Financial Links

The following are links to websites or webpages that you might find informative and helpful. Though we can not promise we will always agree with 100% of everything on each of these sites, we do believe these are unbiased sources of information. Feel free to ask us our opinion regarding anything you might read regarding financial matters.


Dimensional Fund Advisors
Dimentional_LogoThe site offers a detailed overview of the firm, including its views on capital markets and its distinctive approach to portfolio management. Dimensional’s strategies are described in terms of their specific characteristics and benefits to clients. A separate library section of financial articles explores capital markets in greater depth, helping to build the foundation for a thoughtful and comprehensive approach to investing.


AARP Advisor Questionnaire
The American Association of Retired Persons has developed a questionnaire that ordinary investors can give to brokers, advisers or others in the investment business to help investors evaluate whether they can entrust their money to the person who fills it out.


The Certified Financial Planner Board — 10 Questions to Ask When Choosing a Financial Planner
CFP Board LogoThe Certified Financial Planners board has developed questionnaire to assist individuals interview and evaluate Financial Planners.


FINRA
FINRA

The Financial Industry Regulatory Authority, which is the largest non’governmental regulator for securities firms. Created in July 2007 through the consolidation of NASD (National Association of Securities Dealers) and the member regulation, enfrocement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to the investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.


SEC Investor Information Page
SECLogoSquare

The SEC’s Office of Investor Education and Assistance provides a variety of services to address the problems and questions you may face as an investor. They  do not tell you what investments to make, but they can tell you how to invest wisely and avoid fraud.


Crown Financial Ministries
Crown LogoCrown’s mission is to equip people worldwide to learn, apply, and teach God’s financial principles so they may know Christ more intimately, be free to serve Him, and help fund the Great Commission. We, Eddleman & Eddleman, LLC, are not prejudiced against other faiths and respect your independent beliefs. However, we are not at all ashamed of our own beliefs and have found the principles taught in the bible to be perfectly in line with sound secular financial teaching.


Board of Governors of the Federal Reserve System


FederalReserveSealThe Board of Governors of the Federal Reserve System direct the U.S. economic policy, influencing to greater and lesser degrees the economics of the world today. This site also includes a consumer help section and a financial education section.


University of Chicago
University of Chicago Logo Considered by many the top school of business for finance and economics in the world, this link takes you to thought-provoking roundtables and distinguished speaker presentations hosted by the esteemed University of Chicago Graduate School of Business.


NAPFA
NAPFAThe National Association of Personal Financial Advisors maintains the most rigorous overall requirements for membership of any voluntary financial services professional organization. The organization prides itself on improving the principles of industry service and providing public education about the financial industry.

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Alphabet Soup / Unregulated Credentials

What are all those initials behind a financial professionals name?

Alphabet Soup One of the greatest difficulties for persons seeking advise from financial professionals today is knowing if the advisor is qualified to assist them. It seems the industry only compounds this confusion by continually coming up with new certifications for those persons working in the industry. Many of these “so-called” certifications are nothing

more than deceptive credentialing. This is because many of these “so-called” credentials are given out to almost anyone in the industry. The training classes are filled with techniques on selling rather than money management and the test are little more than a formality. Most financial professionals are simply unwitting victims of the industry caught up in the selling process spiral. You’ll find when looking some of these credentials only require a few hours of training which is hardly enough to make someone a financial expert in a given area.

There are some exceptions to this deceptive credentialing practice. The Certified Financial Planner (CFP) designation (See Self Regulated Credentials) and a few others such as the Accredited Estate Planner (AEP) should be differentiated. One should still be aware that regardless of the education a financial professional can be subject to biasing depending upon how they are compensated. (See ?) When evaluating the listing pay careful attention to two areas which are the Prerequisite Section and the Public Disciplinary section. If the prerequisite section requires someone to be a CPA, CFP, MBA, or attorney it is most likely a solid credential with true requirements for completion. The other section to evaluate carefully is the Public Disciplinary Process. If there is no process the organization granting the designation does not self regulate and as most people are aware even educated professionals can act dishonestly.


