Category Archives: New York

Money Managers Lure Millennials With Low Minimums, Live Advice

The traditional financial advisor rarely takes on new clients with a nest egg smaller than $100,000.

But the financial advisory industry is coming up against two large speed bumps that could spark a paradigm shift: the rise of the robo-advisor and the fact that the second half of the millennial generation is entering the workforce and starting to invest.

This has led one registered investment advisor to rethink its strategy for acquiring clients. M&R Capital Management is a 24-year-old firm with $500 million under management. The New York-based RIA — which manages money for individuals, institutions and charities — typically requires $250,000 to open a separately managed account (SMA). Its average SMA rose 13.05% in the past year and for the past three and five years returned an average annual 2.89% and 6.26% respectively, M&R says.

However, the firm’s members realized their growth strategy needed to focus on the millennial generation. With many millennials still in their early to mid-20s, few have the nest egg to open an SMA. Most don’t even have savings.

But the few sophisticated enough to invest are looking at the same place where they do their shopping and banking — the computer — and opening accounts with robo-advisors.

So M&R Capital decided to lower its account minimum. It created Prime Funds, a set of ETF-based model portfolios in which people could open an account with as little as $500.

“This is our way to compete with the robo-advisor,” said Paul DeSisto, director and senior portfolio manager at M&R. “The idea was to get young workers. People who don’t have much money to invest and get them invested right away with some safety and growth.”

DeSisto said the idea is to make them clients when they are small investors, help them grow large portfolios, then 15 or 20 years later move them into an SMA.

“We feel that people still want to talk to somebody,” said DeSisto. “They can call at any time and have access to the portfolio managers.”

M&R is able to accept such small accounts by keeping costs low. Prime Funds clients only have a choice of three portfolios. M&R uses the Pershing FundVest ETF platform, which lets M&R trade ETFs commission-free. The clients can’t trade ETFs on their own. M&R charges each account an annual fee of 1%. That’s on top of the fees that the ETFs charge, which range from 0.15% to 0.57% of assets a year.

The three portfolios currently available are: growth, value, and equity income.

The growth portfolio consists of a 42.5% allocation of PowerShares Dynamic Large Cap Growth Portfolio (PWB), 15% SPDR S&P 400 Mid Cap Growth (MDYG), 32.5% SPDR S&P 600 Small Cap Growth (SLYG), and 10% PowerShares S&P International Developed Quality Portfolio (IDHQ).

The value portfolio consists of PowerShares Dynamic Large Cap Value Portfolio (PWV), Oppenheimer Mid Cap Revenue ETF (RWK), SPDR S&P 600 Small Cap Value (SLYV), and IDHQ.

The high-distribution equity-income portfolio is comprised of PowerShares S&P 500 High Dividend Low Volatility Portfolio (SPHD), SPDR S&P 400 Mid Cap Value (MDYV), PowerShares S&P SmallCap Low Volatility Portfolio (XSLV), and IDHQ.

The funds have been up and running since July 31. Through the end of September, the growth portfolio has a return of 6.1% and $95,000 in assets. The others don’t have assets yet.

While it’s not a full-blown trend, M&R isn’t alone in taking on clients with small accounts. Some, like Jeremy Torgerson, the founder of nVest Advisors, an RIA in Denver, has been taking on small accounts for two years because he sees how the robo-advisor technology is overrunning the industry. He offers his clients five ETF-based model portfolios.

“I’ve structured my practice to be a touch of robo and a touch of human to hold their hands,” said Torgerson. “If you get these people on the ground floor and be there for them, you will have a lifelong client.”

Hunter von Unschuld, the founder of Fractal Profile Wealth Management, an RIA in Albuquerque, N.M., retired as an attorney in 2013 and has been managing money since. He won’t turn anyone away — and offers eight ETF-based portfolios.

“We take small accounts because it’s my belief that everyone that needs help with their finances and retirement planning should be able to get help no matter their account size,” he said.

This was originally published in Investor’s Business Daily.

ETFs That Track Gold Having A Better Year Than The Stock Market

fter a midsummer rally, gold is now having a better year than the S&P 500 index. And that’s good timing for some new gold ETFs that launched this year.

