Weekend Reading for Financial Advisers: An Efficient Frontier, the Golden Ratio, and EconoTrolls

Here are my picks for some of the most interesting — and entertaining — recent articles and blog posts, in case you missed them.

Investing

• “Yale versus Norway” is a white paper that ostensibly compares the management styles of the Yale endowment with Norway’s sovereign wealth fund, but a good chunk of the article is devoted to how high-net-worth families could adapt many of the investing principles of the “Norway model.” (Greycourt, PDF)
•  “Gaming the System” is a good article on investing and gambling. (Above the Market)

Behavioral Economics

• Are you afraid of sharks? If so, do you know that your pajamas are more likely to catch fire than a shark is to attack you? According to the author of “Risk Assessment — And Why You Stink at It” (a very entertaining read), people are prone to (at least) six errors in judgment when appraising risk. (Risk Management)
• Dan Ariely explains the endowment effect, which shows that we value the things we own more than identical products that we don’t own. This causes a mismatch between buyers and sellers, in which buyers are often willing to spend less than the seller deems an acceptable price. (AdvisorPerspectives)
• Most risk, says actuary Robert F. Wolf, “does not manifest itself from some exogenous contingent event, but rather is driven by the behaviors and decisions of people.” In his blog post, “How to Minimize Your Biases When Making Decisions,” he outlines six major biases and offers some ideas on how to minimize their impact. (HBR Blog Network)
• See also “What’s Your Risk Attitude? (And How Does It Affect Your Company?)” by David Ingram and Mike Thompson, who suggest that it is not only our behaviors as “individuals” that are relevant, but also and perhaps rather, how we make risk/reward decisions in groups. (HBR Blog Network)

Retirement

• Wade Pfau, a researcher on retirement strategies, has a new research paper titled, “An Efficient Frontier for Retirement Income,” which provides a framework for retirees to choose how to allocate their retirement assets between stocks, bonds, inflation-adjusted SPIAs, fixed SPIAs, and VA/GLWBs. He also discusses the paper on his blog. (SSRN, Retirement Researcher Blog)

Mathematics

• Steven Strogatz, the Schurman professor of applied mathematics at Cornell University, takes a look at the “golden ratio” — approximately equal to 1.618 and denoted by the Greek letter phi (aka the “divine proportion”) — and separates the myth from the math. (New York Times)

Social Media

• Stephanie Sammons, founder of Wired Advisor, has some tough talk for financial advisers. In “Where are the Financial Advisor Thought Leaders?” she writes: “If you’re not leading your clients and prospects in the age of social media, someone else will be. To remain competitive in a wired world, you’ve got to claim your online real estate and publish your thought leadership insights just as you were your own personal media company.” (Wired Advisor eMarketing Blog)

Family-Owned Businesses

• We know all too well that passing control of a family business to the next generation is so complex that many business do not survive the transition — especially when one sibling receives an equal share of the business and management control while the other siblings receive interests in the business in trust, with the manager child as trustee. See: “Too Many Tiaras: Conflicting Fiduciary Duties in the Family-Owned Business Context.” (SSRN)

Client Relationship Management

• When meeting a prospective new client for the first time, do you ask him/her to bring along all his/her financial information? If so, Michael Kitces wonders if this is the equivalent of asking a new date to expose all of his/her “assets.” In a recent blog post he asks: Are we being too forward with our clients? (Nerd’s Eye View)

Trust and Estate Planning:

• Absent a change in the law, the gift tax exemption ($5 million a person, or $10 million for a couple) is set to expire at the end of the year. According to Barron’s, “one way to have your cake and eat it too is to create a ‘spousal limited access trust,’ also known as a SLAT.” (Barron’s Penta)

Philanthropy

• Intel founder Gordon Moore recently became a member of the Giving Pledge, a list of billionaires who have agreed to give away at least half of their fortunes to charity. In this article, he discusses his philosophy on philanthropy. (Wall Street Journal)
• If you never read Conor O’Clery’s remarkable book, The Billionaire Who Wasn’t: How Chuck Feeney Secretly Made and Gave Away a Fortune, add it to your list. It’s a page-turner. Feeney cofounded Duty Free Shoppers and later transferred all his wealth to his foundation, Atlantic Philanthropies. For a quicker read, see “Chuck Feeney: The Billionaire Who Is Trying To Go Broke.” (Forbes)
• Do you have a client who would like to give to charity but would like to stay anonymous? Here are some tips on the pros and cons of various philanthropic vehicles. (Forbes)

And now for something completely different:

• Easily the funniest post in recent days: “EconoTrolls: An Illustrated Bestiary.” (Noahpinion)

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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.