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Choosing a Financial Professional

Options, Options, Options

The choices you make regarding your financial life are just as important as any of the other major life decisions you might make. In fact, your choices regarding what kind of financial professional you use and who that individual will be could impact every other part of your life! If you think about it, your finances can impact your retirement, the college your children attend, the type of car you drive, the neighborhood you live in, and even your level of health care. Your attitudes toward money can also impact your relationships and a good advisor should be able to help you make decisions that help improve every aspect of your life.

So . . .

Choosing the right financial professional could be the most important decision of your life!


Advisor Evaluation Toolkit

Business People in Circle

The key question most people ask when searching for a financial professional is . . .

“How can I tell who is best qualified to help me with what “I” need?”

Advisor Evaluation Tools

Credentials

Credentials for Financial Professionals can be divided into several groups. We call them Regulated, SelfregulatedUnregulated, and Formal. Click each link to discover how different credentials affect your advisors ability and quality of service.


Advisor Inquiry Questionaires

If you are considering an advisor, you should definitely ask them some questions. The following are a couple of links to some great questionaires that are ready for your use.


AARP Advisor Questionaire
aarpLogo

The American Association of Retired Persons has developed a questionnaire that ordinary investors can give to brokers, advisers or others in the investment business to help investors evaluate whether they can entrust their money to the person who fills it out.


The Certified Financial Planner Board — 10 Questions to Ask When Choosing a Financial Planner
CFP Board LogoThe Certified Financial Planners board has developed questionnaire to assist individuals interview and evaluate Financial Planners.


NAPFATough Questions To Ask (pdf)


FocusOnFiduciaryFocus on Fiduciary (flash)


Compensation

Compensation may not seem like an important factor in evaluating an advisors ability to serve you, however, it is critical. There are two basic kinds of compensation primarily used in the financial services industry. There are Fees and Commissions. Some other categories to exist such as Bid/Ask Spreads for Stockbrokers, Broker Dealers, and Market Makers, however most other types of compensation can be lumped into one of the previous two. We consider Bid/Ask Speads a commission at the retail level since the financial worker is paid every time a trade is made. If you are interested more in the particular kinds of abuse that can be present in this kind of compensation please view the link on “Churning.”

How is Eddleman & Eddleman, LLC and its advisors compensated?


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Managing Portfolio Risk

Managing Portfolio RisksPortfolio Risk Management is an extensive topic that is rarely addressed properly in wealth management. Most advisors talk about managing risk, but then never address the issue further. Because of the importance and depth of information surrounding this topic, we are currently working on an audio as part of our client educational series. The Audio will be entitled Understanding Portfolio Risk Management. If you would like a copy of the audio when it becomes available, please let us know. We will be happy to send you one.

Until then here are a few things to consider regarding managing risk:

  1. Gain an understanding of the types of risk that exist. There are many types.
  2. Learn which of those types of risk could be beneficial verses detrimental to your portfolio returns.
  3. Determine the exact measure the risk of your current portfolio.
  4. Determine how your current portfolio is diversified and why.
  5. Determine where your current portfolio falls on the Markowitz Efficient Frontier
  6. Decide on your level of risk tolerance.
  7. Formulate an Investment Policy Statement – This is a written plan of action that you or your advisor will take based on various portfolio results. It makes sure that both you and your advisor know the exact strategies to be undertaken regardless of market conditions, and it eliminates emotional decision-making during potentially stressful situations when poor decisions could easily be made based on emotion rather than logic.

Ask us about the Free Market Investment Analysis that completes these tasks for you in a simple easy to understand manner.


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Regulated Credentials

Regulated credentials are licenses or appointments issued by a state or federal entity. Licenses require a test, however appointments do not. Both require the payment of state or federal fees. Regulated credentials typically vary from state to state regarding their requirements for continuing education, however, be aware most of the continuing education does very little for increasing an individuals skill level. Testing for Licenses vary in difficulty. Typically securities (investment) licensing is more difficult than insurance or mortgage licensing/appointments, and securities licenses themselves vary in difficulty. In addition, there are no educational or experience requirements to obtain a license or appointment. The good thing about these licenses is that a license will be removed from an individual for improper action.