SPDR Gold Shares (GLD), the largest and oldest ETF in the world which tracks the price of gold, has surged more than 10% since July 7 for a year-to-date return of 16.9% through Sept. 7, according to Morningstar Direct. Meanwhile, SPDR S&P 500 (SPY), which tracks the stock market benchmark, is up 11.5% this year. IShares Gold Trust (IAU), GLD’s main competitor, is also up nearly 17%.

The main reason for the rally is the falling U.S. dollar, which has dropped nearly 10% this year. Some blame comments from President Trump, who said in April that the dollar was “getting too strong.”

But others think it has more to do with interest rates.

“Real interest rates started to go negative and that hurts the dollar. Both the five-year and the two-year (Treasury notes) are now negative,” said Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, which launched U.S. Global Go Gold & Precious Metal Miners (GOAU) in June. “When the dollar falls, gold goes up.”

GOAU holds companies engaged in the production of precious metals either through mining or production and specialized financial firms called royalty companies. These royalty companies provide capital to fund exploration and production projects, and in return, receive a stream of royalties. GOAU is up 14% since its launch. It carries an expense ratio of 0.60%.

GraniteShares Gold Trust (BAR) also launched this year, on Aug. 31. Just like GLD and IAU, it holds actual gold bars to track the price of gold. Founded by Will Rhind, who managed GLD for 2-1/2 years before starting GraniteShares, BAR’s big selling point is it’s the lowest-cost gold ETF. It charges an expense ratio of 0.20%, vs. 0.40% for GLD and 0.25% for IAU.

“When you own gold as a hedge, you want the lowest-cost hedge,” said Rhind.

People flock to gold as a hedge when there’s uncertainty in the market. And there had been a lot of uncertainty lately, including deadlines to keep the government funded and raise the debt ceiling.

The Senate on Thursday approved a bill to avert a government shutdown and raise the debt ceiling for three months, as well as $15.25 billion in hurricane relief aid. In August, the president had said he was willing to risk shutting down the government unless he obtained funding for the wall he promised to build between Mexico and the U.S.

Gold hit its all-time high of $1,900 in 2011, during the last government shutdown threat.

“Another key motivation is we’re entering crash season, September and October,” said Brandon White, gold analyst at Bullion Management Group in Toronto. “We haven’t had a (stock market) correction for a number of years. So, people think we may be due for a downturn. So, take money off the table and move it into something that does well in market downturns, and precious metals do well.”

He added that annual gold production is expected to decline 40% going into 2018.

Then there is the saber rattling between Trump and North Korea, which is testing nuclear bombs and firing missiles. Wars always make gold prices go higher and geopolitical tensions are rising between the two countries.

All this has pushed the price of gold through the technical resistance line of $1,300, to $1,349 an ounce.

“A lot of people watching gold have been waiting for gold to challenge the $1,300-resistance line. It was tested three times last week,” said White. “When money managers consider an asset to revert to the upside from a downtrend, they will often wait for a 20% move. The resistance line was a key technical indicator that needed to be broken before sentiment turned. Now interest is back. It’s not so much a speculative trade as a defensive trade.”

And interest is definitely back.

Gold-backed ETFs saw net inflow of $1.6 billion in August, according to the World Gold Council. North American ETFs drove global inflow. GLD led inflow with $1.03 billion, or 3.2% of its assets under management, and IAU received $266 million, or $3.1% of AUM.

She is Belle of ETF.com Awards

Women might not have broken the ultimate glass ceiling in American politics, but they took the top prizes at the ETF.com Awards.

Yes, it’s awards time again for the ETF industry and starting off the festivities was ETF.com, a Web site full of stories, tools and fund analysis.

The SPDR SSGA Gender Diversity Index ETF, with the ticker (SHE), swept the ceremony by walking away with four of the top awards, more than any other ETF has taken home in the history of this specific award ceremony. The fund won Best New ETF, Most Innovative New ETF, Best New U.S. Equity ETF and Thematic ETF of the Year.

girl-v-bull

Fearless girl courtesy of SSGA

Were the judges trying to soften the blow women took on the political plane this year? Possibly. State Street Global Advisors, the sponsor of the fund, is responsible for installing the “Fearless Girl” statue near Wall Street on International Women’s Day last month. The statue represents the lack of gender diversity on Wall Street and the executive suites of U.S. corporations in general.

