Morningstar Advisor - August/September 2011 - (Page 27)

asset-market environments to those who agree with Gross. Referencing a news report that tallied U.S. national debt at $62 trillion, a figure to which he added $38 trillion in unfunded Medicaid costs, Gross said, “Unless something is done, there’s no doubt that inflation and inflating is the legitimate solution to the $100 trillion problem.” And such a problem will inevitably have to be dealt with, meaning interest rates can’t go much lower, Gross said. He observed that stocks’ surge has coincided with the interest-rate plunge, meaning investments in equities have come at the expense of those in fixed-income securities in recent years. “It has to be recognized by policymakers that in order to reinvigorate the economy, you need more than lower interest rates,” he said. Bill Gross, CEO, PIMCO Berkowitz Takes a Stand Bruce Berkowitz, founder of Fairholme Capital Management, mastermind of Fairholme Fund’s FAIRX wildly successful run from 2000–09, and outspoken advocate of distinguishing fund performance through heavy concentration, took the stage in part to explain just what has gone so wrong. After winning Morningstar’s Domestic-Stock Manager of the Year award three times in the previous decade, Berkowitz has led Fairholme Fund to a dismal 2011. The collapse is mostly a result of the fund’s allocation to financial-services companies. While acknowledging that his move back to financials was premature, Berkowitz said anyone writing Fairholme off is naive. Fink Advises Advisors move toward a “fiduciary standard” as opposed to a “suitability standard.” One of the most important improvements that the fiduciary standard could bring to the industry is that it would force intermediaries to think from their clients’ perspectives. Fink said that he didn’t believe that extensive regulatory pressure would be needed to drive the industry’s shift toward adopting the fiduciary standard. In fact, he said that he sees it heading in the right direction on its own, albeit gradually. Fink also offered some advice to advisors based on his success with the BlackRock franchise. Fink stressed the importance of “client connectivity.” It’s important that every client feels important, regardless of their size or location, he said. Fink noted that BlackRock emphasizes establishing a local presence in every international market it enters. He said that the goal is to make sure that a client in Korea or Brazil feels equal to a large U.S. client. The Age of Reason ignored topic of cognitive decline among the elderly, which can have enormous consequences in their financial decision-making abilities. Age is a greater hindrance to economic rationality than is being low-income or having a low education level. Laibson noted a startling but compelling statistic—the likelihood of developing dementia doubles with every five years of age after age 60. Laibson also provided some “nudges” to get investors on board with planning: r Make estate planning the default for every 65-year-old. r Establish regular checkups with clients. r At the end of each checkup, schedule an “appointment” for the next checkup. r Encourage family involvement. r For advisors, take action on the spot and work through decisions immediately. If You Missed It In his presentation, BlackRock chairman and CEO Larry Fink touched on a variety of topics, including short-term thinking in the investment world, alternatives investing, and the role of the government in the market recovery. A major theme of Fink’s conversation was the shift in the financial-services industry to Closing the conference was David Laibson, Harvard’s Robert I. Goldman Professor of Economics. As an authority in the realm of behavioral finance, he addressed the hugely Audio recordings of these sessions and more are available at http://advisor.morningstar.com/ products/conference/micdownloads.asp Next year’s conference will be from June 20–22 at McCormick Place in Chicago. MorningstarAdvisor.com 27 http://advisor.morningstar.com/products/conference/micdownloads.asp http://advisor.morningstar.com/products/conference/micdownloads.asp http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2011

Morningstar Advisor - August/September 2011
Contents
Contributors
Letter From the Editor
Simplicity and Design Matter
Do You Use ETFs Strategically or Tactically?
The Institutional Way
How to Analyze an ETF
Eyeing ETFs’ Next Chapter
Small-Cap/Large-Cap Flip-Flop?
Four Picks for the Present
Investment Briefs
Morningstar Investment Conference
Pitfalls of Peer Groups
A REIT Recovery, With a Catch
Turning Fund Distribution on Its Head
Here Come ETF Managed Portfolios
Circle These Picks Amid the Crop of New ETFs
ETF Analyst Favorites
Beware, the Accidental Portfolio Manager
It’s the Destination, Not the Vehicle
New Growth, Rooted in Experience
Better Ways to Look at ETFs
How to Better Manage Your Clients’ Future(s)
More Bargain Than Bubble
Cheap, Local, and On a Roll
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
First-Quarter Assets Hit an All-Time High
You Say You Want a Revolution?

Morningstar Advisor - August/September 2011