Standards of Behavior

You should know that there are different standards of behavior which are considered acceptable for different licenses. Typically, securities licenses require more stringent requirements by the licencee than others, but within the securities licensing arena there are differences as well. Individuals holding a Series 66 or the two Series 65 and Series 63 are held to the highest standards for client advisement. This is because these individuals are considered advisors rather than salespeople. What this really means is that if your adivsor isn’t fee-based and licensed as an advisor, your interests may come second. Business Week magazine published an article on April 11, 2005, stating “If your broker is employed by a brokerage firm, your interests come second.” Most of the public has no idea that there is a difference, but Investment Advisors are held to a different standard than Registered Representatives, even if the Registered Representative is working on a fee basis.

Focus On FiduciarySelect the link above to better understand how your financial representative may or may not meet the fiduciary standard, which differentiates the industry.

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Growth of Wealth

This is an extremely complex subject, but to summarize we can give you a very simple answer to the question:

What are the most important factors to the growth of my wealth?

The greatest factor is diversification!

Growth of WealthDiversification is the absolute most important factor in determining the performance characteristics of your porfolio. When we say “diversification” we mean the use of different asset classes to achieve negative correlation thereby maximizes risk/return characteristics given a certain standard deviation. If you’d like to understand better, we’d be happy to talk to you about it. If you would like to read more about the importance of diversification, we provide you two sources.


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Self Regulated Credentials

These credentials are from bodies that have a process in place for evaluation of members. Some of these groups are federally controlled such as the National Association of Securities Dealers (NASD). Others are privately controlled such as the Certified Financial Planning Board (CFPB). These two organizations are the largest, however, there are others. You can view which privately controlled credentialing bodies self regulate below.

See a total listing of credentials currently known by the National Association of Securities Dealers. (NASD)


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Children, Easter, and Money

This month, I thought I would highlight a great place to find material for teaching your children about the use of money. So, with this month being Easter, I thought we might look to the bible. Regardless of your personal beliefs, the bible is a great resource for you and your children to get practical information about the use of money and possessions. Whether you believe the bible is the inspired word of God or just a bunch of made up stories, it has very useful guidance particularly concerning money. In fact the bible contains more than 2,350 verses concerning money and passions. This subject area is covered more than almost in other topic in the bible. In addition to the many verses, nearly half of the parables taught by Jesus dealt in some way with these issues.

I find it interesting that being able to lend money is considered a blessing while having to borrow it is considered a curse. The bible goes on to say, “Just as the rich rule the poor; so the borrower is servant to the lender.” – Proverbs 22:7. Most American’s today wouldn’t consider themselves slaves, but unfortunately most are slaves to their jobs because of the debt that they have.

The bible speaks about planning for the future. The entire 41 st chapter of Genesis is a great story, not only about Joseph and his brothers, but also about planning for the future. Ecclesiastes 11:2 discusses the importance of diversification telling one to, “Divide your portion to seven or even eight, for you do not know what misfortune may occur on earth.” Proverbs 21:52 tells one that, “Steady plodding brings prosperity; hasty speculation brings poverty.” This is a strong message about prudent and consistent investing. Kings 20:1 states “Set your house in order, for you shall die.” I haven’t seen a clearer message about having a will or trust. The often misquoted message about money being the root of all evil actually says, “The love of money is the root of all kinds of evil.” Another version says, “Because people love money they do all kinds of wrong things.”

I find it amazing that the contemporary advice often provided by financial planners was already written hundreds and thousands of years ago. If you’re interested in gaining additional information about what the biblical scriptures have to say about this issue, the best resource I know other than the bible itself is an organization called Crown Financial Ministries. You can visit there website at www.crown.org.

So, as you celebrate Easter with your children this year, regardless of how or why you celebrate it, consider some of the fundamental topics relayed in book known as the Bible. Perhaps, you could even teach your child the real reason behind Easter, and a little something about money too.

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Unrewarded Risk

Wall Street often disregards the statistically sound results of years of study by the financial academics. Perhaps this is because much of the profit of Wall Street is based on ideas that are in opposition to the findings of academia. Whatever the reason, you most likely will not hear your broker touting the findings of Nobel laureates. However, the findings of financial academics are no less powerful.