State Street said it created SHE, as the Gender Diversity Fund is affectionately known, to “invest in large-capitalization companies that rank among the highest in their sector in achieving gender diversity across senior leadership. SHE offers a means to invest in companies that have demonstrated greater gender diversity within their sector, providing investors with a tool to inspire change and make an impact.”

According to a 2015 paper from MSCI ESG Research, companies in the MSCI World Index with strong female leadership saw a return on equity of 10.1% per year compared with 7.4% for companies lacking suck leadership. We would be remiss if we failed to point out that on State Street’s board of directors only three of the 11 are women.

It appears the “Fearless Girl” is creating a lot of buzz too, as she stands facing the famous “Charging Bull” statue of Wall Street. The Bull’s creator thinks the girl statue violates his artistic rights and changes the meaning of his statue, which represents the strength of America and the market.

The Best ETF of 2016 was actually the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL). This award is given to a fund that did its job particularly well in a particular year. In 2016, this fund surged 25%, at least 10 percentage points more than its main competitors in a year when high-yield bonds were posting great returns.

I’ll just let ETF.com explain how the fund works: “Typically, investors hold bonds at different tranche levels, and as soon as a bond falls out of the investment-grade bucket, every insurance company must sell all of it, pushing these bonds into oversold territory, the result is that these downgraded bonds tend to outperform almost immediately after being downgraded – the very juice ANGL is extracting. What’s more these newly downgraded bonds don’t carry that much more default risk.”

For full list of ETF.com awards click here.

Can China ETFs Continue Their Ascent?

China ETFs’ recent gyrations are enough to give one whiplash. Many have behaved like the Shanghai Composite Index recently. After soaring 152% over the previous 12 months — 60% this year alone — to a seven-year high on June 12, the benchmark for mainland China’s stock market hit a significant speed bump.

Last week the index stumbled 13% into a much-anticipated correction. A 5% rally the first three days of this week gave way to selling Thursday, cutting the week’s gain so far to 1%.

“The sheer increase in prices this year is something that makes me want to stand back,” said John Rutledge, chief investment strategist for Safanad, an investment house in New York. “I don’t know any fundamental reason why prices should have doubled this year, and that price behavior sounds like a bubble.”

Rutledge is referring to the fact that the Chinese economy’s growth rate has slowed to a six-year low of 7%. But if fundamental analysis can’t explain it, macroeconomics can. With central banks all over the world cutting interest rates, there is flood of liquidity looking for returns.

The first thing to know is that there are two markets in China. The Hong Kong market, which has long been open to global investors, trades what are known as H-shares. Then there are the mainland markets in Shanghai and Shenzhen. They trade A-shares, which had been limited to domestic investors.

But last year the Shanghai and Hong Kong markets created a system that let global investors buy A-shares and domestic investors buy H-shares. This change has brought a lot of money to the mainland markets.

On top of that, the People’s Bank of China, the country’s central bank, has cut interest rates three times since November, and more cuts are expected.

Finally, throw in a slowdown in the Chinese real estate market. It led the Chinese government to encourage investments in stocks by making it easier for Chinese retail investors to open accounts and buy stocks on margin.

Loss Of Liquidity

And a loss of liquidity sparked last week’s correction. First, Chinese regulators, worried that the market was getting overleveraged, tightened the rules on margin trading. Then a slew of initial public offerings sucked up a lot of cash.

There’s no doubt that China is risky. But gains could resume if the economy picks up and government stimulus programs continue. And index provider MSCI is evaluating A-shares for inclusion in its emerging markets index. That could spark demand by many funds that track MSCI indexes.

If you want China A-Shares in your portfolio, investing in ETFs is the way to go. KraneShares offers four ETFs focused on China. Its Bosera MSCI China A ETF (ARCA:KBA) holds more than 300 large-cap and midcap stocks on both the Shanghai and Shenzhen stock exchanges.

KraneShares says that these are the stocks that would be included in an MSCI emerging markets index. KBA is up 40% year to date and 126% in the past 12 months. It has an expense ratio of 0.85%.

Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ARCA:ASHR) tracks the CSI 300 Index, which holds the largest and most liquid stocks in the A-share market. It’s up 35% year to date and 129% for the past year. It charges 0.8% of assets for expenses.
Market Vectors ChinaAMC A-Share ETF (ARCA:PEK) also tracks the CSI 300 index but charges less: 0.72%. It’s up 39% year to date and 132% in the 12 months. The big difference is that ASHR is more liquid and offers a 0.2% yield, while PEK offers none.

As liquidity improves in July, David Goldman, managing director of investment firm Reorient Group, sees a market recovery and a move back up beyond the 5,000 level for the Shanghai Composite.

“Economic fundamentals are clearly improving, and so are regulatory incentives for stock market growth,” he wrote this week.

Originally published in Investor’s Business Daily.

WisdomTree Wins ETF of Year at ETF.com Awards As ProShares Walks Away With 4 Statues

It’s award time again.

Much like Spring follows Winter, although reports of more snow this weekend are leading some to question that, the ETF industry starts its period of self-congratulations on the heels of the Oscars, Grammys and Golden Globes.

ETF.com, the self-proclaimed world’s leading authority on exchange-traded funds, started the season off with their second annual awards banquet.

“Our awards try to recognize the products that make a difference to investors,” said Matt Hougan, president of ETF.com. “The ones finding new areas to put money to work.” The awards are determined by a panel of experts chosen by ETF.com.

Held at The Lighthouse restaurant at New York’s Chelsea Piers March 19, ETF.com wins the prize for best party location. With picture windows overlooking the Hudson River, guests of the cocktail hour took in the sunset over New Jersey before the ceremony started.

The WisdomTree Europe Hedged Equity (HEDJ) was the big winner, grabbing the prize for ETF of the Year, while the Market Vectors ChinaAMC China Bond (CBON) won Best New ETF. Not quite sure what the difference is between those two awards, but obviously both funds stand out from the crowd of 117 ETFs issued in 2014.

However, ProShares swept the evening, as the single provider that won the most awards. The twin funds ProShares CDS North American HY Credit (TYTE) and CDS Short North American HY Credit (WYDE) claimed the awards for both Most Innovative New ETF and Best New Fixed-Income ETF.

“We designed these ETFs for investors who want high yield credit exposure that is isolated from interest rate risk,” said Steve Cohen, ProShares managing director.

The fund was also nominated for Best Ticker of the Year with its homophones for “tight” and “wide”. However, the awards announcer had a chuckle by claiming they really were pronounced “tighty whitey”, a reference to his jockey shorts. Best Ticker was awarded to HACK, the PureFunds ISE Cyber Security ETF.

ProShares also won Best New Alternative ETF for the ProShares Morningstar Alternative Solution (ALTS) and Most Innovative ETF Issuer of the Year.

“We are always striving to deliver new and innovative products to allow investors to build better portfolios,” said ProShares Chief Executive Michael Sapir.

Lee Kranefuss, the man who created the iShares brand of ETFs and built them into the largest ETF issuer in the world won the 2014 Lifetime Achievement Award.

In the only speech of the night — thank goodness — Kranefuss said, “ETFs allow people to take control.” He likened ETFs to iTunes, saying “no longer are you limited to what the record company puts out.” He said he’s often been asked if he thought the ETF industry would take off like it has in the 15 years since iShares launched.

“Not really,” said Kranefuss, “we just put out the best products we could put out.”

The other award winners:

Best New U.S. Equity ETF – iShares Core Dividend Growth (DGRO)
Best New International/Global Equity ETF – Deutsche X-trackers Harvest MSCI All China Equity (CN)
Best New Commodity ETF – AdvisorShares Gartman Gold/Euro (GEUR) and AdvisorShares Gartman Gold/Yen (GYEN).
Best New Asset Allocation ETF – Global X /JPMorgan Efficiente (EFFE)
ETF Issuer of the Year – First Trust
New ETF Issuer of the Year – Reality Shares
Index Provider of the Year – MSCI
Index of the Year – Bloomberg Dollar Index
Best Online Broker for ETF-Focused Investors – TD Ameritrade
Best ETF Offering for RIAs – Charles Schwab
Best ETF Issuer Website – BlackRock

DoubleLine Joins State Street On Active Bond ETF

ETF giant State Street Global Advisors teamed up with DoubleLine Capital, the firm of famed bond investor Jeffrey Gundlach, to launch SPDR DoubleLine Total Return Tactical ETF (TOTL) last week.

