Wealth Preservation Paradox - Reducing Returns To Limit Risk: Financial Advisors' Daily Digest

by: SA Gil Weinreich


Do the best fiduciary advisors need to reduce your returns in order to preserve your wealth?

Read and memorize: Ian Bezek on the paradoxical possibility that “risk-free” assets (Treasuries) may become the source of the next crisis.

The Heisenberg warns about the portentous changeover in money market funds looming in October.

I have a question for you - and it's all the more pertinent given last week's lopsided discussion about the value of advisors, which tended to see advisors as subtracting value. (In other words, a predominantly DIY crowd was far more interested in maximizing returns without the professional "help" in last week's comments).

Prompting the question is a fantastic article by financial advisor Michael Lonier, who explains how the Department of Labor's vaunted new fiduciary rules will force a shift among advisors who previously performed more of a salesperson's role to become a true financial planner. He writes:

"A financial plan looks at all the risks that impact the household, the various strategies to mitigate those risks, and other opportunities for enhancing and protecting the client's retirement goals. These include longevity risk, liquidity risk (having enough ready cash), portfolio risk, inflation/deflation risk, regulatory risk, healthcare and long-term-care expense risk, life shocks, estate planning and legacy goals, tax optimization, current and future earnings, and Social Security and pension benefits planning and co-ordination."

He has a lot more to say and you should read the whole article by clicking here. But here's my question: Is it fair to say that the implication of Michael's article is that the best retirement fiduciaries use asset allocation strategies which deliberately reduce returns?

If so, does that confirm DIY readers' views that advisors are the enemy, or does it perhaps give them pause that maybe the name of the game is wealth preservation, and therefore calculated limitations on portfolio risk are really the surest way to come out ahead in the end?

Please post your thoughts in the comments section, and let the debate begin.

Meanwhile, here is an embarrassment of riches of advisor-related links on today's SA: