Weekend Reading for Financial Advisers: Fiscal Cliff, Behavioral Finance, and Poker

Happy 2013! What better way to start off the new year than with a handy reading list? Here are some great resources for financial advisers, in case you missed them:

Fiscal Cliff (Not)

• Michael Kitces takes a first look at the details of the H.R.8 fiscal cliff legislation and some of its financial planning implications. (Nerd’s Eye View)
• “After The Fiscal Cliff Deal: Estate And Gift Tax Explained” (Forbes)
• In “Beyond the Fiscal Cliff,” Richard Bernstein says focus on fundamentals rather than politics. (Richard Bernstein Advisors, PDF)

Behavioral Finance

• Have you ever thought about the subtle differences between persuading, convincing, or coercing someone to change their behavior? The distinctions are worth pondering, as this article explains: “It’s easier to persuade someone if you’ve convinced them, and it’s easier to convince them if you’ve persuaded them. . . . Ideally you want to convince and persuade.” (Farnam Street)
• Richard Thaler, professor of behavioral science and economics at the University of Chicago Booth School of Business, shares some insights into how behavioral economics could shape policy in President Obama’s second term. (Foreign Policy)
• Victor Ricciardi’s presentation “Behavioral Finance Curriculum — What Topics and Teaching Approaches to Utilize in a Course” can be downloaded as a PDF. Ricciardi is assistant professor of financial management at Groucher College’s Department of Business Management. (SSRN)

Ethics

• In a timely article from the holiday season, Jason Zweig tackles big corruption in small gifts. (Wall Street Journal)

Economic Theory and Poker

• “Modern Portfolio Theory is for Nitiots” looks at the failings of modern portfolio theory (MPT) through the lens of poker. A “nitiot,” in case you are wondering, is “the player who is so fearful of risk, he (or she) will make terrible decisions to avoid it — laboring under the mistaken assumption that volatility and risk are the same thing.” How does this relate to MPT? “The Nitiot’s central failing is also a central plank of Modern Portfolio Theory: The wrong-headed notion that volatility equates to risk.” (Mercenary Trader)

Investing

• “Capturing Returns” delves into the “capture ratio.” (Financial Advisor)

Annuities

• In his article “How Safe are Annuities?” Joe Tomlinson, an actuary and financial planner, makes the point that many advisers don’t recommend annuities because of the possibility that insurance companies will run into financial difficulties. But, he notes, “annuities are the best way to mitigate longevity risk, which may pose a greater danger, and advisors can take steps to help protect clients from insurers’ financial problems.” The piece was published in August 2012 but recently caught my attention because it was one of the 10 most-read articles from Advisor Perspectives last year. (Advisor Perspectives)

Marketing/Practice Management

• If you manage your own firm, chances are you have a website. But is it as effective as it could be? Here is an excellent — albeit exhaustive — checklist for improving your landing page. (Unbounce)

And Now For Something Completely Different

• We need more parents, teachers, and leaders like this one: “Laws of Physics Can’t Trump the Bonds of Love.” I recommend watching the embedded video clip, “Wright’s Law.” (New York Times)

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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