The actively managed ETF is DoubleLine’s first foray into the ETF space.

One of the most respected bond fund managers in the market, Gundlach ran $12 billion TCW Total Return Bond Fund until 2009. At the time, Morningstar said it was in the top 1% of all funds invested in intermediate-term bonds for the five years ended in 2009.

Gundlach left TCW after a management dust-up and formed DoubleLine in 2010. He’s DoubleLine’s CEO and chief investment officer.

“It’s not a clone of any existing strategies,” said Jeffrey Sherman, a DoubleLine portfolio manager, during a webcast this week. Sherman will co-manage the ETF with Gundlach and firm President Philip Barach. “It’s a new product created just for this offering, but it draws upon the views of Jeff Gundlach and the DoubleLine team.”

While not identical to the firm’s flagship DoubleLine Total Return Bond Fund , ETF investors will be getting a deal. The ETF charges an expense ratio of just 0.55%, compared with the fund’s 0.72% fee for retail investors.

By going with a name-brand fund manager, State Street (NYSE:STT) is making a calculated effort to take advantage of the problems at Pimco. It looks like it wants to become the leading bond ETF in the country by taking on $2 billion Pimco Total Return Bond ETF (BOND).

BOND has seen more than $1 billion in outflow since Bill Gross, Pimco’s bond maven, left the firm in September. This caused BOND to fall to second-largest active bond ETF.

TOTL’s investment objective contains elements of both DoubleLine’s total return and core fixed-income strategies. The ETF aims to have a low interest-rate risk profile.

At the same time it expects to maximize returns through active allocation and selection of securities its analysis determines to be mispriced in the market.

DoubleLine Total Return Bond Fund has focused on mortgage-backed securities. But the ETF can hold any bond, including U.S. Treasuries, investment grade corporate credit, high-yield bonds, collateralized loan obligations, asset-based securities, bank loans and sovereign debt from both developed and emerging markets.

The portfolio must contain a minimum of 20% in mortgages, but it isn’t required to hold anything else. While high-yield, emerging market and CLO securities can each only take up as much as 25% of the portfolio, as much as 85% can be held in government bonds.

The duration of a single bond can range from one to eight years and no security can have a bond rating below BBB-.

State Street Getting Active

State Street, which has a reputation for running passively managed funds, has slowly moved into the active ETF arena. The new fund is its third active bond ETF and 10th overall.

While active equity funds have a hard time beating their benchmarks, the less transparent bond market creates more opportunities for managers to beat their index.

“Passive does best in U.S. equities, but in investment grade fixed-income 65% of managers outperform their benchmark,” said Dave Mazza, head of research at SPDR ETFs. “A skilled fixed-income portfolio manager can find inefficiencies across the market because it is illiquid and opaque.”

Selling An Advisory Practice May Take Time

As a financial adviser gets older, an issue that begins to loom large is how to successfully sell his or her practice and retire. It’s not a question that can be left to the last minute. Most strategies require a financial adviser to take a big step out of his or her comfort zone, and some can take 10 years to execute.

“It’s very infrequent where I see one small adviser sell to another small adviser, or even a larger adviser,” said Jay W. Penn, managing partner at Tru Independence, a consulting firm that provides services for financial advisers. “Even a one-man practice with $1 million in gross revenue isn’t worth that much because the revenue stream is totally dependent on one guy. If that guy leaves, how do you value that business?”

Penn says that an outright sale rarely succeeds because the client base for small advisers is a reflection of the adviser. Finding another firm with a culture that will mesh with his clients is very hard.

Use Partnership Approach

The most successful strategy is to gain scale and join with multiple partners. One partner can buy out the other partner, or the older partners bring in junior partners who will buy the firm over a period of five to 10 years. During that time, the new partners meet and become comfortable with all the clients.

Tom Sudyka, managing director of Lawson Kroeker Investment Management in Omaha, Neb., started as one of two young advisers hired to work for the firm. Over a 10-year period, the young advisers became junior partners, then bought out the founding partners. Sudyka and his partner are now bringing in two new junior partners to start the process again.

