work, and jobs that require a lot of effort but offer little reward. Dr. Peter Schnall of the University of California at Irvine’s Center for Occupational and Environmental Health says these factors can produce biological responses such as higher blood pressure and could possibly contribute to more serious conditions like heart attacks and depression. Coping strategy: Eliminating the source of the problem (i.e., finding another job) may be the most effective solution in the long term. But until the job market improves, find ways to regain a sense of control over your time and your surroundings. …

Go Ahead and Vent — but Find the Right Listener

Goal: Blow off steam without damaging your reputation at work.

Understanding how stress works will only get you so far. … Don’t hesitate to seek the empathetic ears of a colleague, but do choose your confidant wisely, says Matthew Grawitch, an organizational psychologist and professor at Saint Louis University. “The more you say to a person you work with, the more likely something will slip out at work.” Grawitch says. …

As counterintuitive as it sounds, in some cases your boss may be your best confidant. …[If] you’re struggling with something major that affects your performance, talk to your boss, says Grawitch. After all, managers are invested in the success of their employees. A brief explanation … is not only fair, it’s also a way to build trust. …

If you’re going to go to your boss, schedule a time to talk instead of dropping by unexpectedly when she may be in the middle of grappling with the demands of her own job. Regardless of whom you talk to, vent once, then let the issue rest. …

Don’t want to vent? Relieve some tension and clear your head by doing something physical. Wear yourself out on the treadmill, go on a strenuous hike, do laps in the swimming pool — whatever you need to do. The activity will get your endorphins pumping (the brain chemicals that make us feel good) and focus your mind on your body instead of your stress.

Learn to Change Your Reaction to Stress

Goal: Stop being tyrannized by your emotions.

After you’ve blown off some steam, you can work through stress in a more logical, clearheaded way rather than making decisions based on emotions. …

The Mayo Clinic offers a few tips on how to retrain your reaction to stress:

Rethink your standards: If your failure to achieve perfection causes continual guilt and frustration, redefine what success means. For example, if you always feel inundated with work, ask yourself if you’re spending more time on tasks than they require. Adds Dr. Barbara Gray, a professor of organizational behavior at Penn State, often “we actually shoot ourselves in the foot by making the task harder than it needs to be.”

Reframe your situation: Weather delays your flight to an important business meeting. Instead of stewing about the disruption to your schedule, which you can’t control anyway, take advantage of the extra time to prepare for your presentation or catch up on sleep.

Reassess the significance of the problem: Will it matter tomorrow? Next week? A year from now? Emotion magnifies the difficulty of a problem in the moment; perspective shrinks it. So make sure you give yourself a steady dose of the latter.

Additional reporting by Tyler Kearn.

Absolute-return trend inspires both optimism and caution

Some concerned that a flood of products could hurt investors

Investment News

By Jeff Benjamin May 24, 2009, 6:01 AM EST

A growing emphasis on absolute-return strategies is leaving some analysts advising caution, even though the returns often look good on paper. …

“Right now, there are a lot of red flags to consider, but if they can be overcome, absolute-return strategies could redefine the fund industry,” said Don Phillips, managing director with Morningstar Inc. in Chicago.

Although he likes the idea of an increased emphasis on more predictable returns, he is concerned that some strategies might not live up to expectations and that investors will pour in at the wrong time. …

Don Phillips (photo by Vincent Ricardel)

“This is a strategy that amounts to putting all of the allocation decisions in the hands of a manager,” said Jeff Tjornehoj, senior research analyst at Lipper.

“Ideally, you want a manager who would have moved all the money into Treasuries in October 2007 when the market peaked, but you don't always get that.” …

“Absolute return is going to be huge for all the obvious reasons, including that it allows advisers to dial in the type of returns they want for their clients,” said Robert Reynolds, Putnam's president and chief executive. …

Independence from the direction of the overall market is among the strongest selling points of absolute return. …

LEARNING CURVE

That learning curve will be crucial to managing expectations among both advisers and investors, according to Lee Schultheis, founder and chief investment officer of Alternative Investment Partners LLC, a West Harrison, N.Y.-based firm with $285 million under management.

“People will have to understand absolute return doesn't mean it will always go up, because other than T-bills, nothing will always go up,” he said. …

The inability to manage expectations nearly wiped out absolute-return funds in Europe, where more than 1,000 funds attracted $130 billion in 2005 and 2006.

