Weekend Reads for Financial Advisers: Smart Beta, Luck vs. Skill, and Behavioral Finance

Are you a runner (with a good sense of humor)? Then stop right here and click through this wickedly funny comic of the terrible and wonderful reasons why I run long distances (The Oatmeal). And if you’re not a runner, and just want to get down to business, here are some good reads you may have missed:

Retirement

• “Delusional Pensions (and Delusional Researchers)” (Institutional Imperative)
• According to Larry Fink, chairman and CEO of BlackRock (BLK), we don’t have a social security problem in America, we have a retirement problem. (Politico)
• “Solving the Annuity Puzzle — Inflexibility for Handling Potential Health Care Shocks in Retirement” (Nerd’s Eye View)

Investing

• “The Rise of Smart Beta” (The Economist)
• The conventional model vs. the endowment model. (The Research Puzzle)
• “A Hidden Danger in ETFs” (Bloomberg Businessweek)
• “End the Charade: Replacing the Efficient Frontier with the Efficient Range” (Journal of Financial Planning). Tom Brakke comments on the article in a blog post on Research Puzzle, noting the article fits well with his “April posting on the risks of ‘plug and play,’ including the expectation that you can create a magical and ‘efficient’ frontier out of inputs that are unlikely to fairly represent the future as it will be.”
• On luck vs. skill:

should you pay for someone to predict coin tosses for you? no — but you probably would http://t.co/tCR2Q9BNFJ #WSJ

— Jason Zweig (@jasonzweigwsj) July 18, 2013

• A blog post on “Distinguishing Alpha from Noise” (The Aleph blog) that references this 2005 paper: “A Consultant’s Perspective on Distinguishing Alpha from Noise.”
  (QWAFAFEW Worldwide, PDF)
• A reminder to TUNE OUT the noise when it comes to investing and only focus on what you can control: “Asking the Right Questions.” (The Big Picture)

Ethics

• There was a lot of media coverage and Twitter chatter about the Labaton Sucharow report (PDF) about ethical conduct on Wall Street. Highlights from the report include: 23% of respondents said that “they had observed or had firsthand knowledge of wrongdoing in the workplace”; and 24% said they would “engage in insider trading to make $10 million if they could get away with it.” My colleague, Michael Macmillan, held a webinar — “Can Ethics be Dangerous to your Career?” — to discuss the findings of the survey along with other issues, such as what you should do if asked to do something you believe is unethical. You can listen to an archive by clicking on the preceding link.

Behavioral Finance / Economics

• “Lessons Learned From Well-Behaved Investors” (Bucks)
• “Why Some People Spend More Impulsively During Tough Economic Times” (Scientific American)
• What to know the secret of investing? Carl Richards, a.k.a. @behaviorgap, reveals the only one that matters. (Behavior Gap)
• Transcript of a speech and interview with Cass Sunstein on “Regulation, Behavior, and Paternalism.” (Council on Foreign Relations)

Wealth Management Industry

• “The Wealth Management Whine” (Barron’s Penta)

Leadership

• One of the smartest interviews I have read in a while on the subject of hiring and leadership traits: “David Reimer of Merryck & Co., on Sticking to Values.” My top two quotes: “The biggest challenge is that when you become a C.E.O., you effectively step inside a bubble. Not by choice — it’s a fact of the job. Nobody comes to you anymore without an agenda”; and “a résumé is like a shield because it doesn’t tell you anything about the human being behind it.” (The New York Times)
• “How and Why to Be a Leader (Not a Wannabe)” (HBR blog network)

Social Media

• @MichaelKitces tweeted about this great guide from @ZywaveFP on exactly what RIAs can and can’t do on social media. He also recently compiled a list of 15 power tweeters he thinks every financial advisor should know. (InvestmentNews)
• If you are on Twitter, consider this advice:

First rule of Twitter: Don't trust anyone with an egg for an avatar.

— Anthony De Rosa 🗽 (@Anthony) July 17, 2013

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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