The founders structured the firm as a small corporation with 2,000 shares of stock. Each year, the founders had the firm independently valued on a formula that looked at revenue and cash flow. Then the two junior partners would together buy 10% of the shares out of their savings or with a loan.

“You want a nice continual flow and continuity for your clients,” said Sudyka. “We tried to get away from the broker mentality. From the time I got here, I went to meetings with Lawson and met all the clients. By the time we transitioned over, the clients were comfortable with the next generation of managers.”

Sudyka says that acquiring the next generation of advisers is a big issue for the industry. “They need to have the same philosophical investment approach and concern for clients as the firm in order to be a match and bring them on.”

Another way to get bigger is to partner with a company like Tru Independence. The consulting firm can take over back-office operations and noncore activities for a small firm. This practice gives advisers more time to prospect for clients and find potential partners. Tru Independence, which works with many small firms, often plays the role of matchmaker by finding potential partners from its large network of clients.

The challenge with this approach is that one- or two-person firms often can’t afford to bring someone on at full salary. To do it right, the firm needs to get bigger. One way is to acquire smaller advisory firms with younger talent. These younger advisers bring an existing book of clients with them and agree to buy the larger firm over a set number of years. The younger advisers have the desire to grow a firm but don’t have a large, established business. The older advisers have the larger business but have stopped growing. By marrying the two, the established firm gets a younger team to drive the growth.

However, often the established firm may not have the money to buy the smaller firm.

Succession Plan

“It’s difficult to get financing from a bank on an unsecured basis for financial advisory firms that are small businesses with revenues of $3 million to $7 million,” said Bob Jesenik, chief executive of Aequitas Capital, a financial services firm in Portland, Ore. Aequitas can provide loans or purchase a minority stake to give an established firm the capital to acquire a smaller one.

The two firms value each other by assets under management, then get proportional shares when they come together as a partnership. Typically, the more established firm will have a higher ownership percentage, such as 70%, which the younger partners will eventually buy out. By bringing the younger team in as partners, the older advisers get a succession plan and seamless transition at the same time.

For full story go to Investor’s Business Daily.

Advisers Must Embrace Tech To Battle Robo Advisers

Technology has disrupted many industries over the past 20 years. It was only a matter of time before it upended the financial advisory business.

In an era where people seemingly spend more time with their friends online than in person, it should come as no surprise that many investors choose to communicate with a computer screen rather than an actual person for financial advice. Human financial advisers have much to fear from these new players, affectionately — or derisively — called robo advisers.

While the old model of the sole practitioner with a book of about 100 clients will probably disappear within 10 years, advisers willing to adapt by embracing new technology and changing their value propositions may be able to flourish.

The key players in the new arena of online investment-management websites include Betterment, Wealthfront and FutureAdvisor. On these sites, people input financial information such as how many assets they have, their goals and their risk tolerance. The computer throws it into an algorithm and puts the money say, into a portfolio of low-risk stock or bond ETFs. The companies are typically more cost-effective than humans, charging between 15 and 35 basis points. They also claim to be more efficient at investment management.

Is Robo Touch Better?

Dan Egan, Betterment’s director of behavioral finance and investing, says that humans have emotional attachments tied up in investments. If you take the human element out and do the job systematically, some tasks — such as rebalancing during a market downturn or correctly timing when to harvest tax losses — become easier.

“We are constantly monitoring the portfolio to improve your returns,” said Egan. “The algorithm is run multiple times during market hours to find the most beneficial time to trade. To achieve the same efficiency, a human being would have to sit there monitoring the accounts 24 hours a day.”

The firm, which began taking clients four years ago, has more than $710 million under management.

“Most advisers are buggy-whip manufacturers in an era of automobiles,” said Ric Edelman, best-selling author, chairman and chief executive officer of Edelman Financial Services. “Advisers who provide only investment services are under significant competition from this new technology. They’re becoming obsolete and are either unaware or in denial.”

The consensus among experts is that advisers need to embrace and stay current with the new technology. Edelman’s firm, which manages $13.5 billion, created its own robo adviser; but he says that to survive, advisers have to provide a broader array of services, such as insurance, estate planning and college planning.