However, according to Strategic Insight Mutual Fund Research and Consulting Group LLC in New York, misleading promises, poor expectation management and disappointing performance resulted in nearly $100 billion in net redemptions and several liquidations in 2007 and 2008.

“Absolute-return notions of reducing volatility and limiting negative-return periods are enormously and universally appealing yet extraordinarily difficult to construct and deliver,” said Loren Fox, Strategic Insight senior research analyst. …

“Our goal is to hit a targeted return, not to chase an index,” Mr. Reynolds said. …

This gets back to the delicate balance of expectations, according to Mr. Phillips, who underscores the fact that a rising market generally favors relative return strategies that track a market index. …

However, Mr. Phillips added, in this economy, there is something to be said for a smoother and more predictable investment strategy.

“The mutual fund industry has always focused on relative returns in a world where investors are facing real-world challenges,” he said. “Spending needs are more predictable than the market's flow of returns, and these funds focus more on that outcome.”

E-mail Jeff Benjamin at jbenjamin@investmentnews.com.

Grassley Introduces Small Business Tax Relief Act

Financial Planning Magazine

By WebCPA

July 9, 2009

Sen. Charles Grassley, R-Iowa, has introduced a bill to lower the tax burden on small businesses.

Grassley, ranking member of the Senate Finance Committee, introduced the Small Business Tax Relief Act of 2009. …

The bill includes provisions that would: • Increase the amount of capital expenditures that small businesses could expense from $250,000 to $500,000 to encourage businesses to invest in new equipment; • Allow more small C corporations to benefit from the lower tax rates for the smallest C corporations; • Take the general business credits out of the alternative minimum tax for those sole proprietorships, flow-throughs and non-publicly-traded C corporations with $50 million or less in annual gross receipts; • Extend the one-year carryback for general business credits to a five-year carryback for small businesses; • Provide a 20 percent deduction for flow-through business income for small businesses, which are defined as flow-through entities with $50 million or less in annual gross receipts; • Lower the potential tax burden when a C corporation becomes an S corporation; and • Expand the net operating loss provision contained in the stimulus bill, allowing small businesses with $50 million or less in gross receipts to get the benefit of the five-year net operating loss carryback.

“I hope this bill gets bipartisan support,” said Grassley. “Job creation is a bipartisan issue and really should be a non-partisan issue.”

New IRS rules offer relief to safe harbor plans

Employee Benefit News

By Carol A. Weiser, Esq.

July 10, 2009

The Internal Revenue Service recently proposed regulations that would permit employers experiencing a substantial business hardship to suspend or reduce safe harbor non-elective contributions under a 401(k), 401(m) or 403(b) plan during a plan year.

The regulations are intended to provide employers that cannot afford to continue these contributions with an alternative to terminating the entire plan. The proposed regulations are effective for plan amendments adopted after May 18, 2009, and may be relied on now, pending the issuance of final regulations.

Background Plans that meet safe harbor requirements are not required to satisfy the actual deferral percentage (ADP) test under Internal Revenue Code section 401(k) or the actual contribution percentage (ACP) test under Code section 401(m), which also applies to certain 403(b) arrangements.

Generally, an employer must adopt a safe harbor before the plan year begins and make the safe harbor contributions for the entire year, although there are some exceptions to this rule.

…Before the IRS issued these proposed regulations, however, employers making safe harbor non-elective contributions were not able to suspend or reduce those contributions during a plan year.

Proposed rules The proposed regulations, which are similar to the rules for suspension or reduction of safe harbor matching contributions, would allow a safe harbor plan to be amended to suspend or reduce safe harbor non-elective contributions during a plan year if:

• The employer incurs a “substantial business hardship;”• The amendment is adopted after May 18, 2009; • Eligible employees are given a notice describing the suspension or reduction; • The suspension or reduction becomes effective no earlier than 30 days after the date the notice is provided or the amendment is adopted; • Eligible employees are given a reasonable opportunity and period of time before the suspension or reduction takes effect to adjust their Roth or pre-tax deferral elections and employee contributions, if applicable; • The plan is amended to provide that it will satisfy the ADP test and/or the ACP test, using the current year testing method, for the full plan year; and • The plan satisfies the safe harbor non-elective contribution requirements with respect to compensation paid through the amendment’s effective date.

