Talking with Anthony Isola about the court ruling that went against the Department of Labor’s Fiduciary Rule last week. To me, it looks like a self-inflicted gunshot wound for the brokerage industry – albeit one that they were out celebrating in the press. Maybe for RIA firms, it’s a gift. Tony manages to remain somewhat calm here… ...
I’m very excited to make the first announcement about our June conference in California. The EBI West event is doing a bit of a pivot in terms of content thanks to overwhelming input from the institutions and advisors who’ve asked for more practice management and organizational content. We’re going to be packed with investment insights and portfolio construction sessions, as usual – with an added ...
When a worker is receiving retirement benefits and/or members of his family are also receiving benefits based upon the retirement benefits, such as via spousal benefits, benefits for children, or other family members benefits, there is a maximum amount of benefit that can be distributed in total. (There is a separate maximum benefit computation for disability benefits, which we’ll cover in another article.)
How the Family Maximum Benefit is Computed
When computing the Family Maximum Benefit (FMB), the Social Security Administration falls back to its old habits of using a very convoluted formula, similar to the formula for computing the Primary Insurance Amount (PIA). The formula starts with the PIA of the worker whose record is being used to provide these benefits. The PIA is then broken into four separate portions based upon Bend Points (these are not the same Bend Points as those used in determining the retirement benefit or PIA itself).
The Bend Points for FMB are based upon when they were first calculated in 1979. At that time, the Average Wage Index (AWI) was $9,779.44 for 1977 (remember, the AWI is always two years behind) – and for 2016 the AWI is $48,642.15. Dividing the 2016 AWI by the 1977 AWI gives us a factor of 4.9739 to compute the Bend Points for 2018.
The original Bend Points were: $230, $332, and $433. Multiplying these Bend Points by our factor of 4.9739 gives us Bend Points of $1,144, $1,651, and $2,154. These are rounded to the nearest dollar.
Computation for the Current Year
So here’s how we use those bend points to determine the FMB, for a worker who becomes age 62 or dies in 2018 before attaining age 62:
1) 150% of the first $1,144 of the PIA, plus
The total of the four amounts is then rounded to the next lower multiple of $.10 if it’s not already a multiple of $.10.
Here’s an example:
A worker age 62 with a PIA of $2,200 has a FMB calculated as follows:
1) 150% times $1,144 = $1,716
Adding these together ($1,716 + $1,379.04 + $674.02 + $80.50) equals $3,849.56, rounded down to a FMB of $3,849.50 for this particular worker in 2018.
Photo by eyeliam
It’s always hard to tell whether or not people will follow through with these sorts of memes… This is the cover of the new Bloomberg Business magazine: And here is the accompanying story from Paul Ford. This tweet is getting a lot of attention this morning. Brian Acton is one of the founders of WhatsApp, which sold itself to Facebook a few years ago for billions of dollars. It’s safe to say he is now ou...
The last Samurai warrior walked this earth more than a century ago, but the legend lives on in everything from Darth Vaderâs armor to cowboy movies to business management styles. While the Samurai are known for their military prowess, their mystique is rooted in âbushido,â the disciplined code of conduct that demanded fierce loyalty, honor, spiritual devotion and the ability to focus deeply.
I bring this up because fund managers have a code of conduct as well. Itâs called the benchmarkâthe standard against which their investment prowess is measured. The right benchmark index should help investors understand an active managerâs skill, what he or she uniquely brings to the fundâs performance.
So, how can one know what constitutes a good benchmark? One rule of thumb is that it needs to pass what practitioners call the âSAMURAIâ test:
Specified in advance
The benchmarkâs rules have been established prior to the start of the manager evaluation period; in other words, the index is not cherry-picked or manipulated to improve relative results.
The benchmark is consistent with the managerâs investment style or area of expertise. The performance of a U.S. large-cap fund should be measured against a U.S. large cap index, not a global large-cap or U.S. small-cap one.
The benchmarkâs return is readily calculable on a reasonably frequent basis, meaning that the indexâs individual constituents can be priced. This is key for exposures to smaller, harder-to-trade markets like frontier markets or certain types of bonds.
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The benchmarkâs rules and constituent securities should be transparent and clearly defined.
Reflecting a managerâs full investable opportunity set
In order to understand how much skill a manager brings to a fundâs performance, the benchmark needs to include its whole potential investment universe. As Iâve written about elsewhere, this is why the Bloomberg Barclays Aggregate Index is a particularly poor fit for most intermediate-term bond funds.
