The Financial Times’ Lauren Foster discusses sources of alpha for HNWI in “How to be first when it comes to returns”  . Alpha is defined as “returns that are not correlated to the market” (market returns are by the way called beta). The list of alpha sources named includes: (1) good managers (e.g. hedge funds or absolute return funds), (2) smart asset allocation (e.g. more international content), (3) liquidity (holding more cash than necessary reduces overall return), (4) leverage (even a modest amount like 10%, enhances returns and interest expenses is likely tax deductible) and (5) estate planning (for wealthy families is a significant opportunity, e.g. GRAT- Grantor retained Annuity Trusts). Note that the portfolio, items 1 and 2 on the list, were only part of the answer.

Len Costa in Financial Times’ “Is your money safe in their hands?”  provides highlights of the protection available at U.S. brokerages and banks, a topic that is receiving highest interest by wealthy Americans recently. In brokerage margin account, the “broker can lend out 140% of the value of the securities you pledge in the account”; SPIC guarantee covers $500,000 (including $100,000 cash) from the shortfall allocated pro rata to all customers, though it will likely take some time. In banks, each depositor is insured separately up to $100,000 in case of failure.

On the same theme, WSJ’s Shelly Banjo in “A deposit protection primer”  adds that historically 70-80% of the uninsured losses (amounts over $100,000) have been returned after “some time and trouble” once the failed bank’s assets have been sold off. As to the insured (up to $100,000) funds, the depositors usually have access on the next business day after bank failed.

(This should prompt us to review what the Canadian fine print says.)

Associated Press reports in “Estimating retirement benefits gets easier”  that Social Security Administration introduced new online calculator capable of producing a benefit estimate after a few clicks. It allows you to explore different retirement dates and its accuracy increases as you approach retirement age. (Now there is a great idea that CPP administrators could follow!)

Jon Chevreau in the Financial Post’s “Still swimming against the tide”  reports on John de Goey’s book the “Professional Financial Advisor” in which he advocates for an asset-based approach for advisors. His fee starts at 0.7% (with a $250,000 minimum) and decreases from there. The fee is on top of fund MERs (though you don’t have to use high MER mutual funds; passive vehicle work well). (Change will come, though until the tipping point is reached, change is slow and it usually is painful.)

Still on advisors, the Financial Post’s Jim Yih suggests “Three questions for your financial advisor” : (1) how do you get paid ( while advisors deserve to get paid, understanding how they get paid may shed light on potential conflicts of interests), (2) what kind of research you do (“process, discipline and beliefs”), and (3) what is your service strategy (frequency of face to face meetings, too many clients to service, mechanisms for client communication, service standards/expectations).

Also on advisors is WSJ’s Chuck Jaffe’s “How to tell if your financial advisor can handle a bear market”  reminds readers that “the key thing that most consumers are buying from an adviser is “emotional discipline”, the ability to form a plan, manage it and see it through even the darkest market periods.” But plans are not set in concrete forever. They can evolve as necessary, but focus is always on the long-term goals with a plan that lets you sleep at night.

A couple of interesting developments on the ETF front, starting with Heather Bell’s report that “State-Street launches ex-U.S. sector ETFs” . This is a “new direction” for ETFs in that they allow investors to target specific sectors in ex-U.S. markets with market-cap weighted indexes. MERs are 0.5%. Secondly, in an even more interesting development, Ian Salisbury writes in the WSJ that “Barclays plans to introduce target-date ETFs”  . What was particularly interesting is not just the planned eight Target-date ETFs (which typically are available only as mutual funds), but that they were also introducing four constant mix (i.e. constant risk) ETFs with a range of risk from conservative to aggressive. (This constant risk approach is an echo of my recent blog “Are ‘target-date’ funds or an age-independent ‘fixed asset allocation’ right for you?” )

On tax-deferred vehicles, Jon Chevreau reports in the Financial Post that “RRSPs now protected against creditors in case of bankruptcy”  . Changes in BIA and CCAA result in changes in Wage Earner Protection Program Act protecting against claims of creditors in bankruptcy for all types of registered investments. This will be useful for small business owners who were previously forced into high cost insurance products to get asset protection against creditors. (Now if there could be legislation to give priority to DB plan claims in case of sponsor bankruptcy, that would really enhance “wage earner protection”; I am not holding my breath.)

For U.S. tax-deferred vehicles the WSJ reports that “U.S. pushes for clearer disclosure of 401(k) fees”  . Soon companies will be required to disclose details of investment options, past performance, benchmarks, costs (administrative fees and charges, including legal, accounting and recordkeeping). Also in the U.S., WSJ’s “‘Collective funds’ gain traction in 401(k)” indicates that Americans saving for retirements will get the benefits of even lower cost with the more widely availability of ‘collective funds’; the lower cost as compared to mutual funds is due to not having to incur the costs of compliance with SEC regulations. (It sounds like great opportunities for Canadian regulators to consider in improving the lot of Canadians saving for retirement.)

And finally, in a Dear Bird Talk letter on p.6 Canadian Snowbird Association Magazine , in a comment to my “An update to Florida snowbirds’ tax crisis”, Paul Picher writes that “the most glaring injustice occurs in counties where thousands of Florida’s well-to-do and wealthiest (homesteaders but in reality, still not resident snowbirds) are located. They shutter their condos and mansions before heading north….Unfortunately SOH encourages such fraudulent homesteading, while local or state governments do little to enforce rules…” (I’ve been ignoring the fraudulent homesteading, as I naively assume that it is just a small percentage of the homesteaders who game the system, but perhaps that is too naïve after all. And, guess who pays for the fraud?)