The notice requirement is satisfied if all eligible employees are provided with a notice that describes (1) the consequences of the amendment; (2) the procedures for adjusting the employee’s Roth or pre-tax deferral elections and employee contributions, if applicable; and (3) the amendment’s effective date.

Under the proposed regulations, a “substantial business hardship” is comparable to a substantial business hardship that allows an employer to seek a waiver of the funding requirements for a defined benefit plan under Code section 412(c).

These factors … include, but are not limited to: (1) whether the employer is operating at an economic loss; (2) whether there is substantial unemployment or underemployment in the employer’s trade or business; (3) whether the sales and profits of the employer’s industry are depressed or declining; and (4) whether it is reasonable to expect that the plan will be continued only if relief is granted.

Additional notes As the IRS points out in the preamble to the proposed regulations, given the 30-day advance notice requirements, a suspension or reduction cannot be accomplished by adopting an amendment at the end of a plan year.

Also, a plan implementing a mid-year suspension or reduction of safe harbor non-elective contributions must prorate the compensation limit under Code section 401(a)(17), as described in applicable regulations. In addition, a plan implementing a mid-year suspension or reduction will be subject to the top-heavy rules under Code section 416.…

Carol A. Weiser can be reached at carolweiser@sutherland.com.

Trouble at family businesses may spell opportunity for advisers

Owners need help with tough succession, retirement decisions

Investment News

By Charles Paikert April 5, 2009, 6:01 AM EST

…"Family businesses could use a lot of help right now," said Carlos Lowenberg Jr., president of Lowenberg Wealth Management Group Inc. in Austin, Texas, which specializes in business financial planning. "Only 30% of transitions to the second generation are successful." …

"Owners are asking themselves if they should build and maintain a legacy or pull money out for retirement," he said. "One owner I've worked with realized that if he sold his company and kept up his current lifestyle, he'd only have eight years of income from the sale."

James Raaf: The crisis has made decisions related to family businesses harder.

CONFRONTING BIG ISSUES

…"Owners are asking themselves, 'In this kind of environment, do I want my kids to shoulder the risk of a concentrated asset, versus the risk and reward of a concentrated portfolio?'" said [James Raaf, managing director of family office services at Chicago-based Harris myCFO Inc., who also works with family business owners]. …

Advisers should also recognize that lower taxes for family business owners as a result of lower valuations represent an opportunity for them to transfer assets within the family, said Mr. Lowenberg, whose firm has about $180 million in assets under management.

However, lower valuations, as well as a lack of credit, have also inhibited sales of family businesses to third parties and have decreased owners' financing leverage, he said.

In addition, earnings for many businesses are "uncertain going forward," Mr. Lowenberg said. As a result, he said, "third-party deals have been dead in the water."

But intrafamily transfers of assets are picking up, Mr. Lowenberg said. …

Marlo Fidanzi: For many firms, "it is a time of crisis and survival."

The financial crisis has put "severe pressure on family businesses to sustain revenue, profits and cash flow," said Mario Fidanzi, director of Stetson University's Family Enterprise Center in DeLand, Fla. "They are coping with reduced sales, customers that are at risk and margin erosion from aggressive pricing." …

The personal wealth of founders of family businesses who were planning to retire has been significantly depleted, possibly delaying retirement and a planned succession, Mr. Fidanzi said.

"If there were plans to sell the business, the value of the business may be reduced significantly," he said.

"If the leadership was planning to sell the business, does it hold off and focus on rebuilding the value or does it continue with the exit plan?"

Business owners may need to re-evaluate the timing and approach of succession, Mr. Fidanzi said.

"If a family business has planned to begin the transition of leadership prior to the economic downturn, it may want to consider holding off until the situation improves or modify the approach to the succession," he said.

"For many businesses, it is a time of crisis and survival. It may not be a good decision to have a succession event and transition to new leadership during this challenging time," Mr. Fidanzi said.

"The effect of the crisis is far-reaching."

E-mail Charles Paikert at cpaikert@investmentnews.com.

What’s next for US banks

Two different kinds of accounting—fair value and hold to maturity—have created two different kinds of crises. One is almost over. The other is only beginning.