Wall Street, like many individuals who invest in the market, still holds in theory to the findings of Gerald M. Loeb. In The Battle for Investment Survival of 1935 he stated, “Once you attain competency, diversification is undesirable. One or two, or at most three or four, securities should be bought. Competent investors will never be satisfied beating the averages by a few small percentage points.” This concept of “beating” the market and “stock picking” was not challenged until an unknown finance student named Harry Markowitz challenged these ideas in landmark works of 1952. He developed the ideas that diversification can reduce risk and that there is a difference in portfolio risk and security risk. Through these concepts he developed something known as the Markowitz Efficient Frontier.

Today, Wall Street tries to walk Loeb and talk Markowitz. There is much talk about the importance of diversification and minimization of risk. However, performance is still measured by “beating” the market. Therefore, diversification and risk management are little more than terms used in passing conversation. You can’t have it both ways. If you really believe you (or your broker) have a crystal ball and know what stock to pick, why do you need to diversify? The fact is no one has a crystal ball! Thus diversification often becomes damage control for speculation, otherwise known as gambling. This is one of the reasons that most individual equity investor returns trail the market. But despite the unrewarded risks, most individuals and brokers continue to speculate with the hopes that they can be the one to beat the market.

You would presume that half of those playing these odds should beat the market and the other half should loose, however, just like playing in Vegas, the odds are against you. Transaction costs, broker fees, and periods of holding cash outside the market yield the typical equity investor less than half of the markets performance on average. So, before you continue to invest with the emotional hopes of hitting it big, ask yourself what you really believe. Do you really believe one individual is smart enough or knowledgeable enough to outguess every other individual in the world? Because if you believe that supply and demand are effective at controlling prices, then being that knowledgeable is what stock picking means today. Personally, I don’t presume to be quite that intelligent.


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Is Perception Reality?

Before I continue the discussion on understanding investment risk, I feel compelled to intervene with thoughts regarding last week’s responses to the Jackson Speaks section of this publication. The question proposed, “Do you think the public is being gouged at the gas pump,” resulted in a unanimous yes from local residents. Before I begin to comment, please consider that, if you are a reasonable person, you will review the facts before surmising your conclusions.

With that said, I must say that I am surprised. I’m surprised that no one seems to understand the reality of economics and how it impacts them. Most everyone seems to believe that gas prices are high. Is that perception based in fact?

The answer is no. That’s right, I said, “no.” I realize the media, your friends, political leaders, and everyone else is telling you otherwise, but the fact is that relative to inflation and the value of the dollar, gas prices are not out of line. The fact is gas prices throughout history have fluctuated mostly between $1.50 and $3.00 per gallon in relation to the value of the dollar. Look at the chart below and tell me how you can believe that gas prices are higher than the historic range.

Gas Prices Relative to the Dollar

Now assuming you look at the chart and say, “But it’s at the high end of the range.” I would agree, it is at the higher end, however, we have no one to blame, but ourselves for that. More fuel-efficient vehicles are available, but most people, don’t want them. Can you say, “SUV?” This is part of the problem. There’s been a tax credit of up to $4,000 for the purchase of an electric vehicle until this year. Did you buy one? Me either! We’re to blame. For only $4.00 per block of power, you can switch your home electric over to all renewable power sources like solar, water, and wind at www.GreenPowerSwitch.com. Have you switched yet? Me either! We’re to blame. Most everyone seems to want to blame someone else for the “problem,” if there is one. Let’s blame the oil companies, Bush, the war, whomever, anyone, but ourselves. The fact is that oil company profits as a percentage of the fuel being supplied are no higher than they have ever been. They are simply providing more fuel. And remember, taking profits from these giants is really taking profits from families like yours and mine. Do you invest for retirement? Think any of that is invested in an oil company? Do you think any American’s, working hard to feed their family like you, might work at one of these companies? Having lived in Houston a while, I can tell you, 99% of the people working in refineries are average American’s, just like you.

So, if you really think there’s a problem, I ask you, “When are you going to start doing something about it?”


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