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Staying a step ahead of Wall St.

Updated: May 3, 2013 12:14PM

How do financial planners and advisers keep up with the latest trends, and come up with the most productive and cost-effective strategies for their clients?

One of the best ways is to attend the annual Morningstar Investment Conference in Chicago, where nearly 1,500 professionals gathered last week for three days of seminars and roundtables.

High-level shop talkThe Morningstar event is a very high-level series of strategic discussions. There's very little, if any, talk about "where the market is going." Instead these pros focus on the latest in investment theory and products. One consensus: Today's employees need more professional guidance, self-discipline and pre-packaged products if they are going to build a secure financial future.

Morningstar itself leads the way. The Chicago-based company has grown to more than 1,600 employees, and $300 million in revenue. Morningstar experts manage more than $65 billion as they advise on fund solutions for company retirement plans and work with financial advisers through Morningstar Managed Portfolios, a fee-based asset-management service. .

The high-end seminars are designed for professionals. You hear a lot of Greek jargon: If everyone can achieve "beta" (the index benchmark market results) then how do you achieve "alpha" ("excess return" over the indexes)? And, what would you pay for those higher returns? The pros seem to share a concern that amateur investors risk being swept into expensive, illiquid and very risky investments.

Legendary mutual fund manager Jean-Marie Eveillard of First Eagle Funds, (formerly Societe Generale) led the derision of hedge funds, and quoted a saying that's making the rounds of Wall Street lately: "Hedge funds are not an investment. They're a compensation scheme!" He's referring to the huge cut of fund profits that hedge fund managers take.

Eveillard, a value-fund manager, reminded the audience that leverage "cuts both ways." While it can accentuate gains when the fund manager is on the right track, it can also result in larger losses. And, he noted, having short positions (a bet that the price of stocks will fall) forces the investor to think in the short-term, and destroys the "staying power" that a long-term value investor needs.

Lew Sanders of AllianceBernstein, a $750 billion money manager, noted that the leverage that has been created in the riskier slices of mortgage-backed securities have the potential to destabilize the capital markets -- even for those advisers and clients who are not directly invested in these securities.

Sanders' reminder to investment advisers: "We must educate clients to avoid the tendency to be trend followers," a tendency that "always gets them into trouble."

Sanders agreed with his co-panelists that "pre-packaged asset allocation" services were necessary to keep individuals from "selling high and buying low."

Bob Doll of BlackRock investment advisers, a $1 trillion dollar global asset management firm created by merging the investment advisory division of Merrill Lynch with the publicly traded BlackRock, focused on the need to create "solutions" for today's investors -- not just "products." Many clients need solutions that give both growth and income through their retirement years, not just performance against a benchmark index.

Investors face new challengeFor a generation of investors now tasked with planning their own retirement security, these discussions by leaders of the money management industry are not just academic. They're a recognition that today's investors have a huge challenge, more than just picking winning stocks.

Our parents received secure monthly pension checks, drawn on funds that were managed by informed and disciplined professionals. If today's workers want to build that same kind of retirement security, it has become clear that we'll need more professional advice and hand-holding -- at a reasonable cost. That's what the industry is gearing up to give us. And that's The Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.

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