McKinsey Quarterly

JUNE 2009 • Lowell Bryan and Toos Daruvala

Source: Financial Services Practice

… How close are we to the restoration of a strong and profitable banking and securities industry that is capable of providing the US economy with the credit it needs to grow?

The good news is that we have probably turned a corner in the credit securities crisis … But the contours of a broader resolution of the crisis will remain fuzzy for some time to come. That’s because what many have been regarding as a single credit crisis is in reality the tale of two closely related but different crises, each with its own pace, duration, and demands on banks to rediscover operational discipline in a harsh economic and regulatory environment.

Twin crises

The first credit crisis was centered in the securities markets and initially manifested itself in the subprime and mortgage-backed securities markets. Because of the fair-value accounting that broker–dealers and investment companies use to mark assets to current market expectations, these firms began to suffer deep losses on mortgage-backed securities long before large volumes of loans started to default. …

The good news is that we appear to be seeing the end of this credit securities crisis. That is in part due to the clarity provided by the stress test exercise and the ongoing commitment on the part of government not to allow a large-scale bank failure. The other credit crisis is a commercial-bank lending crisis. …[It] involves a broader array of lending, including commercial real-estate loans, credit card loans, auto loans, and leveraged/high-yield loans, all of which are now going bad because of the economic downturn. The bulk of these loans are subject to hold-to-maturity accounting, which, in contrast to fair-market accounting, typically does not recognize losses until the loans default. The bad news is that this crisis is still in its early stages and may take two years or more to work through the credit losses from these loans.…

It might seem odd that accounting methodologies can make such a big difference. At the end of the day, what counts is the net present value of the cash flows from each asset, but those are unknowable until after a debt is repaid. Fair-value accounting, based on mark-to-market principles, immediately discounts assets when the expectation of a default arises and ability to trade the assets declines. Fair-value therefore makes the holder of the assets look worse, sooner. Hold-to-maturity accounting works in reverse and makes the holder look better for a longer time.

First-quarter 2009 earnings

Many of the largest banks reported a return to profitability in the first quarter of 2009. The comfort this provided to markets is not necessarily misplaced. …

An analysis of these results shows that quarterly noninterest revenue for corporate- and investment-banking activities (that is, largely broker–dealer operations) increased by a surprisingly large $26.3 billion from the prior year …. Fair-value accounting losses depressed 2008 results but in 2009 were replaced by fair-value gains. Large additional trading profits were made possible by arbitrage and other trading opportunities that became available as market conditions improved.

While the worst may be over for the broker–dealer sector, first-quarter 2009 results tell a different story for commercial-banking activities at the same major banks. These banks took $38 billion in loan-loss provisions in the first quarter, $16 billion more than in the 2008 period. Most of this increase—$12 billion—was from retail-banking and credit card credits. …

This merits concern because loan provisioning under hold-to-maturity accounting is a lagging indicator of future loan losses. … When loan-loss provisions start rising rapidly, it is likely that more losses lie ahead.

Loan losses to come

While 2008 was the year for taking losses on broker–dealers, this year and next will be the years for taking losses on assets subject to hold-to-maturity accounting. These are the losses that show up in stress tests, in which regulators make assumptions about how the economy will perform and calculate the resulting loan losses under various economic outcomes. …

McKinsey research estimates that total credit losses on US-originated debt from mid-2007 through the end of 2010 will probably be in the range of $2.5 trillion to $3 trillion, given the severity of the current recession … Some $1 trillion of these losses has already been realized. Since US banks hold about half of US-originated debt, the US banking and securities industry will incur about $750 billion to $1 trillion … of projected losses on this debt, which includes residential mortgages, commercial mortgages, credit card losses, and high-yield/leveraged debt. …

Since the middle of 2007, the US banking and securities industry has absorbed some $490 billion of losses, or $80 billion per quarter … If the industry incurs additional losses of $1 trillion in 2009 and 2010, the losses will be about $125 billion a quarter. … Importantly, many of these losses will be concentrated in the banks that the stress tests revealed to be undercapitalized….

