Sunday, June 25, 2006

Growing (Up) Pangs

This past week I watched my (now not so) little girl graduate from high school, and just 24 hours before that, this proud papa was beaming at a ceremony where she garnered so many awards, she had trouble carrying them to the car.

Just two days later we were driving her to a weekend orientation at the school that will be her new "home" come fall. Now, like most parents of teenagers, we feel that we have been practicing for Jennifer to leave home for some time now. She comes in from work, heads upstairs to do her homework - has to be summoned to meals – and, as soon as she is done ingesting her food, disappears back into her alcove. It's a bit like we are running a bed and breakfast, and she is a guest (except for the part where the innkeepers get paid, of course). In short, we, like our parents before us, have resorted to complaining about how little we see her. Except, of course, for those sporadic outbursts of emotion that inevitably flare up between kids who think they know best about all things, and parents who know better. Moments that call to mind (but fortunately not yet to mouth) thoughts like, “When are you going off to college again?”

Those occasional – and natural - tensions notwithstanding, the realization that she is getting ready to get on that road that will eventually take her out of our household really set in this weekend. Don’t get me wrong – I know there are many happy (and probably not-so-happy) times ahead. I realize that this is a beginning, not an end – and that, as a parent, you really want to see your children ready, willing, and just a little bit eager to strike out on their own. Or so you keep telling yourself.

Saturday was just a practice run of sorts for that day - just a couple of months from now - when we’ll actually be leaving her there for the fall term. But there was something about watching her head off with the rest of the kids for their activities that brought back memories of sending my little girl off to her first day of school.

And with those images came a startling reminder of just how quickly time flies, and how inexorably we march toward the future. A reminder that while you can put things off until tomorrow – tomorrow eventually arrives, whether we are ready or not.

- Nevin Adams

Sunday, June 18, 2006

Story Tellers

I spent last Friday collaborating with a panel of industry “luminaries” as judges (see for Principal’s 10 Best Companies for Financial Security. It’s the third year I have been asked to participate (it’s the fifth year for the program) – and I’m pleased to note that the combination of a bit of experience with the judging process itself, a well-vetted scoring system, and a comprehensive set of background materials compiled by Mathew Greenwald & Associates makes what could be a daunting process manageable.

There’s a lot of science in developing the criteria and weightings – but there’s also what might well be termed “art” that manifested itself in the interaction of the judges (which includes two of the previous winners of the award) as we worked our way toward a list of the 10 best. The criteria – a truly robust list of benefits that run the gamut from insurance to health to retirement – all contribute to individual financial security. What’s not always as certain is the appropriate balance between the “here-and-now” impacts of things like short-term disability coverage and health insurance, and things, such as retirement savings, that are designed to sustain us over the longer term. It was interesting on Friday, as it has been the past two years, to debate and discuss that balance with my colleagues on the panel – not just in esoteric terms, but to see how those combinations are applied in the “real world.”

I was struck this year, as I have been in previous years, by how many small and mid-size employers are now offering benefits packages that would be the envy of many in large corporate America. Companies that not only still offer a well-funded and generous defined benefit plan, but that still pay for retiree medical care (some pay 100%), and that provide health insurance at no cost to employees, as well as a stunning variety of wellness programs, profit-sharing contributions, and carefully constructed incentives. Companies that are not only fiercely committed to attracting and retaining good workers, but also in helping those employees have a safe and secure retirement long after they are drawing a paycheck.

Unfortunately, these companies aren’t the ones garnering headlines, nor is their situation dominant in the minds of those in Washington currently working on pension “reform.” The sad fact is “if it bleeds it leads” – and “reform” (certainly by the time Congress gets involved) generally consists of closing the barn door well after the problem is beyond saving – while inflicting damage on programs that weren’t problems to begin with. More’s the pity, because there are good stories to tell, and they vastly outnumber the current cast of miscreants.

Advisors help these programs become better every day, of course. That reality was borne out in the course of our deliberations Friday. Both of the plan sponsors on the judges’ panel – plan sponsors who were on that panel because they had been named to the 10 Best list in previous years – had taken the time to enter their names for consideration specifically at the urging of financial advisors who worked with their plans. Advisors who not only played an active role in helping deliver those benefits, but whose breadth of experience validated their notions that these programs really were superior – and who went beyond merely doing the job they were paid to do to encourage the sponsors to take the time to share their stories.

That’s good for the employees who benefit from those programs, the plan sponsors who make the commitment to offer them, the rest of us who are inspired by their stories – and ultimately, of course, for the advisors who took the initiative to set all of this in motion.

