2011 Advisor Hall of Fame; Experts Assess 2012: December Research—Slideshow

A Rational Look at a Much Maligned Product

In the Annuity Analytics column, Bob Seawright takes up a defense of fixed index annuities, a type of product that has received a heavy dose of criticism. Money magazine, for instance, referred to FIAs as a "safety trap" and alleged they have "pervasive problems." Forbes has called FIA sales "a protection racket," aimed at selling a "lousy investment."

A study published in The Journal of Financial Planning, Seawright notes, is the first to attempt a real-world analysis of FIA returns, rather than one based on hypothetical scenarios. The results suggest that the products have considerable merit, when viewed in context, and that the complaints about them are considerably overblown.

"Fixed income annuities are designed to provide principal protection with annual returns roughly 1-2 percent better than traditional fixed annuities," writes Seawright. "Based upon those standards, FIAs appear to have succeeded."

Dividend Trouble

Global Economy columnist Alexei Bayer contends that recent big dividend payouts do not constitute good news for future stock prices. Rather, the dividends reflect decisions by corporate managers to avoid hiring and investing in the current troubled economic environment.

"Share prices may be supported by higher dividends for a while," writes Bayer, "but if higher dividends do not reflect a plausible steady increase in future profitability, their effect will be only temporary."

Complicating matters further, the traditional distinction between "mature" industries that provide high dividends, and riskier entrepreneurial sectors that do not, has blurred, Bayer observes. For instance, automotive parts supplier Johnson Controls, which has paid a regular dividend for over a century, is now enmeshed in competition with a variety of green-tech start-ups.

Meanwhile, U.S. government bond yields have declined, despite the federal government's growing debt burden. Bayer assesses: "The gap between low bond yields and higher stock dividends can only mean one thing: that investors have no expectations of an economic recovery that would reduce the safe-haven premium of U.S. Treasuries or raise the specter of higher inflation."

Prospecting Strategy

Why are wirehouses losing market share? The answer is that independents and registered investment advisors, as a general rule, have taken a more aggressive and thorough approach to prospecting new business, according to Sales Seminar columnist Bill Good.

Indeed, notes Good, wirehouses tend to have minimum account requirements that hinder the search for new business. "Advisors cannot take 'starter accounts,' and smaller accounts are sent to the hated call centers in New Jersey," he writes.

Contemplating the strain wirehouse advisors are now under, Good offers a strategic approach to prospecting. One element of this strategy: having a person on the team whose primary responsibility is new business development. "Get that team member," he advises. "Or if you are under 40, become that team member."

Another tip: maintain a prospects file with rigid quality control, one that gets cleaned up frequently. The key to a person staying in the file, Good asserts: "You have to want to do business with them."

What's Your Name?

Closing Bell columnist Bill Miller looks at the vexed question of what to name your business. Employing his crack research technique, the whimsical columnist tosses back cocktails with some people who work in marketing departments at broker-dealers.

Helpfully, he points out that it's best not to include your last name if that happens to be Ahmadinejad, Madoff or Lucifer, to name a few. He also suggests avoiding any indication that you are an architect or physician if you are not an architect or physician.

Another tip: "Leave your childhood fantasies out of it. Just because you always wanted to be a cowboy, isn't a good enough reason to call your company Rodeo Clown Financial."

View the complete table of contents for the December issue of Research.