Grading the stress tests

Stress testing may have set the stage for restoring the health of individual institutions because it has provided the financial markets with information on the quality of each individual institution’s loan portfolio. …

The tests also marked a turning point because they provided much greater clarity regarding how the US government will handle troubled institutions in the future. … The government is clearly prepared to use whatever combination of funding support, guarantees, and capital injections are required to ensure that any future resolution of troubled financial institutions will be orderly.

Restoring earnings strength

While the stress tests have focused on capital adequacy, the only real way for an institution to become strong enough to stand on its own feet is through its ability to earn profits. …

The challenge for many adequately capitalized banks is that they will find it difficult to generate enough income to cover loan-loss provisions over the next two years. …

To meet this earnings challenge, well-capitalized and adequately capitalized banks must play both defense and offense. In terms of defense, investing in building collection and workout skills is essential. …

It is also essential for banks and securities firms to begin reducing operating expenses more programmatically. …[The] 19 stress-tested institutions have actually increased annual operating expenses by 32 percent since 2006…. Many banks need to target reductions in noninterest expenses of 20 percent or more from 2008 levels.

Banks with broker–dealers should have an abundance of opportunities as the markets continue to thaw. The pent-up demand for credit securities issuance, acquisitions, and spin-offs is considerable. Moreover, trading opportunities should be numerous for strong counterparties.

Challenges ahead

… Not only has the economic shock thrown financial markets and industry structures into flux, but the process of saving the banking and securities industry has transformed the nation’s social contract with the industry. The entire industry is now dependent on government support of all kinds, ranging from low-cost funding (courtesy of the Federal Reserve), to debt guarantees, asset guarantees, and capital injections.

There is no clear path to restoring the industry to independence from the US government. Major changes in regulation are coming, and the industry is going to be subject to more government involvement and oversight than it would like for a long, long time. Against that backdrop, stress testing has removed much of the generalized fear that painted all institutions with the same brush. It has also removed the uncertainty related to how the US government is going to treat individual institutions. But it will remain for the industry’s leaders to put in place the operational efficiencies and discipline that may determine when—and how—the credit crisis is finally resolved.

About the Authors

Lowell Bryan and Toos Daruvala are directors in McKinsey’s New York office.

The authors would like to acknowledge the contributions of Kevin Buehler, Chris Mazingo, Kazuhiro Ninomiya, and Hamid Samandari to this article.

Small Businesses Might Not Be the Key to Economic Recovery

BNET Intercom BNET

By Stefan Deeran

July 2nd, 2009 @ 1:05 pm

“Small businesses vital to economic recovery go bankrupt” blares a new headlines from USA Today. … It’s been constantly repeated as fact from pundits and politicians over the last few months that small businesses hold the key to the future. … Small businesses create 80 percent of all new jobs and drive “innovation in virtually every field,” according to a recent release from the US House Committee on Small Business.

But is all this actually true?

First of all, when many of us think of a “small business,” we think of our local bakery or bookstore. But according to the Small Business Administration, a “small business” in America has less than 500 employees. … So many of the small business figures we keep hearing about may be based on a population set that isn’t quite valid.

Secondly, it makes sense to assume that we might see evidence of an economic rebound from smaller businesses first. If consumer spending inches up, restaurants may add a few more shifts before corporations start adding salaried positions to their payrolls. … But the jury is still out as to whether small businesses actually cause economic growth.

Whether implicitly or explicitly stated, the “vital to economic recovery” argument really rests on the idea that entrepreneurs will save the day. … Unfortunately, entrepreneurship may not be the economic silver bullet after all.

Here are a few of the reasons why, according to Scott Shane, a professor on entrepreneurship at Case Western Reserve University:

• To get more economic growth by having more start-ups, new companies would need to be more productive than existing companies. But they’re not.
• Far from being job creators, as a whole, new firms have net job destruction after their first year.
• On average, jobs in new firms pay less, offer fewer fringe benefits, and provide less job security than jobs in existing firms.

Shane concludes that the only small start-ups that actually create lasting, well-paying jobs and economic growth are the few hundred each year that receive substantial venture capital. In Shane’s view, government programs that encourage almost anyone to start a business are flawed because “they stimulate more people to start new companies disproportionately in competitive industries with lower barriers to entry and high rates of failure.”

Stefan Deeran consults environmental advocacy groups and businesses on their sustainability strategies and communications plans. He also publishes the online newsmagazine the Exception.