- Nevin Adams

(I can’t disclose the winners of this year’s program – but you can read more about last year’s winners at

Sunday, June 11, 2006

Balancing Acts

Time being a relatively precious commodity in my household (particularly this month), we have often favored day trips to longer journeys to more exotic locales. This past weekend, we drove up to Maine for the day – motivated primarily by a desire to share some of our favorite places there with my visiting mother-in-law, but we all draw a lot of pleasure from those trips. On our previous trip to Maine, my youngest decided to be “adventurous” and try lobster for the first time. He not only enjoyed his first taste of Maine lobster, he (and, admittedly, his Dad) derived what some might term an “inordinate” amount of pleasure from his sisters’ aversion to watching him tear into the crustacean – a memory that was, no doubt, not far from his mind as he ordered lobster on this most recent trip.

That memory was richly “rewarded” on our recent trip, where not only were his siblings in closer proximity, but at a time of day (lunch, not dinner) when the “details” of the meal were even more evident. So much so, in fact, that my son was desirous of preserving that memory by bringing home a souvenir of sorts (the head and antennae). Incredibly (to me), his mother agreed – but he was admonished to clean said souvenir as soon as practical. And, being on the ocean, the means of cleansing appeared not only logical, but close at hand, er, foot.

Or so one would think. However, the reality on this unseasonably cool June day was that my son wasn’t prepared (physically or emotionally) for a dip in the equally unseasonably cold Atlantic. Consequently, while the rest of us were enjoying the splendor of waves crashing on the shore (albeit in windbreakers and parkas), he was trying desperately to dip his trophy without going for a dip of his own. Ultimately, he was unsuccessful, because he simply wasn’t willing to get his beloved Converse high-tops wet, nor was he prepared to doff those shoes and roll up his pants (he managed to convince his sister to do that – but her trepidations about handling the trophy nearly allowed the sea to reclaim its own).

We all make trade-offs, of course. And while yours are no doubt of more import than the decision to rinse out a lobster shell (let’s hope), those decisions have an impact that frequently transcends the significance we afford them at the time. We all know that, for participants, that decision to save for retirement – or to buy that new car…the decision to spend – or bank – that refinanced mortgage payment differential…or the decision to get some help with retirement savings decisions – eventually…can carry with them costs well beyond the 30 seconds those decisions occupy in their consciousness in an enrollment meeting. For advisors, that decision to ride just a bit longer with a fee structure that seems destined to come under regulatory scrutiny…the decision to push for the removal of a clearly inappropriate fund on that 401(k) menu…or to let it ride just a little bit longer…could bring with them a high price in the future.

Here’s hoping we look back on the decisions we make today with tomorrow’s clarity of purpose and priority.

- Nevin Adams

Sunday, June 04, 2006

Markets Timing?

Last week Hewitt Associates published some fascinating results from their 401(k) Index – basically a composite of the activities of some 1.5 million participants for which the Lincolnshire, Illinois-based firm performs recordkeeping services. Over the years – Hewitt has been publishing the results of the index since 1997 – it has been interesting to watch the shifts in contribution allocations, as well as how – and how often – participants reallocate their existing balances.

For the past four months, that index has noted a distinct shift to international and emerging market offerings by participants who made transfers (admittedly a small number of the total – see Xfers Continue To Have International Flavor). However, last week’s report noted that, in plans that offer emerging market equity funds (only about one in ten plans in Hewitt’s database do), among participants with any balances in emerging market equity funds, the average allocation is 16.4%.

Now, it seems to me that that’s a significant number for these programs – but one might look at the robust gains these funds have enjoyed in recent months and attribute much of that surge to the machinations of the marketplace. However, Hewitt went on to note that lower tenure participants, in particular, have heavy allocations to such funds, drawn to their “recent strong performance history, no doubt, in the course of making their initial fund selections.” How much? In fact, participants with less than one year of tenure that had balances in emerging market equity funds at the end of 2005 had an average emerging market equity fund allocation of 20.3% - and total international (developed and emerging markets) fund allocations amounted to nearly 40% of equity balances for this group. Indeed, nearly one in ten (8.9%) had half or more of their balances in emerging market equity funds.

What does all that mean? Well, as Hewitt notes, for newer participants the trend might suggest that “a material number” of these participants were not pursuing diversification, but were chasing returns. Longer tenured participants? Well, Hewitt noted that it could well be due to the strong growth in those funds – and the failure of participants to rebalance (participants with more than 30 years of tenure had 13.7% of their balances in emerging markets funds). In sum, it might suggest both that participants were paying too much attention to short-term results at the point of signing up, and that participants weren’t paying enough attention to the same trends once they actually got into the plan.

Perhaps. But maybe, just maybe, participants are actually paying attention to the right things – and trying to take advantage of a good investment. What do YOU think?

- Nevin Adams

Are participants really “getting it?” Check out