Weekend Digest for Financial Planners/Advisers & Paraplanners (2nd & 3rd Feb)


This week, the FTSE ended it’s best January performance  in 24 years (as if anyone really cares) and no doubt equity fund managers are all feeling pleased with themselves (self attribution bias). Word out there is, analysts at Citigroup are getting a bit too excited and are betting on the FTSE to reach 7,000 in 2013, an increase of almost 10%! What are these people smoking? Whatever it is, I want some! And if you are tempted to join the euphoria, wait until the next Eurogeddon news breaks!


Is The Current Market Optimism Justified?

This article in Reuters by Anatole Kaletsky examines whether the current optimism (well, I call it excitement) in the markets . My only question is when is the market ever rational?

With Britain and Eurozone sinking back into recession, Japan practically devaluing its currency and the US just suffered its first contraction since 2009, is there a rational explanation for investors pouring money  into equity mutual funds at the fastest rate since the end of the last bull market in 2000? Why are stock markets around the world approaching or exceeding records? 

Kaletsky argues that this optimistic interpretation, which is essentially the bet that financial markets are making, is likely to prove right, at least in the short term. He gave three main reasons to support his assertion.

First, the fundamental drivers of the U.S. economy look much stronger than at any time since 2007. House prices are also rising, employment is slowly but steadily increasing and credit conditions are gradually returning to normal.

The second reason is the improvement in U.S. political conditions as even the most radical politicians seeks consensus. 

Then third reason for optimism is the improvement in global economic and political conditions ‑ especially the lifting of uncertainties about a breakup of the euro zone and the leadership transition in China.

“As always, things could go wrong. The two most daunting threats for the year ahead are the prospect of higher interest rates and the unintended consequences of Japan’s generally welcome policies of radical reflation” He concluded.


How Many True Client Relationships Can A Financial Planner Really Have?

This article by Michael Kitces  in examines the issue of how planners, aided by technology, manage an increasing  number of clients.

New technology not withstanding, there appears to be a psychological barrier to the number of clients a planner (or any other professional for that matter) can effectively serve. Pointing to research in  psychology and anthropology,  Kitces asserts that there is a physiological limit of our brain’s neocortex that constrains the number of social relationships that can be actively maintained.

‘This threshold, called “Dunbar’s number,” is estimated to be about 150 people on average, and corresponds not just to the average size of many ancient tribes and villages, but also the military unit size of the Roman army.

One can make case that new technologies makes it is possible to build more relationships and serve more clients that these ancient tribes and the Roman army, after all many of us have thousands on people following us Twitter, Facebook and LinkedIn. However there is evidence to suggest the even the average number of engaged friend/followers on Facebook and Twitter; people that we actually connect and communicate with on a regular basis is about 150. In reality, most Facebook ‘friends’ and Twitter followers are “mere voyeurs looking into your daily life”—all but a core of about 150 who you interact with and maintain true relationships with.

This barrier seems quite important, even in financial planning.  Beyond 150, our brains just can’t keep track of everyone. Kitces cites his own observation that ‘most financial planners, even with very efficient practices, seem to “cap out” at a maximum number of clients around 100 to 125; beyond that point (if not before), they just can’t seem to maintain the client relationships.’

And where planners have more than 100, only 50 -75 of then are active clients. This explains particle where some advisers have ‘clients’ that they have never spoken to in years.

This means that, while technology can aid our communication and relationship with clients, it seems there is a barrier in term of the number planners can effectively serve. 


Six Ways Your Clients’ Brains Make Bad Financial Decisions

This article in the Globe and Mail by behavioural economist Dan Ariely (Duke University) and  Nina Mazar (Rotman School of Management)  looks at the subject of behavioural finance yet again.  According to them, our brains are hard-wired to choose short-term payoff over long-term gain and they give us a list of six common mistakes investors make – and how to avoid them.


  1. SAVING: What’s more important: buying a new iPad now or saving that money for the future?  The key point here is the concept of ‘Hyperbolic Discounting’  that is, we tend to discount future benefits, so much so that an iPad now really is more important to us, at least in its influence on our current decision-making. We often make terrible choices when it comes to trade-offs between important distant goals and our immediate desires. This is one of the reasons our diets fail and we don’t exercise as much as we should. Their prescription for this malady? Commitment devices; getting people to commit to save a certain percentage of their future wages. Anyone who has read the book Nudge by Richard Thaler is familiar with the concept of Save More Tommorrow (SMarT)
  2. RETIREMENT PLANNING: How much money do you think you need for your retirement, assuming you plan on maintaining your current lifestyle? Over the years, the financial types have told people to expect to live comfortably on 60 -70% of their current income in retirement! Alas, this is wrong! Studies on spending habits have shown that a realistic figure is closer to 135%!!! The solution? Something called ‘Reward Substitution;  attaching a an immediate reward, like a movie or dessert, to every retirement contribution. The reward of financial security in retirement is too distant, so we can substitute immediate rewards and tie them to desired behaviours.  Behavioural reinforcements like this are often surprisingly powerful in shaping our decisions.

The authors discussed other areas including issue of emotional risk management where consumers buy insurance that they don’t need (such as extended warranties) and the presence of “choice overload” in the marketplace when buying financial products.


Peep Talk

 Finally this week, if like me, you sometimes need a peep talk just to get on with it, them you’ll find this short video by Kid President helpful and funny!

 [embedplusvideo height=”365″ width=”600″ standard=”https://www.youtube.com/v/l-gQLqv9f4o?fs=1″ vars=”ytid=l-gQLqv9f4o&width=600&height=365&start=&stop=&rs=w&hd=0&autoplay=0&react=1&chapters=&notes=” id=”ep5204″ /]




 I hope you have enjoyed this and hopefully it’ll make you job a little easier! As paraplanners, that’s what we do! As usual, thought and comments are welcome. Enjoy your weekend!


















Abraham Okusanya
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.

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