How a Bad Salad Leads to Happy Customers and What Your Business Can Learn From It

Small Biz Bee Blog

by smallbizbee

My … wife … came home from work yesterday and was bubbling over with excitement. …

“What’s up?” I ask, “Why so cheery?”

“Not much”, she says all perky like, “Just enjoying my FREE 5 berry milkshake is all"…

“Free…how’d you manage that?”

They Messed Up My Salad - It Was Great!

And from there she launches into a story about how she went to a local burger chain for lunch, and they totally screwed up her salad order, had to remake it, and it took an extra 10 minutes before she got her food.

… Recognizing they maybe needed to do some service recovery with my wife, they gave her a $10 coupon for her troubles, and the salad was free (notice the free salad didn’t carry the same weight with her as the free milkshake).

So with her new found riches she had stopped off and got a milkshake on the way home, thus the good mood.

She had been telling everyone she knew … about her “good fortune”.

In her mind, the burger joint that completely botched her salad and cost her 10 minutes out of her day, walked on water and could do no wrong, and she was even recommending them to anyone who’d listen.

What’s Can We Learn

I think this story is a good illustration of the power righting a wrong. …

It’s almost as if she was happier that they screwed up, and made it right, than if they had of done it right the first time! They turned their mistake into a positive “word of mouth” worthy event.

How to Apply This to Your Business

1. You have to be doing things right most of the time for this to work.

2. Correct all wrongs immediately, and take ownership of them (the wrong salad could have been blamed on the new cook, but instead the establishment took responsibility and didn’t place blame)

3. Sometimes, take responsibility for miniscule mistakes. Once, Starbucks gave me a free drink because it took them 1 minute to make my mocha instead of 30 seconds. This reinforces in your customers mind your high standards, and service expectations.

Why It Works

1. You’re taking ownership, and in the customers mind acknowledging they did not get something from you they should have. Too often businesses try to sweep mistakes under the rug, fearing customers will be upset, only to upset customers more by skirting the issue.

2. You give your customer a reason to come back and try you out again. Once they see you normally get it right, you’ll have won them over. They’ll know it’s a rare occurrence you aren’t perfect.

3. You give them something very easy to talk about. They’ll be singing your praises for righting a wrong, just like my wife did. And a good story like that spreads.

Try it with your own business. The next time you don’t meet a customers expectations, do some service recovery. Or better yet, use the Starbuck’s method once in a while to reinforce your extremely high standards for quality and service. See if you can get them to talk about how great you are for screwing up!

What Do Prospects Find When They Google You?

Proper online marketing is an essential business tool that advisors can no longer do without.

• By JANE WOLLMAN RUSOFF

Published in the 5/1/2009 Issue of Research Magazine.

…Pointed question: What do prospects discover when they google you?

If the results amount to anything short of a strong Web presence, you should begin crafting one right away. …

Internet marketing starts with a professional, effective website. …

Beyond the basic site, your plan of action might focus, too, on a host of ever-evolving high tech tools, such as a blog, audio podcasts, video clips, social-networking (Facebook, Twitter, etc.), paid advertising on others’ sites and more.

Online marketing is no hula hoop fad: The medium is here to stay — and growing more sophisticated with every new cyberspace advancement.

“If done right, websites are part of the sales process,” says Jay Nagdeman, president of Suasion Resources, specializing exclusively in financial services marketing for 27 years. …

A website is “an essential element in everybody’s marketing toolkit,” says Nagdeman. And a prospect’s initial visit to one is the first stop in creating the all-important … relationship.

“You’re building confidence by moving the user step by step. If you don’t motivate people to move on to the next level in the process — to contact your firm — your website hasn’t done its job,” says Nagdeman, author of the just released “The Professional’s Guide to Financial Services Marketing” (April 2009, John Wiley & Sons). …

Social Networking

In the Internet’s first phase, financial services sites, featuring calculators and the like, were among the first to be interactive. … Nowadays, though, that sort of interactivity is “almost passé,” says William Rice, president of the Web Marketing Association, in Simsbury, Conn. To really wow people today, he says, you need to provide much more sophisticated interactivity — a new phase referred to as Web 2.0, which is distinguished by user-created content. Examples include blogging, Facebook, YouTube, LinkedIn and Twitter…

What’s neat is that most of these newer online services can be interconnected. For instance, your business profile on LinkedIn can be tagged back to your website. There, you might have a link to your blog, where you can elaborate on the brief tweets you post on Twitter. If you’re involved in community activities or enjoy strategic partnerships, you can cross-link with those sites too.

