From the Editor
Michelson, Stuart, Financial Services Review
This issue contains Issue 2 of Volume 2 1 of Financial Services Review (FSR). I would like to thank the board and members of the Academy of Financial Services for their continued support. I continue to work in broadening the scope of articles, while still focusing on individual financial management and personal financial planning. I encourage authors to reach out when discussing implications of their findings in a more comprehensive way. As such, all articles in the Journal will more appropriately relate to financial planning issues.
The lead article "Compensation and Client Wealth Among U.S. Investment Advisors," is coauthored by Lukas R. Dean William at Paterson University and Michael S. Finke at Texas Tech University. The authors use disclosure data from 7,043 Registered Investment Advisors (RIAs) to examine differences in client wealth by type of compensation. Their results show that firms charging commissions and hourly fees appear to have a higher proportion of low net worth clients. Wealthier clients are more likely to be charged performance-based fees and fees based on assets under management. RIA firms that charge commissions are more likely to provide financial planning services in addition to investment advice. The author's results suggest that policy restricting compensation may impact the provision of advising services to average investors.
The second article, "Virtual Financial Planners: Product, Market, and Challenges," is coauthored by Emery A. Trahan at Northeastern University, Lawrence J. Gitman at San Diego State University, and Michael D. Trevino with GT Finance, LLC. Due to today's complex financial and economic environment and individuals increasing need for personal financial services, the authors provide an analysis of on-line financial planning industry trends. Their results suggest that there is a potential market for virtual financial planning tools, although acceptance of these tools will depend on pricing, provider reputation, and features.
The third article, "Defining and Measuring Risk Capacity," is by Shawn Brayman, President, PlanPlus Inc. New generation models of assessing a client's profile for investment purposes differentiates among factors like the client's tolerance for risk, the client's required risk, and risk capacity. This article introduces a proposed mechanism and new metric to measure the "risk capacity" inherent in the client's ability to adjust lifestyle or goals, the portfolio construction and the use of guarantee products. He develops a model using Monte Carlo randomization and mortality randomization that allows isolation of sub-factors of risk capacity. This article also looks at two additional factors; the number of periods with a shortage and the depth of the gap based on the percentage of the target that is achieved. …