In its proposed rule requiring that all advisors to retirement plans act as “fiduciaries,” the U.S. Department of Labor includes a “best interest contract exemption.” In my view, this exemption is as significant – if not more so – than the proposed rule itself.

Background of the fiduciary rule. Few retirement plan participants are aware their trusted advisors may not be “fiduciaries.” The securities industry has done a brilliant job of obfuscating the difference between the fiduciary standard, which carries a legal obligation to act in the best interest of the client, and the much lower “suitability” standard, which brokers and insurance agents owe to plan participants.

Read the rest of the article at US News.

The post The Hidden Provision in the Department of Labor’s Proposed Fiduciary Rule appeared first on JMF Capstone Wealth Management.

Washington bureaucrats seem to have a way of making everything complicated. Have you perused the tax code lately? According to The Washington Times, it has 4 million words, making it seven times the length of the novel “War and Peace.”

On April 21, the U.S. Department of Labor issued its highly anticipated Conflicts of Interest Proposed Rule. If you thought a rule requiring that all advisors to retirement plans place the interests of their clients above their own was a fairly simple matter, you would be mistaken. An article in InvestmentNews noted the newly minted rule and its exemptions take up more than 300 pages of text.

Read the rest of the article at US News.

The post How a Loophole Could Gut the Department of Labor’s Proposed Fiduciary Rule appeared first on JMF Capstone Wealth Management.

In order to invest successfully, you need to be skilled at decision-making. This is true if you are a do-it-yourself investor or if you rely on recommendations from your financial advisor.

The many decisions you must confront include whether or not to engage in stock picking, market timing and attempts to select an outperforming fund manager who tries to “beat the index.” There is, however, an alternative. You could be an “evidence-based investor” and capture the returns of the global marketplace, less the low management fees of index-based funds.

Read the rest of the article at US News.

The post How Poor Decision-Making Affects Your Returns appeared first on JMF Capstone Wealth Management.

By now, you’re no doubt familiar with the claim by author Michael Lewis in his book, “Flash Boys.” Lewis believes high-frequency traders have rigged the stock market, causing harm to Main Street investors. Many respected financial commentators disagree. They believe high-frequency trading is only harmful to day traders, and not to the average investor who is holding stocks for the long term.

Personally, I do not believe high-frequency trading rigs the market against average investors. However, this debate misses the point. The securities industry, together with much of the financial media, has rigged the market, just not in the way claimed by Lewis. They do so by skewing financial news toward negative information. The impact of negative financial news disposes your brain to panic when the market declines.

Read the rest of the article at US News.

The post Your Brain Is Rigged to Panic in the Next Correction appeared first on JMF Capstone Wealth Management.

It’s funny that there’s even a “debate” over whether brokers should be required to act in the best interest of their clients. It’s even more nonsensical that many investment advisors to retirement plans don’t have this obligation. Much has been written on this subject. I have little to add, other than to marvel at the ability of the securities industry to maintain a position that has no merit for so long.

It’s one thing to have a conflict of interest with your clients. It’s quite another to mislead them about the nature of your legal commitment to them. A report for the Public Investors Arbitration Bar Association, released March 25 and authored by Joseph Peiffer and Christine Lazaro, makes the case that brokers are engaged in precisely this kind of deceptive practice.

Read the rest of the article at US News.

The post Report Says Ads Show Illusion of Fiduciary Duty appeared first on JMF Capstone Wealth Management.

I have long been a proponent of “evidence-based” investing. For many investors, this means investing in a globally diversified portfolio of index funds with low management fees, exchange-traded funds or passively managed mutual funds.

In order to make this transition, you will need to resist the hype and marketing blitz from the purveyors’ actively managed funds, where the fund manager claims to have an ability to beat a designated benchmark on a risk-adjusted basis.

Read the rest of the article at US News.

The post Some Index Funds Are Bad Choices for Investors appeared first on JMF Capstone Wealth Management.

1. Last year was an aberration. According to Dan Culloton, Morningstar’s associate director of manager research, as interviewed by Kathleen Pender in a December 2014 SFGate article, most domestic funds own more small and mid-cap equities than the Standard & Poor’s 500 index. Large-cap stocks outperformed small-cap stocks in 2014. Because the S&P 500 index contains mainly large-cap U.S. stocks, actively managed funds couldn’t “keep up.”

Really? According to the mid-year 2014 SPIVA U.S. Scorecard, most domestic stock funds underperformed their benchmarks over the past five years. There was nothing aberrational about 2014.

Read the rest of the article at US News.

The post Wall Street’s Lame Excuses for Active Fund Performance appeared first on JMF Capstone Wealth Management.

A recent article, written by staff at the Motley Fool and published on CNNMoney, is illustrative. The purpose of the article was to inform investors of the most important investment principles they should be applying. The source of advice is three Motley Fool experts.

Let’s take a closer look at their views:

Read the rest of the article at US News.

The post How to Find the Best Investment Advice appeared first on JMF Capstone Wealth Management.

Let’s start with the basics. If you are seeking a higher return than a designated benchmark, you are going to hold a portfolio that is different and less diversified than the stocks or bonds in the benchmark index. In other words, the trade-off for higher-expected returns than the benchmark is a greater risk than the benchmark. The issue for active investors to ponder is whether the expected alpha from this strategy will be adequate to compensate you for the increased idiosyncratic risk. Swedroe and Berkin make a compelling case that it isn’t.

You are likely to be a victim. In his seminal paper, “The Arithmetic of Active Management,” Nobel Prize-winner William Sharpe demonstrated that, before costs, active management is a zero-sum game. After costs, it is a negative-sum game. For active managers to achieve alpha, they need victims to exploit. These victims are individual investors, and they are exploited by institutional investors. Swedroe and Berkin demonstrate this finding by citing research showing that, in the aggregate, global individual investors underperform standard benchmarks. Even the best traders find it difficult to cover their costs.

Read the rest of the article at US News.

The post This Book Obliterates Active Management appeared first on JMF Capstone Wealth Management.

Here are some examples of harmful beliefs.

Bonds have lower volatility than stocks and lower expected returns. When I mention “bonds,” I am referring to 10-year U.S. Treasury bonds. I suspect most investors, and even many financial advisors and brokers, believe that 10-year Treasury bonds are “safer” and less volatile than stocks. As a consequence, you would expect these bonds to have lower historical returns.

Read the rest of the article at US News.

The post Almost Everything You Know About Investing Is Wrong appeared first on JMF Capstone Wealth Management.