“Web 2.0 services position you as a savvy business person,” says Marie Swift, president of Impact Communications, in Leawood, Kansas. “It’s also a way to be novel and to have reason for people to want to interact with you and start a dialogue.”

But, cautions Swift, “don’t spend all your time blogging and tweeting. Do it quickly and consistently, then get out there and meet people because nothing is going to replace face-time.”

The Way of the Web

… As Swift puts it, [a business owner’s] website “should be perceived as a ‘virtual lobby” or waiting room,” … “That first impression is very important.”

But communicating with prospects on the Web is different from communicating in print media; and, says Nagdeman, “virtual selling has its own conventions, behaviors and pitfalls.”

Since most visitors merely scan text rather than read it word for word, online content must be broken up into small chunks and written in short, snappy bites. The idea is to let visitors progressively drill down to find the more detailed information they may be seeking.

“The secret to having the website accomplish something for you is to make it personal and interactive,” says Nagdeman, based in Roseland, N.J. “It’s not enough to simply post your standard sales pitch and brochure… Make [the site] engaging and easy for people to navigate so it becomes a very fluid instrument for research.”

A Low-Cost Investment

Online marketing is a surprisingly cost-efficient way to connect with clients and prospects. …

“The biggest negative is to have a generic website,” Nagdeman says. “There are so many cookie-cutter sites out there that…all look the same. They aren’t customized in communicating who the firms are, what they do and why somebody should be a client.”…

Andrew Schlossberg, chief marketing officer of Invesco AIM, cautions, however, that “if an advisor’s website isn’t targeted, topical and timely, with compelling content, it can have all the bells and whistles — Twitter, podcasts [etc.] — but it’s probably going to be irrelevant.”

Search-Engine Success

To drive visitors to your site, ideally it should emerge high in search engine results when a prospect types in, for example, “financial advisors” and your locale. The process called search engine optimization (SEO) can help affect that.

“Websites have to be coded and worked so they will give you high organic rankings in a search,” Nagdeman notes.

It’s not a simple matter, though. Each engine has its own variables that determine which results turn up at the top. Moreover, the variables are always changing. And though you may show up high in Google results, that may not be the case in a Yahoo search.

To help search engines recognize your site, make sure your Web address and keywords appear on other credible sites that use the same keywords (e.g., “IRA rollover”). Such words should be in your headlines and subheads and repeated throughout the site. Services like www.ineedhits.com can be employed to help raise a site’s prominence.

For improved visibility, you might try search engine marketing (SEM) — mainly paid advertising, such as pay-per-click campaigns, on others’ websites. With Google AdSense, you can target prospects in a specific zip code for as little as 15 cents per click, depending on your total campaign.

“SEM makes people aware that you’re in the community doing positive things and that you might be somebody for them to talk with,” Nagdeman says….

---

Web Do’s

A website should differentiate you from other advisors by spotlighting your unique value proposition. “You’re able to get a competitive advantage by engaging visitors in a personal, memorable way,” says Jay Nagdeman, president of Suasion Resources, whose new consulting division, Online Financial Marketing, helps advisors and planners implement virtual selling.

In setting up a website:

- Determine whom you want to attract.

- Integrate with your broader marketing strategy.

- Support brand identity.

- Emphasize your services’ benefits.

- Compose text in short, punchy bites.

- Control navigation by using headlines and bold-face fonts.

- Stress professional experience in bios; mention outside interests.

- Include photos, like advisor headshots.

- Make sure “content, colors, flow, tone are synched up,” says Andrew Schlossberg, chief marketing officer of Invesco AIM. “If they aren’t, your site will end up being more of a detriment than an advantage.”

----

Web Don’ts

- Have your, um, nephew create the site. “Unless he’s a pro, it could look hokey. That will reflect poorly on your brand and detract from the sales process,” says Michael White, Raymond James Financial’s director of marketing and corporate communications.