“At a certain level of assets, like a few hundred thousand dollars, you really want to start talking to somebody,” said Doug Wolford, president and chief operating officer of Convergent Wealth Advisors, a Washington, D.C., firm. While he doesn’t consider his company, which manages $8.5 billion and requires clients to have a minimum of $1 million, to be competing against the robo advisers, he says that advisers need to educate themselves about new technology.

Fusing Both Approaches

Bill Harris, chief executive officer of Personal Capital, is finding a way to combine the software aspect of the robo adviser with the personal relationship of a human adviser. Personal Capital offers two services: free software that collects all your financial information and makes it available on phones, tablets and now Google’s (NASDAQ:GOOGL) smartwatch; and human financial advisers for in-depth financial planning.

“Most advisers don’t do planning at all,” said Harris. “They ask five or six questions about risk tolerance, then put you in a prepackaged portfolio. We grab all that data, and then we do high-level financial planning, portfolio maintenance and tax harvesting.”

Harris, former chief executive officer of both Intuit (INTU) and eBay’s (EBAY) PayPal, says that in two years, Personal Capital gained half a million registered users, and the software tracks $1 billion of assets. It has converted enough of the users that it now manages $650 million of client assets.

For the full story go to Investor’s Business Daily.

This is from an Investor’s Business Daily Special Report. For the full report go to Financial Advisers’ Guide — Making Connections.

Introducing Paul Berry’s Audience to ETFs

I was recently interviewed about Exchange Traded Funds and my book, EFTs for the Long Run,

Buy ETFs for the Long Run from Amazon.com

Buy ETFs for the Long Run from Amazon.com

by Paul Berry on the Home and Family Finance radio show. It’s syndicated nationally on the Radio America Network. Here is the link to the replay.

T.Rowe Says Invest With Caution in 2014

Invest with caution was the theme of T. Rowe Price’s annual Investment and Economic Outlook briefing in New York today.

With equity valuations at, or above, long-term averages, the mutual fund giant’s experts stressed that investors need to be careful. At 57 months, the bull market has officially hit middle age. And you can be sure the next five years aren’t going to look like the previous five, during which the S&P 500 Index rocketed 164%.

“Risk/reward is more balanced, and we should be risk aware,” said Bill Stromberg, the Baltimore firm’s head of equity. “Investors are finally rotating back to equities and may be too late.”

Stromberg said signs of speculative excess are appearing with margin debt on the New York Stock Exchange passing $400 billion, more than the peaks in 2000 and 2007. Still, U.S. stocks could move higher it they “truly regain favor with investors. Favor large-caps.”

Since the market never posted a decline of 5% this year, Stromberg said, “don’t be surprised by non-recessionary corrections.” However, be ready to buy stocks if the market falls between 10% and 20%.

While consumers and corporations have delevered their debt, reducing their financial risk, governments around the world have taken on more debt to provide stimulus. Central banks can’t continue this pace of borrowing and T.Rowe says the Federal Reserve Bank will begin tapering its quantitative easing strategy of bond purchases in the next six months. Even so, interest rates should stay low throughout 2014.

John Linehan, T. Rowe’s Head of U.S. Equity, said over the past three years the firm has been positive on U.S. stocks because of attractive valuations and strengthening corporate fundaments. But headwinds are coming in the form of more neutral valuations, tepid topline growth, historically high profit margins and expanding price-to-earnings (P/E) ratios.

Since the S&P 500’s most recent trough in October 2011, the index has soared 60%. During that time, P/E multiples on the benchmark climbed 41%, while earnings per shares grew only 13%. Linehan said multiple expansions like this tend to happen late in a stock market’s cycle.

He said stock prices are “not stretched,” and “still look attractive relative to bonds,” but they are “not attractive relative to history.”

“As a result, our green light is turning yellow,” said Linehan.

However, companies still have a lot of cash on their books. If companies use the cash for capital spending, mergers, acquisitions, dividends or share repurchases this could be a tailwind for the economy and the stock market.

Other attractive themes for the market going forward include the renaissance in U.S. manufacturing, the North American energy boom, and the improving U.S. economy.