The manager views the benchmark as a world of acceptable investments and can explain deviations from it.
It is possible for the manager to seek to replicate the benchmarkâs returns. (That would disqualify Bhutanâs Gross National Happiness Index, for example.)
If these attributes sound familiar, itâs because the SAMURAI can be applied to indexed products such as exchange-traded funds (ETFs). A well-constructed ETF rests on a well-constructed, rules-based benchmark, one that generates performance thatâs measurable, specific and transparent. And as with an actively managed fund, it also relies on a manager with the expertise and resources to track index performance efficiently and consistently for investors.
In other words, an index fund not only needs to deliver what it says on the label, it needs the best label to get the job done. Thatâs good manager conductâthe investment warrior way.
I’m late to this but oh. my. god. Disney’s going to have another blockbuster on its hands when this hits in the last weekend of April. The crossover is years in the making. Billions in box office hits all converging into one film. Pretty exciting time to have young kids who still let me take them to the movies! ...
The New York Times: One central tension at Facebook has been that of the legal and policy teams versus the security team. The security team generally pushed for more disclosure about how nation states had misused the site, but the legal and policy teams have prioritized business imperatives, said the people briefed on the matter. “The people whose job is to protect the user always are fighting an uphill battle against ...
Using rules, or evidence to construct a portfolio is not new, novel or something that’s been developed in just the last few years. Systematic investing has been around for almost as long as investing has been around. It goes in and out of favor like all investment ideas do – in a cyclical manner based on whatever perceived success (or lack thereof) it’s been able to demonstrate in the very recent past. S...
I was listening to this with tears in my eyes and it will happen to you too… On the 63rd episode of my friend Michael Kitces’s podcast series, he interviews Kevin Kroskey, an Ohio-based financial advisor who somehow overcame a felony conviction for selling ecstasy 20 years ago and managed to build a $125 million financial planning practice with one of the ugliest items ever to appear on a financial professiona...
Emerging market (EM) equities are still looking good, trade risks or not. A healthy global economy offers support while structural reforms are putting domestic growth on a self-sustaining path in key countries. Case in point: India. A brightening economy is boosting earnings expectations and, we believe, offers a cushion against potential trade-related shocks.
The progress India has made in cutting back costly government subsidies on items such as fuel is a prime example of the advances being made in structural reforms under Prime Minister Narendra Modi. Subsidies as a percentage of gross domestic product (GDP) have declined in recent years, as shown in the chart below.
The government has also taken steps to plug leaks in the system by paying out subsidies directly, via bank accounts, rather than through agents or intermediaries. Measures aimed at increasing financial penetration and bringing swathes of the informal economy into the formal economy are supportive of long-term growth, in our view.
EM reform is not a new theme. But reform momentum has picked up significantly in a few major countries, such as China and India, fostering a more sustainable growth path. EM equities are coming off a stellar 2017, but we see room for more gains as investors flock back after years of EM under-allocation. India â among our favored picks within EM â is a good example of what is on offer.
Read more market insights in my Weekly commentary.
The Indian government is tackling chronic low productivity, bad loans in the banking system and the bureaucratic barriers hampering the private sector. Social challenges exist â primarily job creation over the coming decades and lifting the rural economy out of its funk. There are no easy fixes, but we see signs of progress after a series of fits and starts. A national tax system for goods and services has replaced an inefficient structure of myriad rates and payments, offering the potential to boost productivity. Financial sector reform is particularly encouraging. A government-led capital injection into banks has helped to repair balance sheets. The clean-up of non-performing loans and banking sector recapitalization are clearing the path for private sector investments and a long-awaited capex recovery. Corporate earnings in India are looking up again, with analysts expecting 2018 earnings growth in the area of 21%.
The IMF sees India as the fastest-growing major economy in the world this year and next. We do not see a significant change in power in next yearâs general election, but fiscal restraint could weaken heading into an election year. Indiaâs large rural economy â stuck in a rut for years â appears to be the area of focus. Drawing workers away from low-skilled agricultural employment is critical for long-term success.
We find India is less correlated to the global cycle than most EM peers and its domestic resilience underpins our confidence. The equity market is not cheap at 17.5 times forward earnings. But it remains one of our preferred markets in the emerging world due to its strong growth outlook and relatively low dependence on global trade.