- Use too much Adobe Flash to look cool. Search engines often can’t read and find all the information.

- Choose a hard-to-read font. Save pizzazz for graphics and pictures.

- Try to retrofit your print brochure to the Web.

- Keep a sloppy site.

- Build a site, and then leaving it alone. (Update content; check for broken links.)

- Biggest problem with a website? “Not having one,” says William Rice, president of the Web Marketing Association.

---

Freelance writer Jane Wollman Rusoff is a Los Angeles-based contributing editor of Research and is the founder of Family Star Productions.

Know the Score

Financial Planning magazine

By Donald Jay Korn
June 1, 2009
… The days of the nothing-down, no-doc mortgage are gone. Returning to reality, homebuyers need a down payment and proof of income to get a mortgage.
Borrowers must also prove they're creditworthy; they need an acceptable credit score. The higher their score, the more likely applicants will get a loan and the lower the interest rate they'll pay. …
Boosting a credit score by 90 points might save a borrower about $250 a month, or $3,000 a year. … Landlords, employers and insurance companies also may evaluate credit scores…
DECIPHERING SCORES

Despite their importance, little is known about the inner workings of credit scores. …

Consumers have three consumer FICO scores, one from each credit bureau (Equifax, Experian and TransUnion). …

According to Fair Isaac, five components go into its credit scores: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit (10%).

… Not surprisingly, clients who pay their debts on time tend to have high credit scores. …
"The fastest way to blow your credit is with a late payment," says Lauren Lindsay, director of financial planning at Personal Financial Advisors in Covington, La. "Even one day late makes a ding in your score." On the other hand, Lindsay says that six months of on-time payments will help to rebuild a credit score.
A consumer who makes one late payment should follow up with the lender or credit card company and explain why the payment was late. "Most of the time, the company will remove the late payment from the record if you call to dispute or explain, especially if you are a good customer," Lindsay says.
A client's payment history and the amount owed are the most important components in a credit score, accounting for 65% of the total. While paying on time is straightforward, it's not clear how high a percentage of available credit is permitted before scores start to drop.
"Consistently paying more than the minimum on all your cards will improve your score," says Bedda D'Angelo, president of Fiduciary Solutions, a financial planning firm in Durham, N.C. "Try to keep the ratio of outstanding debt to available credit under 40%."…
A large amount owed will lower a credit score, even if the payment is not late. …
The old and the new. Length of credit history and new credit account for only 25% of a consumer's credit score, but they are the source of much confusion. "Having accounts with long histories is generally a plus, so consumers are urged to leave older accounts open even if they are rarely used," Dan Moisand, principal of Spraker, Fitzgerald, Tamayo & Moisand, a financial planning firm in Melbourne, Fla., says. "Yet if you don't close accounts, you can get dinged for having too many accounts or too much credit available."

Jennifer Cray, a partner with Investor's Capital Management in Menlo Park, Calif, says that the credit history of a FICO score goes back 99 months. "Some people think the more cards you have, the worse your score, so you should have just one or even none. In fact, closing accounts can hurt your score." Cray advises some clients to use an old card once a year to keep it alive. "I also warn clients not to open new accounts."

GETTING INFORMATION
The more clients know about their credit score, the better. "Everyone is entitled to one free copy of their credit report annually, so I ask clients to provide a copy, …," Bedda D'Angelo, president of Fiduciary Solutions, a financial planning firm in Durham, N.C. says. "Many credit card companies also give people access to their FICO score. When a credit score isn't available for free, I shop online for cost-effective ways to purchase credit scores." At myfico.com, for example, consumers can buy a credit score for $15.95.
Getting a credit score is crucial for clients who need a mortgage or a car. "I have my clients check their FICO scores before applying for a loan," Cray says. "Requesting your own credit reports or scores will not hurt your credit score."…
REPAIR KIT
Some clients with credit scores well below the national median of 723 may need a boost. "Credit repair requires time and patience," D'Angelo says. "It takes 10 years for a bankruptcy to drop off your credit report and seven years for adverse credit reports to drop off. Good things like paying off a car loan or a mortgage drop off after four years."…
In today's times of tight credit, it makes sense for clients to know their credit scores and take steps to improve them-before they need to apply for a mortgage or a car loan. Helping clients buff their scores is another way to keep them at your side.